[G.R. No.

165837] The CA ruled that attorney's fees and liquidated

damages were already included in the bid price of
BPI FAMILY SAVINGS BANK, INC., PETITIONER, VS. P10,372,711.35 as per the recitals in the Certificate of
SUPREME TRANSLINER, INC., MOISES C. ALVAREZ AND Sale that said amount was paid to the foreclosing
PAULITA S. ALVAREZ, RESPONDENTS. mortgagee to satisfy not only the principal loan but also
"interest and penalty charges, cost of publication and
expenses of the foreclosure proceedings." These
 Supreme Transliner, Inc. represented by its "penalty charges" consist of 15% attorney's fees and
Managing Director, Moises C. Alvarez, and 15% liquidated damages which the bank imposes as
Paulita S. Alvarez, obtained a loan in the penalty in cases of violation of the terms of the
amount of P9,853,000.00 from BPI Family mortgage deed. The total redemption price thus should
Savings Bank with a 714-square meter lot only be P12,592,435.72 and the bank should return the
covered by Transfer Certificate of Title No. T- amount of P3,111,813.40 representing attorney's fees
79193 in the name of Moises C. Alvarez and and liquidated damages. The appellate court further
Paulita S. Alvarez, as collateral. stated that the mortgagors cannot be deemed estopped
 For non-payment of the loan, the mortgage was to question the propriety of the charges because from
extrajudicially foreclosed and the property was the very start they had repeatedly questioned the
sold to the bank as the highest bidder in the imposition of attorney's fees and liquidated damages
public auction conducted by the Office of the and were merely constrained to pay the demanded
Provincial Sheriff of Lucena City. redemption price for fear that the redemption period
 Certificate of Sale was issued in favor of the will expire without them redeeming their property.
bank and the same was registered.
 Before the expiration of the one-year
redemption period, the mortgagors notified the ISSUE:
bank of their intention to redeem the property.
 The mortgagors redeemed the property by W/n the foreclosing mortgagee should pay capital gains
paying the sum of P15,704,249.12. A Certificate tax upon execution of the certificate of sale
of Redemption was issued by the bank.
 The mortgagors filed a complaint against the
bank to recover the allegedly unlawful and RULING:
excessive charges totaling P5,331,237.77 before
the RTC Lucena. CAPITAL GAIN TAX

RTC: dismissing the complaint and the bank's We find merit in petitioners-mortgagors' argument that
counterclaims. The trial court held that plaintiffs- there is no legal basis for the inclusion of this charge in
mortgagors are bound by the terms of the mortgage the redemption price. Under Revenue Regulations (RR)
loan documents which clearly provided for the payment No. 13-85 (December 12, 1985), every sale or exchange
of the following interest, charges and expenses: 18% or other disposition of real property classified as capital
p.a. on the loan, 3% post-default penalty, 15% asset under Section 34(a)[17] of the Tax Code shall be
liquidated damages, 15% attorney's fees and collection subject to the final capital gains tax. The term sale
and legal costs. Plaintiffs-mortgagors' claim that they includes pacto de retro and other forms of conditional
paid the redemption price demanded by the defendant sale. Section 2.2 of Revenue Memorandum Order
bank under extreme pressure was rejected by the trial (RMO) No. 29-86 (as amended by RMO No. 16-88 and as
court since there was active negotiation for the final further amended by RMO Nos. 27-89 and 6-92) states
redemption price between the bank's representatives that these conditional sales "necessarily include
and plaintiffs-mortgagors who at the time had legal mortgage foreclosure sales (judicial and extrajudicial
advice from their counsel, together with Orient foreclosure sales)." Further, for real property foreclosed
Development Banking Corporation which committed to by a bank on or after September 3, 1986, the capital
finance the redemption. plaintiffs-mortgagors are gains tax and documentary stamp tax must be paid
estopped from questioning the correctness of the before title to the property can be consolidated in favor
redemption price as they had freely and voluntarily of the bank.
signed the letter-agreement prepared by the defendant
Under Section 63 of Presidential Decree No. 1529
bank, and along with Orient Bank expressed their
otherwise known as the Property Registration Decree, if
conformity to the terms and conditions therein
no right of redemption exists, the certificate of title of
CA: Reversed the mortgagor shall be cancelled, and a new certificate
issued in the name of the purchaser. But where the Section 246 of the NIRC of 1997 states:
right of redemption exists, the certificate of title of the SEC. 246. Non-Retroactivity of Rulings. - Any revocation,
mortgagor shall not be cancelled, but the certificate of modification, or reversal of any of the rules and regulations
sale and the order confirming the sale shall be promulgated in accordance with the preceding Sections or any of
registered by brief memorandum thereof made by the the rulings or circulars promulgated by the Commissioner shall not
be given retroactive application if the revocation, modification, or
Register of Deeds upon the certificate of title. In the
reversal will be prejudicial to the taxpayers, except in the following
event the property is redeemed, the certificate or deed cases:
of redemption shall be filed with the Register of Deeds,
and a brief memorandum thereof shall be made by the (a) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the
Register of Deeds on the certificate of title. Bureau of Internal Revenue;

It is therefore clear that in foreclosure sale, there is no (b) where the facts subsequently gathered by the Bureau of Internal
actual transfer of the mortgaged real property until Revenue are materially different from the facts on which the ruling
after the expiration of the one-year redemption period is based; or

as provided in Act No. 3135 and title thereto is (c) where the taxpayer acted in bad faith.
consolidated in the name of the mortgagee in case of
non-redemption. In the interim, the mortgagor is given In this case, the retroactive application of RR No. 4-99 is
the option whether or not to redeem the real property. more consistent with the policy of aiding the exercise of
The issuance of the Certificate of Sale does not by itself the right of redemption. As the Court of Tax Appeals
transfer ownership. concluded in one case, RR No. 4-99 "has curbed the
inequity of imposing a capital gains tax even before the
RR No. 4-99 issued on March 16, 1999, further amends expiration of the redemption period [since] there is yet
RMO No. 6-92 relative to the payment of Capital Gains no transfer of title and no profit or gain is realized by
Tax and Documentary Stamp Tax on extrajudicial the mortgagor at the time of foreclosure sale but only
foreclosure sale of capital assets initiated by banks, upon expiration of the redemption period."
finance and insurance companies.
In his commentaries, De Leon expressed the view that
while revenue regulations as a general rule have no
SEC. 3. CAPITAL GAINS TAX. -
retroactive effect, if the revocation is due to the fact
that the regulation is erroneous or contrary to law, such
(1) In case the mortgagor exercises his right of redemption within revocation shall have retroactive operation as to affect
one year from the issuance of the certificate of sale, no capital gains
past transactions, because a wrong construction of the
tax shall be imposed because no capital gains has been derived by
the mortgagor and no sale or transfer of real property was realized. law cannot give rise to a vested right that can be
xxx invoked by a taxpayer.

(2) In case of non-redemption, the capital gains [tax] on the Considering that herein petitioners-mortgagors
foreclosure sale imposed under Secs. 24(D)(1) and 27(D)(5) of the
exercised their right of redemption before the
Tax Code of 1997 shall become due based on the bid price of the
highest bidder but only upon the expiration of the one-year period
expiration of the statutory one-year period, petitioner
of redemption provided for under Sec. 6 of Act No. 3135, as bank is not liable to pay the capital gains tax due on the
amended by Act No. 4118, and shall be paid within thirty (30) days extrajudicial foreclosure sale. There was no actual
from the expiration of the said one-year redemption period. transfer of title from the owners-mortgagors to the
SEC. 4. DOCUMENTARY STAMP TAX. - foreclosing bank. Hence, the inclusion of the said charge
in the total redemption price was unwarranted and the
(1) In case the mortgagor exercises his right of redemption, the
corresponding amount paid by the petitioners-
transaction shall only be subject to the P15.00 documentary stamp
tax imposed under Sec. 188 of the Tax Code of 1997 because no land
mortgagors should be returned to them.
or realty was sold or transferred for a consideration.

(2) In case of non-redemption, the corresponding documentary

stamp tax shall be levied, collected and paid by the person making,
signing, issuing, accepting, or transferring the real property
wherever the document is made, signed, issued, accepted or
transferred where the property is situated in the Philippines. x x x
(Emphasis supplied.)

Although the subject foreclosure sale and redemption

took place before the effectivity of RR No. 4-99, its
provisions may be given retroactive effect in this case.