TL;DR
In a foreclosure case, once the redemption period expires, the bank that acquires the property is no longer legally obligated to prioritize the former owner’s repurchase offer, even if the bank has internal policies suggesting such priority. The Supreme Court ruled that Philippine National Bank (PNB) rightfully sold a foreclosed property to a third party, Renato de Leon, despite the former owners, the Spouses Bacani, expressing interest in repurchasing it. The Court emphasized that after the redemption period, PNB became the absolute owner and had the right to dispose of the property according to its terms, and its internal circular offering priority to former owners did not create a legally enforceable right for the Spouses Bacani, especially since their offers were below market value and the bank’s claim.
Second Chance Denied: When Foreclosure Extinguishes Repurchase Expectations
This case revolves around a foreclosed property and the dashed hopes of its former owners to reclaim it. Spouses Bacani lost their land in Isabela to Philippine National Bank (PNB) after failing to pay their loan, leading to foreclosure and PNB becoming the registered owner. PNB had an internal policy (SEL Circular No. 8-7/89) that gave former owners priority in repurchasing foreclosed assets. The Spouses Bacani attempted to repurchase their property, but PNB ultimately sold it to Renato de Leon. The central legal question is: Did PNB’s internal policy create a legally binding obligation to prioritize the Spouses Bacani’s repurchase offer, even after the redemption period had expired, and could the sale to Renato be nullified due to alleged fraud and violation of this policy?
The factual backdrop is crucial. The Spouses Bacani mortgaged their land to PNB in 1980. Foreclosure proceedings commenced in 1986 when they defaulted on their loan, and PNB acquired the property as the highest bidder. The one-year redemption period, as mandated by law for extrajudicial foreclosures under Act No. 3135, lapsed without the Spouses Bacani redeeming the property. Consequently, PNB consolidated ownership and obtained a new title in 1989. Later that year, PNB issued SEL Circular No. 8-7/89, outlining a policy to prioritize former owners in repurchasing foreclosed assets on a negotiated basis. The Spouses Bacani initiated repurchase negotiations, making several offers which PNB deemed insufficient, especially compared to the property’s appraised fair market value and PNB’s outstanding claim. Despite the ongoing negotiations, PNB proceeded with a negotiated sale to Renato de Leon in 1996, even after informing the Spouses Bacani of a planned public auction. This sale triggered a legal battle initiated by the Spouses Bacani and other occupants, seeking to annul the sale to Renato and enforce their perceived right to repurchase.
The Regional Trial Court (RTC) and the Court of Appeals (CA) initially sided with the Spouses Bacani, finding that PNB acted in bad faith by not prioritizing their repurchase offer and by selling to Renato despite the scheduled auction. The lower courts essentially ruled that PNB’s internal policy created an enforceable right for the Spouses Bacani and that the sale to Renato was fraudulent. However, the Supreme Court reversed these decisions, emphasizing the fundamental principle of property rights after the expiration of the redemption period. The Court reiterated that:
It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title.
Building on this principle, the Supreme Court clarified that once the redemption period expired in 1987 and PNB consolidated its title, PNB became the absolute owner. As absolute owner, PNB possessed all attributes of ownership, including the right to dispose of the property without limitations except those established by law, as enshrined in Article 428 of the Civil Code:
ART. 428. The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law.
The Court underscored that PNB’s discretion in disposing of its property is paramount and cannot be easily curtailed. The Spouses Bacani’s reliance on PNB’s SEL Circular No. 8-7/89 was deemed misplaced. The Court held that this internal circular, while indicating a policy of prioritizing former owners, did not create a legally enforceable right for them. It was an internal guideline for PNB employees, not a statutory or contractual obligation towards former owners. Furthermore, even if the circular were considered binding, the Spouses Bacani failed to meet its conditions, particularly the requirement that the repurchase price be based on PNB’s total claim or fair market value, whichever is higher. Their offers consistently fell short of these benchmarks.
The Supreme Court also dismissed the allegation of fraud, stating that fraud must be proven by clear and convincing evidence, which the Spouses Bacani failed to provide. The publication of the Invitation to Bid for a public auction did not legally bind PNB to sell through auction or to any particular bidder. Article 1326 of the Civil Code explicitly states:
ART. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.
Therefore, PNB’s decision to sell to Renato de Leon through a negotiated sale, even after announcing a public auction, was within its rights as the absolute owner. The Court concluded that the Spouses Bacani had no legal basis to demand repurchase after the redemption period and that the sale to Renato was valid. This ruling reinforces the finality of foreclosure proceedings and the rights of purchasers after the redemption period has lapsed. It clarifies that internal bank policies, while potentially offering opportunities to former owners, do not override the bank’s fundamental right to dispose of its acquired assets as absolute owner, especially when the former owners fail to meet the conditions of such policies or statutory requirements.
FAQs
| What was the key issue in this case? | The central issue was whether PNB was legally obligated to prioritize the Spouses Bacani’s repurchase offer for their foreclosed property based on PNB’s internal policy, even after the redemption period had expired. |
| What did the Supreme Court rule? | The Supreme Court ruled in favor of PNB, stating that PNB was not legally obligated to sell the property back to the Spouses Bacani and that the sale to Renato de Leon was valid. |
| Why did the Supreme Court rule in favor of PNB? | The Court reasoned that after the redemption period expired, PNB became the absolute owner and had the right to dispose of the property as it saw fit. PNB’s internal policy did not create a legally enforceable right for the Spouses Bacani. |
| What is the significance of the redemption period in foreclosure cases? | The redemption period is a statutory period within which a former owner can redeem their foreclosed property. Once this period expires without redemption, the purchaser at the foreclosure sale becomes the absolute owner. |
| Are internal bank policies legally binding in favor of former owners of foreclosed properties? | Generally, no. Internal bank policies are for internal guidance and do not automatically create legally enforceable rights for third parties like former owners, unless they are incorporated into a contract or mandated by law. |
| What does this case mean for former owners trying to repurchase foreclosed properties? | Former owners should act within the statutory redemption period to redeem their properties. After the redemption period, repurchase is at the discretion of the bank, and internal bank policies offering priority are not guaranteed rights. |
| Was there fraud in PNB’s sale to Renato de Leon? | The Supreme Court found no clear and convincing evidence of fraud. PNB, as the absolute owner, had the right to sell the property, and the publication of an Invitation to Bid did not legally bind PNB to sell through public auction. |
For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.
Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PNB v. Bacani, G.R. No. 194983, June 20, 2018
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