G.R. No. 97973 - Gauvain vs. Court of Appeals

Respondent Benito Salvani Pe acquired a 26,064 sq. m. lot through free patents and miscellaneous sales from the Bureau of Lands; covered by Free Patent No. 46128 (Oct. 29, 1969) and OCT No. P-2404 (Nov. 24, 1969).
Pe mortgaged the lot and another property to Development Bank of the Philippines (DBP) on February 24, 1970 to secure a commercial loan of P978,920.00.
The land was developed into a commercial-industrial complex with ricemill, warehouse, office/residence, solar drier, roadways, garden, and other improvements.

After Pe defaulted on the loan for over seven years, DBP foreclosed the mortgage on June 28, 1977; total obligation had grown to P1,114,913.34.
DBP became the highest bidder at the foreclosure sale and held certificate of sale registered in the Registry of Deeds on January 24, 1978 for the disputed lot.
Pe leased the land from DBP post-foreclosure for P1,500/month; the National Grains Authority also leased part of the property.
Pe failed to redeem the land within the one-year redemption period after foreclosure.
DBP sold the lot to petitioners Gauvain and Bernardita Benzonan on September 24, 1979 for P1,650,000.00 payable in quarterly installments over five years.
The Benzonans occupied and improved the property further, investing about P970,000.00 in additional improvements.

On July 12, 1983, Pe offered to repurchase the lot for P327,995.00, asserting his right under Section 119 of Commonwealth Act No. 141.
DBP cited expenses incurred, amounting to over P3 million for preservation and improvements, as grounds for raising the repurchase price.
Pe filed a complaint for repurchase on October 4, 1983 with the Regional Trial Court (RTC) of General Santos City.
On November 27, 1986, RTC ruled in favor of Pe ordering DBP to reconvey the property for P327,995.00 plus interests, attorney’s fees, and exemplary damages; ordered defendants to vacate and reimburse the Benzonans.
Court of Appeals affirmed the RTC decision with modifications: DBP was to reimburse Benzonans the amounts paid minus interest; Benzonans allowed to remove improvements without damaging them.
Motions for reconsideration were denied.

Argued that conversion of the property from agricultural to commercial-industrial use forfeited Pe’s repurchase rights under Section 119 of CA 141.
Claimed the five-year repurchase period should have been counted from foreclosure sale date, which had already expired.
Opposed the retroactive application of the Belisario ruling that counted repurchase period differently.
Asserted Pe did not tender the repurchase price as required, revealing speculative motives.
Claimed rights as possessors in good faith entitle them to reimbursement of expenses and payments, with retention rights.

Contended Section 31 of Commonwealth Act No. 459 as amended did not apply to determine the repurchase price.
Maintained the contract terms between DBP and petitioners define their rights and obligations, which the Court of Appeals erroneously disregarded.

Whether Pe lost his right to repurchase the property under Section 119 of CA 141 due to conversion of the land from agricultural use to commercial/industrial purposes.
When the five-year period to exercise the right to repurchase begins to run — from the date of foreclosure sale or from expiration of the one-year redemption period.
Whether the ruling in Belisario, which counts the five-year period from after the redemption period, can be applied retroactively.
Whether tender or deposit of the repurchase price is necessary to perfect the repurchase under Section 119.
Whether the petitioners are entitled as good faith possessors to reimbursement for improvements and expenses, with rights to retain.
Whether Section 31 of Commonwealth Act No. 459 applies to determine the repurchase price and whether contractual terms govern the parties’ rights.