DBP V. CA- Good Faith and Redemption

A mistake upon a doubtful or difficult question of law may be the basis of good faith.

FACTS:

Spouses Piñedas are registered owners of a parcel of land in Capiz, which they mortgaged to DBP to secure the loan (P20,000) they obtained from the latter. Piñedas eventually defaulted, prompting DBP to extra-judicially foreclose and take possession of such property. The Ministry of Justice, then, opined through its Opinion No. 92 (’78) that lands covered by P.D. No. 27, to which the subject property was included, may not be the object of foreclosure proceedings. The Piñedas, then, sought to redeem such property (with P10,000 as downpayment) but was denied as the land was allegedly tenanted. They then sought the cancellation of the title and specific performance, stating that DBP acted in bad faith when it took possession of the property andcaused the consolidation of its title in spite of the fact that the 5-year redemption period expressly stated in the Sheriff’s Certificate of Sale had not yet lapsed and that their offer to redeem was within the redemption period.

ISSUE:

Whether or not DBP acted in bad faith when it took possession of the property

RULING: NO.

DBP’s act of consolidating its title and taking possession of the property after the expiration of the redemption period was in accordance with Sec. 6 of Act No. 3135, which states that if no redemption of a foreclosed property is made within one year, the purchaser (DBP) is entitled as a matter of right to consolidate and to possess the property. In addition to this, it was in consonance with Sec. 4 of the mortgage contract between DBP and the Piñedas where they agreed the appointment of DBP as receiver to take charge and to hold possession of the mortgaged property in case of foreclosure. In fact, without DBP’s act of consolidating its title, the Piñedas would not be able to assert their right to repurchase the property within 5 years, which would begin to run after the expiration of the one-year period. Thus, its acts cannot be tainted with bad faith nor did it impair Piñedas’ right to repurchase.

It may also be argued that P.D. No. 27 was already in effect when DBP foreclosed the property. However, the legal propriety of the foreclosure of the land was questioned only after Opinion No. 92 (’78) was issued, which happened almost 2 months after DBP consolidated its title to the property. By law and jurisprudence, a mistake upon a doubtful or difficult question of law may properly be the basis of good faith.

Art. 526 of NCC states that “a possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw, which invalidates it.” Moreover, Art. 527 of NCC provides “good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof.” Thus, it is incumbent on the Piñedas to prove that DBP was aware of the flaw in its title (nullity of the foreclosure), but this they failed to do.