l\epubhc of tbe

QCottrt
jlf(anila
FIRST DIVISION
GOLDENW A Y MERCHANDISING
CORPORATION,
Petitioner,
-versus-
EQUITABLE PCI BANK,
Respondent.
G.R. No. 195540
Present:
SERENO, C.J,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
VILLARAMA, JR., and
REYES,JJ
Promulgated:
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari which seeks to
reverse and set aside the Decision
1
dated November 19, 2010 and
Resolution
2
dated January 31, 2011 of the Court of Appeals (CA) in CA-
G.R. CV No. 91120. TheCA affirmed the Decision
3
dated January 8, 2007
of the Regional Trial Court (RTC) of- Valenzuela City, Branch 171
dismissing the complaint in Civil Case No. 295-V -01.
The facts are undisputed.
On November 29, 1985, Goldenway Merchandising Corporation
(petitioner) executed a Real Estate Mortgage in favor of Equitable PCI Bank
(respondent) over its real properties situated in Valenzuela, Bulacan (now
Valenzuela City) and covered by Transfer Certificate of Title (TCT) Nos. T-
152630, T-151655 and T-214528 of the Registry of Deeds for the Province
Rollo, pp. 36-47. Penned by Associate Justice Isaias P. Dicdican with Associate Justices Stephen C.
Cruz and Amy C. Lazaro-Javier concurring.
I d. at 86-87.
Id. at 240-245. Penned by Judge Maria Nena J. Santos.
Decision 2 G.R. No. 195540

of Bulacan. The mortgage secured the Two Million Pesos (P2,000,000.00)
loan granted by respondent to petitioner and was duly registered.
4

As petitioner failed to settle its loan obligation, respondent
extrajudicially foreclosed the mortgage on December 13, 2000. During the
public auction, the mortgaged properties were sold for P3,500,000.00 to
respondent. Accordingly, a Certificate of Sale was issued to respondent on
J anuary 26, 2001. On February 16, 2001, the Certificate of Sale was
registered and inscribed on TCT Nos. T-152630, T-151655 and T-214528.
5

In a letter dated March 8, 2001, petitioners counsel offered to redeem
the foreclosed properties by tendering a check in the amount of
P3,500,000.00. On March 12, 2001, petitioners counsel met with
respondents counsel reiterating petitioners intention to exercise the right of
redemption.
6
However, petitioner was told that such redemption is no longer
possible because the certificate of sale had already been registered.
Petitioner also verified with the Registry of Deeds that title to the foreclosed
properties had already been consolidated in favor of respondent and that new
certificates of title were issued in the name of respondent on March 9, 2001.
On December 7, 2001, petitioner filed a complaint
7
for specific
performance and damages against the respondent, asserting that it is the one-
year period of redemption under Act No. 3135 which should apply and not
the shorter redemption period provided in Republic Act (R.A.) No. 8791.
Petitioner argued that applying Section 47 of R.A. 8791 to the real estate
mortgage executed in 1985 would result in the impairment of obligation of
contracts and violation of the equal protection clause under the Constitution.
Additionally, petitioner faulted the respondent for allegedly failing to furnish
it and the Office of the Clerk of Court, RTC of Valenzuela City with a
Statement of Account as directed in the Certificate of Sale, due to which
petitioner was not apprised of the assessment and fees incurred by
respondent, thus depriving petitioner of the opportunity to exercise its right
of redemption prior to the registration of the certificate of sale.
In its Answer with Counterclaim,
8
respondent pointed out that
petitioner cannot claim that it was unaware of the redemption price which is
clearly provided in Section 47 of R.A. No. 8791, and that petitioner had all
the opportune time to redeem the foreclosed properties from the time it
received the letter of demand and the notice of sale before the registration of
the certificate of sale. As to the check payment tendered by petitioner,
respondent said that even assuming arguendo such redemption was timely
made, it was not for the amount as required by law.

4
Id. at 192-197, 236.
5
Id. 198-200, 236.
6
Id. at 236-237.
7
Id. at 183-191.
8
Id. at 211-215.
Decision 3 G.R. No. 195540

On J anuary 8, 2007, the trial court rendered its decision dismissing the
complaint as well as the counterclaim. It noted that the issue of
constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the
petitioner during the pre-trial and the trial. Aside from the fact that
petitioners attempt to redeem was already late, there was no valid
redemption made because Atty. J udy Ann Abat-Vera who talked to Atty.
J oseph E. Mabilog of the Legal Division of respondent bank, was not
properly authorized by petitioners Board of Directors to transact for and in
its behalf; it was only a certain Chan Guan Pue, the alleged President of
petitioner corporation, who gave instruction to Atty. Abat-Vera to redeem
the foreclosed properties.
9

Aggrieved, petitioner appealed to the CA which affirmed the trial
courts decision. According to the CA, petitioner failed to justify why
Section 47 of R.A. No. 8791 should be declared unconstitutional.
Furthermore, the appellate court concluded that a reading of Section 47
plainly reveals the intention to shorten the period of redemption for juridical
persons and that the foreclosure of the mortgaged properties in this case
when R.A. No. 8791 was already in effect clearly falls within the purview
of the said provision.
10

Petitioners motion for reconsideration was likewise denied by the
CA.
In the present petition, it is contended that Section 47 of R.A. No.
8791 is inapplicable considering that the contracting parties expressly and
categorically agreed that the foreclosure of the real estate mortgage shall be
in accordance with Act No. 3135. Citing Co v. Philippine National Bank
11

petitioner contended that the right of redemption is part and parcel of the
Deed of Real Estate Mortgage itself and attaches thereto upon its execution,
a vested right flowing out of and made dependent upon the law governing
the contract of mortgage and not on the mortgagees act of extrajudicially
foreclosing the mortgaged properties. This Court thus held in said case that
Under the terms of the mortgage contract, the terms and conditions under
which redemption may be exercised are deemed part and parcel thereof
whether the same be merely conventional or imposed by law.
Petitioner then argues that applying Section 47 of R.A. No. 8791 to
the present case would be a substantial impairment of its vested right of
redemption under the real estate mortgage contract. Such impairment would
be violative of the constitutional proscription against impairment of
obligations of contract, a patent derogation of petitioners vested right and
clearly changes the intention of the contracting parties. Moreover, citing this
Courts ruling in Rural Bank of Davao City, Inc. v. Court of Appeals
12
where
it was held that Section 119 prevails over statutes which provide for a

9
Id. at 243-245.
10
Id. at 44-47.
11
200 Phil. 333, 347 (1982).
12
G.R. No. 83992, J anuary 27, 1993, 217 SCRA 554, 565.
Decision 4 G.R. No. 195540

shorter period of redemption in extrajudicial foreclosure sales, and in Sulit
v. Court of Appeals,
13
petitioner stresses that it has always been the policy of
this Court to aid rather than defeat the mortgagors right to redeem his
property.
Petitioner further argues that since R.A. No. 8791 does not provide for
its retroactive application, courts therefore cannot retroactively apply its
provisions to contracts executed and consummated before its effectivity.
Also, since R.A. 8791 is a general law pertaining to the banking industry
while Act No. 3135 is a special law specifically governing real estate
mortgage and foreclosure, under the rules of statutory construction that in
case of conflict a special law prevails over a general law regardless of the
dates of enactment of both laws, Act No. 3135 clearly should prevail on the
redemption period to be applied in this case.
The constitutional issue having been squarely raised in the pleadings
filed in the trial and appellate courts, we shall proceed to resolve the same.
The law governing cases of extrajudicial foreclosure of mortgage is
Act No. 3135,
14
as amended by Act No. 4118. Section 6 thereof provides:
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 the sale; and such
redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure,
15
in so far as these are not inconsistent with the
provisions of this Act.
The one-year period of redemption is counted from the date of the
registration of the certificate of sale. In this case, the parties provided in
their real estate mortgage contract that upon petitioners default and the
latters entire loan obligation becoming due, respondent may immediately
foreclose the mortgage judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended.

13
335 Phil. 914, 928 (1997).
14
AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO
REAL ESTATE MORTGAGES, approved on March 6, 1924.
15
Now Section 28 of Rule 39, 1997 Rules on Civil Procedure.
SEC. 28. Time and manner of, and amounts payable on, successive redemptions; notice to be
given and filed. The judgment obligor, or redemptioner, may redeem the property from the
purchaser, at any time within one (1) year from the date of the registration of the certificate of sale, by
paying the purchaser the amount of his purchase, with one per centum per month interest thereon in
addition, up to the time of redemption, together with the amount of any assessments or taxes which the
purchaser may have paid thereon after purchase, and interest on such last named amount of the same
rate; and if the purchaser be also a creditor having a prior lien to that of the redemptioner, other than
the judgment under which such purchase was made, the amount of such other lien, with interest.
Decision 5 G.R. No. 195540

However, Section 47 of R.A. No. 8791 otherwise known as The
General Banking Law of 2000 which took effect on J une 13, 2000,
amended Act No. 3135. Said provision reads:
SECTION 47. Foreclosure of Real Estate Mortgage. In the
event of foreclosure, whether judicially or extrajudicially, of any mortgage
on real estate which is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property has been sold for the
full or partial payment of his obligation shall have the right within one
year after the sale of the real estate, to redeem the property by paying the
amount due under the mortgage deed, with interest thereon at the rate
specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the
income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extrajudicial foreclosure shall have the
right to enter upon and take possession of such property immediately after
the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the
conduct of foreclosure proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the petitioner of a bond
in an amount fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is
being sold pursuant to an extrajudicial foreclosure, shall have the right to
redeem the property in accordance with this provision until, but not after,
the registration of the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of property that has been
sold in a foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration. (Emphasis supplied.)
Under the new law, an exception is thus made in the case of juridical
persons which are allowed to exercise the right of redemption only until,
but not after, the registration of the certificate of foreclosure sale and in no
case more than three (3) months after foreclosure, whichever comes first.
16

May the foregoing amendment be validly applied in this case when
the real estate mortgage contract was executed in 1985 and the mortgage
foreclosed when R.A. No. 8791 was already in effect?
We answer in the affirmative.
When confronted with a constitutional question, it is elementary that
every court must approach it with grave care and considerable caution
bearing in mind that every statute is presumed valid and every reasonable
doubt should be resolved in favor of its constitutionality.
17
For a law to be
nullified, it must be shown that there is a clear and unequivocal breach of the

16
See A.M. No. 99-10-05-0 Re: Procedure in Extra-Judicial Foreclosure of Mortgages, August 7, 2001
(Unsigned Resolution).
17
People v. Siton, G.R. No. 169364, September 18, 2009, 600 SCRA 476, 497, citing Lacson v.
Executive Secretary, G.R. No. 128096, J anuary 20, 1999, 301 SCRA 298.
Decision 6 G.R. No. 195540

Constitution. The ground for nullity must be clear and beyond reasonable
doubt.
18
Indeed, those who petition this Court to declare a law, or parts
thereof, unconstitutional must clearly establish the basis therefor. Otherwise,
the petition must fail.
19

Petitioners contention that Section 47 of R.A. 8791 violates the
constitutional proscription against impairment of the obligation of contract
has no basis.
The purpose of the non-impairment clause of the Constitution
20
is to
safeguard the integrity of contracts against unwarranted interference by the
State. As a rule, contracts should not be tampered with by subsequent laws
that would change or modify the rights and obligations of the parties.
21

Impairment is anything that diminishes the efficacy of the contract. There is
an impairment if a subsequent law changes the terms of a contract between
the parties, imposes new conditions, dispenses with those agreed upon or
withdraws remedies for the enforcement of the rights of the parties.
22

Section 47 did not divest juridical persons of the right to redeem their
foreclosed properties but only modified the time for the exercise of such
right by reducing the one-year period originally provided in Act No. 3135.
The new redemption period commences from the date of foreclosure sale,
and expires upon registration of the certificate of sale or three months after
foreclosure, whichever is earlier. There is likewise no retroactive
application of the new redemption period because Section 47 exempts from
its operation those properties foreclosed prior to its effectivity and whose
owners shall retain their redemption rights under Act No. 3135.
Petitioners claim that Section 47 infringes the equal protection clause
as it discriminates mortgagors/property owners who are juridical persons is
equally bereft of merit.
The equal protection clause is directed principally against undue favor
and individual or class privilege. It is not intended to prohibit legislation
which is limited to the object to which it is directed or by the territory in
which it is to operate. It does not require absolute equality, but merely that
all persons be treated alike under like conditions both as to privileges
conferred and liabilities imposed.
23
Equal protection permits of reasonable

18
Beltran v. Secretary of Health, 512 Phil. 560, 588 (2005), citing Basco v. Philippine Amusements and
Gaming Corporation, G.R. No. 91649, May 14, 1991, 197 SCRA 52, 68 and Yu Cong Eng v. Trinidad,
47 Phil. 385 (1925).
19
Id.
20
Art. III, Sec. 10 of the 1987 Constitution reads:
Sec. 10. No law impairing the obligation of contracts shall be passed.
21
Siska Development Corporation v. Office of the President of the Phils., G.R. No. 93176, April 22,
1994, 231 SCRA 674, 680.
22
Id., citing Clemons v. Nolting, 42 Phil. 702, 717 (1922).
23
JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, August 5, 1996, 260
SCRA 319, 331, citing Itchong v. Hernandez, 101 Phil. 1155, 1164 (1957).
Decision 7 G.R. No. 195540

classification.
24
We have ruled that one class may be treated differently
from another where the groupings are based on reasonable and real
distinctions.
25
If classification is germane to the purpose of the law,
concerns all members of the class, and applies equally to present and future
conditions, the classification does not violate the equal protection
guarantee.
26

We agree with the CA that the legislature clearly intended to shorten
the period of redemption for juridical persons whose properties were
foreclosed and sold in accordance with the provisions of Act No. 3135.
27

The difference in the treatment of juridical persons and natural
persons was based on the nature of the properties foreclosed whether these
are used as residence, for which the more liberal one-year redemption period
is retained, or used for industrial or commercial purposes, in which case a
shorter term is deemed necessary to reduce the period of uncertainty in the
ownership of property and enable mortgagee-banks to dispose sooner of
these acquired assets. It must be underscored that the General Banking Law
of 2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis,
sought to reform the General Banking Act of 1949 by fashioning a legal
framework for maintaining a safe and sound banking system.
28
In this
context, the amendment introduced by Section 47 embodied one of such safe
and sound practices aimed at ensuring the solvency and liquidity of our
banks. It cannot therefore be disputed that the said provision amending the
redemption period in Act 3135 was based on a reasonable classification and
germane to the purpose of the law.
This legitimate public interest pursued by the legislature further
enfeebles petitioners impairment of contract theory.

24
Abbas v. Commission on Elections, 258 Phil. 870, 882 (1989), citing People v. Vera, 65 Phil. 56
(1937); Laurel v. Misa, 76 Phil. 372 (1946); J.M. Tuason and Co., Inc. v. Land Tenure Administration,
No. L-21064, February 18, 1970, 31 SCRA 413.
25
Id., citing Dumlao v. Commission on Elections, No. L-52245, J anuary 22, 1980, 95 SCRA 392, 404.
26
JMM Promotion and Management, Inc. v. Court of Appeals, supra note 23, at 332.
27
Records of the Eleventh Congress showed that the consolidated House Bill No. 6814 and Senate Bill
No. 1519 under Conference Committee Report submitted on April 28, 2000 contained the reconciled
Sec 47 that was approved and signed into law by the President of the Philippines, and became R.A.
8791. Said final version of Sec. 47 was based on the recommendation made by Senator Franklin
Drilon during the Second Reading of SB 1519 that a distinction be made in the foreclosure of
properties used for residence and those used for business purposes. We quote from the Record of the
Senate during the session of September 14, 1999:
Senator Drilon. x x x
Maybe, the sponsor can consider, at the appropriate time, a provision which would allow this
one-year redemption period by whatever liberal provisions and which may be incorporated in cases of
properties used for residence. But for properties for commercial or industrial purposes, we may wish
to review even the one-year redemption period because such inability to generate economic activity out
of the foreclosed property for a period of one year can tie up a lot of assets. Maybe, the committee can
consider making distinctions between foreclosure of properties used for residence and properties used
for business. (Record of the Senate, Vol. I, No. 22, p. 569)
28
Sponsorship speech of the late Senator Raul S. Roco, Record of the Senate, March 17, 1999, Vol. III,
No. 76, pp. 552-559.
Decision 8 G.R. No. 195540

The right of redemption being statutory, it must be exercised in the
manner prescribed by the statute,
29
and within the prescribed time limit, to
make it effective. Furthermore, as with other individual rights to contract
and to property, it has to give way to police power exercised for public
welfare.
30
The concept of police power is well-established in this
jurisdiction. It has been defined as the state authority to enact legislation
that may interfere with personal liberty or property in order to promote the
general welfare. Its scope, ever-expanding to meet the exigencies of the
times, even to anticipate the future where it could be done, provides enough
room for an efficient and flexible response to conditions and circumstances
thus assuming the greatest benefits.
31

The freedom to contract is not absolute; all contracts and all rights are
subject to the police power of the State and not only may regulations which
affect them be established by the State, but all such regulations must be
subject to change from time to time, as the general well-being of the
community may require, or as the circumstances may change, or as
experience may demonstrate the necessity.
32
Settled is the rule that the non-
impairment clause of the Constitution must yield to the loftier purposes
targeted by the Government. The right granted by this provision must
submit to the demands and necessities of the States power of regulation.
33

Such authority to regulate businesses extends to the banking industry which,
as this Court has time and again emphasized, is undeniably imbued with
public interest.
34

Having ruled that the assailed Section 47 of R.A. No. 8791 is
constitutional, we find no reversible error committed by the CA in holding
that petitioner can no longer exercise the right of redemption over its
foreclosed properties after the certificate of sale in favor of respondent had
been registered.
WHEREFORE, the petition for review on certiorari is DENIED for
lack of merit. The Decision dated November 19, 2010 and Resolution dated
J anuary 31, 2011 of the Court of Appeals in CA-G.R. CV No. 91120 are
hereby AFFIRMED.
With costs against the petitioner.

29
See Mateo v. Court of Appeals, 99 Phil. 1042 (1956).
30
Beltran v. Secretary of Health, supra note 18, at 587, citing Vda. de Genuino v. Court of Agrarian
Relations, No. L-25035, February 26, 1968, 22 SCRA 792, 796-797.
31
Basco v. Philippine Amusement and Gaming Corporation, supra note 18, at 61, citing Edu v. Ericta,
No. L-32096, October 24, 1970, 35 SCRA 481, 487 & 488.
32
Beltran v. Secretary of Health, supra note 30, citing Ongsiako v. Gamboa, 86 Phil. 50 (1950).
33
Id., citing Philippine Association of Service Exporters, Inc. v. Drilon, No. L-81958, J une 30, 1988, 163
SCRA 386, 397.
34
Asiatrust Development Bank v. First Aikka Development, Inc., G.R. No. 179558, J une 11, 2011, 650
SCRA 172, 190, citing Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation, G.R. No.
179901, April 14, 2008, 551 SCRA 342, 356.

Decision 9
SO ORDERED.
WE CONCUR:
Associate Jus
MARIA LOURDES P. A. SERENO
Chief Justice
Chairperson
~ ~ ~ J : ~ ~ Ll/ ~
ttR'EsiTAJ. LEONARDO-DE CASTRO
Associate Justice
Associate Justice
CERTIFICATION
G.R. No. 195540
Pursuant to Section 13, Article VIII of the Constitution, I certify that
the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's
Division.
MARIA LOURDES P. A. SERENO
Chief Justice