Philippine National Bank vs. Antonio Bacani, et al.

After the one-year redemption period in an extrajudicial foreclosure expires, the former owner has no enforceable right to repurchase the property; any post-expiry offer is a mere repurchase that the purchaser, as absolute owner, may accept or reject. An internal bank policy granting priority to former owners does not create a legally demandable right to compel the bank to sell, especially where the former owner failed to comply with the policy's conditions.

Rodolfo Bacani owned a parcel of land in Centro East, Santiago, Isabela, covered by Transfer Certificate of Title No. 114296, which he and his wife Nellie used to secure a loan from PNB. The other respondents occupied the subject property. PNB SEL Circular No. 8-7/89 established an internal policy giving former owners or their heirs priority to reacquire foreclosed assets on a negotiated basis without public bidding, subject to conditions. The case concerns the legal effect of that circular after foreclosure and consolidation of title in PNB.

Rodolfo Bacani was the registered owner of a parcel of land located in Centro East, Santiago, Isabela, with an area of 618 square meters, covered by Transfer Certificate of Title No. 114296. The other respondents were the occupants of the subject property. On July 16, 1980, the subject property was used to secure a Php 80,000.00 loan that Rodolfo and his wife, Nellie Bacani, obtained from PNB. When the Spouses Bacani failed to pay their loan, PNB extrajudicially foreclosed the subject property on September 9, 1986. PNB was awarded the property as the highest bidder with a bid amount of Php 148,960.74. The certificate of sale was registered on October 10, 1986, and the Spouses failed to redeem the property within the one-year redemption period. Consequently, on June 6, 1989, Rodolfo's title was cancelled, and Transfer Certificate of Title No. T-185028 was issued in the name of PNB.

On November 29, 1989, PNB issued SEL Circular No. 8-7/89, revising its policy on the disposition of acquired assets. Subject to certain conditions, former owners or their heirs were given priority in the re-acquisition of their foreclosed assets on a negotiated basis without public bidding. In light of this circular, the Spouses Bacani initiated negotiations with PNB regarding the re-acquisition of their property. Their intention to buy back the subject property was manifested at the earliest through a written offer on August 26, 1991, followed by another letter to PNB on November 11, 1991, addressed to Mr. Antonio C. Santos, then Branch Manager of PNB Cauayan Branch. Initially, their written offer was fixed at Php 150,000.00. On November 25, 1991, they increased the offer to Php 220,000.00. They continued to follow up, and on April 7, 1992, Mr. Santos advised them to increase their offer because their initial proposal was low. Through a letter sent on May 25, 1992, the Spouses Bacani offered to repurchase the subject property for Php 200,000.00 in cash and Php 100,000.00 payable in installments for two years, or an aggregate amount of Php 300,000.00. They also sent letters to PNB on July 29, 1992, and December 10, 1992. PNB later informed the Spouses Bacani in its letter dated December 10, 1992 that the request for repurchase was refused and that the subject property would instead be sold in a public auction. This was followed by another letter dated January 26, 1993, which attached an office memorandum explaining that the offer was refused because it was low, amounting to less than the fair market value of the subject property and PNB's total claim. At that time, the subject property's fair market value was appraised at Php 494,000.00. Undeterred, the Spouses Bacani increased their offer to Php 350,000.00 on June 10, 1993. They continued to communicate with PNB even after Mr. Santos was succeeded by Mr. Bartolome Pua, but their efforts remained unsuccessful.

On January 29, 1996, the Spouses Bacani received a notice from Mr. Pua that the PNB Special Assets Management Department had begun to accept offers for the purchase of various properties, including the subject property. They were provided with a copy of the Invitation to Bid, stating that the public bidding was scheduled on February 8, 1996, at 10:00 a.m., in the office of the PNB Special Assets Management Department. PNB set the floor bid price at Php 4,000,000.00. On January 30, 1996, PNB sold the subject property through a negotiated sale to Renato de Leon for the price of Php 1,500,000.00. Pursuant to this sale, the title of PNB was cancelled, and Transfer Certificate of Title No. 261643 was issued in the name of Renato. Renato later filed an ejectment case against the respondents on February 18, 1997, which was favorably granted by the Municipal Trial Court of Santiago City. The respondents were directed to vacate the subject property, and their houses were later demolished.

On March 19, 1997, the respondents filed a complaint for the annulment of the sale and Renato's title over the subject property, together with a prayer for the payment of damages, docketed as Civil Case No. 35-2365 with the Regional Trial Court of Santiago City. The respondents alleged that PNB schemed to prevent the Spouses Bacani from buying back the subject property. They also claimed that PNB's refusal to accept their offer, and the subsequent sale of the subject property to Renato despite the earlier scheduled auction sale, were all badges of bad faith on the part of PNB that warranted the annulment of Renato's title and the award of damages in their favor. PNB refuted the respondents' allegations, stating that the offers of the Spouses Bacani were way below the fair market value of the subject property. PNB further alleged that as the registered owner, it may dispose of the subject property in accordance with its own terms and conditions.

After trial, the RTC found that PNB acted in bad faith by failing to give preference to the Spouses Bacani's offer to purchase the subject property. The RTC found that PNB sold the subject property to Renato on January 30, 1996 through a negotiated sale, despite having notified the Spouses Bacani the day before that the subject property was included in the auction sale. This action on the part of PNB pre-empted the results of the public bidding, which the trial court equated to fraud because the Spouses Bacani supposedly relied on PNB's representation that the subject property would be sold in a public auction. The RTC also did not consider Renato as a purchaser in good faith because the Invitation to Bid was published, which fact should have put him on notice regarding the supposed status of the subject property. The RTC ruled that PNB failed to observe its own policy granting priority right to the former owners of its acquired assets. The CA affirmed the trial court's findings that the sale to Renato was fraudulent because the Spouses Bacani were unable to exercise their right to buy back their foreclosed property at the scheduled public bidding. The CA also noted that the Spouses Bacani's time deposit in the amount of USD 12,585.27 on October 2, 1992, which was renewed and increased to USD 13,707.22 as of October 23, 2000, was a clear manifestation of the Spouses Bacani's financial capability and earnest desire to repurchase the subject property. The CA also applied the doctrine of constructive trust as regards Renato's acquisition of title over the subject property in order to justify its reconveyance to the Spouses Bacani.

• Right to Dispose as Absolute Owner: Petitioner PNB claimed that the decisions of the RTC and the CA deprived it of its right to freely dispose of the subject property, which was rightfully acquired in a foreclosure sale after the Spouses Bacani defaulted on their loan obligation. It argued that as the registered owner, it had the prerogative to dispose or sell the property in the manner it saw fit, and that the sale to Renato was not fraudulent.
• No Legally Demandable Preference under SEL Circular No. 8-7/89: PNB disagreed that the preference granted to former owners under SEL Circular No. 8-7/89 constituted a legally demandable right on the part of the Spouses Bacani that would compel PNB to sell the subject property regardless of the offer of the Spouses Bacani.
• No Constructive Trust and No Fraud by Renato: PNB refuted the CA's holding that the cancellation of Renato's title was justified under the doctrine of constructive trust, there being no fraud or misrepresentation on the part of Renato in acquiring title over the subject property.
• Renato as Innocent Purchaser for Value: In its motion for reconsideration, PNB maintained that Renato is an innocent purchaser for value because the title over the subject property was already registered with PNB at the time of the sale to Renato.
• Time Deposit Improperly Considered: PNB alleged that the dollar time deposit account was opened jointly under the names of a certain Pilarita Ruiz and Nellie Bacani, and for this reason the amount deposited should not have been considered by the CA in determining the Spouses Bacani's offer to repurchase the subject property.

• Bad Faith and Scheme to Prevent Repurchase: Respondents alleged that PNB schemed to prevent the Spouses Bacani from buying back the subject property. They claimed that PNB's refusal to accept their offer, and the subsequent sale of the subject property to Renato despite its earlier scheduled auction sale, were badges of bad faith on the part of PNB that warranted the annulment of Renato's title and the award of damages in their favor.
• Priority Right under PNB SEL Circular No. 8-7/89: Respondents anchored their claim on PNB SEL Circular No. 8-7/89, which embodied the bank's policy of giving priority to former owners in the disposition of its acquired assets, and asserted that PNB's policy of preference should allow them to repurchase the property unconditionally.
• Reliance on Invitation to Bid: Respondents relied on the publication of the Invitation to Bid and the scheduled public auction to support their claim that PNB acted fraudulently in selling the subject property to Renato through a negotiated sale.

• Enforceable Right to Repurchase After Redemption: Whether the Spouses Bacani had an enforceable right to repurchase the subject property after the one-year redemption period in extrajudicial foreclosure had expired.
• Effect of PNB SEL Circular No. 8-7/89: Whether PNB SEL Circular No. 8-7/89 conferred on the Spouses Bacani a legally demandable right to be prioritized in reacquiring the foreclosed property, such that PNB could be compelled to sell to them.
• Compliance with Circular Conditions: Whether the Spouses Bacani complied with the conditions of PNB SEL Circular No. 8-7/89, particularly the requirement that the selling price be based on PNB's total claim or the property's fair market value, whichever is higher.
• Time Deposit as Option Money or Down Payment: Whether the Spouses Bacani's time deposit with PNB constituted option money, a down payment, or a perfected contract of sale or option contract.
• Invitation to Bid and Fraud: Whether the publication of the Invitation to Bid bound PNB to sell the subject property to the Spouses Bacani or supported a finding of fraud against PNB and Renato.
• Validity of Sale to Renato and Annulment of Title: Whether the sale of the subject property to Renato was valid and whether the complaint for annulment of sale and title should be dismissed.
• Constructive Trust: Whether the doctrine of constructive trust justified the cancellation of Renato's title and the reconveyance of the subject property to the Spouses Bacani.

• Enforceable Right to Repurchase After Redemption: No. Upon expiration of the one-year redemption period, the right to redeem becomes functus officio; any subsequent offer is a mere repurchase, and the purchaser is not bound to accept it.
• Effect of PNB SEL Circular No. 8-7/89: No. The circular was an internal bank policy, not a law or contract, and did not confer a legally enforceable right on former owners to compel PNB to sell to them.
• Compliance with Circular Conditions: No. The Spouses' offers were lower than PNB's total claim and the property's fair market value, failing the circular's first condition.
• Time Deposit as Option Money or Down Payment: No. The time deposit created a debtor-creditor relationship and did not constitute option money, a down payment, or a perfected contract of sale or option contract.
• Invitation to Bid and Fraud: No. The Invitation to Bid was a mere invitation to make proposals and did not bind PNB; fraud was not proven by clear and convincing evidence.
• Validity of Sale to Renato and Annulment of Title: Yes, the sale to Renato was valid and the complaint for annulment should be dismissed because PNB was the absolute owner and had the right to dispose of the property.
• Constructive Trust: No. Constructive trust cannot justify cancellation of Renato's title absent fraud or misrepresentation; the sale was valid.

• Enforceable Right to Repurchase After Redemption: Under Act No. 3135, Section 6, the debtor, successors-in-interest, or judicial creditor has one year from registration of the certificate of sale to redeem. The certificate of sale was registered on October 10, 1986, and one year lapsed without the Spouses Bacani redeeming. Consolidation of ownership in PNB became a matter of right; PNB became the absolute owner, and Rodolfo and his wife lost all rights and interests. Citing Spouses Marquez vs. Spouses Alindog, the buyer in a foreclosure sale becomes absolute owner if the property is not redeemed; possession becomes an absolute right, and issuance of a writ of possession is ministerial. The initial offer on August 26, 1991 came almost four years after the redemption period expired on October 10, 1987. Article 428 of the Civil Code gives the owner the right to enjoy and dispose of a thing without limitations other than those established by law. PNB therefore had full discretion over the terms and conditions of disposition; it cannot be compelled to sell to specific persons without its consent, and courts cannot enjoin or nullify the alienation on grounds other than those established by law. The alleged negotiations in 1988 did not matter because the Spouses failed to redeem and were divested of rights; the final deed of sale to PNB merely confirmed the title already vested. GE Money Bank, Inc. vs. Spouses Dizon is instructive: the right to redeem becomes functus officio upon expiry; exercise after the period is a repurchase; the purchaser may or may not resell, no law compels him, and he is not bound by the bid price but may set a higher price.
• Effect of PNB SEL Circular No. 8-7/89: The Spouses anchored their claim on the circular, which embodied PNB's policy of giving priority to former owners in the disposition of acquired assets. But when the circular was issued on November 29, 1989, the redemption period had expired and title was already consolidated in PNB. Any offer by the Spouses was therefore merely an offer to repurchase, and PNB was not statutorily or contractually bound to accept it. The circular was an internal memorandum intended for the information of bank employees and personnel, addressed to heads of PNB offices and branches to guide them in the disposal and alienation of acquired assets. As an internal bank policy, it did not give the Spouses a legally enforceable right to be prioritized over all other buyers. Pantaleon vs. American Express International, Inc. recognized that a practice or custom is generally not a source of a legally demandable or enforceable right. No law prioritizes former owners of foreclosed properties in subsequent sale or disposition. To rule otherwise would unjustly deprive an absolute owner of the right to freely dispose or alienate the property. At most, the circular granted a privilege, not an enforceable and absolute right to reacquire to the prejudice of PNB.
• Compliance with Circular Conditions: Even if the circular were considered binding, it imposed several terms and conditions before former owners could repurchase. The first condition required the selling price to be based on the total bank claim or fair market value, whichever is higher. The Spouses' initial offer on August 26, 1991 was Php 150,000.00, but the outstanding loan balance was Php 170,670.56. They increased the offer to Php 220,000.00 and, in 1992, to Php 300,000.00 (Php 200,000.00 cash and Php 100,000.00 in installments). PNB's total claim was Php 210,708.12 as of April 30, 1991 and Php 217,646.50 as of November 4, 1991. The property's fair market value was appraised at Php 395,520.00 in 1992 and Php 494,400.00 in 1993. The offers were lower than either PNB's total claim or the fair market value. PNB communicated the rejection and its grounds in several letters. The Spouses could not insist on repurchasing without complying with the circular's requirements, and PNB was justified in declining their offers.
• Time Deposit as Option Money or Down Payment: The CA relied on the Spouses' time deposit with PNB, containing USD 12,585.27 as of October 2, 1992 and renewed and increased to USD 13,707.22 as of October 23, 2000, as a manifestation of willingness and ability to pay. This did not change the conclusion. Bank deposits are in the nature of a simple loan or mutuum, which must be paid upon demand by the depositor. The deposit created a debtor-creditor relationship; PNB was duty-bound to pay or release the amount whenever the depositor required. PNB could not have assumed that the time deposit was option money intended to secure the privilege of buying the property within a given period, especially since there was no option contract. Neither could PNB consider the deposit as a down payment because there was no perfected contract of sale. PNB could not use the money to satisfy the purchase price without violating its obligation to return the amount upon demand. The time deposit did not create a contract of sale or, at the very least, an option contract. Reacquisition involves a contract, which requires a meeting of the minds; when an offer is not accepted, the contract is not perfected and no binding juridical relation exists. The Spouses could not demand to repurchase absent PNB's consent.
• Invitation to Bid and Fraud: The publication of the Invitation to Bid did not constitute a binding obligation on PNB to sell to the Spouses. Article 1326 of the Civil Code provides that advertisements for sale are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder unless the contrary appears. PNB merely notified interested parties to submit proposals, which it could accept or reject as absolute owner. The published bidding schedule was not an offer from PNB, notice and acceptance of which would compel the bank to sell. There was no guarantee that the highest or lowest bid was entitled to purchase the property. Fraud is never presumed; it must be proven by clear and convincing evidence. The Spouses failed to establish that PNB and Renato committed fraud. There was no showing that PNB assured the sale to the Spouses during the auction; in fact, the Spouses did not even attend the scheduled auction to make an offer. The publication of the Invitation to Bid could not support their claim of fraud.
• Validity of Sale to Renato and Annulment of Title: At the time of the sale to Renato, PNB was the absolute owner of the subject property. It had the right to dispose or alienate the property notwithstanding the Spouses' intention to repurchase it. The sale to Renato was therefore valid. The complaint for annulment of the sale and of Renato's title must be dismissed. The Spouses had no cause of action, especially after consolidation of title in PNB.
• Constructive Trust: PNB refuted the CA's reliance on constructive trust, arguing there was no fraud or misrepresentation by Renato. The Court found no fraud and upheld the sale to Renato as valid because PNB was the absolute owner. The complaint for annulment, including the cancellation of Renato's title, was dismissed. Without fraud or misrepresentation, the CA's constructive-trust theory could not support cancellation of Renato's title.

• Right of Redemption vs. Repurchase in Extrajudicial Foreclosure — Under Act No. 3135, Section 6, the debtor, successors-in-interest, or judicial creditor has one year from registration of the certificate of sale to redeem the foreclosed property. After expiry, the right to redeem becomes functus officio; any exercise is a mere repurchase, and the purchaser is not bound to accept it and may set a higher price. Applied: the Spouses failed to redeem within one year from October 10, 1986; PNB became absolute owner; their later offers were mere repurchase offers.
• Attributes of Ownership under Article 428 — The owner has the right to enjoy and dispose of a thing without other limitations than those established by law. Applied: PNB, as absolute owner after consolidation, had full discretion over the disposition of the property; it could not be compelled to sell to specific persons without its consent, and courts could not enjoin or nullify the alienation on grounds other than those established by law.
• Internal Bank Circulars as Non-Enforceable Policies — An internal memorandum or policy issued for the guidance of bank employees and personnel does not, by itself, create a legally demandable or enforceable right in favor of third parties absent a law or contract. Applied: PNB SEL Circular No. 8-7/89 gave former owners at most a privilege to be prioritized, not an absolute right to reacquire the property.
• Practice or Custom as Source of Rights — A practice or custom is generally not a source of a legally demandable or enforceable right. Applied: the Spouses could not enforce PNB's internal bank circular as if it were a law or contract.
• Bank Deposits as Simple Loan or Mutuum — A bank deposit is in the nature of a simple loan or mutuum, creating a debtor-creditor relationship; the bank is bound to pay or release the amount upon demand by the depositor. Applied: the Spouses' time deposit could not be treated as option money or down payment without an option contract or perfected sale.
• Invitations to Bid as Mere Invitations to Make Proposals — Under Article 1326 of the Civil Code, advertisements for sale are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder unless the contrary appears. Applied: the published Invitation to Bid did not bind PNB to sell to the Spouses or to accept any bid.
• Fraud Must Be Proven by Clear and Convincing Evidence — Fraud is never presumed; it must be established by clear and convincing evidence. Applied: the Spouses failed to show that PNB and Renato committed fraud in the disposition of the subject property.
• Perfected Contract of Sale Requires Meeting of Minds — A contract of sale requires a meeting of the minds; when an offer is not accepted, no contract is perfected and no binding juridical relation arises. Applied: no contract of sale or option contract was perfected between PNB and the Spouses.
• Constructive Trust as Applied by the CA — The CA applied constructive trust to justify reconveyance to the Spouses. The Court rejected the basis for that theory by finding no fraud or misrepresentation and upholding the sale to Renato as valid; the complaint for annulment was dismissed.

• "Upon the expiration of the period to redeem, the Spouses Bacani do not have an enforceable right to repurchase the subject property." — This states the core holding: after the statutory redemption period lapses, the former owner's post-expiry offer is not enforceable against the purchaser.
• "The right to redeem becomes functus officio on the date of its expiry, and its exercise after the period is not really one of redemption but a repurchase. Distinction must be made because redemption is by force of law; the purchaser at public auction is bound to accept redemption. Repurchase, however, of foreclosed property, after redemption period, imposes no such obligation. After expiry, the purchaser may or may not re-sell the property but no law will compel him to do so." — This is the Court's adopted formulation distinguishing redemption from repurchase and explaining why PNB could not be compelled to sell to the Spouses.
• "As an internal bank policy, the Spouses Bacani do not have a legally enforceable right to be prioritized over all other buyers of the subject property." — This defines the legal status of SEL Circular No. 8-7/89 and rejects the lower courts' reliance on it as a source of a demandable right.
• "In this case, the Spouses Bacani were unable to establish that PNB and Renato committed fraud in the disposition of the subject property." — This disposes of the fraud claim and supports the dismissal of the complaint for annulment of sale and title.

• Spouses Marquez vs. Spouses Alindog, 725 Phil. 237 (2014) — Cited for the rule that a buyer in a foreclosure sale becomes absolute owner if the property is not redeemed during the one-year period; possession becomes an absolute right, and issuance of a writ of possession is ministerial.
• Spouses Estanislao, Jr. vs. CA, 414 Phil. 509 (2001) — Cited for reckoning the redemption period from registration of the certificate of sale and for the effect of failure to redeem.
• Spouses Gallent vs. Velasquez, 784 Phil. 44 (2016) — Cited for consolidation of ownership in the purchaser and the purchaser's exercise of the essential attributes of ownership.
• GE Money Bank, Inc. vs. Spouses Dizon, 756 Phil. 502 (2015) — Controlling precedent distinguishing redemption from repurchase; after expiry, the right to redeem is functus officio, the purchaser may or may not resell, and is not bound by the bid price.
• Pantaleon vs. American Express International, Inc., 643 Phil. 488 (2010) — Cited for the principle that a practice or custom is generally not a source of a legally demandable or enforceable right.
• The Metropolitan Bank and Trust Co. vs. Rosales, et al., 724 Phil. 66 (2014) — Cited for the rule that bank deposits are in the nature of a simple loan or mutuum.
• BPI Family Bank vs. Franco, 563 Phil. 495 (2007) — Cited for the debtor-creditor relationship created by a bank deposit and the bank's duty to pay upon demand.
• Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Company, et al., 702 Phil. 109 (2013) — Cited for the requirement of meeting of minds and the non-perfection of a contract when an offer is not accepted.
• Spouses Galang vs. Spouses Reyes, 692 Phil. 652 (2012) — Cited for the rule that fraud is never presumed and must be proven by clear and convincing evidence.
• Tayag vs. Lacson, et al., 470 Phil. 64 (2004) — Cited for the principle that courts cannot enjoin or nullify an alienation of property on grounds other than those established by law.
• Spouses Edralin vs. Philippine Veterans Bank, 660 Phil. 368 (2011) — Cited for the rule that the final deed of sale to the purchaser merely confirms the title already vested after failure to redeem.

• Act No. 3135, Section 6 — Provides the one-year redemption period in extrajudicial foreclosure, reckoned from registration of the certificate of sale. Applied: the certificate of sale was registered on October 10, 1986; the Spouses failed to redeem within one year, so PNB became absolute owner.
• Civil Code, Article 428 — The owner has the right to enjoy and dispose of a thing without other limitations than those established by law. Applied: PNB, as absolute owner, had full discretion to dispose of the subject property and could not be compelled to sell to the Spouses.
• Civil Code, Article 1326 — Advertisements for sale are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder unless the contrary appears. Applied: the Invitation to Bid did not bind PNB to sell to the Spouses or to accept any bid.
• Civil Code, Article 1318 — A contract requires a meeting of minds. Applied: no contract of sale or option contract was perfected between PNB and the Spouses because PNB did not accept their offers.
• Rules of Court, Rule 45 — Governs petitions for review on certiorari. Applied: PNB filed the petition under Rule 45 seeking reversal of the CA Decision and Resolution.

Carpio, Del Castillo, Perlas-Bernabe, and Caguioa, JJ., concur.