Difficult question of law -- basis of good faith - A Law Each Day (KeepsTrouble Away)

When is one considered a possessor in good faith? This is answered in this case of the spouses Garcia.

The Garcias are the owners of a 238,406 square meters parcel of land covered by Homestead Patent and Original Certificte of Title which they mortgaged in favor of a development bank to secure an agricultural loan in the amount of P20,000.

The spouses however failed to comply with the terms and conditions of the mortgage compelling the bank to extrajudicially foreclose the property. In the foreclosure sale, the bank was the highest bidder so a sheriff Certificate of Sale was executed in their favor. The sheriff's certificate indicated that in consonance with the Public Land Act (Sec. 119 CA 141) the "property is subject to the redemption within five years from the date of registration of this instrument". The said certificate of sale was then registered with the register of deeds.

After only one year from the registration of the certificate, the bank consolidated its title over the foreclosed property of the Garcias by executing an affidavit of consolidation of ownership pursuant to Sec. 16, Art 3135 and as stipulated in the mortgage contract. Consequently, the Garcias' title was cancelled and a new TCT was issued in the name of the bank. Thereafter, the bank took over possession of the property and appropriated the produce thereof. The spouses consented and approved the takeover.

About three years later, the Garcias offered to redeem their property by tending P10,000 as downpayment. This amount was accepted by the bank as downpayment. Subsequently, however, the bank denied the offer to redeem since it learned of the opinion of the Secretary of Justice that tenanted lands covered by PD No. 27 issued some six years earlier may not be the object of foreclosure proceedings. Since the land of the Garcia's was covered by said PD the bank instead took steps to nullify the foreclosure proceedings, to cancel the TCT in its favor and to restore the original title in favor of the spouses.

But before the nullification could be effected, the Garcia's also filed a complaint against the bank for cancellation of the title, at the same time praying that the bank pay them damages representing the fruits of the property valued at P216,000 for three years which the bank had earned from the time it prematurely took possession thereof. According to the spouses the bank was in evident bad faith when it consolidated title over the land and took possession thereof in spite of the fact that the five year redemption period expressly stated in the Sheriff's Certificate of Sale had not yet lapsed, and that their offer to redeem the property was made well within said period of redemption. Were they correct?

No. Good faith is always presumed and upon him who alleges bad faith on the part of the possessor rests the burden of proof. A possessor in good faith is one who is not aware that there exists on his title or mode of acquisition any flaw which invalidates it. It is therefore incumbent upon the Garcias to prove that the bank was aware of the nullity of its foreclosure.

The period of redemption of extrajudicially foreclosed land under Section 6 of CA No. 3135 is one year from the date of registration of the certificate of foreclosure sale. If no redemption is made within that one year the purchaser is entitled as a matter of right to consolidate and possess the property. Accordingly the bank's act of consolidating its title and taking possession of the property after the one year period of redemption was in accordance with law. Moreover it was in consonance with their mortgage contract that the bank took over the property.

The right of the bank to conslidate its title and take possession after one year is not affected by the Garcias' right to repurchase the property within five years from the date of conveyance granted by Sec. 119 CA No. 141. Said law does not prohibit a purchaser of a homestead land in a foreclosure sale from consolidating his title over said property. In fact without the bank's act of consolidating the title in its name, the Garcias would not be able to assert their right to repurchase granted under the aforementioned section (119 CA 141). Thus, the bank's consolidation of title did not derogate from or impair the right of the Garcias to redeem the same.

The fact that PD 27 was already in effect when the bank foreclosed the property does not mean that it was in bad faith. The legal propriety of the foreclosure was put into question only when the Ministry of Justice declared that said land was covered by PD 27. This opinion was issued only after six years from the promulgation of the PD and almost two months after the bank had already consolidated its title. By law and jurisprudence, a mistake upon a doubtful or difficult question of law may properly be the basis of good faith.

Since the bank is a possessor in good faith, it is entitled to keep the fruits of the property during the period for which it held the property in good faith. The spouses cannot recover said fruits therefore (DBP vs. Court of Appeals et. al. G.R. No. 111737 Oct. 13, 1999).

Atty. Sison's e-mail address is: [email protected].