Key Takeaway: Courts Have Discretion in Declaratory Relief and Shorter Redemption Periods for Juridical Entities Are Constitutional

Zomer Development Company, Inc. v. Special Twentieth Division of the Court of Appeals, Cebu City and Union Bank of the Philippines, G.R. No. 194461, January 07, 2020

Imagine you’re a business owner who’s just lost your property to foreclosure. You’re desperate to redeem it, but the law gives you only three months to do so, unlike the one-year period granted to individuals. This scenario underscores the real-world impact of the legal issue at the heart of the Supreme Court case involving Zomer Development Company, Inc. The central question here was whether the Court of Appeals could be compelled to rule on the constitutionality of a statute that imposes a shorter redemption period for juridical entities like corporations. This case not only sheds light on the discretionary power of courts in handling declaratory relief but also affirms the validity of the shorter redemption period for corporations under the General Banking Law of 2002.

Legal Context: Understanding Declaratory Relief and Redemption Periods

Declaratory relief is a legal action where a court is asked to determine the rights and obligations of parties under a statute, contract, or other legal instrument before a breach occurs. Under Rule 63 of the Rules of Court, courts have the discretion to entertain such actions. This discretion is crucial as it allows courts to decide whether resolving the issue will terminate the controversy or if it’s necessary under the circumstances.

On the other hand, the redemption period after foreclosure is a statutory right that varies depending on whether the property owner is a natural person or a juridical entity. Section 47 of Republic Act No. 8791, known as the General Banking Law of 2002, specifies that juridical entities have only three months to redeem their properties, compared to the one-year period for natural persons. This distinction is rooted in the different purposes for which properties are typically used—residential for individuals and commercial for corporations.

Key provisions from the law include:

“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.”

Understanding these legal principles is essential for anyone involved in property transactions, especially those who might face foreclosure. For instance, a corporation planning to use property as collateral for a loan should be aware of the shorter redemption period and plan accordingly to protect its assets.

Case Breakdown: Zomer Development’s Journey Through the Courts

Zomer Development Company, Inc., a domestic corporation, owned three parcels of land in Cebu City. These properties were mortgaged to International Exchange Bank to secure a loan. When Zomer failed to repay, the bank foreclosed on the properties and emerged as the highest bidder at the auction. The certificates of sale provided a redemption period of twelve months, but this was later contested by Zomer due to the provisions of Section 47 of Republic Act No. 8791.

Zomer filed a complaint seeking to nullify the foreclosure sale and declare Section 47 unconstitutional, arguing that it violated their right to equal protection by providing a shorter redemption period for juridical entities. The Regional Trial Court dismissed the complaint, stating that the Office of the Solicitor General, representing the Republic, was not impleaded and thus not heard on the issue.

Zomer appealed to the Court of Appeals, which also dismissed the case, categorizing it as one for declaratory relief and refusing to rule on the constitutionality issue. The Court of Appeals cited its discretion under Rule 63, Section 5 of the Rules of Court, stating:

“The court, motu proprio or upon motion, may refuse to exercise the power to declare rights and to construe instruments in any case where a decision would not terminate the uncertainty or controversy which gave rise to the action, or in any case where the declaration or construction is not necessary and proper under the circumstances.”

Zomer then sought a writ of mandamus from the Supreme Court to compel the Court of Appeals to rule on the constitutionality of Section 47. The Supreme Court, however, denied the petition, affirming that mandamus could not be used to compel a discretionary act like the exercise of declaratory relief. The Court also noted that the issue of constitutionality had been settled in previous cases like Goldenway Merchandising Corporation v. Equitable PCI Bank, which upheld the validity of the shorter redemption period for juridical entities.

Key quotes from the Supreme Court’s decision include:

“Mandamus, however, may issue only to compel the performance of a ministerial duty. It cannot be issued to compel the performance of a discretionary act.”

“The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed… 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.”

Practical Implications: What This Means for Businesses and Property Owners

This ruling has significant implications for juridical entities involved in property transactions. It reaffirms that courts have discretion in entertaining actions for declaratory relief, meaning they cannot be compelled to resolve such cases. For businesses, this means understanding the importance of timely action in redemption proceedings, as the shorter period of three months is upheld as constitutional and necessary for maintaining the solvency and liquidity of banks.

Businesses should:

• Be aware of the shorter redemption period and plan their financial strategies accordingly.
• Consider the implications of using property as collateral and ensure they have the resources to redeem if necessary.
• Understand that seeking declaratory relief is at the court’s discretion and should not rely solely on this remedy.

Key Lessons:

• Businesses must be proactive in managing their debts and assets to avoid foreclosure.
• The shorter redemption period for juridical entities is a statutory privilege that must be exercised within the legal timeframe.
• Legal remedies like declaratory relief are subject to the court’s discretion, so alternative strategies should be considered.

Frequently Asked Questions

What is declaratory relief?
Declaratory relief is a legal action where a court determines the rights and obligations of parties under a statute, contract, or other legal instrument before any breach occurs. It’s discretionary, meaning courts can choose whether to entertain such actions.

Can a court be compelled to rule on a declaratory relief case?
No, courts have the discretion to entertain or refuse declaratory relief cases. They cannot be compelled by mandamus to rule on such cases, as mandamus only applies to ministerial duties, not discretionary acts.

Why is the redemption period shorter for juridical entities?
The shorter redemption period for juridical entities is designed to reduce the period of uncertainty in property ownership and enable banks to dispose of acquired assets quickly, which helps maintain their solvency and liquidity.

What should a business do if facing foreclosure?
A business should assess its financial situation and consider all available options within the three-month redemption period. It’s crucial to act quickly and possibly seek legal advice to explore any potential remedies.

Can the constitutionality of a statute be challenged in a declaratory relief case?
Yes, but the court has the discretion to decide whether to entertain the case. If the court chooses not to rule on the issue, the challenge may need to be brought in a different legal action or appealed to a higher court.

ASG Law specializes in property law and banking regulations. Contact us or email hello@asglawpartners.com to schedule a consultation.