G.R. No. 230221 - People vs. Gayon y Ferreras

Parties and capacities
Rural Bank of Davao City, Inc. was a rural bank organized and existing under the Rural Banks Act.
Gabriel Abellano and Francisca Sequitan were the private respondents who obtained a loan from the petitioner and mortgaged the subject land to secure the loan.

Loan, mortgage, and character of the mortgaged property
On eighteen April 1978, Abellano and Sequitan obtained a loan of PHP 45,000.00 from the petitioner.
The loan was payable in two (2) equal installments on twenty-one October 1978 and twenty-one April 1979.
As security, the private respondents mortgaged a parcel of land in Matina, Davao City.
The land had an area of one (1) hectare, more or less and was covered by Original Certificate of Title No. P-7392.
The land was acquired through a homestead patent.

Eminent domain proceedings involving the subject property
On one July 1978, the National Housing Authority (NHA) filed an expropriation complaint in the then Court of First Instance (CFI) of Davao City, docketed as Special Civil Case No. 11157.
The action was for the Slum Improvement and Resettlement Program.
The complaint named the private respondents as defendants with respect to the mortgaged property, and also named fifteen (15) other persons.
As mortgagee, the petitioner filed a motion to intervene, which the court granted.
During the course of the case, on twenty-four February 1983, the court issued an order requiring the NHA to pay PHP 85.00 per square meter, later reduced to PHP 49.00 per square meter.
The resulting just compensation for the foreclosed property was PHP 490,000.00.

Mortgage default and extrajudicial foreclosure by the petitioner
After the loan maturity dates, the private respondents failed to pay.
The petitioner then caused extrajudicial foreclosure pursuant to Act No. 3135, as amended.
The foreclosure sale occurred on nine November 1979.
The petitioner was the highest bidder.
The Deputy Sheriff executed in the petitioner’s favor a certificate of sale for PHP 54,883.00, which included unpaid interest and other charges.
The certificate of sale was registered in the Registry of Deeds of Davao City on seven December 1979.

Redemption period under the Rural Banks Act and subsequent consolidation
The private respondents failed to redeem within two (2) years from the date of registration (until seven December 1981) as provided in Section 5 of the Rural Banks Act.
The petitioner extended the period to October 1982.
The private respondents still failed to redeem.
The petitioner requested consolidation of its title.
As a result, the private respondents’ certificate of title was canceled.
On three November 1982, Transfer Certificate of Title No. T-92487 was issued in the petitioner’s name.

Notification of intent to repurchase and subsequent reconveyance action
On nine November 1983, the private respondents notified the petitioner of their desire to repurchase the foreclosed property under Section 119 of the Public Land Act (C.A. No. 141).
The petitioner refused.
On nine February 1984, the private respondents filed with the Regional Trial Court (RTC) of Davao City a complaint for reconveyance, docketed as Civil Case No. 16693, raffled to Branch XIII.

Petitioner’s affirmative defenses in the reconveyance case
The petitioner asserted that the private respondents’ action would no longer prosper because their right to repurchase had become moot and academic.
The petitioner argued that the property could no longer be physically, materially, and actually recovered or repurchased due to its need by the sovereign state.
The petitioner cited the property’s use under the socialized housing program under P.D. No. 875, as amended, to be divided into smaller lots for more recipients.
The petitioner further argued that repurchase could not be exercised without actual, material, and physical recovery of the property itself, and that such speculative actions had been disallowed by jurisprudence.

Trial court proceedings and amendment of complaint
A pre-trial conference occurred on three May 1984.
On the same date, the trial court ordered the private respondents to deposit PHP 54,883.00 as repurchase price.
The private respondents complied.
On two July 1984, the private respondents filed a Motion to Amend the Complaint and File Supplemental Pleading.
The amended pleading alleged that there was a seeming impossibility to reacquire the property because of the order of expropriation.
The private respondents therefore prayed that justice demanded the payment of PHP 490,000.00 in lieu of the property expropriated.
Despite the petitioner’s opposition, on two August 1984, the trial court granted the motion and admitted the amended complaint.

Trial court decision
The trial court decided the case on one February 1985 based on stipulated facts.
The dispositive portion ordered:

Declaring the plaintiffs entitled to the price paid by the NHA for the property in question.
Ordering the defendant to pay or remit PHP 435,117.00, representing the remaining balance of the NHA price after deducting PHP 54,883.00 (the obligation/repurchase price.
Ordering the defendant to pay interest on PHP 435,117.00 at the rate granted by the defendant to its depositor, commencing on the date when defendant received PHP 490,000.00 from the NHA until full payment.
Ordering PHP 10,000.00 as attorney’s fee plus costs.

Appeal to the Court of Appeals
The petitioner appealed to the then Intermediate Appellate Court.
The case was docketed as CA-G.R. CV No. 07689.
On thirty March 1988, the Court of Appeals, through a division of five (5) (Sixteenth Division), promulgated its decision affirming the trial court.

Court of Appeals reasoning on the redemption and repurchase periods
The Court of Appeals held that Section 5 of the Rural Banks Act, as amended, did not reduce the redemption period of homestead lands from the five (5) years prescribed in Section 119 of C.A. No. 141 to two (2) years from registration.
The Court of Appeals invoked Oliva vs. Lamadrid, quoting the view that Section 5’s two-year redemption period referred to lands not...(Subscriber-Only)

Conflict of redemption/repurchase periods
Whether the two-year redemption period under the Rural Banks Act for foreclosure of property acquired through a homestead patent superseded or repealed the five-year repurchase period under Section 119 of C.A. No. 141.

Effect of government expropriation during repurchase/redemption
Whether, if the five-year repurchase period controls, expropriation by the Government during the redemption or repurchase period entitled the homesteader who thereafter exercised the right to repurchase to compensation for the property less the repurchase amount.

Incidental matters raised by petitioner
Whether the homesteaders’ attempt to repurchase or recover the value had become moot and academic because the property was no longer physically recoverable.

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