650 Supreme Court Reports Annotated: Development Bank of The Philippines vs. Court of Appeals

9/28/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 316
650 SUPREME COURT REPORTS ANNOTATED

Development Bank of the Philippines vs. Court of Appeals
*
G.R. No. 111737. October 13, 1999.
DEVELOPMENT BANK OF THE PHILIPPINES,

petitioner, vs. THE HONORABLE COURT OF APPEALS
AND SPOUSES TIMOTEO and SELFIDA S. PIÑEDA,
respondents.
Possession; Possessor in Good Faith; Words and Phrases; 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.—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.
Good faith is always presumed, and upon him who alleges bad
faith on the part of a possessor rests the burden of proof. It was
therefore incumbent on the PIÑEDAS to prove that DBP was
aware of the flaw in its title i.e. the nullity of the foreclosure. This,
they failed to do.
Mortgages; Foreclosure of Mortgage; If no redemption of a
foreclosed property is made within one year, the purchaser is
entitled as a matter of right to consolidate and to possess the
property.—If no redemption is made within one year, the
purchaser is entitled as a matter of right to consolidate and to
possess the property. Accordingly, DBP’s act of consolidating its
title and taking possession of the subject property after the
expiration of the period of redemption was in accordance with
law. Moreover, it was in consonance with Section 4 of the
mortgage contract between DBP and the PIÑEDAS where they
agreed to the appointment of DBP as receiver to take charge and
to hold possession of the mortgage property in case of foreclosure.
DBP’s acts cannot therefore be tainted with bad faith.
Same; Same; Public Land Law; Homesteads; Section 119 of
Commonwealth Act No. 141 does not contain any prohibition to
convey homestead land but grants the homesteader, his widow or
legal heirs a right to repurchase said land within a period of five
years in the event that he conveys said land.—The right of DBP to
consolidate its title and take possession of the subject property is
not affected by the PIÑEDAS’ right to repurchase said property
central.com.ph/sfsreader/session/00000174d18c83bc0fd94c8d003600fb002c009e/t/?o=False 1/18
within five years from the date of conveyance granted by Section

119 of CA
_______________
* THIRD DIVISION.
651
VOL. 316, OCTOBER 13, 1999 651
No. 141. In fact, without the act of DBP consolidating title in its
name, the PIÑEDAS would not be able to assert their right to
repurchase granted under the aforementioned section.
Respondent PIÑEDAS are of the erroneous belief that said section
prohibits a purchaser of homestead land in a foreclosure sale from
consolidating his title over said property after the one-year period
to redeem said property has expired. Section 119 does not contain
any prohibition to convey homestead land but grants the
homesteader, his widow or legal heirs a right to repurchase said
land within a period of five years in the event that he conveys said
land. This is in consonance with the policy of homestead laws to
distribute disposable agricultural lands of the State to land-
destitute citizens for their home and cultivation. The right to
repurchase under Section 119 aims to preserve and keep in the
family of the homesteader that portion of public land which the
State had gratuitously given him. Such right is based on the
assumption that the person under obligation to reconvey the
property has the full title to the property because it was
voluntarily conveyed to him or that he consolidated his title
thereto by reason of a redemptioner’s failure to exercise his right
of redemption.
Same; Same; Same; Same; The five-year period of redemption
fixed in Section 119 of the Public Land Law of homestead sold at
extrajudicial foreclosure begins to run from the day after the
expiration of the one-year period of repurchase allowed in an
extrajudicial foreclosure.—It is also settled that “the five-year
period of redemption fixed in Section 119 of the Public Land Law
of homestead sold at extrajudicial foreclosure begins to run from
the day after the expiration of the one-year period of repurchase
allowed in an extrajudicial foreclosure.” Thus DBP’s consolidation
of title did not derogate from or impair the right of the PIÑEDAS
to redeem the same under C.A. No. 141.
Same; Good Faith; Questions of Law; By law and

jurisprudence, a mistake upon a doubtful or difficult question of
law may properly be the basis of good faith.—It may be argued
that P.D. 27 was already in effect when DBP foreclosed the
property. However, the legal propriety of the foreclosure of the
land was put into question only after Opinion No. 92 series of
1978 of the Ministry of Justice declared that said land was
covered by P.D. 27 and could not be subject to foreclosure
proceedings. The Opinion of the Ministry of Justice was issued on
July 5, 1978 or almost two months after DBP
652
consolidated its title to the property on March 10, 1978. By law

and jurisprudence, a mistake upon a doubtful or difficult question
of law may properly be the basis of good faith.
Same; Same; Sales; When a contract of sale is void, the
possessor is entitled to keep the fruits during the period for which
it held the property in good faith, which good faith ceases when an
action to recover possession of the property is filed against him and
he is served summons therefor.—In the case of Maneclang vs.
Baun, we held that when a contract of sale is void, the possessor
is entitled to keep the fruits during the period for which it held
the property in good faith. Good faith of the possessor ceases
when an action to recover possession of the property is filed
against him and he is served summons therefore. In the present
case, DBP was served summons on June 30, 1982. By that time, it
was no longer in possession of the disputed land as possession
thereof was given back to the PIÑEDAS after the foreclosure of
DBP was declared null and void on February 22, 1982. Therefore,
any income collected by DBP after it consolidated its title and
took possession of the property on May 30, 1978 up to February
22, 1982 belongs to DBP as a possessor in good faith since its
possession was never legally interrupted.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

The Chief Legal Counsel, DBP, for petitioner.
Antonio A. Bisnar for private respondents.
GONZAGA-REYES, J.:
Before us is a Petition for Review

1
on Certiorari of the
decision of the Court of Appeals in CA-G.R. CV No. 28549
entitled “SPOUSES TIMOTEO PIÑEDA, ET AL. vs.
DEVELOP-
_______________
1 Tenth Division composed of the ponente, J. Regina G. Ordoñez-

Benitez; and the members J. Arturo B. Buena (Chairman) and J. Eduardo
G. Montenegro concurring.
653
VOL. 316, OCTOBER 13, 1999 653

MENT BANK OF THE PHILIPPINES” which affirmed the2

decision of the Regional Trial Court (RTC), Branch 16,
Roxas City in Civil Case No. V-4590, for cancellation of
certificate of title and/or specific performance, accounting
and damages with a prayer for the issuance of a writ of
preliminary injunction.
The records show that respondent spouses Piñeda
(PIÑEDAS) are the registered owners of a parcel of land
(Lot 11-14-1-14) situated at barangay Astorga Dumarao,
Capiz containing an area of 238,406 square meters, more or
less, and covered by Homestead Patent No. 0844 and
Original Certificate of Title No. P-1930. On March 7, 1972,
the PIÑEDAS mortgaged the above described parcel of
land to petitioner, Development Bank of the Philippines
(DBP) to secure their agricultural loan in the amount of
P20,000.00. The PIÑEDAS failed to comply with the terms
and conditions of the mortgage compelling DBP to
extrajudicially foreclose on February 2, 1977. In the
foreclosure sale, DBP was the highest bidder and a Sheriff
Certificate of Sale was executed in its favor. In the
corresponding Certificate of Sale, the sheriff indicated that
“This property is sold subject to the redemption within five
(5) years from the date of registration of this instrument
and in the manner provided for by law applicable to this
case.” The certificate of sale was registered in the Register
of Deeds of Capiz on April 25, 1977. On March 10, 1978,
after the expiration of the one-year redemption period
provided for under Section 6, ACT 3135, DBP consolidated
its title over the fore-closed property by executing an
Affidavit of Consolidation of Ownership. Subsequently, a
Final Deed of Sale was executed in DBP’s favor, which was
registered together with the Affidavit of Consolidation of
Ownership with the Register of Deeds of Capiz on May 30,

1978. Consequently, Original Certificate of Title No. P-
1930 was cancelled and TCT No. T-15559 was issued in the
name of DBP. Thereafter, DBP took possession of the
foreclosed property and appropriated the produce thereof.
_______________
2 Penned by Judge Manuel E. Autajay.
654

On July 5, 1978, the

3
Ministry of Justice issued Opinion No.
92, Series of 1978 which declared that lands covered by
P.D.
_______________
“OPINION NO. 92, s. 1978

3rd Indorsement
July 5, 1978
Respectfully returned to the Minister, Ministry of Agrarian Reform,

Diliman, Quezon City, his within request for opinion regarding
landholdings covered by P.D. No. 27, which have been previously
mortgaged to banking institutions, specifically on the following questions:
a.) Whether or not lands covered by P.D. No. 27 may be the object of
foreclosure proceedings after October 21, 1972;
b.) Whether or not the right of a landowner to receive payment from
the Land Bank may be the object of foreclosure proceedings.
I find merit in the position taken by the Ministry that lands covered by
P.D. No. 27 may not be the object of foreclosure proceedings after
promulgation of said decree on October 21, 1972. With the peremptory
declaration that the tenant farmer “shall be deemed owner” of the land he
tills, and the declaration that lands acquired thereunder or under the land
reform program of the government “shall not be transferable except by
hereditary succession or to the government in accordance with the
provisions of the Decree, the Code of Agrarian Reform, and other existing
laws and regulations,” I believe that whatever right the mortgager has to
the property is superseded by the statutory declaration transferring
ownership from the mortgagor to the tenant by operation of law.
Foreclosure of mortgage is a remedy by which the property covered may
be subject to sale to pay the debt for which the mortgage stands as
security, and since the land is by law no longer transferable except to the
heirs of the tenant-farmer or to the government, I do not see how the right
to foreclose can subsist when the mortgaged property has ceased to be
alienable property of the mortgagor, and the property cannot be
transferred to the purchaser in the foreclosure proceedings. The situation
is analogous to one where the mortgaged property is expropriated before
foreclosure takes place, regarding which it has been held that the
mortgagee loses his lien upon the expropriated property as “the land
taken no longer belongs to the mortgagor, because it has been by virtue of
a sovereign power, free of the mortgage,” (Chicago v. Salinger, et al. 52 NE
2d-184 [1943]; see also In Re Diliman, 267 NW-623 [1936]; In Re City of
Rochester, 32 NE 702 [1892]
This conclusion finds support in the provision of Section 80 of R.A. No.
3844 (Code of Agrarian Reform, as amended by P.D. No. 251), which
provides insofar as pertinent:
“SEC. 80. Modes of Payment. The Bank shall finance the acquisition of
farm lots under any of the following modes of settlement:
x x x x x x x x x
“In the event there is existing lien or encumbrance on the land in favor
of any Government lending institution at the time of acquisition by the
Bank, the landowner shall be paid the net value of the land (i.e., the value
of the land determined under Presidential Decree No. 27 minus the
outstanding balance/s of the obligation/s secured by the lien/s of
encumbrance/s, and the outstanding balance/s of the obligations to the
lending institution/s shall be paid by the Land Bank in the Land Bank
bonds or other securities; existing charters of those institutions to the
contrary notwithstanding. A similar settlement may be negotiated by the
Land Bank in the case of obligations secured by liens or encumbrances in
favor of private parties or institutions.
x x x x x x x x x
655
VOL. 316, OCTOBER 13, 1999 655

4
No. 27, like the herein subject property, may not be the ob-
_______________
The Land Bank is thus charged with the obligation to settle, or

negotiate the settlement of, the obligations secured by the mortgage, lien
or encumbrance whether the lender is a government or a private lending
institution. This assumes that the might of the mortgagor to enforce his
lien through foreclosure proceedings against the property no longer
subsists. I may add that with respect to cases where the mortgage might
by now (but after October 21, 1972) have already been foreclosed, the
titles of the purchaser at the auction sale having actually been perfected
after the redemption period had expired, the foreclosure might have to be
set aside through judicial proceedings.
I am aware that a ruling that lands covered by P.D. No. 27 may not be
the object of the foreclosure proceedings after the promulgation of said
decree on October 21, 1972, would concede that P.D. No. 27 had the effect
of impairing the obligation of the duly executed mortgage contracts
affecting said lands. There is no question, however, that the land reform
program of the government as accelerated under P.D. No. 27 and
mandated by the Constitution itself (Act XIV, Sec. 12), was undertaken in
the exercise of the police power of the state. It is settled in a long line of
decisions of the Supreme Court that the constitutional guaranty of non-
impairment of obligations of contract is limited by the exercise of the
police power of the state. [Pangasinan Transp. v. P.S.C., 70 Phil. 221
(1940); Phil. American Life Ins. Co. v. The Auditor General, 22 SCRA 135
(1968); De Ramos v. Court of Agrarian Relations, I-19555, May 29, 1964;
Stone v. Mississippi, 101 U.S. 814] One limitation on the contract clause
arises from the police power, the reason being that public welfare is
superior to private rights. [Since, Phil. Pol. Law, 11th ed. at p. 642]. The
situation here is like that in eminent domain proceedings, where the state
expropriates private property for public use, and the only condition to be
complied with is the payment of just compensation. Technically the
condemnation proceedings do not impair the contract or destroy its
obligations, but merely appropriate to take it for public use [Long Is.
Water Sup. Co. v. Brooklyn, 166 U.S. 635]. As the Land Bank is obliged to
settle the obligations secured by the mortgage, the mortgagee is not left
without compensation.
The first query is therefore answered in the negative.
Regarding query No. 1, I do not see how foreclosure proceedings can be
instituted against the “right of the landowner to receive payment from the
Land Bank.” As the mortgage had ceased to exist upon the transfer of title
to the tenant by virtue of the promulgation of P.D. No. 27 on October 21,
1972, there can be no mortgage to foreclose and therefore no subject for
the foreclosure proceedings. Whatever equitable interest the mortgagee
has in the land owners’ right to receive payment is protected under
Section 80, above-quoted, directing the Land Bank to settle existing liens
and encumbrances affecting the property.
Please be guided accordingly.
It might be useful to note that the above view is shared by the Land
Bank of the Philippines, as expressed in the proceeding Indorsement of
the President of said bank.
(SGD.) VICENTE ABAD SANTOS
Minister of Justice.”
4 “DECREEING THE EMANCIPATION OF TENANT’S FROM THE
BONDAGE OF THE SOIL, TRANSFERRING TO THEM THE
656

ject of foreclosure proceedings after the promulgation of

said decree on Oct. 21, 1972.
On August 24, 1981, the PIÑEDAS offered to redeem
the foreclosed property by offering P10,000.00 as partial
redemption payment. This amount was accepted by DBP
who issued O.R. No. 1665719 and through a letter,
conditionally approved the offer of5 redemption considering
the P10,000.00 as down payment. However, on November
11, 1981, DBP sent the PIÑEDAS another letter informing
them that pursuant to P.D. 27, their offer to redeem and/or
repurchase the subject property could not be favorably6
considered for the reason that said property was tenanted.
On November 16, 1981, in deference to the above-
mentioned opinion, DBP through Ramon Buenaflor sent a
letter to the Acting Register of Deeds of Capiz requesting
the latter to cancel TCT No. T-15559 and to restore
Original Certificate of Title No. P-1930 in the name of the
PIÑEDAS. The Acting Register of Deeds, in reply to such
request, suggested that DBP file a petition in court 7
pursuant to Section 108 of Presidential Decree 1529. In
compliance with said suggestion, DBP petitioned for the
cancellation of TCT No. T-15559 with then Court of First
Instance of Capiz, Branch II, docketed as Special Case No.
2653. The petition was favorably acted upon on February
22, 1982. Thus, the foreclosure proceeding conducted on
February 2, 1977 was declared null and void and the
Register of Deeds of Capiz was ordered to cancel TCT No.
15559; OCT No. 1930 was ordered revived.
_______________
OWNERSHIP OF THE LAND THEY TILL AND PROVIDING THE

INSTRUMENTS AND MECHANISMS THEREFOR.”
5 Record, pp. 13-14.
6 Record, p. 15.
7 “Sec. 108. Amendment and alteration of certificates.—No erasure,
alteration, or amendment shall be made upon the registration book after
the entry of a certificate of title or of a memorandum thereon and the
attestation of the same by Register of Deeds, except by order of the proper
Court of First Instance. x x x”
657
VOL. 316, OCTOBER 13, 1999 657
Meanwhile, on December 21, 1981, the PIÑEDAS filed the

instant complaint against DBP for cancellation of
certificate of title and/or specific performance, accounting
and damages with a prayer for the issuance of a writ of
preliminary injunction averring that DBP, in evident bad
faith, caused the consolidation of its title to the parcel of
land in question 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 the foreclosed8 property was made well within said
period of redemption.
After trial, the RTC ruled in favor of the PIÑEDAS
stating that DBP violated the stipulation in the Sheriff’s
Certificate of Sale which provided that the redemption
period is five (5) years from 9
the registration
10
thereof in
consonance with Section 119 of CA No. 141. DBP should
therefore assume liability for the fruits that said property
produced from said land considering that it prematurely
took possession thereof. The dispositive portion of the
decision reads:
“WHEREFORE, judgment is hereby rendered in favor of plaintiffs

and against the defendant Development Bank of the Philippines
as follows:
1. Condemning the defendant DBP to pay the plaintiffs
P201,138.28 less whatever amount the plaintiffs still have to pay
the said defendant DBP as balance of their loan account reckoned
up to the date of this decision; P20,000.00 as attorney’s fees;
P5,000.00 as litigation
11
expenses and costs.
SO ORDERED.”
_______________
8 Decision of the Court of Appeals, pp. 1-3; Rollo, pp. 8-10.

9 “Sec. 119. Every conveyance of land acquired under the free patent or
homestead provisions, when proper, shall be subject to repurchase by the
applicant, his widow, or legal heirs, within a period of five years from the
date of the conveyance.”
10 “PUBLIC LAND ACT.”
11 Decision of the Regional Trial Court, p. 9; Rollo, p. 95.
658

DBP appealed to the Court of Appeals, which affirmed the

decision of the RTC. The Court of Appeals stated that since
DBP was in evident bad faith when it unlawfully took
possession of the property subject of the dispute and defied
what was written on the Sheriff’s Certificate of Sale, the
PIÑEDAS were entitled to recover the fruits produced by
the property or its equivalent valued at P72,000.00 per
annum or a total of P216,000.00 for the three-year period.
Respondent court stated that said amount was not rebutted
by DBP and was fair considering the size of the land in
question. The court added that any discussion with respect
to the redemption period was of little significance since the
foreclosure proceeding was12 declared null and void in
Special Civil Case No. 2653 on February 22, 1982. Thus,
the right of the PIÑEDAS to redeem the property has
become moot and academic. Finally,
13
the award of attorney’s
fees amounting to P10,000.00 was justified considering
that the14 PIÑEDAS were compelled to protect their
interests. 15
DBP’s Motion for Reconsideration was denied; hence
this petition where it assigns the following errors:
“1. Ground No. 1—The Honorable Court Of Appeals

Gravely Erred In Affirming The Court A Quo’s
Decision Awarding Actual Damages In The Amount
Of P216,000.00 In Favor Of The Private
Respondents Notwithstanding The Absence Of
Evidence Substantiating Said Award. Thus, The
Honorable Court Of Appeals Had Decided This
Instant Case In A Way Not In Accord With
Applicable Law And Jurisprudence.
2. Ground No. 2—The Honorable Court Of Appeals
Finding That DBP Was In Bad Faith When It Took
Possession Of The Property In Question
Notwithstanding the Contrary Evidence Adduced
By Petitioner DBP.
_______________
12 Penned by Judge Oscar Leviste.

13 Should be P10,000.00 as ruled by the lower court.
14 Decision of the Court of Appeals, p. 6; Rollo, p. 13.
15 Rollo, p. 17.
659
VOL. 316, OCTOBER 13, 1999 659
Thus, The Honorable Court Of Appeals Departed

From The Accepted And Usual Course of Judicial
Proceedings.
3. Ground No. 3—The Honorable Court Of Appeals
Decision Awarding Attorney’s Fees And Litigation
Costs In Favor Of The Private Respondents
Notwithstanding Absence Of Evidence Proving the
Same. Clearly, The Lower Court Committed
Misapprehension Of 16Facts That Can Be Considered
A Question Of Law.”
DBP maintains that the valuation of the income derived

from the property in dispute allegedly amounting to
P216,000.00 was not proven by the PIÑEDAS. DBP argues
that they granted the PIÑEDAS a loan of P20,000.00 in
March 7, 1972 and up to the time of the foreclosure of the
property, the PIÑEDAS have paid only P2,000.00 on their
principal. The failure of the PIÑEDAS to pay this loan is
attributable to the fact that said property did not produce
income amounting to P72,000.00 per annum. According to
DBP, in the absence of receipts or other evidence to support
such a claim, the Court of Appeals should not have granted
said amount considering that the PIÑEDAS had the
burden of proving actual damages. Furthermore, Selfida
Piñeda herself admitted that the property never produced
income amounting to P72,000.00 per annum. At any rate,
the actual amount earned by the property in terms of
rentals turned over by the tenant-farmers or caretakers of
the land were duly receipted and were duly accounted for
by the DBP.
DBP also alleges that the mere fact that DBP took
possession and administration of the property does not
warrant a finding that DBP was in bad faith. First, records
show that the PIÑEDAS consented to and approved the
take-
_______________
16 Petitioner’s Memorandum, pp. 13, 19, and 27 respectively; Rollo, pp.

179, 185 and 193 respectively.
660

17 18
over of DBP. Second, Sec. 7 of Act No. 3135 allows the
mortgagee-buyer to take possession of the mortgaged
property even during the redemption period. Third, DBP’s
act of consolidating the title of the property in its name
does not constitute bad faith as there is no law which
prohibits the purchaser at public auction from
consolidating title in its name after the expiration of the
one (1) year redemption period reckoned from the time the
Certificate of Sale was registered; and neither is there any
law or jurisprudence which prohibits the PIÑEDAS from
exercising their right of redemption over said property
within five (5) years even if title is consolidated in the
name of the purchaser. When DBP consolidated title over
the property in its name, the new TCT issued in its favor
was subject to the lien i.e. the right of redemption of the
PIÑEDAS; if there was a failure to register this in the TCT,
DBP should not be faulted. Besides, even if the five (5) year
19
period of redemption was not indicated therein, Sec. 44
and
_______________
17 “Sec. 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the province or the
place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying with the
requirements of this Act. x x x.”
18 “AN ACT TO REGULATE THE SALE OF PROPERTY UNDER
SPECIAL POWERS INSERTED IN OR ANNEXED TO REALESTATE
MORTGAGES.”
19 “Sec. 44. Statutory liens affecting title.—Every registered owner
receiving a certificate of title in pursuance of a decree of registration, and
every subsequent purchaser of the registered land taking a certificate of
title for value and in good faith, shall hold the same free from all
encumbrances except those noted in the certificate and any of the
following encumbrances which may be subsisting, namely:
First, Liens, claims or rights arising or existing under the laws and
Constitution of the Philippines which are not required by law to appear to
be valid against subsequent purchasers or encumbrances of record. x x x”
661
VOL. 316, OCTOBER 13, 1999 661

20 21
20 21
46 of Presidential Decree No. 1529 attaches such lien by
operation of law even in the absence of an annotation in the
title. Moreover, Sec. 119 of CA No. 141 also makes said
right of redemption a statutory lien, which subsists and
binds the whole world despite the absence of registration.
DBP also could not have been in bad faith when it
denied the PIÑEDAS’ offer to redeem the property since
the denial was premised on Opinion No. 92 of the Minister
of Justice series of 1978 which stated that said land was
covered under P.D. 27 and could not be the subject of
foreclosure proceedings. For this reason, DBP immediately
filed a petition to nullify the foreclosure proceedings which
was favorably acted upon prior to the service of summons
and the complaint in the present case on DBP on June
30,1982. If DBP was really in bad faith, it would not have
filed said petition for said petition was against its own
interests.
Further, DBP asserts that PIÑEDAS appointed DBP as
their attorney-in-fact or agent in case of foreclosure of the
property under Section 4 of the mortgage contract, which
provides:
“4. x x x In case of foreclosure, the Mortgagor hereby consents to

the appointment of the mortgagee or any of its employees as
receiver, without any bond, to take charge of the mortgage
property at once, and to hold possession of the case and the rents
and22profits derived from the mortgaged property before the sale. x
x x”
DBP was therefore entitled to take possession of the

property pursuant to the mortgage contract.
_______________
20 “Sec. 46. General incidents of registered land.—Registered land shall

be subject to such burdens and incidents as may arise by operation of law.
x x x”
21 “AMENDING AND CODIFYING THE LAWS RELATIVE TO THE
REGISTRATION OF PROPERTY AND FOR OTHER PURPOSES.”
22 Record, p. 473.
662

Finally, considering that DBP lawfully had material

possession of the property after it consolidated its title,
DBP was entitled to the fruits and income thereof pursuant

to Section 34, Rule 39 of the Rules of Court:
“Sec. 34. Rents and Profits Pending Redemption. Statement

thereof and credit therefor on redemption.—The purchaser, from
the time of the sale until a redemption, and a redemptioner, from
the time of his redemption until another redemption, is entitled to
receive the rents of the property sold or the value of the use or
occupation thereof when such property is in the possession of a
tenant. x x x”
Taking all this into consideration, DBP cannot be faulted

for taking over possession of the property in question.
The core issue in this case is whether DBP was in bad
faith when it took possession of the disputed lot.
We rule in the negative and find DBP’s contentions
meritorious.
A possessor in good faith is one who is not aware that
there exists in his title23
or mode of acquisition any flaw,
which invalidates it. Good faith is always presumed, and
upon him who alleges bad24 faith on the part of a possessor
rests the burden of proof. It was therefore incumbent on
the PIÑEDAS to prove that DBP was aware of the flaw in
its title i.e. the nullity of the foreclosure. This, they failed to
do.
Respondent PIÑEDAS argue that DBP’s bad faith stems
from the fact that DBP consolidated title over the disputed
property despite the statement in the Sheriff’s Certificate
of Sale to the effect that said land was subject to a five year
redemption period. The period of redemption of
extrajudicially foreclosed land is provided under Section 6
of ACT No. 3135 to wit:
_______________
23 Article 526, Civil Code.

663
VOL. 316, OCTOBER 13, 1999 663

“Sec. 6. In all cases in which an extrajudicial sale is made under

the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment creditor
of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the
term of one year from and after the date of sale; and such
redemption shall be governed by the provisions of section four
hundred and sixty-four to four hundred
25
and sixty-six, inclusive, of
the Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act.”
If no redemption is made within one year,26the purchaser is 27

entitled as a matter
28
of right to consolidate and to possess
the property. Accordingly, DBP’s act of consolidating its
title and taking possession of the subject property after the
expiration of the period of redemption was in accordance
with law. Moreover, it was in consonance with Section 4 of
the mortgage contract between DBP and the PIÑEDAS
where they agreed to the appointment of DBP as receiver
to take charge and to hold possession of the mortgage
property in case of foreclosure. DBP’s acts cannot therefore
be tainted with bad faith.
The right of DBP to consolidate its title and take
possession of the subject property is not affected by the
PIÑEDAS’ right to repurchase said property within five
years from the date of conveyance granted by Section 119
of CA No. 141. In fact, without the act of DBP consolidating
title in its name, the PIÑEDAS would not be able to assert
their right to repurchase granted under the aforementioned
section. Respondent PIÑEDAS are of the erroneous belief
that said section prohibits a purchaser of homestead land
in a foreclosure sale from consolidating his title over said
property after the oneyear period to redeem said property
has expired. Section 119 does not contain any prohibition to
convey homestead land
_______________
25 Now § 27, 28 and 32 Rule 39, Rules of Court; Previously § 29, 30 and
34, Rule 39, Rules of Court.
26 Tarnate vs. Court of Appeals, 241 SCRA 254 at 260 [1995].
27 Javelosa vs. Court of Appeals, 265 SCRA 493 at 503 [1997].
28 § 33, Rule 39 of the Rules of Court.
664

but grants the homesteader, his widow or legal heirs a

right to repurchase said land within a period of five years
in the event that he conveys said land. This is in
consonance with the policy of homestead laws to distribute

disposable agricultural lands of the State to29
land-destitute
citizens for their home and cultivation. The right to
repurchase under Section 119 aims to preserve and keep in
the family of the homesteader that portion 30of public land
which the State had gratuitously given him. Such right is
based on the assumption that the person under obligation
to reconvey the property has the full title to the property
because it was voluntarily conveyed to him or that he
consolidated his title thereto by reason of31a redemptioner’s
failure to exercise his right of redemption. It is also settled
that “the five-year period of redemption fixed in Section
119 of the Public Land Law of homestead sold at
extrajudicial foreclosure begins to run from the day after
the expiration of the one-year period
32
of repurchase allowed
in an extrajudicial foreclosure.” Thus DBP’s consolidation
of title did not derogate from or impair the right of the
PIÑEDAS to redeem the same under C.A. No. 141.
It may be argued that P.D. 27 was already in effect
when DBP foreclosed the property. However, the legal
propriety of the foreclosure of the land was put into
question only after Opinion No. 92 series of 1978 of the
Ministry of Justice declared that said land was covered by
P.D. 27 and could not be subject to foreclosure proceedings.
The Opinion of the Ministry of Justice was issued on July
5, 1978 or almost two months after DBP consolidated its
title to the property on March 10, 1978. By law and
jurisprudence, a mistake upon a
_______________
29 Pascua vs. Talens, 80 Phil. 792 at pp. 793-794 [1948].

30 Ibid.
31 Rural Bank of Davao City vs. Court of Appeals, 217 SCRA 554 at p.
568 [1993].
32 Belisario vs. Intermediate Appellate Court, 165 SCRA 101 at 107
[1988].
665
VOL. 316, OCTOBER 13, 1999 665

doubtful or difficult
33
question of law may properly be the
basis of good faith. 34
In the case of Maneclang vs. Baun, we held that when a
contract of sale is void, the possessor is entitled to keep the
fruits during the period for which it held the property in
good faith. Good faith of the possessor ceases when an

action to recover possession of the property35 is filed against
him and he is served summons therefore. In the36 present
case, DBP was served summons on June 30, 1982. By that
time, it was no longer in possession of the disputed land as
possession thereof was given back to the PIÑEDAS after
the foreclosure of DBP was declared null and void on
February 22, 1982. Therefore, any income collected by DBP
after it consolidated its title and took possession of the
property on May 30, 1978 up to February 22, 1982 belongs
to DBP as a possessor in good faith since its possession was
never legally interrupted.
Finally, we delete the award for attorney’s fees.
Although attorney’s fees may be awarded if the claimant is
compelled to litigate with third persons or to incur
expenses to protect his interest by reason of an unjustified
37
act or omission of the party from whom it is sought, we
hold that DBP’s acts were clearly not unjustified.
WHEREFORE, the instant petition is hereby
GRANTED, and the appealed decision of the Court of
Appeals is REVERSED. The Development Bank of the
Philippines is absolved from any liability to Timoteo and
Selfida Piñeda in so far as it orders the DBP to pay the
PIÑEDAS P216,000.00 as annual produce value of the
land; P20,000.00 in attorney’s fees, P5,000.00 in litigation
expenses and the costs of the suit. This decision is without
prejudice to whatever liability the
_______________

34 208 SCRA 179 [1992].
35 Ibid., at pp. 195-196.
36 Record, p. 48.
37 Philippine National Bank vs. Court of Appeals, 256 SCRA 44 at pp.
50-51 [1996].
666

PIÑEDAS may still have to the DBP with respect to their

loan.
SO ORDERED.
Melo (Actg. C.J.), Vitug, Panganiban and Purisima,

JJ., concur.
Petition granted; Appealed decision reversed.
Notes.—Although the classification of lands is a

government prerogative which it may opt to exercise to the
detriment of another, still, private interests regarding the
same are not prejudiced and the possessor in good faith is
respected in his right not to be disturbed. (De la Cruz vs.
Court of Appeals, 286 SCRA 230 [1998])
There is no provision of law which grants the lessee a
right of retention over the leased premises on the ground
that he made repairs on the premises—Article 448 of the
Civil Code, in relation to Article 546, which provides for full
reimbursement of useful improvements and retention of
the premises until reimbursement is made, applies only to
a possessor in good faith, i.e., one who builds on a land in
the belief that he is the owner thereof. (Chua vs. Court of
Appeals, 301 SCRA 356 [1999])
——o0o——
667
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9/28/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 316

650 SUPREME COURT REPORTS ANNOTATED

DEVELOPMENT BANK OF THE PHILIPPINES,

Possession; Possessor in Good Faith; Words and Phrases; A

within five years from the date of conveyance granted by Section

VOL. 316, OCTOBER 13, 1999 651

Development Bank of the Philippines vs. Court of Appeals

Same; Good Faith; Questions of Law; By law and

652 SUPREME COURT REPORTS ANNOTATED

Development Bank of the Philippines vs. Court of Appeals

consolidated its title to the property on March 10, 1978. By law

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

Before us is a Petition for Review

1 Tenth Division composed of the ponente, J. Regina G. Ordoñez-

VOL. 316, OCTOBER 13, 1999 653

MENT BANK OF THE PHILIPPINES” which affirmed the2

Ownership with the Register of Deeds of Capiz on May 30,

2 Penned by Judge Manuel E. Autajay.

654 SUPREME COURT REPORTS ANNOTATED

On July 5, 1978, the

“OPINION NO. 92, s. 1978

Respectfully returned to the Minister, Ministry of Agrarian Reform,

VOL. 316, OCTOBER 13, 1999 655

The Land Bank is thus charged with the obligation to settle, or

656 SUPREME COURT REPORTS ANNOTATED

ject of foreclosure proceedings after the promulgation of

OWNERSHIP OF THE LAND THEY TILL AND PROVIDING THE

VOL. 316, OCTOBER 13, 1999 657

Development Bank of the Philippines vs. Court of Appeals

Meanwhile, on December 21, 1981, the PIÑEDAS filed the

“WHEREFORE, judgment is hereby rendered in favor of plaintiffs

8 Decision of the Court of Appeals, pp. 1-3; Rollo, pp. 8-10.

658 SUPREME COURT REPORTS ANNOTATED

DBP appealed to the Court of Appeals, which affirmed the

“1. Ground No. 1—The Honorable Court Of Appeals

12 Penned by Judge Oscar Leviste.

VOL. 316, OCTOBER 13, 1999 659

Development Bank of the Philippines vs. Court of Appeals

Thus, The Honorable Court Of Appeals Departed

DBP maintains that the valuation of the income derived

16 Petitioner’s Memorandum, pp. 13, 19, and 27 respectively; Rollo, pp.

660 SUPREME COURT REPORTS ANNOTATED

VOL. 316, OCTOBER 13, 1999 661

“4. x x x In case of foreclosure, the Mortgagor hereby consents to

DBP was therefore entitled to take possession of the

20 “Sec. 46. General incidents of registered land.—Registered land shall

662 SUPREME COURT REPORTS ANNOTATED

Finally, considering that DBP lawfully had material

DBP was entitled to the fruits and income thereof pursuant

“Sec. 34. Rents and Profits Pending Redemption. Statement

Taking all this into consideration, DBP cannot be faulted

23 Article 526, Civil Code.

VOL. 316, OCTOBER 13, 1999 663

“Sec. 6. In all cases in which an extrajudicial sale is made under

If no redemption is made within one year,26the purchaser is 27

664 SUPREME COURT REPORTS ANNOTATED

but grants the homesteader, his widow or legal heirs a

consonance with the policy of homestead laws to distribute