Estanislao vs. Court of Appeals

A valid redemption in extrajudicial foreclosure requires timely tender of the full redemption price—comprising the purchase price, one percent monthly interest thereon computed from the date of registration of the certificate of sale, any assessments or taxes paid by the purchaser (if proper notice thereof was given), and interest on such assessments—and a tender that is timely but insufficient, or sufficient but late, does not effect redemption.

Spouses Ramon Estanislao, Jr. and Dina Teotico Estanislao were the registered owners of a parcel of land in Caloocan City covered by TCT No. 120717. In 1985, they mortgaged the property to Hi-Yield Realty, Inc. to secure a loan of P200,000. The mortgage was extrajudicially foreclosed for non-compliance with its conditions, and the property was sold at public auction on December 9, 1988 to Hi-Yield Realty, Inc. as the highest bidder for P445,000. The certificate of sale was registered with the Registry of Deeds of Caloocan City on June 9, 1992, from which date the one-year redemption period began to run.

In 1985, spouses Ramon Estanislao, Jr. and Dina Teotico Estanislao mortgaged to Hi-Yield Realty, Inc. a parcel of land registered in their name under TCT No. 120717, together with the buildings and improvements thereon, to secure a loan of P200,000. The mortgage was extrajudicially foreclosed for the spouses' failure to comply with some of its conditions, and the property was sold at public auction on December 9, 1988 for P445,000 to Hi-Yield Realty, Inc. as the highest bidder. The certificate of sale issued to the purchaser was registered with the Registry of Deeds of Caloocan City on June 9, 1992.

On June 4, 1993, Ramon Estanislao, Jr. offered to redeem the property by tendering to Atty. Humberto Basco, the notary public who conducted the sale, a PCIB manager's check for P445,000, covering the auction price alone. In his letter enclosing the check, Estanislao requested that a purchaser's statement of interest and other charges be furnished to him, allegedly because he did not know the amount of interest and other charges or assessments. On June 15, 1993, Atty. Basco returned the check on the ground that its amount did not include the interests, charges, and penalties, and stated that no certificate of redemption could be issued unless the amount was fully paid and settled.

Without waiting for the statement of interest and other charges he had requested, Estanislao again tendered on June 21, 1993 the PCIB check for P445,000 and another PCIB manager's check for P81,521.27 to cover the interest. The checks were rejected by private respondents for being inadequate. On July 14, 1993, Estanislao discovered from the records of the Registry of Deeds that the property had been transferred in the name of Hi-Yield Realty, Inc. The Affidavit of Consolidation of Ownership, dated June 10, 1993, had been notarized by Atty. Basco and filed with the Registry of Deeds on June 14, 1993. On June 15, 1993, Norberto Vasquez, Acting Registrar of Deeds, ordered the annotation of the affidavit, the cancellation of TCT No. 120717, and the issuance of TCT No. 265782 in the name of Hi-Yield Realty, Inc.

On August 13, 1993, the spouses filed a complaint against private respondents in the RTC of Caloocan City, seeking annulment of the Affidavit of Consolidation of Ownership, cancellation of TCT No. 265782, and payment of damages and attorney's fees. The trial court found that the redemption period expired on June 9, 1993, and that neither tender of payment was valid—the first being insufficient for omitting interest, the second being late by twelve days. The trial court dismissed the complaint and awarded moral damages and attorney's fees to private respondents, findings affirmed in toto by the Court of Appeals.

• Redemption Price Computation: Petitioners contended that the Court of Appeals erred in including "other charges" (taxes and assessments) as part of the redemption price, arguing that they were not aware thereof and that no notice of taxes and assessments was filed with the Registry of Deeds.
• Liberal Interpretation of Redemption Rules: Petitioners argued that the appellate court disregarded the doctrines in Rosario vs. Tayug Rural Bank, Inc. and Castillo vs. Nagtalon regarding liberal interpretation of redemption rules, without discussing why those cases were inapplicable.
• Computation of Interest: Petitioners maintained that under Rosales vs. Yboa, the one percent monthly interest on the redemption price should commence to run only from the date of registration of the certificate of sale, not from the date of sale.
• Necessity of Consignation: Petitioners argued that the appellate court misapplied Conejero vs. Court of Appeals regarding the necessity of consigning the redemption price.
• Fraudulent Collusion: Petitioners alleged "fraudulent collusion and unholy alliance" among the private respondents with respect to the registration of the Affidavit of Consolidation of Ownership and the issuance of the new TCT in favor of Hi-Yield Realty, Inc.
• Damages and Attorney's Fees: Petitioners contended that the award of moral damages and attorney's fees in favor of private respondents was contrary to prevailing jurisprudence, and that the appellate court failed to grant the relief they prayed for.

• Validity of Redemption: Whether petitioners validly effected redemption of the foreclosed property through their tenders of payment on June 4, 1993 and June 21, 1993.
• Fraudulent Collusion: Whether private respondents fraudulently colluded in the registration of the Affidavit of Consolidation of Ownership and the issuance of the new TCT to Hi-Yield Realty, Inc.
• Award of Damages: Whether the awards of moral damages and attorney's fees to private respondents were proper.

• Validity of Redemption: No. Neither tender effected a valid redemption: the June 4, 1993 tender, though timely, was insufficient for omitting the required interest, while the June 21, 1993 tender, though sufficient in amount, was made twelve days after the redemption period expired on June 9, 1993.
• Fraudulent Collusion: No. The consolidation of ownership was justified because the redemption period had expired without valid redemption, and the evidence showed no collusion between Atty. Vasquez and Hi-Yield Realty, Inc. or Atty. Basco.
• Award of Damages: No. The awards of moral damages and attorney's fees were deleted because private respondents failed to overcome the presumption of good faith, and no penalty should be imposed on parties exercising the right to litigate in good faith.

• Validity of Redemption: Section 6 of Act No. 3135 provides that the debtor may redeem the property within one year from the date of sale, and such redemption is governed by the provisions of Rule 39 of the Rules of Court. Under Rule 39, §30 of the 1964 Rules of Court (the applicable law), the redemptioner must pay the purchaser the purchase price plus one percent monthly interest thereon up to the time of redemption, together with any assessments or taxes paid by the purchaser after purchase and interest on such amounts. The interest on the auction price is computed from the date of registration of the certificate of sale—not from the date of sale—because the period of redemption begins only from registration. The certificate of sale was registered on June 9, 1992, so the redemption period expired on June 9, 1993. The June 4, 1993 tender of P445,000 was within the period but insufficient, as it omitted the required interest; allowing payment by installments would permit the indefinite extension of the redemption period. The June 21, 1993 tender of P445,000 plus P81,521.27 was sufficient in amount—indeed in excess of the P53,400 interest actually due for twelve months—but was made twelve days after the period had expired. As to assessments or taxes, the purchaser was required to give written notice to the officer who made the sale and file the same with the Registry of Deeds; since Hi-Yield Realty, Inc. failed to comply with this requirement, petitioners' failure to pay these additional amounts was excused. Nevertheless, the lateness of the second tender rendered the redemption invalid.

• Fraudulent Collusion: Because the redemption period expired on June 9, 1993 without valid redemption, the consolidation of ownership in the purchaser was legally justified. The registration of the Affidavit of Consolidation of Ownership on June 14, 1993—five days after the expiration of the redemption period—was proper upon payment of the registration fee. Atty. Vasquez denied knowing any person connected with Hi-Yield Realty, Inc. or Atty. Basco, stating he first met them during pre-trial. The president of Hi-Yield Realty, Inc. likewise testified he did not personally know Atty. Vasquez and never went to the Registry of Deeds. No evidence supported the allegation of fraudulent collusion.

• Award of Damages: The law presumes good faith, and the burden of proving bad faith or ill motive rests on the party seeking damages. Mere allegations of mental anguish, serious anxiety, or wounded feelings are insufficient; proof of moral suffering must be introduced. Private respondents' evidence failed to overcome the presumption of good faith. As to attorney's fees, the policy is that no premium should be placed on the right to litigate, and no penalty should be imposed on those who exercise that right in good faith, even though erroneously. The fact that private respondents incurred expenses to protect their rights does not imply that petitioners' action was instituted in bad faith. Where moral and exemplary damages are eliminated, the award of attorney's fees must also be deleted.

• Right of Redemption in Extrajudicial Foreclosure — Under Section 6 of Act No. 3135, as implemented by Rule 39 of the Rules of Court, the debtor may redeem foreclosed property within one year from the date of sale. The redemption price consists of: (1) the price the purchaser paid for the property; (2) interest of one percent per month on the purchase price; (3) the amount of any assessments or taxes which the purchaser may have paid on the property after purchase; and (4) interest of one percent per month on such assessments and taxes. The interest on the purchase price is computed from the date of registration of the certificate of sale, not from the date of sale, because the redemption period begins only from registration. The Court applied this doctrine to hold that the June 4, 1993 tender was insufficient for omitting interest, and the June 21, 1993 tender was late, rendering both ineffective to effect redemption.

• Requirement of Full Payment for Valid Redemption — The tender of payment must be for the full amount of the redemption price; allowing payment by installments would permit the indefinite extension of the redemption period. The right of redemption must be exercised within the statutory period, and the redemptioner must make an actual tender in good faith of the full amount required. The Court relied on this principle from Basbas vs. Entena and Bodiongan vs. Court of Appeals to reject the sufficiency of the partial tender on June 4, 1993.

• Notice Requirement for Assessments and Taxes — The purchaser must give written notice to the officer who conducted the sale of any assessments or taxes paid, and file the same with the Registry of Deeds. If no such notice is given, the property may be redeemed without paying such assessments or taxes. The Court found that Hi-Yield Realty, Inc. failed to comply with this requirement, excusing petitioners' failure to pay the additional amounts—but this did not cure the lateness of the second tender.

• Presumption of Good Faith in Damages Awards — The law presumes good faith, and a party seeking damages bears the burden of proving that the other party acted in bad faith or with ill motive. Proof of moral suffering must be introduced; mere allegations are insufficient. The Court applied this doctrine to delete the award of moral damages for lack of evidence overcoming the presumption.

• No Premium on the Right to Litigate — No penalty should be imposed on those who exercise the right to litigate in good faith, even though erroneously. The award of attorney's fees must be deleted where the awards of moral and exemplary damages are eliminated. The Court applied this principle to strike down the attorney's fees awarded to all three private respondents.

• "Moreover, the tender of payment must be for the full amount of the purchase price. Otherwise, to allow payment by installments would be to allow the indefinite extension of the redemption period." — This passage articulates the ratio decidendi on why the June 4, 1993 tender was ineffective: partial payment does not effect redemption because it would render the statutory redemption period meaningless.

• "The interest on the auction price should be computed not from the date of sale, as the appeals court appears to have done, but from the registration thereof. Since the period of redemption begins only from the date of the registration of the certificate of sale in the Registry of Deeds, the computation of the interest on the purchase price should also be made to commence from that date." — This corrects the appellate court's erroneous computation of interest and establishes the controlling rule that interest on the redemption price accrues from registration of the certificate of sale, not from the auction date.

• "No penalty should be imposed on those who exercise such right in good faith, even though erroneously." — This states the policy basis for deleting the award of attorney's fees, affirming that litigation in good faith should not be penalized.

• Basbas vs. Entena, 28 SCRA 665 (1969) — Cited for the principle that the right of redemption must be exercised within the statutory period and that the redemptioner must make an actual tender in good faith of the full redemption price; allowing indefinite extension would render the statutory period nugatory.
• Bodiongan vs. Court of Appeals, 248 SCRA 496 (1995) — Cited for the enumeration of the four components of the redemption price: (1) purchase price, (2) one percent monthly interest on the purchase price, (3) assessments or taxes paid by the purchaser, and (4) one percent monthly interest on such assessments and taxes.
• Rosales vs. Yboa, 120 SCRA 869 (1983) — Cited for the rule that interest on the redemption price commences to run from the date of registration of the certificate of sale, not from the date of sale.
• Conejero vs. Court of Appeals, 16 SCRA 775 (1966) — Cited in connection with the necessity of consigning the redemption price; petitioners argued it was misapplied by the appellate court.
• Belisario vs. Intermediate Appellate Court, 165 SCRA 101 (1988) — Cited alongside Bodiongan and Conejero for the requirement of full payment to effect valid redemption.
• Ibaan Rural Bank, Inc. vs. Court of Appeals, 321 SCRA 88 (1999) — Cited for the policy that no premium should be placed on the right to litigate and that attorney's fees must be deleted where moral and exemplary damages are eliminated.

• Section 6, Act No. 3135 — Governs the right of redemption in extrajudicial foreclosure sales, providing that the debtor may redeem the property within one year from the date of sale, with redemption governed by the provisions of the Code of Civil Procedure (now Rule 39 of the Rules of Court) insofar as not inconsistent with the Act. Applied to determine the redemption period and the requirements for valid redemption.
• Rule 39, Section 30, 1964 Rules of Court — Specifies the components of the redemption price: the purchase price, one percent monthly interest thereon up to the time of redemption, any assessments or taxes paid by the purchaser after purchase, and interest on such amounts at the same rate. Also requires written notice of any assessments or taxes paid to be given to the officer who made the sale and filed with the Registry of Deeds. Applied to determine the sufficiency and timeliness of petitioners' tenders.
• Rule 39, Section 28, 1997 Rules of Civil Procedure — Corrected the redemption period from "twelve (12) months" to "one (1) year," resolving the discrepancy between Act No. 3135 (365 days) and the 1964 Rules of Court (360 days). Noted as the current rule, though the 1964 Rules governed the case.
• Article 13, Civil Code — Provides that years are of 365 days, months of 30 days, days of 24 hours. Cited to explain the discrepancy between the "one year" period in Act No. 3135 and the "twelve months" period in the 1964 Rules of Court.

Justices Bellosillo, Quisumbing, and De Leon, Jr. concurred. Justice Buena was abroad.