ARNEL SY, PETITIONER, VS. HONORABLE COURT OF APPEALS, STATE INVESTMENT HOUSE, INC. AND THE REGISTER OF DEEDS OF RIZAL, RESPONDENTS.

For a resolution of the issues raised in the instant petition
involving the amount required to redeem the subject foreclosed property, the
Court must first determine what law to apply. 
Is it Section 30, Rule 39 of the Revised Rules of Court in relation to
Act No. 3135 as amended, or Section 78 of Rep. Act No. 337 (General Banking
Act) as amended by P.D. No. 1828?

The facts of the case are as follows:

On March 2, 1979, Carlos Coquinco
executed in favor of private respondent State Investment House, Inc. (hereinafter
referred to as SIHI) a real estate mortgage over a 952 square-meter parcel of land in San Juan, Metro-Manila,
together with all the improvements thereon, covered by TCT No. 2782 issued in
his name, as security for the payment of a loan in the amount of
P1,000,000.00.  For failure of Carlos Coquinco to pay his outstanding balance of P1,126,220.56
computed as of October 19, 1982, [Record, p. 217-E] the mortgaged property was extrajudicially foreclosed by SIHI and was sold at public
auction on February 10, 1983 for P760,000.00 to SIHI as the only bidder.  The certificate of sale in favor of SIHI was
registered with the Registry of Deeds of Pasig on February 28, 1983.

On May 22, 1983,
SIHI filed before the Regional Trial Court (RTC) of Manila
an action against Carlos Coquinco for the collection
of the sum of P612,031.84, representing the deficiency of his indebtedness as
of February 10, 1983.

In the meantime, petitioner acquired by virtue of a deed of
assignment Carlos Coquinco’s right of redemption for and
in consideration of P500,000.00.  Before
the expiration of the one-year redemption period, petitioner offered to redeem
the foreclosed property from SIHI by tendering to the latter two (2) manager’s
checks issued by SOLIDBANK, one for P760,000.00 representing the purchase
price, and another for P91,200.00 representing interest at the rate of 1% per
month for 12 months, totaling P851,200.00. 
SIHI rejected this offer.

Thus, on February 20, 1984, petitioner filed an action for
consignation of the aforesaid amount with the RTC, docketed as Civil
Case No. 84-22839, to compel SIHI to accept the P851,200.00 as payment of the
redemption price for the foreclosed property, to order SIHI to surrender the
title over the property and to issue a certificate of redemption in favor of
petitioner.

On February 27, 1984,
a day before the expiration of the redemption period, petitioner decided to
redeem the foreclosed property directly from the Ex-Officio Regional Sheriff of
Rizal, who accepted from him the amount of P851,200.00
as redemption price and P4,269.00 as percentage fee of collection, and issued
to him the corresponding certificate of redemption.

On March 30, 1984,
SIHI filed a motion to dismiss Civil Case No. 84-22839 on the ground of lack of
cause of action, alleging that the amount sought to be consigned was
insufficient for purposes of redemption pursuant to Section 78 of Rep. Act No.
337, otherwise known as the General Banking Act.

In an order dated April
24, 1984, the RTC dismissed petitioner’s action on the ground,
among others, that there being no valid tender of payment, there was no valid
consignation.  No appeal was interposed
by petitioner from this order.

After the dismissal of the aforementioned action, SIHI
consolidated its ownership over the foreclosed property, and caused the
cancellation of TCT No. 2782 and the issuance of TCT No. 44775 covering the
same property in its name.

After learning of this development, petitioner instituted another
action in the Regional Trial Court on June
11, 1984, this time a complaint for annulment and cancellation of
title, with damages, against SIHI and the Register of Deeds for the Province
of Rizal,
docketed as Civil Case No. 51169.

During the pendency of the action, SIHI
sold the subject property to spouses Domingo Lim and Lim Siu
Keng. 
Defendant Register of Deeds, thereafter, cancelled TCT No. 44775 and
issued TCT No. 46409 in the name of the spouses.

On July 7, 1986,
the court a quo dismissed petitioner’s complaint
holding that it stated no cause of action because petitioner failed to effect a
valid redemption as required under Section 78 of the General Banking Act, as
amended by P.D. No. 1828.  The court
accordingly ordered petitioner to pay SIHI the following sums of money: P10,000.00
as temperate damages; P20,000.00 as exemplary damages on the finding that
petitioner had instituted the case in violation of the res judicata rule; and P20,000.00 as attorney’s
fees [CA Decision, p. 4; Rollo, p. 32.] Petitioner’s
motion for reconsideration was subsequently denied.

Petitioner then appealed to respondent appellate court, raising as
errors: (1) the application of Section 78 of the General Banking Act, as
amended, instead of Act No. 3135, in relation to Section 30, Rule 39 of the
Revised Rules of Court; (2) the holding that the dismissal of Civil Case No.
84-22839 (consignation case) from which petitioner failed to appeal and wherein
the court made a finding that petitioner made no valid tender of payment of the
redemption price, had the effect of res judicata on the case at hand; (3) the finding
that SIHI committed no actionable wrong in conveying the subject property to
spouses Domingo Lim and Lim Siu Keng;
and, (4) the award of damages assessed against petitioner [CA Decision, p. 5; Rollo, p.
33.]

In its decision promulgated on April 28, 1988, respondent appellate court affirmed the
trial court’s judgment with the modification that the award for temperate and
exemplary damages assessed against petitioner was set aside for lack of legal
basis [CA Decision, p. 11; Rollo, p. 39.]

Not satisfied with the above decision, petitioner filed the
instant petition for review on certiorari, raising basically the same
errors he had raised in the appellate court.

The issues raised in this petition may be reduced into four, to
wit:

I.        Whether Act No.
3135, as amended, in relation to Section 30, Rule 39 of the Revised Rules of
Court, or Section 78 of Rep. Act No. 337 (General Banking Act), as amended by
P.D. No. 1828, is the applicable law in determining the redemption price;

II.       Whether or not the
dismissal of Civil Case No. 84-22839 (consignation case) had the effect of res judicata with
respect to Civil Case No. 51169;

III.      Whether or not the
Register of Deeds for the province of Rizal may be
held liable for damages for cancelling TCT No. 2782
and issuing TCT No. 44775 in favor of SIHI; and,

IV.      Whether or not the
award of attorney’s fees and expenses of litigation assessed against petitioner
is proper.

As regards the first issue, petitioner insists that the present case
is governed by Act No. 3135, as amended, in relation to Section 30, Rule 39 of
the Revised Rules of Court which provides in part:

SEC. 30.  Time
and manner of, and amounts payable
on, successive redemptions.  Notice to be given and filed. – 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 percentum 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 . . . [Underscoring supplied.]

Thus, petitioner contends that a valid redemption was made by him
as assignee of the mortgagor’s right of redemption when he tendered and paid to
the Sheriff of Rizal the amount of P851,000.00
representing the purchase price plus interest computed at the rate of 1% per
month for a period of twelve months. 
This was the same amount allegedly tendered to, and refused acceptance
by, SIHI.  In support of his contention,
petitioner invokes the case of Philippine National Bank v.
The Honorable Court of Appeals and Divina Alim [G.R.
No. 60208, December 5, 1985,
140 SCRA 360.]

On the other hand, respondent appellate court, citing the case of
Ponce de Leon v.
Rehabilitation Finance Corporation [G.R. No. L-24571,
December 18, 1970, 36 SCRA 289], applied Section 78 of the General Banking Act,
as amended by P.D. No. 1828, and consequently held that no valid redemption was
effected by petitioner because the amount tendered to SIHI and thereafter paid
to the sheriff was insufficent, it being less than
the amount due under the real estate mortgage contract of Carlos Coquinco, or the latter’s outstanding balance, with
interest as specified
in the mortgage contract plus expenses incurred by SIHI by reason of the
foreclosure and sale of the subject property.

The Court finds that respondent appellate court committed no
reversible error, having acted in accordance with the law and jurisprudence.

Section 78 of the General Banking Act, as amended by P.D. No.
1828, states that:

. . . In the event of foreclosure, whether
judicially or extrajudicially, of any mortgage on
real estate which is security for any loan granted before the passage of this
Act or under the provisions of this Act,
the mortgagor or debtor whose real property has been sold at public auction,
judicially or extrajudicially, for the full or
partial payment of an obligation to any bank, banking or credit institution,
within the purview of this Act shall have the right, within one year after the
sale of the real estate as a result of the foreclosure of the respective
mortgage, to redeem the property by paying
the amount fixed by the court in the order of execution, or the amount
due under the mortgage deed, as the case may
be, with interest thereon at the rate
specified in the mortgage and all the
costs, and judicial and other expenses
incurred by the bank or institution concerned
by reason of the execution and sale
and as a result of the custody
of said property less the income received
from the property. [Underscoring supplied.]

It must be emphasized
that the above section is applicable not only to “banks and banking
institutions”, but also to “credit institutions”.  And, as certified by the Central Bank*, SIHI is a
credit institution, i.e. financial intermediary engaged in quasi-banking
functions, within the purview of Section 78, it being an entity authorized to engage in the lending of funds
or purchasing of receivables or other obligations with funds obtained from the
public as provided in the General Banking Act under Section 2-A(a)**; and, to lend,
invest or place funds deposited with them, acquired by them or otherwise
coursed through them, either for their own account or for the account of
others under Section 2-D(c)***
[Record, p. 246.]

Moreover, petitioner by virtue of the deed of assignment of
Carlos Coquinco’s right of redemption must be deemed
subrogated to the rights and obligations of his assignor, and bound by exactly
the same conditions, relative to the redemption of the subject property that
bound the latter as debtor and mortgagor [Gorospe v.
Santos, G.R. No. L-30079, January 30,
1976, 69 SCRA 191.] Had Carlos Coquinco
attempted to redeem the subject foreclosed property, he would have had to pay
“the amount due under the mortgage deed . . . with interest thereon at the
rate specified in the mortgage and all costs . . . and other expenses incurred
. . . by reason of the execution [or foreclosure] and sale and as a result of
the custody of said property less the income received from the property . . .
” pursuant to Section 78 of the General Banking Act in order to effect a
valid redemption.  Since petitioner
merely stepped into the shoes of Carlos Coquinco, his
assignor, petitioner should have tendered and paid that same amount in order to
redeem the property.

Contrary to petitioner’s claim,   the
Court’s decision in Ponce de Leon v. Rehabilitation Finance
Corporation, supra, is applicable.  In that case, the Court had occasion to state
that the General Banking Act partakes of the nature of an amendment to Act No.
3135 insofar as
the redemption price is concerned, when the mortgagee is a bank or
banking or credit institution, Section 6 of Act No. 3135 being, in this
respect, inconsistent with Section 78 of the General Banking Act.  Although the foreclosure and sale of the
subject property was done by SIHI pursuant to Act No. 3135, as amended (whereby
entities like SIHI are authorized to extrajudicially
foreclose and sell mortaged properties only under a special
power inserted in or annexed to the real estate mortgage contract, and
interested parties, like petitioner herein, are given one year from the date of
sale within which to redeem the foreclosed properties), Section 78 of the
General Banking Act, as amended, provides the amount at which the subject
property is redeemable from SIHI, which is, in this case, the amount due under
the mortgage deed, or the outstanding obligation of Carlos Coquinco,
plus interest and expenses.

The decision in the 1985 case of Philippine National
Bank v. The Honorable Court of Appeals,
supra, invoked by petitioner is not determinative of the issues in the
instant petition because that case is applicable only to extrajudicial
foreclosures by the PNB effected pursuant to a mortgage contract entered into
prior to the enactment in 1975 of the Revised Charter of the PNB, P.D. No. 694
(which contained provisions on redemption), and deals specifically with the
amount of interest to be included in the computation of the redemption price.

Thus, inasmuch as petitioner failed to tender and pay the
required amount for thee redemption of the subject property pursuant to Section
78 of the General Banking Act, as amended, no valid redemption was effected
by him.  Consequently, there was no legal
obstacle to the consolidation of title by SIHI.

Considering that the Court has made the foregoing categorical
finding that petitioner failed to effect a valid redemption of the subject
property, it is deemed unnecessary to pass upon the merits of the second issue
presented in the instant petition.

As regards the third issue, suffice it to say that the respondent
Register of Deeds incurred no liability when he cancelled TCT No. 2782 and
issued in lieu thereof TCT No. 44775 in the name of SIHI, the former having
acted in fulfillment of his official functions and in accordance with law.

With regard to the fourth issue, petitioner contends that since
respondent appellate court had set aside the award of temperate and exemplary
damages on the finding that petitioner had acted in good faith in filing the
present action, it should have also deleted the award of attorney’s fees and
expenses of litigation assessed against him for lack of legal basis.

This contention is
meritorious.

A perusal of Article 2208 of the New Civil Code will reveal that
the award of attorney’s fees as a form of damages is the exception rather than
the general rule for it is predicated upon the existence of exceptional
circumstances, such as a “clearly unfounded civil action or
proceeding” or evident bad faith on the plaintiff’s part in instituting
his action [Tan Ti v. Alvear, 26 Phil. 566 (1914); Buan v. Camaganacan, G.R. No.
L-21569, February 28, 1966,
16 SCRA 321; Philippine National Bank v. Court of Appeals, G.R. No. L-45770, March 20, 1988, 159 SCRA 433.]

It cannot be said that the present action instituted by
petitioner was clearly unfounded. 
Although the theory upon which petitioner’s complaint was based
is untenable, he had raised legitimate issues on the application of Section 78
of the General Banking Act to credit institutions like SIHI, and the import of
the decisions in the cases of Ponce
de Leon v. Rehabilitation Finance Corporation
and Philippine National Bank v. The Honorable
Court of Appeals. 
Neither was it established that petitioner had acted in bad faith in the
filing of his action against SIHI notwithstanding the dismissal of his
complaint in Civil Case No. 84-22839 (consignation case).  The Court agrees with the holding of the
respondent appellate court that the filing of the present action by petitioner
was merely

. . . a misapprehension of a legal remedy as
would normally be taken within the ambit of permissible legal procedure.  This is a scene happening daily in our courts
where the opposing parties would avail of every conceivable rule in the statute
books to ventilate their claim or defenses. 
[Petitioner’s] persistence to pay the redemption price is an act which
the court does not consider condemnable as to make [him] liable for temperate
and exemplary damages.  We are inclined
to presume that [he] acted in good faith [CA Decision, p. 10; Rollo, P. 38.]

WHEREFORE, the decision of respondent Court of Appeals in
CA-G.R. CV No. 13387 promulgated on April
28, 1988 is hereby AFFIRMED with the modification that the award of
attorney’s fees and expenses of litigation is set aside.

SO ORDERED.

Fernan, C.J., (Chairman), Gutierrez,
Jr., and Bidin,
JJ., concur.

Feliciano, J., on leave.

* Central Bank Certification dated
December 19, 1985 issued
by Deputy Governor Carlota Valenzuela.

** SEC. 2-A (a) Entities regularly engaged in the lending
of funds or purchasing of receivables or other obligations with funds obtained
from the public through the issuance, endorsement, or acceptance of debt
instruments of any kind for their own account, or through the issuance of
certificates of assignment or similar instruments with recourse, trust
certificates, or of repurchase agreements, whether any of these means of
obtaining funds from the public is done on a regular basis or only
occasionally.

*** SEC. 2–D (c) “Financial
intermediaries” shall mean persons or entities whose principal functions
include the lending, investing or placement of funds or evidences of
indebtedness or equity deposited with them, acquired by them, or otherwise
coursed through them, either for their own account or for the account of
others.