LUZ V. FALLARME, PETITIONER, VS. ROMEO PAGEDPED, RESPONDENT.

Fallarme versus Pagedped

The Case

This is a petition for review on certiorari brought by Luz Fallarme against Romeo Pagedped, arising from a complaint for redemption and consignation over one half of a parcel of land in Baguio City. Fallarme had acquired that half portion at an execution sale as a judgment creditor of the registered owners, the spouses Avila, while Pagedped held a prior real estate mortgage over the whole lot and later bought the property at his own foreclosure sale. The case matters because it fixes the standing of a subordinate lien holder who was never impleaded in the foreclosure suit: what survives is an unforeclosed equity of redemption, and the first mortgagee must bring a separate foreclosure proceeding to compel redemption within ninety days.

Procedural History

Fallarme filed a complaint for redemption and consignation before the Regional Trial Court of Baguio City, Branch 7. The trial court ruled in her favor, declaring her entitled to redeem one half of the property and fixing the redemption price, with Pagedped given thirty days from notice to claim the consigned amount and to surrender the owner's duplicate certificate for the issuance of a new title in the names of Fallarme and Pagedped as co-owners.

Pagedped appealed to the Court of Appeals, which granted the appeal, reversed and set aside the trial court's decision, and dismissed the case. The appellate court held that Fallarme had failed to seasonably invoke her equity of redemption and was precluded by estoppel. Fallarme moved for reconsideration, which was denied. She then elevated the matter to the Supreme Court by petition for review on certiorari.

A related track must be kept in mind. Pagedped had earlier filed a petition for the cancellation of the annotations on his title before the Regional Trial Court of Baguio City, Branch 6, where Fallarme was joined as a respondent. That court granted the cancellation. On appeal, the Court of Appeals reversed and dismissed the petition for cancellation, holding that Fallarme's equity of redemption remained unforeclosed. That ruling became final and executory, and Pagedped never questioned it.

Facts

The subject is a parcel of land in Baguio City covered by a transfer certificate of title in the names of the spouses Rudy and Nena Avila. In May 1999 the Avilas obtained a loan of 200,000 pesos from Pagedped, secured by a real estate mortgage over the property. The owner's duplicate certificate was delivered to Pagedped, and the mortgage was annotated on the title in June 1999.

The Avilas failed to pay despite demands, so Pagedped judicially foreclosed the mortgage. The property was sold at public auction in October 2005, with Pagedped as the highest bidder. The sheriff's certificate of sale was registered and annotated in November 2005. After one year, Pagedped consolidated his ownership and a new title was issued in his name in November 2006, carrying over all prior annotations.

Meanwhile, Fallarme had sued the Avilas in a separate case. A notice of attachment and later a notice of levy upon realty covering one half of the property were annotated on the title in 2003 and 2005. Fallarme caused that half portion to be sold at public auction in July 2005, where she was the highest bidder for 528,000 pesos, and her sheriff's certificate of sale was annotated in June 2006. She was never impleaded in Pagedped's foreclosure suit. When she later offered to redeem the half portion, Pagedped refused, prompting her complaint for redemption and consignation.

Issues

• Whether or not Fallarme failed to invoke her equity of redemption seasonably and is precluded from doing so because she withdrew her opposition to Pagedped's petition for the cancellation of her notices of levy and attachment.
• Whether or not Fallarme is estopped from invoking her equity of redemption despite the absence of any legal and factual basis, and despite the fact that estoppel was not raised by Pagedped before the trial court and even on appeal.

Applicable Provisions

Section 1 of Rule 68 of the Rules of Court provides:

Section 1. Complaint in action for foreclosure. — In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the action.

This provision identifies the subordinate lien holders who must be joined as defendants, and its breach is what left Fallarme's equity of redemption unforeclosed.

Section 2 of Rule 68 provides:

If upon the trial the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and costs, and shall render judgment to be paid into court within a period of not less than ninety days from the date of the service of such order, and that in default of such payment the property be sold to realize the mortgage debt and costs.

This fixes the ninety-day period within which the equity of redemption must be exercised, which the Court applies by analogy to the subordinate lien holder.

Ruling

On the first issue, the Court held that Fallarme did not withdraw her opposition. The trial court's decision did not categorically state that it was Fallarme who moved for the withdrawal; the withdrawal was made by other oppositors who had bought from her. In any event, Pagedped never filed a separate foreclosure proceeding to require Fallarme, as subsequent lien holder, to redeem. What he filed was merely a petition for the cancellation of annotations. The Court recalled that the earlier appellate ruling, already final and executory, had dismissed that petition and held her equity of redemption unforeclosed, and Pagedped is bound to abide by it.

On the second issue, the Court held that estoppel did not lie. Redemption is a statutory privilege, exercisable only by the persons named in the statute, and must comply with the rules set by law and jurisprudence. The Court stressed that the failure to join a subordinate lien holder does not nullify the foreclosure but keeps alive the equity of redemption, which must be exercised within ninety days from the date the decision becomes final, under penalty of losing the prerogative to redeem.

Doctrine

First, the requirement of joining all persons claiming an interest subordinate to the mortgage is not mandatory but merely directory, so failure to comply does not invalidate the foreclosure proceedings. Second, the effect of that failure is that the decree of foreclosure does not deprive the subordinate lien holder of the right of redemption; the equity of redemption in favor of the lien holder remains unforeclosed and unaffected. Third, a separate foreclosure proceeding must be brought to require the junior lien holder to redeem from the first mortgagee or from the party acquiring title at the foreclosure sale, within ninety days, under penalty of losing that prerogative. Fourth, redemption is a bare statutory privilege, not a natural or proprietary right, and must be exercised strictly in accordance with the law.

Disposition

The petition was granted; the Court of Appeals decision and resolution were reversed and set aside, and the decision of the Regional Trial Court of Baguio City, Branch 7, in the redemption case was reinstated.

Remember This

Memorize this line: a subordinate lien holder not impleaded in the foreclosure retains an unforeclosed equity of redemption, and a separate foreclosure proceeding must be brought to require redemption within ninety days. Examiners use this case to test the consequences of failing to implead junior lien holders under Rule 68 and the statutory, time-bound nature of the right of redemption.