DBP v.

CA and Spouse Pineda

G.R. No. 111737, October 13, 1999

Ponente: Gonzaga-Reyes

Facts:

Spouses Pinedas own a parcel of land. This property was put up as security to
an agricultural loan of P20,000.00 with DBP. When they failed to pay, the mortgage
was foreclosed. The same was awarded to DBP as sole bidder subject to a 5-year
redemption period. After a year, DBP executed an affidavit of consolidation of
ownership in accordance with Act 3135. The property was transferred in its favor
and took possession thereof including the fruits. The Ministry of Justice then issued
an order stating that lands (like in this case) covered by PD 27 cannot be subject to
foreclosure.
In 1981, Pinedas offered DBP a redemption of the property with P10,000.00
as down payment which it also accepted. DBP told Pinedas that it cannot redeem
the property because it was tenanted. Contrary to this, DBP then filed a motion to
revive the OCT in favor of the Pinedas and cancel the TCT in its name pursuant to
PD 1529. The Pinedas however, filed a complaint against DBP alleging that it is in
bad faith when it executed the foreclosure despite the fact that the redemption
period was 5 years. It also ordered DBP to pay Pinedas P216,000.00 as actual
damages when it took the fruits produced by the property during its possession. The
CA affirmed the decision.

Issue: Whether or not DBP was in bad faith when it took possession of the land

Ruling:

No. A possessor in good faith is anyone who has no knowledge that there is a
flaw in his title. Since good faith is presumed, it is up to the party who challenges it
to prove the contrary. The Pinedas argued that DBPs bad faith stems from the fact
that it foreclosed the mortgage after a year despite the 5-year redemption period.
This argument cannot be sustained since Act 3135 provided only for one year,
making DBPs act lawful. Although Section 119 of CA No. 141 provides 5-year
redemption for homestead lands, this runs when the one-year period provided
under Act. 3135 expires. Hence, DBPs action did not impair the right to redemption
by the Pinedas.