Zomer Development Company, Inc. vs. Court of Appeals

Courts have the discretion under Rule 63, Section 5 of the Rules of Court to refuse to entertain an action for declaratory relief when a decision would not terminate the uncertainty or controversy, or when the declaration is unnecessary or improper; this discretionary act cannot be compelled by a writ of mandamus, which lies only to enforce ministerial duties. Additionally, Section 47 of Republic Act No. 8791, which prescribes a shorter redemption period for juridical persons (three months) compared to natural persons (one year) in extrajudicial foreclosures, does not violate the equal protection clause as it constitutes a reasonable classification based on the nature of property use (commercial versus residential) and serves the legitimate government interest of ensuring banking solvency and liquidity.

Zomer Development Company, Inc., a domestic corporation, owned three parcels of land in Cebu City covered by Transfer Certificate of Title Nos. 59105, 59123, and 59214. The properties were mortgaged to International Exchange Bank (later acquired by Union Bank of the Philippines) as security for a loan. When Zomer Development defaulted on its indebtedness, the bank foreclosed on the properties extrajudicially. A Notice of Extra-judicial Foreclosure Sale was posted and published on October 18, 2001, and the auction was conducted on November 19, 2001, with the bank emerging as the highest bidder. The Sheriff issued Certificates of Sale on the same day, which were registered on December 10, 2001, resulting in the issuance of new Transfer Certificates of Title in the bank's name.

• Zomer Development Company, Inc. owned three parcels of land in Cebu City covered by Transfer Certificate of Title Nos. 59105, 59123, and 59214, which were mortgaged to International Exchange Bank as security for a loan.
• Upon default, International Exchange Bank foreclosed extrajudicially, posting and publishing a Notice of Extra-judicial Foreclosure Sale on October 18, 2001, and conducting the auction on November 19, 2001, where it emerged as the highest bidder.
• The Sheriff issued Certificates of Sale to the bank on November 19, 2001, providing for a redemption period of twelve months from registration "or sooner and/or later, as provided for under applicable laws."
• On December 10, 2001, the bank registered the Certificates of Sale with the Register of Deeds, and new Transfer Certificates of Title Nos. 361006, 361007, and 361008 were issued in its name.
• On February 18, 2002, Zomer Development filed a Complaint for Declaration of Nullity of Notice of Sale, Certificate of Sale & TCTs and Declaration as Unconstitutional Sec. 47, RA No. 8791 before the RTC, arguing that the three-month redemption period for juridical persons under Section 47 of Republic Act No. 8791 (General Banking Law of 2000) violates equal protection compared to the one-year period for natural persons.
• The trial court furnished copies of the Complaint to the Office of the Solicitor General upon order of the court, but the Office of the Solicitor General did not participate in the case.
• The RTC dismissed the Complaint on March 24, 2004, holding that ruling on the constitutionality would deprive the Republic of due process since it was not heard and not impleaded as a party defendant.
• On appeal, the Court of Appeals dismissed the case without prejudice on October 18, 2010, categorizing the Complaint as one for declaratory relief and refusing to make a definitive ruling on the constitutionality issue, citing Rule 63, Section 5 of the Rules of Court regarding the discretion of courts to entertain such petitions.
• The Court of Appeals noted the case was novel and could be best resolved by the Supreme Court, as any pronouncement might have far-reaching effects on existing procedural rules.
• Zomer Development then filed a Petition for Mandamus before the Supreme Court to compel the Court of Appeals to resolve the constitutional issue.
• During the pendency of the petition, this Court directed the Office of the Solicitor General, the Bangko Sentral ng Pilipinas, and the Bankers Association of the Philippines to comment on the constitutionality of Section 47 of Republic Act No. 8791.

• Mandamus was the proper remedy because the Court of Appeals evaded its duty to decide on the constitutionality of Section 47 of Republic Act No. 8791 by deferring the issue to the Supreme Court.
• By declining to rule on the issue, the Court of Appeals deprived Zomer Development of its right to due process since it did not put an end to the controversy between the parties.
• Section 47 of Republic Act No. 8791 is unconstitutional as it is a "classic example of class legislation" intended to favor banks, quasi-banks, and other trust entities to the prejudice of juridical persons, giving undue advantage to lenders who are non-banks.
• The provision violates the equal protection clause by discriminating against mortgagors who are juridical persons through a shorter redemption period (three months) compared to natural persons (one year).

• The plain, speedy, and adequate remedy was a motion for reconsideration or an appeal; thus, petitioner cannot use a petition for mandamus as a substitute for a lost appeal.
• Petitioner no longer has the right to be protected by a writ of mandamus since ownership over the disputed properties has already been consolidated in the bank.
• The Petition has become moot in light of Goldenway Merchandising Corporation v. Equitable PCI Bank, which has already passed upon the constitutionality of Republic Act No. 8791, Section 47, upholding its validity.
• The constitutionality of Section 47 was further reiterated in White Marketing Development Corporation v. Grandwood Furniture and Woodwork, Inc., making it "indubitable" that the provision does not violate equal protection.

• Procedural Issues:
  • Whether the Court of Appeals can be compelled by writ of mandamus to rule on the constitutionality of a statute when it has discretion to refuse declaratory relief under Rule 63, Section 5 of the Rules of Court.
  • Whether the trial court erred in dismissing the complaint for failure to implead the Solicitor General as a party defendant.
• Substantive Issues:
  • Whether the issue of constitutionality of Section 47 of Republic Act No. 8791 has been rendered moot by the prior decision in Goldenway Merchandising Corporation v. Equitable PCI Bank.
  • Whether Section 47 of Republic Act No. 8791 violates the equal protection clause by providing a shorter redemption period for juridical persons (three months) compared to natural persons (one year) in extrajudicial foreclosures.

• Procedural:
  • The Court of Appeals cannot be compelled by mandamus to rule on the constitutionality of a statute because the grant of declaratory relief is discretionary under Rule 63, Section 5 of the Rules of Court; mandamus only lies to compel ministerial duties, not discretionary acts.
  • The trial court erred in dismissing the complaint for failure to implead the Solicitor General; Rule 63, Section 3 only requires notice to the Solicitor General, not impleading as a party, and the Solicitor General's failure to participate after being notified constitutes a waiver of the right to intervene, not a deprivation of due process.
• Substantive:
  • The petition has become moot because Goldenway Merchandising Corporation v. Equitable PCI Bank already definitively settled the constitutionality of Section 47 of Republic Act No. 8791, holding that the differential treatment between natural and juridical persons constitutes a reasonable classification.
  • Section 47 of Republic Act No. 8791 does not violate the equal protection clause; the classification between natural persons (one-year redemption) and juridical persons (three-month redemption) is based on reasonable distinctions regarding the nature of property use (residential vs. commercial) and serves the legitimate government interest of ensuring banking solvency and liquidity; juridical persons are not a suspect class, warranting only rational basis scrutiny.

• Discretion in Declaratory Relief — Courts have the discretion under Rule 63, Section 5 of the Rules of Court to refuse to declare rights or construe instruments in any case where a decision would not terminate the uncertainty or controversy which gave rise to the action, or where the declaration or construction is not necessary or proper under the circumstances.
• Mandamus Limited to Ministerial Duties — Mandamus lies only to compel the performance of ministerial duties, not discretionary acts; a ministerial duty requires neither the exercise of official discretion nor judgment, and connotes an act in which nothing is left to the discretion of the person executing it.
• Equal Protection and Reasonable Classification — The equal protection clause permits reasonable classification if it is based on substantial distinctions which make for real differences, is germane to the purpose of the law, applies equally to all members of the class, and applies to present and future conditions.
• Rational Basis Test — Applied to classifications not involving suspect classes or fundamental rights; requires only that there be a legitimate government interest and that there is a reasonable connection between it and the means employed to achieve it; juridical persons are not a suspect class.

• "Courts have the discretion to entertain an action for declaratory relief. They cannot be compelled, by a writ of mandamus, to resolve the case when they exercise this discretion."
• "Mandamus, however, may issue only to compel the performance of a ministerial duty. It cannot be issued to compel the performance of a discretionary act."
• "The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed — whether these are used as residence, for which the more liberal one-year redemption period is retained, or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets."

• Goldenway Merchandising Corporation v. Equitable PCI Bank — Controlling precedent that upheld the constitutionality of Section 47 of Republic Act No. 8791, rendering the present petition moot; established that the differential redemption periods constitute a reasonable classification based on the nature of property use and the government's interest in banking solvency.
• White Marketing Development Corporation v. Grandwood Furniture and Woodwork, Inc. — Cited to reiterate the constitutionality of Section 47 and the rationale that the shorter redemption period serves as additional security for banks to maintain solvency and liquidity.
• Chan v. Galang — Established that declaratory relief is discretionary upon the court to entertain.
• Metro Manila Development Authority v. Concerned Residents of Manila Bay — Defined ministerial duty as one requiring neither the exercise of official discretion nor judgment.
• Victoriano v. Elizalde Rope Workers Union — Discussed the standards for reasonable classification under the equal protection clause, stating that classification must be based on substantial distinctions germane to the purpose of the law.
• Samahan ng Progresibong Kabataan v. Quezon City — Summarized the three tests for determining reasonableness of classification (strict scrutiny, intermediate scrutiny, rational basis).
• City of Davao v. Intestate Estate of Amado D. Dalisay — Discussed that the right to redeem is a statutory privilege that must comply with the rules set forth by law.
• Spouses Limso v. Philippine National Bank — Applied the shorter redemption period to juridical persons and cited the policy behind Section 47 as explained in Goldenway.

• Rule 63, Sections 1, 3, and 5 of the Rules of Court — Govern actions for declaratory relief (Section 1), notice to the Solicitor General (Section 3), and the discretionary nature of such actions (Section 5).
• Rule 65, Section 3 of the Rules of Court — Governs petitions for mandamus against tribunaries or persons who unlawfully neglect the performance of an act which the law specifically enjoins as a duty.
• Section 47 of Republic Act No. 8791 (General Banking Law of 2000) — The provision assailed as unconstitutional, providing for different redemption periods for natural persons (one year) and juridical persons (three months) in extrajudicial foreclosures.
• Article III, Section 1 of the 1987 Constitution — The equal protection clause of the Bill of Rights.
• Book IV, Title III, Chapter 12, Section 35(3) of the Administrative Code — Defines the Solicitor General's duty to appear in any action involving the validity of a statute when requested by the court or when intervention is necessary.