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GOLDENWAY MERCHANDISING CORPORATION v. EQUITABLE PCI BANK

FACTS:

This case involves a petition for review on certiorari filed by Goldenway Merchandising Corporation (petitioner) against Equitable PCI Bank (respondent). The petitioner executed a Real Estate Mortgage in favor of the respondent to secure a loan. Due to the petitioner's failure to settle the loan, the respondent extrajudicially foreclosed the mortgage and purchased the mortgaged properties at a public auction. The certificate of sale was registered on the titles, making the properties non-redeemable. The petitioner filed a complaint for specific performance and damages, arguing that the longer redemption period under Act No. 3135 should apply instead of the shorter redemption period provided in Republic Act No. 8791. The trial court dismissed the complaint and the Court of Appeals affirmed the decision. The petitioner now raises the constitutionality of Section 47 of R.A. No. 8791 as a ground for appeal.

ISSUES:

  1. Whether or not Section 47 of R.A. No. 8791, which modified the redemption period for juridical persons in cases of extrajudicial foreclosure, can be applied retroactively.

  2. Whether or not Section 47 of R.A. No. 8791 violates the constitutional proscription against impairment of the obligation of contract.

  3. Whether Section 47 of R.A. No. 8791 infringes the equal protection clause of the Constitution.

  4. Whether the amendment introduced by Section 47, shortening the period of redemption for juridical persons, violates the impairment of contract theory.

RULING:

  1. Yes. The amendment provided under Section 47 of R.A. No. 8791 can be validly applied retroactively in this case. There is no violation of the constitutional proscription against retroactive laws as the new redemption period only modifies the time for the exercise of the right to redeem, without divesting juridical persons of such right.

  2. No. Section 47 of R.A. No. 8791 does not violate the constitutional proscription against impairment of the obligation of contract. The purpose of the non-impairment clause is to protect contracts from unwarranted interference by the State. In this case, the amendment does not change the terms of the contract, impose new conditions, dispense with those agreed upon, or withdraw remedies for the enforcement of the parties' rights. It only modifies the time period for redemption, which does not impair the efficacy of the contract.

  3. The Supreme Court agrees with the Court of Appeals (CA) that Section 47 of R.A. No. 8791 does not infringe the equal protection clause. The difference in treatment between juridical persons and natural persons was based on the nature of the properties foreclosed, whether used for residential or industrial/commercial purposes. This classification is reasonable and germane to the purpose of the law, which aims to ensure the solvency and liquidity of banks. Therefore, Section 47 is constitutional.

  4. The right of redemption being statutory, it must be exercised within the prescribed time limit as prescribed by the statute. It is subject to the police power of the State, exercised for the public welfare. The non-impairment clause of the Constitution must yield to the higher purposes targeted by the Government. In this case, the amendment introduced by Section 47 is a regulation that is subject to change as circumstances may require. Therefore, the impairment of contract theory is not violated.

PRINCIPLES:

  • Every court must approach a constitutional question with grave care and caution, resolving any doubts in favor of the constitutionality of the law.

  • Contracts should not be tampered with by subsequent laws unless there is a clear impairment in their efficacy.

  • Impairment of contract occurs when a subsequent law changes the terms of the contract, imposes new conditions, dispenses with those agreed upon, or withdraws remedies for the enforcement of the parties' rights.

  • Section 47 of R.A. No. 8791, which modified the redemption period for juridical persons in cases of extrajudicial foreclosure, does not violate the constitutional proscription against impairment of the obligation of contract. It only modifies the time period for redemption, without changing the terms of the contract or impairing its efficacy.

  • The equal protection clause is not intended to prohibit legislation that is limited to the object to which it is directed or by the territory in which it operates. Reasonable classification based on real distinctions is allowed.

  • The police power of the State allows for the enactment of legislation that may interfere with personal liberty or property to promote the general welfare.

  • The freedom to contract is not absolute and must yield to the demands and necessities of the State's power of regulation.

  • The regulation of businesses, including the banking industry, is within the authority of the State and is imbued with public interest.