Rosales vs. Suba

In a judicial foreclosure of mortgage under Rule 68 of the 1997 Rules of Civil Procedure, where the mortgagee is not the Philippine National Bank or a banking institution, there is no right of redemption (which would allow the mortgagor to repurchase the property after the confirmation of sale and registration of the certificate of sale). The mortgagor retains only an equity of redemption—the right to extinguish the mortgage and retain ownership by paying the secured debt within the 90-day period after the judgment becomes final, or at any time prior to the confirmation of the foreclosure sale. After confirmation of the sale, the purchaser acquires vested rights to the property, and the mortgagor is divested of all rights therein.

The dispute originated from a transaction between petitioners (Spouses Rosales and Sibug) and Felicisimo Macaspac and Elena Jiao involving real property. The Regional Trial Court (RTC) characterized the transaction as an equitable mortgage rather than an absolute sale. When petitioners defaulted on the obligation, the RTC rendered a judgment ordering them to pay the mortgage debt within 90 days from finality of the decision, failing which the property would be sold at public auction. The judgment became final and executory, but petitioners failed to comply with the payment directive, leading to the issuance of a writ of execution and the subsequent auction sale of the property to respondents (Spouses Suba).

• The Regional Trial Court, Branch 13, Manila rendered a Decision on June 13, 1997 in Civil Cases Nos. 94-72303 and 94-72379 declaring certain deeds of sale executed by petitioners in favor of Felicisimo Macaspac and Elena Jiao as constituting an equitable mortgage over the subject property.
• The dispositive portion of the RTC decision required petitioners, as judgment debtors, to deposit with the Clerk of Court the sum of P65,000.00 with interest at nine percent per annum from September 30, 1982, plus P219.76 for real estate taxes, within 90 days from finality of the decision, to be paid to Macaspac and Jiao.
• The decision further provided that upon such deposit, Macaspac and Jiao would execute a deed of reconveyance to petitioners; in case of non-compliance, the property would be sold in accordance with the Rules of Court.
• The decision became final and executory, but petitioners failed to comply with the 90-day payment period.
• Macaspac filed a motion for execution, which petitioners opposed on the ground that the decision had not yet attained finality.
• On February 23, 1998, Macaspac filed a supplemental motion for execution stating the amount due was P243,864.08.
• On March 25, 1998, the RTC issued a writ of execution ordering the sale of the property at public auction to satisfy the judgment.
• On May 15, 1998, the auction sale was conducted wherein petitioners participated; the property was sold for P285,000.00 to respondents Spouses Alfonso and Lourdes Suba as highest bidders.
• On July 15, 1998, the RTC issued an order confirming the sale and directing the sheriff to issue a final deed of sale in favor of respondents.
• On August 3, 1998, the Register of Deeds of Manila issued a new Transfer Certificate of Title over the subject property in the names of respondents.
• On August 18, 1998, respondents filed a motion for writ of possession, contending that the confirmation of the sale effectively cut off petitioners' equity of redemption.
• Petitioners filed a motion for reconsideration of the order confirming the sale and opposed the motion for writ of possession.
• On October 19, 1998, the RTC issued an order granting the writ of possession in favor of respondents and denying petitioners' motion for reconsideration, ruling that petitioners had no right to redeem the property as the case involved judicial foreclosure of mortgage under Rule 68.

• Petitioners faulted the Court of Appeals for applying the rules on judicial foreclosure of mortgage under Rule 68 of the 1997 Rules of Civil Procedure.
• They contended that their loan obligation with Macaspac was unsecured, and therefore its enforcement should be governed by Section 9 in relation to Section 25, Rule 39 (Execution of Judgments), which provides for a one-year redemption period from the date of registration of the certificate of sale.
• They argued that they should be allowed to redeem the foreclosed property within one year from the date of registration of the certificate of sale, as provided in Rule 39 governing execution of judgments for money.
• They asserted that the trial court committed grave abuse of discretion in issuing a writ of possession to respondents and in denying their motion for reconsideration of the order confirming the sale.

• Respondents insisted that petitioners were actually questioning the decision of the trial court dated June 13, 1997, which had long become final and executory.
• They argued that petitioners had no right to redeem a mortgaged property which had been judicially foreclosed, as the confirmation of the sale had already been issued.
• They maintained that under Rule 68, once the foreclosure sale is confirmed by the court, the purchaser is entitled to possession as a matter of right, and the mortgagor's equity of redemption is extinguished.

• Procedural Issues: Whether the petition for certiorari was the proper remedy to assail the trial court's orders confirming the sale and issuing the writ of possession, given that these orders were issued in the exercise of the court's jurisdiction over judicial foreclosure proceedings.
• Substantive Issues: Whether petitioners, as judgment debtors in a judicial foreclosure of an equitable mortgage where the mortgagee is not a banking institution, possess a right of redemption (allowing repurchase within one year from registration of sale) or merely an equity of redemption (extinguished upon confirmation of the sale), and whether the trial court correctly applied Rule 68 rather than Rule 39 of the 1997 Rules of Civil Procedure.

• Procedural: The Supreme Court denied the petition for review on certiorari and affirmed the Resolutions of the Court of Appeals. The Court held that the Court of Appeals did not commit reversible error in dismissing the petition for certiorari, as the trial court acted within its jurisdiction in applying the procedures for judicial foreclosure of mortgage under Rule 68. The issuance of the writ of possession and the confirmation of the sale were valid judicial acts in the execution of a final judgment.
• Substantive: The Supreme Court ruled that the transaction between petitioners and Macaspac constituted an equitable mortgage, which is treated similarly to a real estate mortgage for purposes of foreclosure. Consequently, the execution of judgment is governed by Sections 2 and 3 of Rule 68 (Judicial Foreclosure of Real Estate Mortgage), not by Rule 39 (Execution of Judgments for Money). Under Rule 68, a mortgagor has only an equity of redemption—the right to extinguish the mortgage by paying the secured debt within the 90-day period after the judgment becomes final, or at any time before the confirmation of the foreclosure sale. The Court emphasized the distinction between equity of redemption and right of redemption: the latter (which allows repurchase within one year from registration of the certificate of sale) exists only in extrajudicial foreclosure under Act 3135, or in judicial foreclosure where the mortgagee is the Philippine National Bank or a banking institution under special laws (Act Nos. 2747 and 2938, and R.A. 337). Since Macaspac was not a bank, no statutory right of redemption existed. The confirmation of the sale on July 15, 1998 operated to divest petitioners of all rights in the property and vest them in respondents. Petitioners' failure to exercise their equity of redemption within the prescribed period or before confirmation resulted in the irrevocable loss of the property.

• Equitable Mortgage — Defined as a transaction which, although lacking in some formality, form, words, or other requisites demanded by statute, nevertheless reveals the intention of the parties to charge real property as security for a debt. An equitable mortgage creates a lien that ought not to be defeated by requiring compliance with the formalities necessary for a voluntary real estate mortgage. In this case, the Court applied this doctrine to treat the subject transaction as a mortgage subject to judicial foreclosure under Rule 68.
• Equity of Redemption vs. Right of Redemption — The equity of redemption is the right of the mortgagor to extinguish the mortgage and retain ownership by paying the secured debt within the 90-day period after the judgment becomes final, or at any time prior to the confirmation of the foreclosure sale. The right of redemption is the statutory prerogative to re-acquire mortgaged property after the registration of the foreclosure sale, which exists only in extrajudicial foreclosure or in judicial foreclosure where the mortgagee is a banking institution. The Court held that petitioners only possessed equity of redemption, which they failed to exercise before the confirmation of the sale.
• Judicial Foreclosure of Mortgage — Governed by Rule 68 of the Rules of Civil Procedure. When the judgment debtor fails to pay within the period specified in the judgment (not less than 90 days nor more than 120 days), the court shall order the property sold. Upon confirmation of the sale, the court's order operates to divest the rights of all parties to the action and vest them in the purchaser, subject only to statutory rights of redemption allowed by law (which apply only to banks).

• "An equitable mortgage is one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law."
• "The right of redemption in relation to a mortgage—understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale—exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National bank or a bank or a banking institution."
• "This is the mortgagor's equity (not right) of redemption which, as above stated, may be exercised by him even beyond the 90-day period 'from the date of service of the order,' and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer."

• Matanguihan vs. Court of Appeals (341 Phil. 379) — Cited for the definition of equitable mortgage as a transaction revealing the intention to charge real property as security despite lacking formal requisites.
• Zubiri vs. Quijano (74 Phil. 47) — Cited for the principle that the lien created by an equitable mortgage ought not to be defeated by requiring compliance with formalities necessary for voluntary mortgages.
• Huerta Alba Resort, Inc. vs. Court of Appeals (G.R. No. 128567, September 1, 2000) — Controlling precedent establishing that the right of redemption exists only in extrajudicial foreclosure or judicial foreclosure by banks, and distinguishing it from equity of redemption which is extinguished upon confirmation of sale in ordinary judicial foreclosure.
• Limpin vs. Intermediate Appellate Court (G.R. No. L-70987, September 29, 1988) — Cited in Huerta Alba Resort for the same distinction between equity of redemption and right of redemption.

• Rule 68, Sections 2 and 3, 1997 Rules of Civil Procedure — Governs judgment on foreclosure for payment or sale and the effect of sale of mortgaged property; provides for the 90-day payment period and the divestment of rights upon confirmation of sale.
• Rule 39, Sections 9 and 25, 1997 Rules of Civil Procedure — Cited by petitioners regarding execution of judgment for money and the one-year redemption period; the Court held these provisions inapplicable to judicial foreclosure of mortgage.
• Act No. 3135 — Governs extrajudicial foreclosure of mortgage; grants a one-year right of redemption from registration of sale.
• Act Nos. 2747 and 2938 (PNB Charter) — Confer a right of redemption after confirmation of sale in judicial foreclosure where the mortgagee is the Philippine National Bank.
• Republic Act No. 337 (General Banking Act) — Extends the right of redemption after confirmation to other banking institutions.