Huerta Alba Resort Inc. vs. Court of Appeals

The Court held that a mortgagor who fails to seasonably invoke the right of redemption under Section 78 of the General Banking Act—specifically by failing to allege it as a compulsory counterclaim in the answer or in motions prior to the confirmation of the foreclosure sale—is estopped from asserting it at a late stage. Accordingly, the "law of the case" doctrine binds the parties to the prior determination that only the equity of redemption existed, which is extinguished upon the confirmation of the judicial foreclosure sale.

Petitioner Huerta Alba Resort Inc. obtained a loan from Intercon Fund Resource, Inc. ("Intercon") and mortgaged four parcels of land as security. Intercon subsequently assigned its mortgage rights to private respondent Syndicated Management Group Inc. ("SMGI"). When petitioner defaulted, SMGI filed a complaint for judicial foreclosure. Petitioner contested the assignment as ultra vires and questioned the interest charges, but did not allege any right of redemption under Section 78 of the General Banking Act or assert that Intercon was a credit institution entitled to invoke the statute's benefits.

• The Mortgage and Assignment: Petitioner obtained a loan from Intercon Fund Resource, Inc. and mortgaged four parcels of land as security. Intercon assigned its mortgage rights to private respondent SMGI, which was not a bank or credit institution.
• Judicial Foreclosure: SMGI filed a complaint for judicial foreclosure. Petitioner contested the validity of the assignment and the correctness of interest charges, but did not invoke Section 78 of the General Banking Act or allege that Intercon was a credit institution in its answer.
• Appeals and Execution: The trial court granted the foreclosure and gave petitioner 150 days to pay. Petitioner's appeal was dismissed by the Court of Appeals for late docket fees, and the Supreme Court dismissed petitioner's subsequent certiorari petition. The decision became final and executory on March 14, 1994.
• Sheriff's Sale: Upon private respondent's motion, the trial court issued a writ of execution. The sheriff sold the properties at auction on September 6, 1994, where private respondent was the highest bidder. The certificate of sale was registered on October 21, 1994.
• Belated Assertion of Right of Redemption: Petitioner filed multiple motions—for clarification, to set aside orders, and to quash the writ of execution—but never raised the applicability of Section 78 of the General Banking Act. It was only on May 2, 1995, in opposition to private respondent's motion for a writ of possession, that petitioner filed a "Motion to Compel Private Respondent to Accept Redemption," asserting for the first time that Intercon was a credit institution and that it had a one-year right of redemption under Section 78.
• Conflicting Lower Court Rulings: The trial court agreed with petitioner, ruling that the right of redemption under Section 78 was a vested right that could not be circumvented by assignment to a non-bank entity, and directed private respondent to accept redemption. The Court of Appeals reversed, holding that petitioner only possessed the equity of redemption, which had already expired, and that petitioner was estopped from belatedly invoking Section 78.

• Petitioner maintained that the Court of Appeals in CA-G.R. SP No. 35086 never resolved with finality the issue of whether petitioner possessed a right of redemption under Section 78 of R.A. No. 337, as that resolution merely noted the motion for clarification.
• Petitioner argued that it possessed a one-year right of redemption under Section 78 of the General Banking Act because the original mortgagee, Intercon, was a credit institution, and this right was invoked in a timely fashion—after confirmation of the sale and within one year of registration of the certificate of sale.
• Petitioner contended that the "law of the case" doctrine was inapplicable because the right of redemption under Section 78 was predicated on the finality of the judgment and did not amend or modify the original foreclosure decision.

• Respondent countered that the Court of Appeals had already resolved with finality in CA-G.R. SP No. 35086 that petitioner only possessed the equity of redemption.
• Respondent argued that petitioner was barred by estoppel from belatedly raising the right of redemption, constituting an insidious attempt to evade the finality of prior decisions.
• Respondent maintained that the trial court's ruling allowing redemption made a mockery of the "law of the case" doctrine.

• Procedural Issues:
  • Whether petitioner is estopped from invoking the right of redemption under Section 78 of R.A. No. 337 at a late stage of the proceedings after failing to raise it in its answer or prior motions.
  • Whether the "law of the case" doctrine precludes petitioner from asserting the right of redemption.
• Substantive Issues:
  • Whether petitioner possesses the one-year right of redemption under Section 78 of R.A. No. 337 in a judicial foreclosure where the mortgage was assigned from a credit institution to a non-credit institution.

• Procedural: The Court ruled that petitioner was estopped from belatedly invoking the right of redemption under Section 78. The applicability of Section 78 hinges on the factual question of whether the mortgagee is a bank or credit institution, which is in the nature of a compulsory counterclaim that should have been alleged in the answer. Having failed to raise this claim at the earliest opportunity and in subsequent motions, petitioner could not assert it after the confirmation of the sale. Furthermore, the "law of the case" doctrine bound the parties to the prior determination that petitioner possessed only the equity of redemption without qualification, and whether that ruling was erroneous was immaterial.
• Substantive: The Court held that petitioner only possessed the equity of redemption, not the right of redemption under Section 78 of R.A. No. 337. In a judicial foreclosure, the right of redemption exists only if allowed by law, such as when the mortgagee is a bank or credit institution. Because petitioner failed to timely allege and prove that the predecessor-in-interest was a credit institution, the confirmation of the sale operated to divest the rights of all parties and vest them in the purchaser. The equity of redemption expired when petitioner failed to pay the secured debt within the period after the judgment became final and before the confirmation of the sale.

• Equity of Redemption vs. Right of Redemption — The equity of redemption is the right of the mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the period prescribed by Rule 68 (90 days from service of order) and even after the foreclosure sale but before the order of confirmation. The right of redemption is the prerogative to re-acquire mortgaged property after registration of the foreclosure sale, which exists only in extrajudicial foreclosure or in judicial foreclosure where the mortgagee is the PNB or a bank/banking institution under the General Banking Act. After the order of confirmation in a judicial foreclosure, no redemption can be effected any longer.
• Law of the Case — A prior ruling in a case that is brought on a subsequent appeal constitutes the law of the case, whether it is erroneous or not. The Court applied this doctrine to hold that prior rulings established that petitioner only possessed the equity of redemption without qualification, precluding petitioner from belatedly asserting a right of redemption under Section 78.
• Estoppel in Litigation — A party to a case who fails to invoke a claim in the main case, while having the opportunity to do so, will be precluded from subsequently invoking that claim after the decision has become final. The Court applied this doctrine because petitioner failed to invoke Section 78 in its answer or in prior motions, despite multiple opportunities.

• "Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale 'when confirmed by an order of the court. . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337)."
• "A party to a case who failed to invoked his claim in the main case, while having the opportunity to do so, will be precluded, subsequently, from invoking his claim, even if it were true, after the decision has become final, otherwise the judgment may be reduced to a mockery and the administration of justice may be placed in disrepute."
• "Whether or not the 'law of the case' is erroneous is immaterial, it still remains the 'law of the case'."

• Limpin vs. Intermediate Appellate Court, 166 SCRA 87 — Followed. Distinguished the equity of redemption from the right of redemption, establishing that in judicial foreclosure, only the equity of redemption exists unless the mortgagee is a bank or credit institution, in which case the right of redemption under the General Banking Act applies.
• Corona vs. Court of Appeals, 214 SCRA 378 — Followed. Cited for the proposition that estoppel may be successfully invoked if a party fails to raise a question in the early stages of the proceedings.
• Tuazon vs. Arca, 23 SCRA 1308 — Followed. Cited for the principle that a party who fails to invoke a claim in the main case is precluded from doing so after the decision becomes final.
• Tolentino vs. Court of Appeals, 106 SCRA 513 — Cited by the trial court for the proposition that the right of redemption is a vested privilege that cannot be lost by assignment to a non-bank entity. The Supreme Court effectively circumvented this ruling by holding that petitioner was estopped from invoking the right and that the law of the case dictated only the equity of redemption existed.

• Section 78, Republic Act No. 337 (General Banking Act) — Provides that in case of foreclosure of a mortgage in favor of a bank, banking, or credit institution, the mortgagor has the right to redeem the property within one year after the sale. Applied to determine that while it could grant a right of redemption in judicial foreclosure, petitioner failed to timely invoke it by proving the mortgagee was a credit institution.
• Rule 68, Rules of Court — Governs judicial foreclosure. Section 2 provides the equity of redemption, allowing the defendant to pay the debt within a period of not less than 90 days from service of the order. Applied to establish that petitioner's equity of redemption had expired.

Melo, Vitug, Panganiban, and Gonzaga-Reyes, JJ.