G.R. No.

152359             May 21, 2004 Prior to the expiration of the redemption period on July 11, 1991,
BMC and the Bacolod branch office of DBP agreed to peg the
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, redemption price at ₱21,500,000.00 representing the compromise
vs. settlement of the outstanding account subject to the approval of
WEST NEGROS COLLEGE, INC., respondent. DBP’s head office. BMC further resolved to pay an installment of
20% of the compromise amount, or ₱4,300,000.00, on or before
RESOLUTION August 31, 1991. After several extensions of the deadline to pay
the installment, BMC finally settled the amount in three (3)
separate payments.
TINGA, J.:
In the meantime, on July 10, 1991, in the course of paying the
For resolution is the Motion for Reconsideration1 dated November
20% installment, BMC and West Negros executed a Deed of
26, 2002 filed by West Negros College, Inc. (West Negros)
Assignment which assigned to the latter BMC’s interests in the
assailing the Court’s Decision2 dated October 28, 2002.
foreclosed properties and vested upon West Negros the right to
redeem them. While acknowledging that redemption should be
Briefly, the facts are as follows:3 based on the outstanding loan obligation of BMC to DBP, West
Negros demanded the reduction of the redemption price from
On December 12, 1967, Bacolod Medical Center (BMC) ₱21,500,000.00 to ₱12,768,432.90 allegedly because of
obtained a loan from the Development Bank of the excessive interest charges.
Philippines (DBP) in the amount of ₱2,400,000.00
secured by a mortgage on two (2) parcels of land, On October 27, 1991, the head office of DBP rejected the
namely: Lots Nos. 1397-A and 1397-B-1 covered by compromise amount of ₱21,500,000.00 since the amount was
Transfer Certificates of Title (TCT) Nos. T-25053 and T- way below the re-appraised value of the foreclosed parcels of
29169, respectively. The mortgage was expressly land which stood at ₱28,895,500.00 as of May 31, 1991.
constituted subject to the provisions of Republic Act No.
85 (R.A. 85) creating the Rehabilitation Finance
On November 8, 1991, West Negros requested the Ex-
Corporation, a predecessor agency of DBP.
Officio Provincial Sheriff to issue the certificate of redemption in
view of the payment to DBP of ₱4,300,000.00 representing 20%
For failure of BMC to pay the loan, DBP instituted on January 30, of the compromise amount, with one percent (1%) interest
1989 an extrajudicial foreclosure of mortgage under Act 3135. On thereon including other expenses defrayed by DBP at the
August 24, 1989, the mortgaged properties were sold at public extrajudicial sale. The computation of the redemption price made
auction with DBP emerging as the highest and only bidder for the by West Negros was based on Section 30, Rule 39 of the Rules
sum of ₱4,090,117.36. On August 25, 1989, the Ex- of Court and Act 3135. The Ex-Officio Provincial Sheriff concurred
Officio Provincial Sheriff of Bacolod City executed the certificate with West Negros’ basis for the redemption price but responded
of sale in favor of DBP. On July 11, 1990, the sale was registered that the amount paid was still short of ₱358,128.58. In a letter of
in the Registry of Deeds as Entry No. 166752 and annotated on even date to the DBP, the Ex-Officio Provincial Sheriff informed
the TCTs of the mortgaged properties. DBP of the request for a certificate of redemption and the amount
pegged for the full redemption of the foreclosed properties based
on Section 30, Rule 39 of the Rules of Court, and requested the the name of West Negros. On February 14, 1992, upon an ex-
surrender of the TCTs covering the redeemed properties. parte motion of West Negros, the trial court also cancelled the
adverse claim and notice of lis pendens in favor of DBP. On April
On November 12, 1991, West Negros settled the deficit of 28, 1992, it denied DBP’s separate motions for reconsideration of
₱358,128.58. The Sheriff then requested the Manager of DBP on the two (2) orders.
November 12, 1991 to get the deposit in the amount of
₱358,128.58 and bring with him the owner’s duplicate copies of On appeal, the Court of Appeals held that the applicable legal
the TCTs covering the subject properties. provisions were Section 30, Rule 39 of the Rules of Court and Act
3135 such that the redemption price must be the amount of
In response, the DBP sent a letter dated November 14, 1991 to purchase with one percent (1%) monthly interest thereon
the Sheriff arguing that West Negros does not have any including other expenses defrayed by the purchaser at the
personality to enter into the picture and that whatever transaction extrajudicial sale. On February 21, 2002, a Special Division of five
the latter may have entered into with BMC does not bind DBP of the appellate court denied DBP’s motion for reconsideration.
because the same was executed without its approval and express
consent as mortgagee.4 DBP further objected to the issuance of DBP raised the matter on Petition for Review on Certiorari before
the certificate of redemption and argued that the redemption price this Court. The bone of contention, as summarized by the Court,
must be based on the charter of the DBP requiring payment of was how much a mortgagor must pay to redeem real property
the amount owed as of the date of the foreclosure sale with mortgaged to and foreclosed extrajudicially by the
interest on the total indebtedness at the rate agreed upon in the DBP, i.e., whether the mortgagor must pay to the bank the entire
obligation. It also refused to hand over the TCTs of the foreclosed amount he owed the latter on the date of the sale with interest on
properties and caused the registration of its adverse claim the total indebtedness at the rate agreed upon in the obligations,
thereon. or whether it is enough for purposes of redemption that he
reimburse the amount of purchase with one percent (1%) monthly
This prompted West Negros to file a petition against DBP with the interest thereon including other expenses defrayed by the
RTC-Branch 50, Bacolod City, docketed as Cad. Case No. 2, purchaser at the extrajudicial sale.
GLRO CAD. REC. No. 55, for the surrender of the TCTs or, in the
alternative, the cancellation of the existing TCTs and the issuance In its Decision, the Court declared that "in redeeming the
of new ones. West Negros alleged full payment of the redemption foreclosed property respondent West Negros College as
price under Section 30, Rule 39 of the Rules of Court and Act assignee of Bacolod Medical Center should pay the balance of
3135. On the other hand, DBP claimed that proper redemption the amount owed by the latter to petitioner DBP with interest
under its charter could only take place when the total outstanding thereon at the rate agreed upon as of the date of the public
loan had been satisfied. auction on August 24, 1989."5 Accordingly, it granted the petition
declaring as follows:
The trial court found merit in the petition and ordered DBP to
surrender the TCTs and, in case of failure to turn them over, WHEREFORE, the instant Petition for
instructed the Register of Deeds to issue new certificates of title Review is GRANTED. The 7 August 2001 Decision and
for the foreclosed properties. Because DBP manifested that it the 21 February 2002 Resolution of the Court of Appeals
was not relinquishing the documents, new TCTs were issued in in CA-GR CV No. 38277 are REVERSED and SET
ASIDE. The appealed Orders of RTC-Br. 50 in CAD. In the event that respondent West Negros College is not
Case No. 2, GLRO CAD. REC. No. 55, dated 7 February interested in redeeming the mortgaged properties at the
1992, 14 February 1992 and 28 April 1992, ordering statutory redemption price, or that the redemption period
petitioner Development Bank of the Philippines through of sixty (60) days expires without any redemption having
the Ex-Officio Provincial Sheriff to surrender the transfer been undertaken or without a compromise agreement for
certificates of title covering the foreclosed parcels of land such purpose having been reached and perfected,
and, in case of the failure to turn them over, instructing respondent West Negros College shall yield possession
the Register of Deeds to issue new transfer certificates of of the properties in question to petitioner Development
title for the foreclosed properties, as it did issue new Bank of the Philippines as TCT No. T-165261 for Lot No.
transfer certificates of title designated as TCT Nos. T- 1397-A and TCT No. 165262 for Lot No. 1397-B-1 issued
165261 and T-165262 in the name of West Negros in the name of West Negros College are DECLARED
College; canceling the adverse claim and notice lis VOID and OF NO EFFECT and the Register of Deeds of
pendens in favor of petitioner Development Bank of the Bacolod City is ORDERED TO ISSUE new transfer
Philippines; and denying the separate motions for certificates of title over the mortgaged properties in the
reconsideration of petitioner Development Bank of the name of the Development Bank of the Philippines. No
Philippines, are also REVERSED and SET ASIDE. Costs.6

The Certificate of Redemption dated 13 November 1991 Contending that it is desirous of redeeming the subject properties,
in favor of respondent West Negros College West Negros filed the instant Motion for Reconsideration7 dated
is DECLARED VOID AND OF NO EFFECT. Respondent November 26, 2002 on the main issue of how much the
is given however a grace period of sixty (60) calendar redemption price should be. The respondent asks the Court to
days from notice of the finality of this Decision within determine the legality of the amount claimed by DBP as the total
which to redeem the mortgaged properties (Lots Nos. outstanding obligation considering that DBP allegedly
1397-A and 1397-B-1 originally covered by Transfer compounded the interest due and imposed penalties on the
Certificates of Title Nos. T-25053 and T-29169, principal amount and interest on expenses even as these were
respectively, improvements thereon and other properties neither expressly agreed upon by the parties nor imposed from
subject of the mortgage and the extrajudicial foreclosure) the time of judicial demand in accordance with Article 2212 of the
if respondent so desires by paying petitioner Civil Code. These circumstances are, according to West Negros,
Development Bank of the Philippines the balance of the violative of due process. Alternatively, West Negros asks the
credit of Bacolod Medical Center (as assumed by Court to remand the case to the lower court for determination of
respondent West Negros College under a deed of the exact amount to be paid. In support of its motion, West
assignment) secured by the properties plus the expenses Negros attached copies of two (2) Promissory Notes (PNs)
and the agreed rate of interest, to be computed as of the respectively dated July 19, 1966 and December 12, 1967 which
date of the public auction on 24 August 1989, unless allegedly support the mortgage contract. The PNs both impose an
petitioner Development Bank of the Philippines has taken interest of 12% per annum on unpaid interests and amortizations.
material possession of the properties in which case the
proceeds of the properties shall compensate the interest The respondent further avers that DBP is estopped by its
but only during the period of their possession. agreement to reduce the redemption amount to ₱21,500.000.00,
acceptance of part of the redemption price and representation In the main, West Negros argues that the compounded interest,
that BMC would be allowed to redeem the property. Finally, West penalties and other charges imposed by DBP are illegal and
Negros challenges the invalid not having been expressly agreed upon by the parties to
the mortgage contract, i.e., DBP and BMC, nor judicially
constitutionality of Executive Order No. 81 (E.O. 81),8 which demanded in accordance with the Civil Code.11
governs the mortgage contract between DBP and BMC, as it
allegedly violates the non-impairment clause of the Constitution Before we resolve this issue, we shall answer the more
by giving the DBP the unbridled authority to determine the fundamental question of whether the properties can still be
amount West Negros should pay at the time of redemption. redeemed in the first place. It should be recalled that the
certificate of sale in favor of DBP was registered with the Registry
In its Comment to Respondent’s Motion for Reconsideration of Deeds on July 11, 1990. Under Executive Order No. 81, the
Dated 26 November 20029 dated March 10, 2003, DBP counters mortgagor whose property has been extra-judicially sold at public
that the PNs attached to the Motion for Reconsideration are non- auction shall have the right to redeem the property within one (1)
existent. Allegedly, the PN dated July 19, 1966 refers to an earlier year counted from the date of registration of the certificate of
loan granted by DBP to BMC, which had since been fully paid. On sale.12
the other hand, the PN dated December 12, 1967 had been
superseded by a supplemental document and another PN both The right of legal redemption must be exercised within specified
dated January 6, 1975 which authorize the imposition of time limits.13 However, the statutory period of redemption can be
compounded interest, penalties and other charges upon the extended by agreement of the parties. 14 It bears noting that DBP
outstanding obligation. accepted installment payments of 20% of the compromise
amount beyond the July 11, 1991 deadline for redeeming the
DBP stresses that it cannot be deemed in estoppel by its properties. Effectively, DBP and BMC agreed to the extension of
acceptance of the amount of ₱4,300,000.00 as deposit on the the redemption period. Significant, too, is the fact that DBP did
proposed redemption price of ₱21,500,000.00 because the not file a motion for reconsideration of the Decision dated
deposit was accepted on condition that it would form part of the October 28, 2002 which granted West Negros a grace period of
redemption price only if approved by DBP’s higher management. 60 days from notice of finality of the judgment in this case within
DBP notes that the instant motion substantially raises factual which to redeem the mortgaged properties. All these lead to the
issues which may not be passed upon by the Court. Furthermore, conclusion that the subject properties may still be redeemed
the constitutionality of E.O. 81 was never raised by the following the guidelines set forth in the Decision aforementioned.
respondent except in the instant motion.
We now resolve the petitioner’s main argument.
In its Reply to Comment  dated August 29, 2003, West Negros
10

avers that DBP introduced new documents which may no longer We note that West Negros asked for the reduction of the
be considered at this stage of the case. It also insists that it raises redemption price from ₱21,500,000.00 to ₱12,768,432.90
substantial legal questions in its Motion for Reconsideration. allegedly because of excessive interest charges. However, the
issue as to the validity of these impositions was not squarely
raised before nor passed upon by the trial court and the appellate
court. In fact, in its order15 dated February 7, 1992, the trial court
declared "that there are no factual issues to be taken up through ventilated for the first time only in a motion for reconsideration or
a full blown hearing on the merits. Rather, the questions posed in on appeal.19 On appeal, only errors specifically assigned and
the pleadings are of law and, therefore, interpretation of the laws properly argued in the brief will be considered, with the exception
and rules pertinent to the issues at bar would substantially comply of those affecting jurisdiction over the subject matter as well as
with due process."16 The Court of Appeals also said as much plain and clerical errors.20
when it declared that the factual issues raised by DBP, e.g., the
total indebtedness of BMC/West Negros, had been properly These procedural rules notwithstanding, we find that the remand
ventilated before the trial court.17 of this case to the Court of Appeals is both necessary and
appropriate given the compelling legal and equitable
Accordingly, without determining the total outstanding obligation considerations which this Court cannot ignore. Foremost of these
of BMC/West Negros, both the trial court and the Court of is the fact that prior to the expiration of the redemption period on
Appeals upheld the respondent’s theory that Section 30, Rule 39 July 11, 1991, BMC agreed and committed to pay the redemption
of the Rules of Court and Act 3135, and not E.O. 81, apply in the price then pegged at ₱21,500,000.00. This commitment binds
determination of the redemption price. With West Negros which, as the assignee of BMC, merely stepped into
our Decision declaring otherwise, however, West Negros now the latter’s shoes, so to speak. West Negros, therefore, is
asks the Court to settle the issue as to the validity of the estopped from claiming that the redemption price may be reduced
imposition of compounded interest, penalties and other charges to an amount lower than ₱21,500,000.00.
to enable it to redeem the foreclosed properties.
This is especially significant in light of the fact that DBP, in
The determination of the validity or invalidity of these impositions essence, had extended the redemption period when it agreed to
turns on whether the parties stipulated on the imposition of BMC’s payment of 20% of the redemption price in installments
compounded interest, penalties and other charges or whether beyond the redemption period. Had DBP not agreed to the
DBP judicially demanded payment. According to West Negros, extension, BMC would not have been able to exercise its right of
the imposition of compounded interest, penalties and other redemption at all and ownership would have been consolidated at
charges were not expressly stipulated upon. Neither did DBP that point in favor of DBP. Moreover, contrary to West Negros’
judicially demand payment of the loan. DBP counters that the contention, DBP is not estopped by its Bacolod branch’s
loan obtained by BMC in the amount of ₱2,400,000.00 was agreement to peg the redemption price at ₱21,500,000.00 and
supported by the PN dated December 12, 1967. This PN was acceptance of the 20% installment because the Bacolod branch
allegedly superseded by a supplemental document and PN both expressly made its agreement subject to the approval of its head
dated January 6, 1975 which authorized the imposition of office.
compounded interest, penalties and other charges upon the
outstanding obligation. This Court in its Decision ordered the payment of the balance of
BMC’s obligation, plus expenses and interest, to be computed as
These questions are largely factual in nature and beyond the of the date of the public auction on 24 August 1989 as a condition
province of this Court to determine, not being a trier of for the redemption of the mortgaged properties. Perforce, the
facts.18 Moreover, it is a fundamental rule of procedure that higher determination of the validity of the imposition of compounded
courts are precluded from entertaining matters neither alleged in interest, penalties and other charges and, as a consequence, the
the pleadings nor raised during the proceedings below, but ascertainment of the total redemption price, are obviously
indispensable to the complete adjudication of this case. To this
end, the Court shall remand the case to the Court of Appeals for
reception of evidence solely for the purpose of determining the
basis for or the propriety of the imposition of compounded
interest, penalties and other charges, and the computation of the
total outstanding obligation/redemption price to be paid by West
Negros, which, however, shall in no case be lower than
₱21,500,000.00.

Finally, we have to debunk the challenge on the constitutionality

of E.O. 81 on the ground that it violates the non-impairment
clause of the Constitution as it allegedly allows the DBP to
impose penalties and interest which were not originally agreed
upon. It is well-settled that all presumptions are indulged in favor
of constitutionality, such that one who attacks a statute, alleging
unconstitutionality must prove its invalidity

beyond a reasonable doubt.21 In fact, this Court does not decide

questions of a constitutional nature unless that question is
properly raised and presented in appropriate cases and is
necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.22

WHEREFORE, the instant Motion for Reconsideration is

GRANTED only insofar as it seeks the determination of the total
redemption price to be paid by West Negros College, Inc. to the
Development Bank of the Philippines which, however, shall not
be lower than ₱21,500,000.00. For this purpose, the case is
hereby REMANDED to the Court of Appeals which is directed to
proceed accordingly with all deliberate dispatch.

SO ORDERED.