Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 111737 October 13, 1999
DEVELOPMENT BANK OF TE P!L!PP!NES, petitioner,
vs.
TE ONORABLE COURT OF APPEALS AND SPOUSES T!MOTEO "#$ SELF!DA
S. P!%EDA, respondents.
GON&AGA'RE(ES, J.:
efore us is a Petition for Revie! on Certiorari of the decision of the "ourt of #ppeals
1
in "#$%.R. "V No. &'()* entitled +SPO,S-S TIMOT-O PI.-D#, ET. AL. vs.
D-V-/OPM-NT #N0 O1 TH- PHI/IPPIN-S+ !hich affir2ed the decision of the
Re3ional Trial "ourt 4RT"5, ranch 67
)
, Ro8as "it9 in "ivil "ase No. V$)(*:, for
cancellation of certificate of title and;or specific perfor2ance, accountin3 and da2a3es
!ith a pra9er for the issuance of a !rit of preli2inar9 in<unction.1wphi1.nt
The records sho! that respondent spouses Pi=eda 4PI.-D#S5 are the re3istered
o!ners of a parcel of land 4/ot 66$6)$6$6)5 situated at baran3a9 #stor3a Du2arao,
"api> containin3 an area of &?',):7 s@uare 2eters, 2ore or less, and covered b9
Ho2estead Patent No. :')) and Ori3inal "ertificate of Title No. P$6*?:. On March A,
6*A&, the PI.-D#S 2ort3a3ed the above described parcel of land to petitioner,
Develop2ent anB of the Philippines 4DP5 to secure their a3ricultural loan in the
a2ount of P&:,:::.::. The PI.-D#S failed to co2pl9 !ith the ter2s and conditions of
the 2ort3a3e co2pellin3 DP to e8tra<udiciall9 foreclose on 1ebruar9 &, 6*AA. In the
foreclosure sale, DP !as the hi3hest bidder and a Sheriff "ertificate of Sale !as
e8ecuted in its favor. In the correspondin3 "ertificate of Sale, the sheriff indicated that
+This propert9 is sold sub<ect to the rede2ption !ithin five 4(5 9ears fro2 the date of
re3istration of this instru2ent and in the 2anner provided for b9 la! applicable to this
case+. The certificate of sale !as re3istered in the Re3ister of Deeds of "api> on #pril
&(, 6*AA. On March 6:, 6*A', after the e8piration of the one$9ear rede2ption period
provided for under Section 7, #"T ?6?(, DP consolidated its title over the foreclosed
propert9 b9 e8ecutin3 an #ffidavit of "onsolidation of O!nership. Subse@uentl9, a 1inal
Deed of Sale !as e8ecuted in DPCs favor, !hich !as re3istered to3ether !ith the
#ffidavit of "onsolidation of O!nership !ith the Re3ister of Deeds of "api> on Ma9 ?:,
6*A'. "onse@uentl9, Ori3inal "ertificate of Title No. P$6*?: !as cancelled and T"T
No. T$6(((* !as issued in the na2e of DP. Thereafter, DP tooB possession of the
foreclosed propert9 and appropriated the produce thereof.
On Dul9 (, 6*A', the Ministr9 of Dustice issued Opinion No. *&, Series of 6*A'
3
!hich
declared that lands covered b9 P.D. No. &A
*
, liBe the herein sub<ect propert9, 2a9 not
be the ob<ect of foreclosure proceedin3s after the pro2ul3ation of said decree on Oct.
&6, 6*A&.
On #u3ust &), 6*'6, the PI.-D#S offered to redee2 the foreclosed propert9 b9
offerin3 P6:,:::.:: as partial rede2ption pa92ent. This a2ount !as accepted b9
DP !ho issued O.R. No. 677(A6* and throu3h a letter, conditionall9 approved the
offer of rede2ption considerin3 the P6:,:::.:: as do!n pa92ent.
+
Ho!ever, on
Nove2ber 66, 6*'6, DP sent the PI.-D#S another letter infor2in3 the2 that
pursuant to P.D. &A, their offer to redee2 and;or repurchase the sub<ect propert9 could
not be favorabl9 considered for the reason that said propert9 !as tenanted.
,
On
Nove2ber 67, 6*'6, in deference to the above$2entioned opinion, DP throu3h
Ra2on uenaflor sent a letter to the #ctin3 Re3ister of Deeds of "api> re@uestin3 the
latter to cancel T"T No. T$6(((* and to restore Ori3inal "ertificate of Title No. P$6*?:
in the na2e of the PI.-D#S. The #ctin3 Re3ister of Deeds, in repl9 to such re@uest,
su33ested that DP file a petition in court pursuant to Section 6:' of Presidential
Decree 6(&*
7
. In co2pliance !ith said su33estion, DP petitioned for the cancellation
of T"T No. T$6(((* !ith then "ourt of 1irst Instance of "api>, ranch II, docBeted as
Special "ase No. &7(?. The petition !as favorabl9 acted upon on 1ebruar9 &&, 6*'&.
Thus, the foreclosure proceedin3 conducted on 1ebruar9 &, 6*AA !as declared null
and void and the Re3ister of Deeds of "api> !as ordered to cancel T"T No. 6(((*E
O"T No. 6*?: !as ordered revived.
Mean!hile, on Dece2ber &6, 6*'6, the PI.-D#S filed the instant co2plaint a3ainst
DP for cancellation of certificate of title and;or specific perfor2ance, accountin3 and
da2a3es !ith a pra9er for the issuance of a !rit of preli2inar9 in<unction averrin3 that
DP, in evident bad faith, caused the consolidation of its title to the parcel of land in
@uestion in spite of the fact that the ($9ear rede2ption period e8pressl9 stated in the
SheriffCs "ertificate of Sale had not 9et lapsed and that their offer to redee2 the
foreclosed propert9 !as 2ade !ell !ithin said period of rede2ption.
-
#fter trial, the RT" ruled in favor of the PI.-D#S statin3 that DP violated the
stipulation in the SheriffCs "ertificate of Sale !hich provided that the rede2ption period
is five 4(5 9ears fro2 the re3istration thereof in consonance !ith Section 66*
9
of "#
No. 6)6
1.
. DP should therefore assu2e liabilit9 for the fruits that said propert9
produced fro2 said land considerin3 that it pre2aturel9 tooB possession thereof. The
dispositive portion of the decision readsF
GH-R-1OR-, <ud32ent is hereb9 rendered in favor of plaintiffs and
a3ainst the defendant Develop2ent anB of the Philippines as
follo!sF
6. "onde2nin3 the defendant DP to pa9 the plaintiffs P&:6,6?'.&'
less !hatever a2ount the plaintiffs still have to pa9 the said
defendant DP as balance of their loan account recBoned up to the
date of this decisionE P&:,:::.:: as attorne9Cs feesE P(,:::.:: as
liti3ation e8penses and costs.
1
SO ORD-R-D.
11
DP appealed to the "ourt of #ppeals, !hich affir2ed the decision of the RT". The
"ourt of #ppeals stated that since DP !as in evident bad faith !hen it unla!full9 tooB
possession of the propert9 sub<ect of the dispute and defied !hat !as !ritten on the
SheriffCs "ertificate of Sale, the PI.-D#S !ere entitled to recover the fruits produced
b9 the propert9 or its e@uivalent valued at PA&,:::.:: per annum or a total of
P&67,:::.:: for the three$9ear period. Respondent court stated that said a2ount !as
not rebutted b9 DP and !as fair considerin3 the si>e of the land in @uestion. The
court added that an9 discussion !ith respect to the rede2ption period !as of little
si3nificance since the foreclosure proceedin3 !as declared null and void in Special
"ivil "ase No. &7(?
1)
on 1ebruar9 &&, 6*'&. Thus, the ri3ht of the PI.-D#S to
redee2 the propert9 has beco2e 2oot and acade2ic. 1inall9, the a!ard of attorne9Cs
fees a2ountin3 to P6:,:::.::
13
!as <ustified considerin3 that the PI.-D#S !ere
co2pelled to protect their interests.
1*
DPCs Motion for Reconsideration
1+
!as deniedE hence this petition !here it assi3ns
the follo!in3 errorsF
Ground No. 1 H The Honorable Court Of Appeals Grael! Erred "n
Affirmin# The Court A $uoCs %e&ision Awardin# A&tual %ama#es "n
The Amount Of '(1),***.** "n +aor Of The 'riate ,espondents
Notwithstandin# The Absen&e Of Eiden&e -ubstantiatin# -aid
Award. Thus, The Honorable Court Of Appeals Had %e&ided This
"nstant Case "n A .a! Not "n A&&ord .ith Appli&able Law And
/urispruden&e.
(. Ground No. ( H The Honorable Court Of Appeals Grael! Erred
"n Affirmin# The Court A $uoCs +indin# That %0' .as "n 0ad +aith
.hen "t Too1 'ossession Of The 'ropert! "n $uestion
Notwithstandin# the Contrar! Eiden&e Addu&ed 0! 'etitioner %0'.
Thus, The Honorable Court Of Appeals %eparted +rom The
A&&epted And 2sual Course f /udi&ial 'ro&eedin#s.
3. Ground No. 3 H The Honorable Court Of Appeals Grael! Erred
"n Affirmin# The Court A $uoCs %e&ision Awardin# Attorne!Cs +ees
And Liti#ation Costs "n +aor Of The 'riate ,espondents
Notwithstandin# Absen&e Of Eiden&e 'roin# The -ame. Clearl!,
The Lower Court 0e Committed 4isapprehension Of +a&ts That
Can 0e Considered A $uestion Of Law.
1,
DP 2aintains that the valuation of the inco2e derived fro2 the propert9 in dispute
alle3edl9 a2ountin3 to P&67,:::.:: !as not proven b9 the PI.-D#S. DP ar3ues
that the9 3ranted the PI.-D#S a loan of P&:,:::.:: in March A, 6*A& and up to the
ti2e of the foreclosure of the propert9, the PI.-D#S have paid onl9 P&,:::.:: on their
principal. The failure of the PI.-D#S to pa9 this loan is attributable to the fact that said
propert9 did not produce inco2e a2ountin3 to PA&,:::.:: per annum. #ccordin3 to
DP, in the absence of receipts or other evidence to support such a clai2, the "ourt of
#ppeals should not have 3ranted said a2ount considerin3 that the PI.-D#S had the
burden of provin3 actual da2a3es. 1urther2ore, Selfida Pi=eda herself ad2itted that
the propert9 never produced inco2e a2ountin3 to PA&,:::.:: per annum. #t an9 rate,
the actual a2ount earned b9 the propert9 in ter2s of rentals turned over b9 the tenant$
far2ers or caretaBers of the land !ere dul9 receipted and !ere dul9 accounted for b9
the DP.
DP also alle3es that the 2ere fact that DP tooB possession and ad2inistration of
the propert9 does not !arrant a findin3 that DP !as in bad faith. +irst, records sho!
that the PI.-D#S consented to and approved the taBeover of DP. -e&ond, Sec. A
17

of #ct No. ?6?(
1-
allo!s the 2ort3a3ee$bu9er to taBe possession of the 2ort3a3ed
propert9 even durin3 the rede2ption period. Third, DPCs act of consolidatin3 the title
of the propert9 in its na2e does not constitute bad faith as there is no la! !hich
prohibits the purchaser at public auction fro2 consolidatin3 title in its na2e after the
e8piration of the one 465 9ear rede2ption period recBoned fro2 the ti2e the "ertificate
of Sale !as re3isteredE and neither is there an9 la! or <urisprudence !hich prohibits
the PI.-D#S fro2 e8ercisin3 their ri3ht of rede2ption over said propert9 !ithin five 4(5
9ears even if title is consolidated in the na2e of the purchaser. Ghen DP
consolidated title over the propert9 in its na2e, the ne! T"T issued in its favor !as
sub<ect to the lien i.e. the ri3ht of rede2ption of the PI.-D#SE if there !as a failure to
re3ister this in the T"T, DP should not be faulted. esides, even if the five 4(5 9ear
period of rede2ption !as not indicated therein, Sec. ))
19
and )7
).
of Presidential
Decree No. 6(&*
)1
attaches such lien b9 operation of la! even in the absence of an
annotation in the title. Moreover, Sec. 66* of "# No. 6)6 also 2aBes said ri3ht of
rede2ption a statutor9 lien, !hich subsists and binds the !hole !orld despite the
absence of re3istration.
DP also could not have been in bad faith !hen it denied the PI.-D#SC offer to
redee2 the propert9 since the denial !as pre2ised on Opinion No. *& of the Minister
of Dustice series of 6*A' !hich stated that said land !as covered under P.D. &A and
could not be the sub<ect of foreclosure proceedin3s. 1or this reason, DP i22ediatel9
filed a petition to nullif9 the foreclosure proceedin3s !hich !as favorabl9 acted upon
prior to the service of su22ons and the co2plaint in the present case on DP on Dune
?:, 6*'&. If DP !as reall9 in bad faith, it !ould not have filed said petition for said
petition !as a3ainst its o!n interests.
1urther, DP asserts that PI.-D#S appointed DP as their attorne9$in$fact or a3ent in
case of foreclosure of the propert9 under Section ) of the 2ort3a3e contract, !hich
providesF
). . . . In case of foreclosure, the Mort3a3or hereb9 consents to the
appoint2ent of the 2ort3a3ee or an9 of its e2plo9ees as receiver,
!ithout an9 bond, to taBe char3e of the 2ort3a3e propert9 at once,
and to hold possession of the case and the rents and profits derived
fro2 the 2ort3a3ed propert9 before the sale. . . .
))
DP !as therefore entitled to taBe possession of the propert9 pursuant to the
2ort3a3e contract.
2
1inall9, considerin3 that DP la!full9 had 2aterial possession of the propert9 after it
consolidated its title, DP !as entitled to the fruits and inco2e thereof pursuant to
Section ?), Rule ?* of the Rules of "ourtF
Sec. ?). ,ents and 'rofits 'endin# ,edemption. -tatement thereof
and &redit therefor on redemption. H The purchaser, fro2 the ti2e
of the sale until a rede2ption, and a rede2ptioner, fro2 the ti2e of
his rede2ption until another rede2ption, is entitled to receive the
rents of the propert9 sold or the value of the use or occupation
thereof !hen such propert9 is in the possession of a tenant. . . .
TaBin3 all this into consideration, DP cannot be faulted for taBin3 over possession of
the propert9 in @uestion.
The core issue in this case is !hether DP !as in bad faith !hen it tooB possession of
the disputed lot.
Ge rule in the ne3ative and find DPCs contentions 2eritorious.
# possessor in 3ood faith is one !ho is not a!are that there e8ists in his title or 2ode
of ac@uisition an9 fla!, !hich invalidates it.
)3
%ood faith is al!a9s presu2ed, and
upon hi2 !ho alle3es bad faith on the part of a possessor rests the burden of proof.
)*

It !as therefore incu2bent on the PI.-D#S to prove that DP !as a!are of the fla!
in its title i.e. the nullit9 of the foreclosure. This, the9 failed to do.
Respondent PI.-D#S ar3ue that DPCs bad faith ste2s fro2 the fact that DP
consolidated title over the disputed propert9 despite the state2ent in the SheriffCs
"ertificate of Sale to the effect that said land !as sub<ect to a five 9ear rede2ption
period. The period of rede2ption of e8tra<udiciall9 foreclosed land is provided under
Section 7 of #"T No. ?6?( to !itF
Sec. 7. In all cases in !hich an e8tra<udicial sale is 2ade under the
special po!er hereinbefore referred to, the debtor, his successors in
interest or an9 <udicial creditor or <ud32ent creditor of said debtor, or
an9 person havin3 a lien on the propert9 subse@uent to the
2ort3a3e or deed of trust under !hich the propert9 is sold, 2a9
redee2 the sa2e at an9 ti2e !ithin the ter2 of one 9ear fro2 and
after the date of saleE and such rede2ption shall be 3overned b9 the
provisions of section four hundred and si8t9$four to four hundred and
si8t9$si8, inclusive, of the "ode of "ivil Procedure,
)+
in so far as
these are not inconsistent !ith the provisions of this #ct.
If no rede2ption is 2ade !ithin one 9ear, the purchaser is entitled as a 2atter of ri3ht
to consolidate
),
and to possess
)7
the propert9.
)-
#ccordin3l9, DPCs act of
consolidatin3 its title and taBin3 possession of the sub<ect propert9 after the e8piration
of the period of rede2ption !as in accordance !ith la!. Moreover, it !as in
consonance !ith Section ) of the 2ort3a3e contract bet!een DP and the PI.-D#S
!here the9 a3reed to the appoint2ent of DP as receiver to taBe char3e and to hold
possession of the 2ort3a3e propert9 in case of foreclosure. DPCs acts cannot
therefore be tainted !ith bad faith.
The ri3ht of DP to consolidate its title and taBe possession of the sub<ect propert9 is
not affected b9 the PI.-D#SC ri3ht to repurchase said propert9 !ithin five 9ears fro2
the date of conve9ance 3ranted b9 Section 66* of "# No. 6)6. In fact, !ithout the act
of DP consolidatin3 title in its na2e, the PI.-D#S !ould not be able to assert their
ri3ht to repurchase 3ranted under the afore2entioned section. Respondent PI.-D#S
are of the erroneous belief that said section prohibits a purchaser of ho2estead land in
a foreclosure sale fro2 consolidatin3 his title over said propert9 after the one$9ear
period to redee2 said propert9 has e8pired. Section 66* does not contain an9
prohibition to conve9 ho2estead land but 3rants the ho2esteader, his !ido! or le3al
heirs a ri3ht to repurchase said land !ithin a period of five 9ears in the event that he
conve9s said land. This is in consonance !ith the polic9 of ho2estead la!s to
distribute disposable a3ricultural lands of the State to land$destitute citi>ens for their
ho2e and cultivation.
)9
The ri3ht to repurchase under Section 66* ai2s to preserve
and Beep in the fa2il9 of the ho2esteader that portion of public land !hich the State
had 3ratuitousl9 3iven hi2.
3.
Such ri3ht is based on the assu2ption that the person
under obli3ation to reconve9 the propert9 has the full title to the propert9 because it
!as voluntaril9 conve9ed to hi2 or that he consolidated his title thereto b9 reason of a
rede2ptionerCs failure to e8ercise his ri3ht of rede2ption.
31
It is also settled that +the
five$9ear period of rede2ption fi8ed in Section 66* of the Public /and /a! of
ho2estead sold at e8tra<udicial foreclosure be3ins to run fro2 the da9 after the
e8piration of the one$9ear period of repurchase allo!ed in an e8tra<udicial foreclosure+.
3)
Thus DPCs consolidation of title did not dero3ate fro2 or i2pair the ri3ht of the
PI.-D#S to redee2 the sa2e under ".#. No. 6)6.
It 2a9 be ar3ued that P.D. &A !as alread9 in effect !hen DP foreclosed the propert9.
Ho!ever, the le3al propriet9 of the foreclosure of the land !as put into @uestion onl9
after Opinion No. *& series of 6*A' of the Ministr9 of Dustice declared that said land
!as covered b9 P.D. &A and could not be sub<ect to foreclosure proceedin3s. The
Opinion of the Ministr9 of Dustice !as issued on Dul9 (, 6*A' or al2ost t!o 2onths
after DP consolidated its title to the propert9 on March 6:, 6*A'. 9 la! and
<urisprudence, a 2istaBe upon a doubtful or difficult @uestion of la! 2a9 properl9 be
the basis of 3ood faith.
33
In the case of 4ane&lan# s. 0aun,
3*
!e held that !hen a contract of sale is void, the
possessor is entitled to Beep the fruits durin3 the period for !hich it held the propert9 in
3ood faith. %ood faith of the possessor ceases !hen an action to recover possession
of the propert9 is filed a3ainst hi2 and he is served su22ons therefore.
3+
In the
present case, DP !as served su22ons on Dune ?:, 6*'&.
3,
9 that ti2e, it !as no
lon3er in possession of the disputed land as possession thereof !as 3iven bacB to the
PI.-D#S after the foreclosure of DP !as declared null and void on 1ebruar9 &&,
6*'&. Therefore, an9 inco2e collected b9 DP after it consolidated its title and tooB
possession of the propert9 on Ma9 ?:, 6*A' up to 1ebruar9 &&, 6*'& belon3s to DP
as a possessor in 3ood faith since its possession !as never le3all9 interrupted.
3
1inall9, !e delete the a!ard for attorne9Cs fees. #lthou3h attorne9Cs fees 2a9 be
a!arded if the clai2ant is co2pelled to liti3ate !ith third persons or to incur e8penses
to protect his interest b9 reason of an un<ustified act or o2ission of the part9 fro2
!ho2 it is sou3ht
37
, !e hold that DPCs acts !ere clearl9 not un<ustified.
GH-R-1OR-, the instant petition is hereb9 %R#NT-D, and the appealed decision of
the "ourt of #ppeals is R-V-RS-D. The Develop2ent anB of the Philippines is
absolved fro2 an9 liabilit9 to Ti2oteo and Selfida Pi=eda in so far as it orders the DP
to pa9 the PI.-D#S P&67,:::.:: as annual produce value of the landE P&:,:::.:: in
attorne9Cs fees, P(,:::.:: in liti3ation e8penses and the costs of the suit. This decision
is !ithout pre<udice to !hatever liabilit9 the PI.-D#S 2a9 still have to the DP !ith
respect to their loan.
SO ORD-R-D.
4