G.R. No. L-29130 - Development Bank of the Philippines vs. Mirang

The plaintiff-appellee is the Development Bank of the Philippines (DBP), originally the Rehabilitation Finance Corporation (RFC), and the defendant-appellant is Dionisio Mirang.
On September 7, 1950, Mirang obtained a loan approved at P14,000.00 for various purposes related to the development of his homestead—specifically, for the purchase of work animals and farm implements (P1,000), construction of farmhouse and laborer’s quarters (P1,500), and the development and maintenance of 18.5 hectares of abaca land (P11,500).
Although the approved amount was P14,000.00, only P13,000.00 was released gradually; further loan releases were halted by the DBP once the financing plantation was affected.

The loan was intended for the development of the appellant’s homestead by planting abaca on 18.5 hectares of land.
The plantation was attacked by mosaic disease, which destroyed the abaca plants, leading the lender to stop further releases of the loan and leaving the project in a compromised state.

The loan was secured by a first mortgage on Mirang’s homestead.
Mirang failed to pay the required yearly amortizations according to the terms of the promissory notes and mortgage contract.
Consequently, the provincial sheriff of Davao, acting on the DBP’s request, conducted an extrajudicial foreclosure under Act 3135 (as amended).
The mortgaged property was sold at public auction on July 30, 1957, where the DBP, as the highest bidder, acquired the property for the sum of P2,010.00.
By the time of sale, the indebtedness (including interest) had escalated to P19,714.35, with additional auction and registration expenses amounting to P101.00.

The auction sale notice informed Mirang of his right of redemption, allowing him one year from the date of sale (July 30, 1957) to redeem his property.
Mirang did not exercise his right of redemption, leading the DBP to file a complaint on May 29, 1962 against him for the balance of the debt.
The lower courts ruled in favor of the DBP, determining that Mirang was liable to pay the balance of the indebtedness (less an amount representing the value of an engine) plus attorney’s fees and court costs.

Whether the DBP, as mortgagee, is entitled to recover the balance of the indebtedness when the mortgaged property was sold for less than the outstanding mortgage debt under an extrajudicial foreclosure pursuant to Act 3135, as amended.
The appellant argued that neither the Act nor the mortgage contract provided an express or implied right to recover such deficiency.

Whether the appellant, having obtained the loan expressly for the development of his homestead and having suffered loss due to mosaic disease, should be exempt from further liability.
Alternatively, whether the court has authority to reduce his net indebtedness under these circumstances.

Whether the debtor, if he wishes to redeem his foreclosed property, should pay only the auction sale price or the total outstanding obligation (including interest) as of the date of the sale.
This issue pivots on the interpretation of the statutory scheme governing redemption rights under the applicable law (including provisions of Com. Act No. 459 relating to properties mortgaged with the DBP).