How much should a mortgagor pay to redeem a real property mortgaged to and foreclosed extrajudicially by the Development Bank of the Philippines? Must he pay to the bank the entire amount he owed the latter on the date of the sale with interest on the total indebtedness at the rate agreed upon in the obligation, or is it enough for purposes of redemption that he reimburse the amount of purchase with one per cent (1%) monthly interest thereon including other expenses defrayed by the purchaser at the extrajudicial sale?

Bacolod Medical Center (BMC) was the registered owner of Lots Nos. 1397-A and 1397-B-1 covered by Transfer Certificates of Title Nos. T-25053 and T-29169, respectively. On 12 December 1967 BMC obtained a loan for building and operating a hospital from petitioner Development Bank of the Philippines (DBP) worth P2,400,000.00. The loan was secured by a mortgage on the two (2) parcels of land, the hospital building to be constructed thereon, and the medical equipment to be used for the intended hospital. The mortgage was expressly constituted subject to the provisions of RA 85 (1946) creating the Rehabilitation Finance Corporation, a predecessor agency of petitioner DBP. From the loan P1,935,200.00 was immediately applied to pay for the old accounts of BMC and only P464,800.00 was actually released in cash.

On 30 January 1989, for failure of BMC to pay the loan, DBP instituted an extrajudicial foreclosure of the mortgage under Act 3135 (1924).^[1] On 24 August 1989 the mortgaged properties were sold at public auction where DBP emerged as the highest and only bidder for the sum of P4,090,117.36. As of the date of the public auction, the outstanding loan balance of BMC was P32,526,133.62. On 25 August 1989 the ex-officio Provincial Sheriff of Bacolod City executed the certificate of sale in favor of DBP; on 11 July 1990 the sale was registered in the Registry of Deeds as Entry No. 166752 annotated on the transfer certificates of title of the mortgaged properties.

Prior to the expiration of the redemption period on 11 July 1991, BMC and the Bacolod branch office of DBP agreed to peg the redemption price at P21,500,000.00 representing the compromise settlement of the outstanding account, and BMC further resolved to pay an installment of twenty percent (20%) of the compromise amount, or P4,300,000.00, on or before 31 August 1991. The agreement was however made subject to the approval of the head office of DBP. After several extensions of the deadline to pay the installment, BMC finally settled the amount in three (3) separate payments.

On 10 July 1991, during the process of paying for the twenty percent (20%) installment, BMC and respondent West Negros College executed a "Deed of Assignment" which assigned to the latter the interests of BMC in the properties foreclosed by petitioner DBP and vested upon the assignee the right to redeem them. On 27 October 1991, while acknowledging that redemption should be based on the outstanding loan obligation of BMC to petitioner, West Negros College demanded the reduction of the redemption price from P21,500,000.00 to P12,768,432.90 allegedly because of excessive interest charges.

On 27 October 1991 the head office of DBP rejected the compromise amount of P21,500,000.00 since the amount was way below the re-appraised value of the foreclosed parcels of land at P28,895,500.00 as of 31 May 1991.

On 8 November 1991 respondent West Negros College requested the Ex-Officio Provincial Sheriff to issue the certificate of redemption in view of the payment to petitioner DBP of the amount of P4,300,000.00 comprising the amount of purchase with one per cent (1%) monthly interest thereon including other expenses defrayed by DBP at the extrajudicial sale. The computation of the redemption price made by West Negros College was based on Sec. 30, Rule 39 of the Rules of Court^[2] and Act 3135.^[3] The Ex-Officio Provincial Sheriff concurred with respondent's basis for the redemption price but responded that the amount paid was still short of P358,128.58. In a letter of even date to the DBP, the Ex-Officio Provincial Sheriff informed petitioner of the request for a certificate of redemption and the amount pegged for the full redemption of the foreclosed properties based on Sec. 30, Rule 39 of the Rules of Court, and requested the surrender of the transfer certificates of title covering the redeemed properties.

On 12 November 1991 West Negros College settled the deficit of P358,128.58. On 14 November 1991 DBP objected to the issuance of the certificate of redemption and argued that the redemption price must be based on the charter of the DBP requiring payment of the amount owed as of the date of the foreclosure sale with interest on the total indebtedness at the rate agreed upon in the obligation. DBP also refused to hand over the transfer certificates of title of the foreclosed properties. On 3 December 1991 possession of the foreclosed properties was vested in West Negros College. On 5 December 1991 petitioner DBP caused the registration of its adverse claim on the foreclosed properties.

On 10 December 1991 West Negros College filed a petition with RTC-Br. 50, Bacolod City against DBP, docketed as Cad. Case No. 2, GLRO CAD. REC. No. 55, for the surrender of the transfer certificates of title covering the foreclosed properties or in the alternative the cancellation of the existing certificates of title and the issuance of new ones. West Negros College alleged full payment of the redemption price under Sec. 30, Rule 39 of the Rules of Court and Act 3135, i.e., the amount of purchase with one per cent (1%) monthly interest thereon including other expenses defrayed by the purchaser at the extrajudicial sale. Petitioner DBP, on the other hand, claimed that proper redemption under its charter could only take place when the total outstanding loan had been satisfied. On 12 December 1991 DBP asked for the annotation of a notice of lis pendens on the certificates of title in question.

On 7 February 1992 the trial court found merit in the petition and ordered the DBP through the Ex-Officio Provincial Sheriff to surrender the transfer certificates of title covering the foreclosed parcels of land and, in case of failure to turn them over, instructed the Register of Deeds to issue new transfer certificates of title for the foreclosed properties.^[4] Because DBP manifested that it was not relinquishing the documents, new transfer certificates of title over the foreclosed parcels of land, designated as TCT Nos. T-165262 and T-165261, were issued in the name of West Negros College. On 14 February 1992, upon an ex-parte motion of West Negros College, the trial court also canceled the adverse claim and notice lis pendens in favor of DBP.^[5] On 28 April 1992 the trial court denied DBP's separate motions for reconsideration of the two (2) orders.^[6]

Petitioner DBP appealed the adverse orders of the trial court to the Court of Appeals docketed as CA-GR CV No. 38277. The contention in essence was that redemption could take place only if West Negros College settled the total outstanding obligation of BMC in favor of DBP. West Negros College argued otherwise claiming that according to Act 3135 in relation to Sec. 30, Rule 39 of the Rules of Court and the rulings in Co v. Philippine National Bank^[7]  and Philippine National Bank v. Court of Appeals^[8] it only had to pay the purchase price at the foreclosure sale plus interests and other charges to effect redemption of the foreclosed properties which it had already done.

On 7 August 2001 the Court of Appeals denied the appeal of DBP and ruled that the applicable legal provisions were Sec. 30, Rule 39 of the Rules of Court and Act 3135 as interpreted by Philippine National Bank v. Court of Appeals^[9] so that the redemption price must be the amount of purchase with one per cent (1%) monthly interest thereon including other expenses defrayed by the purchaser at the extrajudicial sale.^[10] On 21 February 2002 a Special Division of Five of the appellate court denied the motion for reconsideration of the Decision,^[11] hence, this petition.

The petition is meritorious. It has long been settled that where the real property is mortgaged to and foreclosed judicially or extrajudicially by the Development Bank of the Philippines, the right of redemption may be exercised only by paying to "the Bank all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date, unless the bidder has taken material possession of the property or unless this had been delivered to him, in which case the proceeds of the property shall compensate the interest."^[12] This rule applies whether the foreclosed property is sold to the DBP or another person at the public auction, provided of course that the property was mortgaged to DBP.^[13] Where the property is sold to persons other than the mortgagee, the procedure is for the DBP "in case of redemption, [to] return to the bidder the amount it received from him as a result of the auction sale with the corresponding interest paid by the debtor."^[14]

The foregoing rule is embodied consistently in the charters of petitioner DBP and its predecessor agencies. Section 31 of CA 459 creating the Agricultural and Industrial Bank explicitly set the redemption price at the total indebtedness plus contractual interest as of the date of the auction sale.^[15] Under RA 85 the powers vested in and the duties conferred upon the Agricultural and Industrial Bank by CA 459 as well as its capital, assets, accounts, contracts, and choses in action were transferred to the Rehabilitation Finance Corporation.^[16] It has been held that among the salutary provisions of CA 459 ceded to the Rehabilitation Finance Corporation by RA 85 was Sec. 31 defining the manner of redeeming properties mortgaged with the corporation.^[17] Subsequently, by virtue of RA 2081 (1958), the powers, assets, liabilities and personnel of the Rehabilitation Finance Corporation under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred to petitioner DBP.^[18] Significantly, Sec. 31 of CA 459 has been reenacted substantially in Sec. 16 of the present charter of the DBP, i.e., EO 81 (1986) as amended by RA 8523 (1998).^[19]

Development Bank of the Philippines v. Court of Appeals notes the impressive consistency of the successive charters of the DBP with respect to the manner of redeeming properties mortgaged to it

Prior to the enactment of EO 81, the redemption price for property foreclosed by the Development Bank of the Philippines (DBP), whether judicially or extrajudicially, was determined by Commonwealth Act No. 459 (CA 459), which contained a provision substantially similar to Section 16 of EO 81 insofar as the redemption price was concerned x x x x Thus, in DBP v. Mirang [66 SCRA 141 (1975)], the Court held that appellant could redeem the subject property by paying the entire amount he owed to the Bank on the date of the foreclosure sale, with interest thereon at the rate agreed upon, pursuant to Section 31 of CA 459. The ruling herein was reiterated by the Court in the more recent case of Dulay v. Cariaga [123 SCRA 794 (1983)]. In the earlier case of Nepomuceno v. Rehabilitation Finance Corporation [110 Phil 42 (1960)], the Court explained that Section 31 of CA 459, being a special law applicable only to properties mortgaged to the Rehabilitation Finance Corporation - the predecessor of DBP - should prevail over Section 6 of Act No. 3135, which is a more general law applicable to all mortgaged properties extrajudicially foreclosed, regardless of the mortgagee.^[20]

In Development Bank of the Philippines v. Jimenez this Court clarified the proper applications of Sec. 31 of CA 459 and Sec. 30, Rule 39 of the Rules of Court^[21] when we held that "Section 31 of Commonwealth Act No. 459, and not Section 26, Rule 39, of the Rules of Court, is applicable in case of redemption of real estate mortgaged to the DBP to secure a loan. As such, the redemption price to be paid by the mortgagor or debtor to the DBP is 'all the amount he owes the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon,' and not merely the amount paid for by the purchaser at the public auction, pursuant to Section 26, Rule 39, of the Rules of Court."^[22] Clearly the redemption of properties mortgaged with the Development Bank of the Philippines and foreclosed either judicially or extrajudicially is governed by special laws which provide for the payment of all the amounts owed by the debtor. This special protection given to a government lending institution is not accorded to judgment creditors in ordinary civil actions.^[23]

It is worth noting that the mortgage contract between petitioner DBP and Bacolod Medical Center as assignor of respondent West Negros College was expressly constituted subject to the provisions of RA 85 which by explicit reference include Sec. 31 of CA 459 requiring for purposes of redemption the payment of all the amount the mortgagor owed to DBP, with interest on the total indebtedness at the rate agreed upon in the obligation, reckoned from the date of the public auction. Respondent cannot evade the application of this provision because it is part of its undertaking as assignee of the mortgagor Bacolod Medical Center.

The cases of Co v. Philippine National Bank^[24] and Philippine National Bank v. Court of Appeals^[25] are not controlling. These involve the redemption of property levied upon and sold at public auction to satisfy a judgment and unlike the instant case there is no charter that requires the payment of sums of money other than those stipulated in Sec. 30 of Rule 39, Rules of Court. In the cited cases the mortgage contracts were executed when the then charter of the Philippine National Bank under RA 1300 (1955)^[26] did not provide for extrajudicial foreclosure nor the amount necessary to redeem the property foreclosed extra-judicially. In effecting an extrajudicial foreclosure, the Philippine National Bank has then no other recourse but to rely wholly upon Act 3135 in relation to Sec. 30 of Rule 39, Rules of Court for all matters related thereto including the amount of redemption. It is thus fairly evident that at all the times relevant to the cited cases the bank did not resort to Act 3135 merely to find a proceeding for the sale but to secure basic authority for its actions.

The import of the citations is further clarified by our statement in Co v. Philippine National Bank differentiating the latter from Nepomuceno v. Rehabilitation Finance Corporation^[27] in light of the enactment of PD 694 (1975 Revised Charter of the Philippine National Bank) which provided for extrajudicial foreclosure and redemption price similar to the standard provisions in the charters of the Development Bank of the Philippines. In Co we said unmistakably

In the Nepomuceno case, what confronted the Court was a question relative to a mortgage with the Rehabilitation Finance Corporation (RFC for short, now the Development Bank of the Philippines). The Court found no difficulty in not applying Section 6 of Act 3135 because it found that there is in Section 31 of the Charter of the RFC a provision basically similar to Section 25 of Presidential Decree 694, now being invoked here by PNB. Naturally, the Court upheld the RFC's contention that the whole amount of the mortgagor's indebtedness should be paid. But in the instant case, as already discussed earlier, P.D. 694 came too late.^[28]

Quite obviously the pivotal circumstance that distinguishes Co v. Philippine National Bank and Philippine National Bank v. Court of Appeals from the instant case is the existence of provisions in the charter of the government bank authorizing extrajudicial foreclosure and determining the amount required to redeem the foreclosed property. The charter provisions constitute a special law exclusively applicable to properties mortgaged to the government bank in question, and as such they prevail over Sec. 30 of Rule 39, Rules of Court which represents a general law.^[29] In Dulay v. Cariaga^[30] we said that a mortgagor must pay his entire indebtedness to the mortgagee plus the agreed interest thereon before redemption can be effected, because the charter of the mortgagee (DBP) required the payment of such amount. Thus, while the charter of petitioner DBP authorized the extrajudicial foreclosure of mortgaged property and its redemption effective only upon payment of the outstanding indebtedness and interest, the charter of the Philippine National Bank involved in the citations in question did not supply similar privileges and would not therefore properly control the disposition of the instant case.

The unavoidable conclusion is that in redeeming the foreclosed property respondent West Negros College as assignee of Bacolod Medical Center should pay the balance of the amount owed by the latter to petitioner DBP with interest thereon at the rate agreed upon as of the date of the public auction on 24 August 1989.

WHEREFORE, the instant Petition for Review is GRANTED. The 7 August 2001 Decision and the 21 February 2002 Resolution of the Court of Appeals in CA-GR CV No. 38277 are REVERSED and SET ASIDE. The appealed Orders of RTC-Br. 50 in Cad. Case No. 2, GLRO CAD. REC. No. 55, dated 7 February 1992, 14 February 1992 and 28 April 1992, ordering petitioner Development Bank of the Philippines through the Ex-Officio Provincial Sheriff to surrender the transfer certificates of title covering the foreclosed parcels of land and, in case of the failure to turn them over, instructing the Register of Deeds to issue new transfer certificates of title for the foreclosed properties, as it did issue new transfer certificates of title designated as TCT Nos. T-165261 and T-165262 in the name of West Negros College; canceling the adverse claim and notice lis pendens in favor of petitioner Development Bank of the Philippines; and denying the separate motions for reconsideration of petitioner Development Bank of the Philippines, are also REVERSED and SET ASIDE.

The Certificate of Redemption dated 13 November 1991 in favor of respondent West Negros College is DECLARED VOID AND OF NO EFFECT. Respondent is given however a grace period of sixty (60) calendar days from notice of the finality of this Decision within which to redeem the mortgaged properties (Lots Nos. 1397-A and 1397-B-1 originally covered by Transfer Certificates of Title Nos. T-25053 and T-29169, respectively, improvements thereon and other properties subject of the mortgage and the extrajudicial foreclosure) if respondent so desires by paying petitioner Development Bank of the Philippines the balance of the credit of Bacolod Medical Center (as assumed by respondent West Negros College under a deed of assignment) secured by the properties plus the expenses and the agreed rate of interest, to be computed as of the date of the public auction on 24 August 1989, unless petitioner Development Bank of the Philippines has taken material possession of the properties in which case the proceeds of the properties shall compensate the interest but only during the period of their possession.

In the event that respondent West Negros College is not interested in redeeming mortgaged properties at the statutory redemption price, or that the redemption period of sixty (60) days expires without any redemption having been undertaken or without a compromise agreement for such purpose having been reached and perfected, respondent West Negros College shall yield possession of the properties in question to petitioner Development Bank of the Philippines as TCT No. T-165261 for Lot No. 1397-A and TCT No. T-165262 for Lot No. 1397-B-1 issued in the name of West Negros College are DECLARED VOID and OF NO EFFECT and the Register of Deeds of Bacolod City is ORDERED TO ISSUE new transfer certificates of title over the mortgaged properties in the name of the Development Bank of the Philippines. No costs.

SO ORDERED.

Mendoza, Quisumbing, and Callejo, Sr., JJ., concur.
Austria-Martinez, J., no part. Signatory in CA Decision.

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^[1] Commonly known as the law governing the extrajudicial foreclosure of real estate mortgage.

^[2] The relevant provisions read: "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 (12) months after the sale, on paying the purchaser the amount of his purchase, with one per centum 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; and if the purchaser be also a creditor having a prior lien to that of the redemptioner, other than the judgment under which such purchase was made, the amount of such other lien, with interest;" see Sec. 28, Rule 39, 1997 Rules of Civil Procedure.

^[3] See Note 1.

^[4] Penned by Judge Renato E. Abastillas.

^[5] Ibid.

^[6] Ibid.

^[7] No. L-51767, 29 June 1982, 114 SCRA 842.

^[8] No. L-60208, 5 December 1985, 140 SCRA 360.

^[9] Ibid.

^[10] Decision penned by Associate Justice Mercedes Gozo-Dadole and concurred in by Presiding Justice (now Associate Justice of this Court) Alicia Austria-Martinez and Associate Justice Portia Aliño-Hormachuelos of the First Division.

^[11] Resolution penned by Associate Justice Mercedes Gozo-Dadole and concurred in by Associate Justices Portia Aliño-Hormachuelos and Bernardo P. Abesamis of the Special Former First Division; Presiding Justice (now Associate Justice of this Court) Alicia Austria-Martinez wrote the Dissenting Opinion to which Associate Justice Eliezer R. De Los Santos concurred.

^[12] Sec. 31, CA 459 as amended by RA 85; see Development Bank of the Philippines v. Court of Appeals, G.R. No. 139034, 6 June 2001; Philippine National Bank v. Remigio, G.R. No. 78508, 21 March 1994, 231 SCRA 362; Dulay v. Carriaga, 208 Phil. 702 (1983); Development Bank of the Philippines v. Mirang, L-29130, 8 August 1975, 66 SCRA 141; Development Bank of the Philippines v. Jimenez, L-28165, 19 December 1970, 36 SCRA 426.

^[13] Nepomuceno v. Rehabilitation Finance Corporation, 110 Phil. 42 (1960).

^[14] See Note 12.

^[15] The provision reads: "Sec. 31. The mortgagor or debtor to the Agricultural and Industrial Bank, whose real property has been sold at public auction, judicially or extra-judicially for the full or partial payment of an obligation to said Bank, shall, within one year from the date of the auction sale, have the right to redeem the real property by paying to the Bank all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date, unless the bidder has taken material possession of the property or unless this had been delivered to him, in which case the proceeds of the property shall compensate the interest. If the Agricultural and Industrial Bank was not the highest bidder at the auction sale, the Bank shall, in case of redemption, return to the bidder the amount it received from him as a result of the auction sale with the corresponding interest paid by the debtor."

^[16] RA 85 is entitled "An Act Creating the Rehabilitation Finance Corporation."

^[17] See Note 13.

^[18] RA 2081 is entitled "An Act to Amend Republic Act Numbered Eighty-Five and other Pertinent Laws, to Provide Facilities for Intermediate and Long-Term Credit by Converting the Rehabilitation Finance Corporation into the Development Bank of the Philippines, Authorizing the said Bank to Aid in the Establishment of Provincial and City Private Development Banks, and for Other Purposes;" the pertinent provision thereof states: "Sec. 28. Whenever the phrase 'Rehabilitation Finance Corporation' and the word 'corporation' appear in Republic Act Numbered Eighty-five or in any other Act or Executive Order, the same shall mean and refer to the 'Development Bank of the Philippines' and the 'Bank,' respectively. Upon the approval of this Act, all the assets and liabilities as well as the personnel of the Rehabilitation Finance Corporation are hereby transferred to the Bank;" see Development Bank of the Philippines v. Mangawang, L-18861, 30 June 1964, 11 SCRA 405.

^[19] EO 81 is entitled "Providing for the 1986 Revised Charter of the Development Bank of the Philippines;" Sec. 16 provides: "Right of Redemption. - Any mortgagor of the Bank whose real property has been extrajudicially sold at public auction shall, within one (1) year counted from the date of registration of the certificate of sale, have the right to redeem the real property by paying to the Bank all of the latter's claims against him, as determined by the Bank. The Bank may take possession of the foreclosed property during the redemption period. When the Bank takes possession during such period, it shall be entitled to the fruits of the property with no obligation to account for them, the same being considered compensation for the interest that would otherwise accrue on the account. Neither shall the Bank be obliged to post a bond for the purpose of such possession."

^[20] G.R. No. 139034, 6 June 2001.

^[21] See Note 2.

^[22] No. L-28165, 19 December 1970, 36 SCRA 426, 431-432.

^[23] Dulay v. Carriaga, 208 Phil. 702 (1983).

^[24] See Note 7.

^[25] See Note 8.

^[26] Entitled "An Act Revising the Charter of the Philippine National Bank."

^[27] See Note 13.

^[28] See Note 7, p. 860.

^[29] Ibid.

^[30] See Note 23.