In White Marketing Development Corporation v. Grandwood Furniture & Woodwork, Inc., the Supreme Court addressed whether a non-bank assignee of a mortgage contract is entitled to the shorter redemption period provided to banks under the General Banking Law of 2000 (R.A. No. 8791). The Court ruled that the assignee steps into the shoes of the mortgagee bank and acquires all its rights, including the shorter redemption period. This means that even if the entity that forecloses on the property is not a bank, the shorter redemption period still applies if the mortgage originated from a bank and was subsequently assigned. This decision clarifies the scope and applicability of the shorter redemption period, emphasizing the importance of maintaining the financial stability of banks and their assignees.

From Banker to Bidder: Who Gets the Redemption Rights?

This case revolves around a loan obtained by Grandwood Furniture & Woodwork, Inc. (Grandwood) from Metropolitan Bank and Trust Company (Metrobank), secured by a real estate mortgage. Metrobank later assigned its rights to Asia Recovery Corporation (ARC), which then assigned them to Cameron Granville 3 Asset Management, Inc. (CGAM3). After Grandwood defaulted on the loan, CGAM3 initiated foreclosure proceedings. White Marketing Development Corporation (White Marketing) emerged as the highest bidder at the auction sale.

The core legal question was whether Grandwood, the original mortgagor, could redeem the foreclosed property under the longer redemption period provided in Act No. 3135 (the general law on extrajudicial foreclosure) or whether the shorter period under Section 47 of R.A. No. 8791 (the General Banking Law of 2000) applied. The resolution of this issue hinged on whether White Marketing, as the assignee of the mortgage, could avail itself of the shorter redemption period granted to banks.

The Regional Trial Court (RTC) initially ruled in favor of White Marketing, stating that the shorter redemption period under R.A. No. 8791 applied because the mortgage contract was initially between Grandwood and Metrobank, a banking institution. The Court of Appeals (CA) reversed this decision, arguing that the shorter redemption period only applied to banks and not to White Marketing, which was not a banking institution.

The Supreme Court, however, reversed the CA’s decision, emphasizing the principle of **assignment of credit**. The Court cited the case of Fort Bonifacio v. Fong, explaining:

The reason that a contracting party’s assignees, although seemingly a third party to the transaction, remain bound by the original party’s transaction under the relativity principle further lies in the concept of subrogation, which inheres in assignment.

Case law states that when a person assigns his credit to another person, the latter is deemed subrogated to the rights as well as to the obligations of the former. By virtue of the Deed of Assignment, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as those which bound the assignor. Accordingly, an assignee cannot acquire greater rights than those pertaining to the assignor. The general rule is that an assignee of a non-negotiable chose in action acquires no greater right than what was possessed by his assignor and simply stands into the shoes of the latter.

Building on this principle, the Supreme Court stated that when Metrobank assigned its rights to ARC, and subsequently to CGAM3 and finally to White Marketing, each assignee stepped into the shoes of Metrobank. Therefore, White Marketing was entitled to the same rights and benefits that Metrobank had under the mortgage contract, including the shorter redemption period.

The Court then delved into the applicability of Section 47 of R.A. No. 8791, which states:

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.

According to the Court, this provision clearly provides a shorter redemption period for juridical persons (like Grandwood) when their property is foreclosed extrajudicially. This period is either three months after the foreclosure or until the registration of the certificate of foreclosure sale, whichever comes first.

The Supreme Court also addressed the underlying rationale for the shorter redemption period, citing Goldenway Merchandising Corporation v. Equitable PCI Bank:

The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed – whether these are used as residence, for which the more liberal one-year redemption period is retained, or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets. It must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a legal framework for maintaining a safe and sound banking system. In this context, the amendment introduced by Section 47 embodied one of such safe and sound practices aimed at ensuring the solvency and liquidity of our banks. It cannot therefore be disputed that the said provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the purpose of the law.

The Court emphasized that the shorter redemption period serves as an additional security measure for banks, helping them maintain solvency and liquidity. Allowing assignees to benefit from this shorter period incentivizes them to accept assignments of credit from banks, facilitating the banks’ ability to manage their assets effectively. To deny this benefit to assignees would undermine the purpose of R.A. No. 8791 and potentially harm the banking system.

Grandwood argued that the liberal construction of redemption laws should favor the mortgagor. The Supreme Court, however, rejected this argument, citing City of Davao v. The Intestate Estate of Amado S. Dalisay:

While it is a given that redemption by property owners is looked upon with favor, it is equally true that the right to redeem properties remains to be a statutory privilege. Redemption is by force of law, and the purchaser at public auction is bound to accept it. Further, the right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally. Neither is it predicated on proprietary right, which, after the sale of the property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory privilege to be exercised only by the persons named in the statute.

In other words, a valid redemption of property must appropriately be based on the law which is the very source of this substantive right. It is, therefore, necessary that compliance with the rules set forth by Jaw and jurisprudence should be shown in order to render validity to the exercise of this right. Hence, when the Court is beckoned to rule on this validity, a hasty resort to elementary rules on construction proves inadequate. Especially so, when there are deeper underpinnings involved, not only as to the right of the owner to take back his property, but equally important, as to the right of the purchaser to acquire the property after deficient compliance with statutory requirements, including the exercise of the right within the period prescribed by law.

The Court cannot close its eyes and automatically rule in favor of the redemptioner at all times. The right acquired by the purchaser at an execution sale is inchoate and does not become absolute until after the expiration of the redemption period without the right of redemption having been exercised. “But inchoate though it be, it is, like any other right, entitled to protection and must be respected until extinguished by redemption.” Suffice it to say, the liberal application of redemption laws in favor of the property owner is not an austere solution to a controversy, where there are remarkable factors that lead to a more sound and reasonable interpretation of the law. Here, the proper focus of the CA should have been the just and fair interpretation of the law, instead of an automatic and constricted view on its liberal application.

The Court concluded that the liberal construction of redemption laws cannot be applied blindly, especially when it undermines the purpose of the law and the rights of the parties involved. In this case, the shorter redemption period under R.A. No. 8791 was intended to provide additional security to banks, and this purpose should not be defeated by extending the redemption period simply because the mortgagee’s rights were assigned to a non-bank entity.

Therefore, Grandwood’s redemption, which occurred after the registration of the certificate of sale, was deemed out of time. White Marketing, as the assignee of the mortgagee’s rights, was entitled to the benefit of the shorter redemption period under R.A. No. 8791.

FAQs

What was the key issue in this case?	The central issue was whether a non-bank assignee of a mortgage contract originating from a bank is entitled to the shorter redemption period provided to banks under the General Banking Law of 2000 (R.A. No. 8791).
What is the significance of Section 47 of R.A. No. 8791?	Section 47 of R.A. No. 8791 provides a shorter redemption period for juridical persons whose properties are sold in extrajudicial foreclosures, aiming to provide additional security and liquidity for banks. The period is either three months from foreclosure or until registration of the certificate of sale, whichever is earlier.
What is the principle of assignment of credit?	Assignment of credit means that when a creditor assigns their rights to another person, the assignee steps into the shoes of the assignor, acquiring all the rights, benefits, and obligations of the original creditor. The assignee cannot acquire greater rights than the assignor possessed.
Why is there a shorter redemption period for juridical persons under the General Banking Law?	The shorter redemption period aims to reduce uncertainty in property ownership and enable mortgagee-banks to dispose of acquired assets sooner, ensuring their solvency and liquidity. This was crafted in response to the 1997 Southeast Asian financial crisis.
Did the Supreme Court favor a liberal interpretation of redemption laws in this case?	No, the Supreme Court did not apply a liberal interpretation of redemption laws because the automatic application would undermine the law’s purpose and the rights of the parties involved. A strict interpretation was used because it involved banks and finance liquidity.
What was the effect of Metrobank assigning its rights to White Marketing?	When Metrobank assigned its rights, White Marketing, as the assignee, stepped into Metrobank’s shoes and acquired all its rights and benefits under the mortgage contract, including the shorter redemption period provided under R.A. No. 8791.
What was the main argument of Grandwood Furniture & Woodwork, Inc.?	Grandwood argued that the shorter redemption period should not apply to White Marketing because it was not a bank and that the general principle of liberal construction of redemption laws should favor the mortgagor.
What was the Supreme Court’s ruling in this case?	The Supreme Court ruled that the shorter redemption period under R.A. No. 8791 applied to White Marketing as the assignee of Metrobank’s rights. Grandwood’s redemption was out of time since it occurred after the registration of the certificate of sale.

This case serves as a clear reminder that when a mortgage originates from a bank, the shorter redemption period under the General Banking Law remains applicable even if the mortgage is subsequently assigned to a non-bank entity. This ruling reinforces the importance of upholding the intent of the law to protect the financial stability of banks and to encourage the efficient management of their assets. It also highlights that while redemption laws are generally construed liberally, this principle is not absolute and must be balanced against the rights of all parties involved and the specific context of the case.

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: WHITE MARKETING DEVELOPMENT CORPORATION vs. GRANDWOOD FURNITURE & WOODWORK, INC., G.R. No. 222407, November 23, 2016