JESUS NEPOMUCENO, ET AL., PLAINTIFFS AND APPELLEES VS. REHABILITATION FINANCE CORPORATION (NOW DEVELOPMENT BANK OF THE PHILIPPINES), DEFENDANT AND APPELLANT.

Nepomuceno versus Rehabilitation Finance Corporation

The Case

This is a civil action for reconveyance, brought by the spouses Rizalino Mendoza and Adelaida Mendoza against the Rehabilitation Finance Corporation, now the Development Bank of the Philippines. The spouses had taken an assignment of the redemption right of Jesus Nepomuceno over a parcel of land he had mortgaged to the corporation as an accommodation mortgagor, and they sought to compel the corporation to reconvey that land upon payment of the auction price alone. The case matters because it fixes the rule on how an accommodation mortgagor redeems property sold at a public auction to the Rehabilitation Finance Corporation, and it is the classic illustration of a special law prevailing over a general law on redemption.

Procedural History

The spouses commenced the action in the Court of First Instance of Quezon City and consigned the amount of 16,000 pesos with the clerk of court. After the case was submitted for decision, the trial court rendered judgment in their favor, ordering the corporation to accept the consigned amount and to execute a deed of reconveyance of the foreclosed property in their favor. The corporation appealed to the Supreme Court on purely questions of law.

Facts

On September 17, 1952, the spouses Jose Nepomuceno and Isabel Acuña, together with their children, obtained from the Rehabilitation Finance Corporation a loan of 300,000 pesos for the construction of fishing vessels and the purchase of diesel engines. As security, they executed a chattel mortgage on six fishing boats. In addition, Jesus Nepomuceno executed, by way of accommodation, a real estate mortgage on a parcel of land in Quezon City. A note at the foot of that document stated that Jesus Nepomuceno signed the mortgage contract to guarantee the loan of the mortgagor-debtors.

When the borrowers failed to comply with the terms of the mortgage, the corporation foreclosed extrajudicially under Act 3135, as amended. At the foreclosure sale the corporation acquired one fishing boat for 15,000 pesos, 105 Gray Marine engines for 10,000 pesos, and the parcel of land for 14,000 pesos. The five other fishing boats could not be located and so could not be foreclosed. As of the date of the sale, the total claim of the corporation against the borrowers was 309,013 pesos and 42 centavos.

Jesus Nepomuceno offered to redeem his foreclosed land for 50 pesos per square meter, or a total of 40,080 pesos, but the offer was rejected as inadequate. On the last day of the redemption period, he assigned his right as redemptioner to the spouses Mendoza for 4,000 pesos. On the same day, the spouses tendered 16,000 pesos, and the corporation refused, invoking Section 31 of Commonwealth Act Number 459, which it read as requiring payment of the entire obligation outstanding at the time of the sale.

Issues

• Whether or not an accommodation mortgagor, whose property was sold at public auction to the Rehabilitation Finance Corporation, may redeem by paying only the price at which the property was sold, rather than the balance of the loan obtained by the borrowers.
• Whether or not Section 31 of Commonwealth Act Number 459 applies to a mortgagor who did not himself obtain the loan, or only to a mortgagor-debtor.

Applicable Provisions

Section 6 of Act 3135 provides:

In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of section four hundred and sixty-four to four hundred and sixty-six inclusive of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

This is the general redemption rule for extrajudicial foreclosure, which the Court finds to be the general law.

Section 26 of Rule 39 of the Rules of Court provides in part:

The judgment debtor, or redemptioner, may redeem the property from the purchaser, at any time within twelve months after the sale, on paying the purchaser the amount of his purchase, with one per centum per month interest thereon in addition, up to the time of redemption, together with the amount of any assessments or taxes which the purchaser may have paid thereon after purchase, and interest on such last-named amount at the same rate.

This fixes the amount payable under the general law, namely the purchase price with interest, which is the measure the spouses invoked.

Section 31 of Commonwealth Act Number 459 provides:

The mortgagor or debtor to the Agricultural and Industrial Bank, whose real property has been sold at public auction, judicially or extra-judicially, for the full or partial payment of an obligation to said Bank, shall, within one year from the date of the auction sale, have the right to redeem the real property by paying to the Bank all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date, unless the bidder has taken material possession of the property or unless this has been delivered to him, in which case the proceeds of the property shall compensate the interest.

This is the special rule for properties mortgaged to the corporation, and it supplies the measure of redemption the Court ultimately applies.

Ruling

On the first issue, the Court held that the redemption price is not the auction price but the balance of the total indebtedness outstanding on the date of the sale. Section 26 of Rule 39, read with Section 6 of Act 3135, operates on every mortgaged property in the hands of any mortgagee, whereas Section 31 of Commonwealth Act Number 459 operates only on properties mortgaged to the Rehabilitation Finance Corporation. The former is a general law; the latter is a special law. Under the familiar rule that a special law prevails over a general law when their provisions conflict on a particular transaction, the Court concluded that Commonwealth Act Number 459 governs the redemption. It quoted the rule:

It is a familiar rule of statutory construction that to the extent of any necessary repugnancy between a general and a special law or provision, the latter will control the former, without regard to the respective dates of passage.

On the second issue, the Court held that Section 31 applies to the accommodation mortgagor as well. The terms mortgagor or debtor denote that the law contemplates a case where the one borrowing or dealing with the institution may be a debtor who mortgages his own property, or one not a debtor but who lends his property as security. The Court conceded that this interpretation may be harsh or onerous on an accommodation mortgagor, but found no other course, considering that the paramount purpose of the law is to protect the investment of the government in the institution. When the law is clear, it is not susceptible of interpretation; it must be applied regardless of who may be affected.

Doctrine

First, on redemption of property foreclosed by the Rehabilitation Finance Corporation, Section 31 of Commonwealth Act Number 459 is a special law that prevails over the general redemption rules of Act 3135 and Rule 39 of the Rules of Court. The redemptioner must pay all the amount owed the corporation on the date of the sale, with interest at the rate agreed upon in the obligation, not merely the auction price.

Second, the word mortgagor in Section 31 includes an accommodation mortgagor who lent his property as security without himself obtaining the loan. The law is applied as written, to protect the government's investment in the institution.

Disposition

The Supreme Court reversed the decision of the trial court, and gave the appellees 30 days within which to effect redemption in line with the terms of the decision, with no pronouncement as to costs.

Remember This

Memorize the line that a special law prevails over a general law to the extent of any necessary repugnancy, without regard to the dates of passage, and that the accommodation mortgagor must pay the entire outstanding obligation to redeem from the Rehabilitation Finance Corporation. Examiners use this case to test statutory construction, the hierarchy of the redemption provisions, and the liability of an accommodation mortgagor.