Bank of the Philippine Islands v. LCL Capital, Inc. [G.R. Nos. 243396 & 243409, September 14, 2021]

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Bank of the Philippine Islands v. LCL Capital, Inc.

G.R. Nos. 243396 & 243409, [September 14, 2021]

FIRST DIVISION, LOPEZ, M.V

 

Foreclosure; Redemption price; Interest

 

Section 78 of the General Banking Act governs redemption price computation in cases where the mortgagee is a bank, which states that redemption price should include the principal loan amount, the stipulated interest rate, and foreclosure expenses.

 

 

In 1997, LCL Capital obtained a loan from Far East Bank & Trust Co. (FEBTC) secured by a real estate mortgage on two condominium units, with a 17% annual interest. When LCL failed to repay the loan, BPI, which had absorbed FEBTC, foreclosed on the properties and acquired them at a public auction. LCL contested the foreclosure, claiming it was premature and filed a case. The later court ruled that the consolidation of ownership by BPI was void, ordering the restoration of LCL's certificates of title, subject to the right of redemption. 

The parties now in disarray as to the proper computation of redemption price, particularly the interest rate to be applied (17% stipulated by the mortgage vs. 6% imposed by the court), the inclusion of real estate taxes in the redemption price. 

 

What should be the correct calculation of the redemption price in cases where the mortgagee is a bank? 

The Supreme Court ruled that in cases involving banking institutions like BPI, the computation of the redemption price should be based on Section 78 of the General Banking Act, and not the Rules of Court. As part of the redemption price, said law is explicit that the principal obligation shall earn interest at the rate specified in the mortgage contract. Thus, the Court affirms the imposition of interest rate at 17% per annum which the parties specified in the contract of loan and the mortgage deed.

Therefore, the redemption price shall consists of the principal obligation (P3,000,000.00) with the stipulated 17% interest rate, including foreclosure expenses, but excluding real estate taxes. Such real estate taxes must be paid by the party having actual possession and should not be included in the redemption price. The case was remanded to the trial court for an accurate computation of the redemption price based on these principles.

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