Title
Teoco vs. Metropolitan Bank and Trust Co.
Case
G.R. No. 162333
Decision Date
Dec 22, 2008
Spouses Co mortgaged properties to Metrobank, foreclosed, and sold. Brothers Teoco intervened, claimed redemption, and SC upheld their right to redeem based on foreclosure price, allowing Metrobank to re-foreclose for other obligations.
redemption
foreclosure
mortgage contract

Case Summary (G.R. No. 162333)

Factual Background

The registered owner of two parcels in Poblacion, Catbalogan, Samar was Lydia T. Co, married to Ramon Co. Ramon Co mortgaged the parcels to Metropolitan Bank and Trust Company for P200,000.00. Following default, the properties were sold in an extrajudicial foreclosure sale under Act No. 3135 on February 14, 1991. After the one-year period for redemption lapsed, the sheriff’s certificates of sale were consolidated and titles were cancelled and reissued in Metrobank’s name as TCT Nos. T-8482 and T-8493.

Petition for Writ of Possession

On November 29, 1993, Metropolitan Bank and Trust Company filed a petition for a writ of possession against the spouses Co. The trial court ordered summons by publication on January 12 and January 26, 1994 because the spouses Co were then outside the Philippines. Metrobank later submitted documents showing publication in the Samar Reporter; the intervenors would later challenge the adequacy of that publication.

Intervention and Claim of Redemption

On May 17, 1994, intervenors Bienvenido C. Teoco and Juan C. Teoco, Jr. filed an answer-in-intervention claiming to be successors-in-interest of the spouses Co and asserting that they had legally redeemed the foreclosed properties within the one-year reglementary period. The intervenors sought dismissal of Metrobank’s petition, cancellation of the TCTs in Metrobank’s name, and issuance of new titles in their names. Metrobank opposed, contending the deposited redemption amount was insufficient under Section 78 of the General Banking Act and that any assignment of the spouses Co’s right of redemption lacked proper authentication from the Philippine Embassy.

Trial Court Proceedings and Deposit

The trial court record reflected that a deposit of P356,297.57 had been made to the clerk of court; the court inquired whether Metrobank would accept redemption. Metrobank refused, asserting additional obligations of the spouses Co remained unpaid and that the deposit did not cover those obligations. The trial court also revisited the adequacy of service by publication and the authenticity of the assignment of right of redemption.

Regional Trial Court Disposition

On July 22, 1997 the Regional Trial Court dismissed Metrobank’s petition for a writ of possession. The RTC found that intervenor Juan C. Teoco, Jr. had tendered P356,297.57 within the reglementary redemption period and had legally and effectively redeemed Lots 61 and 67 of Psd-66654. The RTC ordered that Metrobank could withdraw the deposited amount, that Metrobank’s TCT Nos. T-8492 and T-8493 be cancelled, and that new titles issue in favor of intervenors. The RTC concluded that the tendered amount was fair and reasonable and aligned with Section 78 of the General Banking Act, and it also found that it had not acquired jurisdiction over the spouses Co because Metrobank had not published the court’s writ of summons and therefore service by publication was defective.

Court of Appeals Ruling

On appeal, the Court of Appeals reversed the RTC on February 20, 2004 and ordered issuance of a writ of possession in favor of Metropolitan Bank and Trust Company. The CA held that because the properties had been registered in Metrobank’s name and the original owners’ titles had been cancelled at the time of the petition, summons to the spouses Co was unnecessary and the registry titles were the best proof of ownership. The CA further applied Act No. 3135, noting that a petition for a writ of possession under Section 7 may be sought ex parte and that the trial court had ministerial duty to grant the writ. The CA also ruled that the intervenors failed to effectively redeem because the amount tendered was insufficient and because the transfer of the spouses Co’s right of redemption to the intervenors was not sufficiently shown or properly authenticated.

Issues Presented to the Supreme Court

The petitioners, Bienvenido C. Teoco and Juan C. Teoco, Jr., raised four principal errors by the Court of Appeals: that the CA erred in holding (I) the petitioners failed to redeem the properties within the one-year period and that the redemption price was insufficient; (II) petitioners were required to pay not only the P200,000 principal but also all other indebtedness reflected in Metrobank’s books; (III) petitioners failed to sufficiently show that the right of redemption was properly transferred to them; and (IV) the CA erred in reversing the RTC and granting the writ of possession to Metrobank.

Supreme Court Disposition

The Supreme Court granted the petition in part. The Court set aside the decision of the Court of Appeals and reinstated the Regional Trial Court decision of July 22, 1997, with a specific modification: the redemption by Bienvenido C. Teoco and Juan C. Teoco, Jr. shall be without prejudice to Metrobank’s right to subsequently foreclose the same properties to satisfy other loans that are proven to be covered by the real estate mortgage.

Legal Reasoning — Sufficiency of the Redemption Amount

The Supreme Court found that neither the petitioners nor Metrobank proved by a preponderance of evidence that the subsequent loans allegedly extended to the spouses Co were covered by the mortgage. Metrobank relied on a general stipulation in the mortgage that it secured “the payment of the same (P200,000.00 loan) and those that may hereafter be obtained,” but Metrobank did not produce documentary proof that the later loans were in fact secured by that mortgage. The Court cautioned that while mortgages intended to secure future advancements are valid, the mortgagee must prove that subsequent obligations are within its coverage. To avoid injustice, the Court held that redemption should be allowed based on the amount for which the property was foreclosed — stated in the records as P255,441.14 plus interest — subject to Metrobank’s right to foreclose anew if it demonstrates that later loans were covered by the real estate mortgage. The Court invoked Articles 2127 and 2129 of the Civil Code to explain that a mortgage constitutes a real right enforceable against any possessor and that foreclosure rights survive transfer of possession.

Legal Reasoning — Transfer and Admissibility of the Right of Redemption

The Court addressed the contention that the assignment of the spouses Co’s right of redemption was not contained in a public instrument and therefore ineffective against third persons under Article 1625 of the Civil Code. The Court observed that the assignment expressly transferred the right of redemption “in favor of my parents, brothers and sisters,” and that the intervenors were among the persons so described because they were the brothers of Lydia T. Co, the registered owner. The Court further noted that Metrobank never challenged the content, due execution, or genuineness of the assignment; by failing to do so Metrobank was deemed to have admitted those facts and the private document became admissible. The Court relied on precedents including Lopez v. Court of Appeals, Cenido v. Apacionado, Co v. Philippine National Bank, and Ansaldo v. Court of Appeals to explain that noncompliance with the formalities for public documents does not deprive a transaction of effect where no prejudice to third persons is shown, and that a private instrument may be received in evidence when its execution is not contested.

Legal Reasoning — Jurisdiction and Summons by Publication

The RTC had ruled that it lacked jurisd

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