In Union Bank of the Philippines v. Court of Appeals, the Supreme Court clarified that a mortgagor who fails to assert their right to redeem a foreclosed property within the statutory period, and instead contests the validity of the mortgage itself, loses the right to redeem. The Court emphasized that redemption rights must be actively exercised within the prescribed timeframe, and a challenge to the mortgage’s validity does not suspend this period. This ruling underscores the importance of timely action in protecting one’s interests in foreclosure proceedings.

Mortgage Showdown: Can a Borrower Deny and Still Redeem?

This case stemmed from a real estate mortgage executed by spouses Gonzalo and Trinidad Vincoy in favor of Union Bank of the Philippines to secure a loan. When Delco Industries (Phils.), Incorporated, failed to pay the loan, the bank foreclosed on the property. Prior to the expiration of the redemption period, the Vincoy spouses filed a complaint seeking to annul the mortgage, arguing it was constituted as a family home without the consent of all beneficiaries, as required under Article 158 of the Family Code. Union Bank countered that the property’s value exceeded the statutory limit for a family home under Article 157 of the Family Code, rendering the family home constitution void.

The lower court sided with the bank, declaring the mortgage valid. The Court of Appeals affirmed the validity of the mortgage but modified the redemption price. Union Bank then appealed to the Supreme Court, questioning whether the Court of Appeals erred in allowing redemption when the borrowers had consistently argued for the mortgage’s nullity and failed to redeem within the prescribed period. The central issue before the Supreme Court was whether the borrowers, having failed to exercise their right of redemption within the statutory period while simultaneously contesting the mortgage’s validity, could still redeem the property.

The Supreme Court granted the motion for reconsideration, reversing its initial resolution. The Court emphasized that the respondents never actually asked the lower court to allow them to redeem the foreclosed property. Rather, they held firmly to their belief that the mortgage itself was invalid, as it had been executed over a duly constituted family home without the required consent. The Supreme Court highlighted that raising the issue of redemption for the first time on appeal was impermissible, as appellate courts are limited to reviewing errors committed by the lower court. Allowing the respondents to redeem at this stage would be offensive to fair play and due process. This legal principle ensures that parties do not introduce new issues or theories late in the litigation process.

Moreover, the Court pointed out that the respondents’ right to redeem had already expired. Section 78 of the General Banking Act grants a mortgagor one year from the date of sale registration to redeem the property. In this case, the registration occurred on May 8, 1991, giving the respondents until May 8, 1992, to redeem. Since they failed to do so, their right was extinguished. During that period, their sole focus was contesting the mortgage’s validity, not exercising their right of redemption. Granting them redemption now would allow them to benefit from inconsistent legal positions.

The Court also addressed the argument that the action for annulment of the mortgage tolled the redemption period. Citing Sumerariz v. Development Bank of the Philippines, the Supreme Court clarified that filing an action to annul a foreclosure sale does not suspend the redemption period. The Court explained that unlike Section 30 of Rule 39 of the Rules of Court, which permits the extension of the redemption period, Section 3 of Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the redemption of property mortgaged to the Bank does no contain a similar provision. Further, in Vaca v. Court of Appeals, the Court affirmed that the pendency of an action questioning a mortgage’s validity does not bar the issuance of a writ of possession after title consolidation. To hold otherwise would create a dangerous precedent, encouraging frivolous lawsuits aimed at extending the redemption period.

Concerning the applicable legal provision for calculating the redemption price, the Supreme Court affirmed that Section 78 of the General Banking Act governs. This provision stipulates that the redemption price is the amount due under the mortgage deed, including interest and expenses. This contrasts with Section 30, Rule 39 of the Rules of Court, which applies to ordinary execution sales. The Court cited Ponce de Leon v. Rehabilitation Finance Corporation, stating that Section 78 of the General Banking Act effectively amended Section 6 of Act No. 3135 insofar as redemption price calculation when the mortgagee is a bank. Also, in Sy v. Court of Appeals the Court held that the amount at which the foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General Banking Act. Therefore, the Court of Appeals erred in applying Section 30, Rule 39 of the Rules of Court.

The implication of this decision is significant. It reinforces the importance of adhering to procedural rules and statutory deadlines in foreclosure cases. Borrowers must understand that simply challenging the validity of a mortgage does not automatically preserve their right to redeem the property. They must actively exercise that right within the prescribed period by tendering the redemption price or taking other concrete steps to manifest their intent to redeem.

The court’s decision rested on established legal principles such as adherence to fair play, justice, and due process. The Supreme Court made it clear that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.^[21] Further, the ruling protects banks and other lending institutions from facing uncertainty and delay in realizing their security interests. Borrowers must diligently pursue their legal remedies and comply with statutory requirements to preserve their rights. By enforcing these principles, the Supreme Court maintains the integrity of the foreclosure process and promotes predictability in real estate transactions.

The Supreme Court firmly stated in this case:

Pursuant to Section 78 of the General Banking Act, a mortgagor whose real property has been sold at a public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, shall have the right, within one year after the sale of the real estate to redeem the property.  The one-year period is actually to be reckoned from the date of the registration of the sale.^[22] Clearly therefore, respondents had only until May 8, 1992 to redeem the subject foreclosed property.  Their failure to exercise that right of redemption by paying the redemption price within the period prescribed by law effectively divested them of said right. It bears reiterating that during the one year redemption period, respondents never attempted to redeem the subject property but instead persisted in their theory that the mortgage is null and void.  To allow them now to redeem the same property would, as petitioner aptly puts it, be letting them have their cake and eat it too.

This statement emphasizes that borrowers cannot simultaneously deny the validity of a mortgage and expect to retain their redemption rights.

In essence, the Supreme Court’s decision underscores that the right to redeem is not an indefinite privilege but a time-bound opportunity that must be diligently pursued. Failure to do so can have irreversible consequences for borrowers facing foreclosure.

FAQs

What was the key issue in this case?	The key issue was whether a mortgagor who failed to redeem a foreclosed property within the statutory period, while contesting the validity of the mortgage, could later claim the right to redeem. The Supreme Court ruled that they could not.
What is the redemption period under the General Banking Act?	Under Section 78 of the General Banking Act, a mortgagor has one year from the date of the registration of the foreclosure sale to redeem the property.
Does filing a lawsuit to annul the mortgage suspend the redemption period?	No, the Supreme Court has ruled that filing a lawsuit to annul the mortgage does not suspend the running of the one-year redemption period.
How is the redemption price calculated when the mortgagee is a bank?	When the mortgagee is a bank, the redemption price is calculated based on Section 78 of the General Banking Act, which includes the amount due under the mortgage deed, interest, and expenses.
What happens if the mortgagor fails to redeem within the prescribed period?	If the mortgagor fails to redeem within the prescribed period, their right of redemption is extinguished, and the mortgagee can consolidate title to the property.
Can a mortgagor argue for the nullity of the mortgage and simultaneously claim the right to redeem?	The Supreme Court ruled that a mortgagor cannot simultaneously argue for the nullity of the mortgage and claim the right to redeem, as these positions are inconsistent.
What legal provision governs the redemption of property when the mortgagee is a bank?	Section 78 of the General Banking Act governs the redemption of property when the mortgagee is a bank, superseding conflicting provisions in the Rules of Court.
What is the significance of registering the foreclosure sale?	The registration of the foreclosure sale is crucial because the one-year redemption period begins to run from the date of registration.
What should a mortgagor do if they want to redeem a foreclosed property?	A mortgagor who wants to redeem a foreclosed property should act promptly to exercise their right within the one-year period, typically by tendering the redemption price.

This case highlights the critical importance of understanding and adhering to legal deadlines and procedural rules in foreclosure proceedings. Failure to act promptly and consistently can result in the loss of valuable rights. This ruling clarifies that one cannot challenge the legality of a mortgage, while at the same time expect to be able to redeem it.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: UNION BANK OF THE PHILIPPINES VS. COURT OF APPEALS, G.R. No. 134068, June 25, 2001