G.R. Nos. 54224-25 August 16, 1989
ANTONIO TAMBUNTING and AURORA TAMBUNTING, petitioners, vs. REHABILITATION FINANCE CORPORATION (now Development Bank of the Philippines), HEIRS OF JOSE ESCUETA AND ELEUTERIA ESCUETA, DEMETRIO HERNANDEZ, CANDELARIA PAGUIO and THE COURT OF APPEALS, respondents.

FACTS

Spouses Jose and Eleuteria Escueta obtained loans from the Rehabilitation Finance Corporation (RFC), secured by a first mortgage on their property. They later obtained a second loan from spouses Antonio and Aurora Tambunting, secured by a second mortgage on the same property with RFC’s consent. The Escuetas defaulted on both loans. RFC extrajudicially foreclosed its first mortgage and purchased the property at auction, subject to a one-year redemption period. The Tambuntings, as second mortgagees, subsequently entered into a “Deed of Conditional Sale” with RFC to purchase the foreclosed property. This deed explicitly stipulated that RFC could revoke the sale within one year if the former owner exercised the right of redemption.
Before the redemption period expired, the Escuetas, unable to raise the funds, assigned their right of redemption to spouses Demetrio Hernandez and Candelaria Paguio for P15,000. Hernandez then tendered a partial payment to RFC and formally undertook to pay the balance under RFC’s stipulated terms. RFC accepted this redemption and notified the Tambuntings that their conditional sale was revoked pursuant to the deed’s terms.

ISSUE

The core issue is whether the RFC validly revoked its Deed of Conditional Sale with the Tambuntings upon the redemption by the Hernandezes as assignees of the original mortgagors’ right.

RULING

Yes, the revocation was valid. The Supreme Court upheld the fundamental principle that a contract is the law between the parties. The Deed of Conditional Sale between RFC and the Tambuntings contained an explicit, unambiguous stipulation allowing RFC to revoke the sale within one year should the former owner redeem the property. This stipulation was a valid contractual condition agreed upon by the parties. The Court found no legal infirmity in this provision; it was not contrary to law, morals, good customs, public order, or public policy.
The Court rejected the Tambuntings’ arguments against the validity of the redemption. First, the assignment of the right of redemption by the Escuetas to the Hernandezes was a legitimate transfer of a property right. Second, the manner of redemption complied with RFC’s own terms, which required only a down payment and an undertaking to pay the balance in installments. RFC, as the foreclosing mortgagee-vendor, was entitled to set these terms for redemption. Since the Hernandezes, as successors-in-interest, validly exercised the right under those terms, the condition in the Tambuntings’ contract was triggered. Consequently, RFC’s revocation was a straightforward enforcement of the parties’ agreement. The Court emphasized that the Tambuntings, as second mortgagees, were not deprived of their lien; their remedy was to seek payment of their credit from the redemptioners or to foreclose on their subordinate mortgage, which the final judgment ordered. The decision affirmed the binding nature of contractual stipulations.