Title
Philippine National Bank vs. Bacani
Case
G.R. No. 194983
Decision Date
Jun 20, 2018
Spouses Bacani failed to redeem foreclosed property; PNB sold it to Renato de Leon. SC ruled PNB acted lawfully, no bad faith, no enforceable repurchase right under internal policy.
bacani
supreme court
foreclosure

Case Summary (G.R. No. 194983)

Factual Background

Rodolfo Bacani was the registered owner of a 618-square-meter parcel in Centro East, Santiago, Isabela, covered by TCT No. 114296. Rodolfo and his wife obtained a Php 80,000.00 loan from PNB on July 16, 1980, and the property was mortgaged as security. After default, PNB extrajudicially foreclosed on September 9, 1986 and registered its certificate of sale on October 10, 1986; PNB was the highest bidder and ultimately acquired title, which was reflected in TCT No. T-185028 issued in PNB’s name on June 6, 1989. Thereafter, PNB issued SEL Circular No. 8-7/89, which provided, subject to stated conditions, that former owners be given priority in reacquiring foreclosed assets on a negotiated basis without public bidding. The Spouses Bacani submitted successive offers to repurchase beginning August 26, 1991 and through 1992–1993, raising offers from Php 150,000.00 to Php 350,000.00, but PNB declined those proposals on grounds that they were below PNB’s total claim and below fair market value. In January 1996 PNB’s Special Assets Management Department published an Invitation to Bid setting a floor price of Php 4,000,000.00, yet PNB sold the property by negotiated sale to Renato de Leon on January 30, 1996 for Php 1,500,000.00; Renato obtained title and thereafter secured an ejectment judgment that led to the respondents’ displacement and demolition of their houses.

Trial Court Proceedings

The respondents filed Civil Case No. 35-2365 in the RTC, seeking annulment of the sale and Renato’s title and claiming damages for alleged fraud and bad faith by PNB. After trial, the RTC found for the respondents and ruled on March 1, 2004 that the sale to Renato was fraudulent. The RTC ordered cancellation of Renato’s TCT No. T-261643, ordered PNB to reconvey the land to the Spouses Bacani upon payment of Php 217,646.50 representing PNB’s total claim, and directed PNB, Mr. Santos, and Renato to pay actual damages and attorney’s fees to the respondents. The trial court concluded that PNB pre-empted the scheduled public auction and deprived the Spouses Bacani of their expected opportunity to bid, and it held that Renato could not be regarded as a purchaser in good faith where the Invitation to Bid had been published.

Court of Appeals Ruling

PNB appealed to the Court of Appeals, which affirmed the RTC in its Decision dated September 30, 2010 and denied reconsideration in its Resolution dated January 5, 2011. The CA agreed with the RTC that the sale to Renato was fraudulent because the Spouses Bacani were prevented from exercising their claimed prerogative to buy back the foreclosed property at the scheduled public bidding. The CA also considered the Spouses Bacani’s time deposit with PNB as indicative of their financial capacity to repurchase and applied the doctrine of constructive trust to justify reconveyance to the Spouses Bacani.

Parties’ Contentions

The respondents contended that PNB schemed to prevent them from buying back the property and that PNB’s refusal to accept offers and its subsequent negotiated sale to Renato constituted badges of bad faith warranting annulment and damages. PNB countered that the Spouses Bacani’s offers were well below fair market value and below PNB’s total claim, and that as the registered owner PNB had the prerogative to dispose of the property in accordance with its terms and conditions; PNB further insisted that Renato acquired title in good faith and without fraud.

Issues Presented

The principal issues were whether the sale to Renato and Renato’s registered title should be annulled for fraud; whether the Spouses Bacani had a legally enforceable right to repurchase the foreclosed property by virtue of SEL Circular No. 8-7/89 or any negotiations; whether PNB acted in bad faith; whether the published Invitation to Bid created a binding obligation; and whether constructive trust could be imposed on Renato’s title.

Ruling of the Supreme Court

The Supreme Court granted the petition, reversed and set aside the CA Decision dated September 30, 2010 and the CA Resolution dated January 5, 2011, and dismissed the complaint for annulment of sale and title. The Court held that once the statutory redemption period lapsed, the Spouses Bacani had no enforceable right to redeem or compel reconveyance; title consolidated in favor of the purchaser at foreclosure, and PNB became absolute owner entitled to all essential attributes of ownership, including the right to dispose of the property. The Court ruled that SEL Circular No. 8-7/89 was an internal bank policy that did not create a legally demandable right in the Spouses Bacani and that the Spouses Bacani failed to comply with the circular’s conditions, notably the requirement that selling price be based on the bank’s total claim or fair market value, whichever was higher. The Supreme Court found no clear and convincing proof of fraud by PNB or Renato and concluded that the Invitation to Bid was merely an invitation to make proposals under Article 1326, Civil Code, and therefore not binding.

Legal Basis and Reasoning

The Court began from the settled rule under Act No. 3135, Section 6 that in extrajudicial foreclosures the debtor or successors had one year from registration of the certificate of sale to redeem; failure to redeem resulted in consolidation of ownership in favor of the purchaser and vesting in the purchaser the absolute ownership and accompanying attributes. The Court cited authorities including Spouses Marquez v. Spouses Alindog, Spouses Estanislao, Jr. v. CA, and Spouses Gallent v. Velasquez to explain consolidation of ownership. Because PNB’s certificate of sale was registered on October 10, 1986 and the Spouses Bacani did not redeem within one year, title vested in PNB and the bank acquired the right to possess and to dispose of the property. The Court relied on Article 428, Civil Code to underline the owner’s right to enjoy and dispose of a thing subject only to legal limitations. The Court treated the Spouses Bacani’s later proposals as mere offers to repurchase and invoked GE Money Bank, Inc. v. Spouses Dizon to differentiate repurchase after redemption period from statutory redemption, emphasizing that a purchaser after consolidation is not obliged to accept repurchase or be bound by the auction bid price. The Court examined SEL Circular No. 8-7/89 and found it to be an internal memorandum directed at bank personnel and not a source of enforceable rights for former owners; even if the circular were treated as binding on PNB, the circular contained conditions which the Spouses Bacani failed to meet because their offers were lower than PNB’s total claim (Php 217,646.50) and lower than the appraised fair market values (Php 395,520.00 in 1992 and Php 494,400.00 in 1993). The Court rejected the CA’s reliance on the Spouses Bacani’s alleged time deposit as evidencing capacity or option money, explaining that bank deposits are mutuum and create debtor-creditor relations

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