Redemption Rights Upheld: SSS Bound by Repurchase Agreement Despite Procedural Lapses

The Supreme Court has ruled that the Social Security System (SSS) must honor a deed of conditional sale for a foreclosed hospital property, even though the statutory redemption period had expired and internal office procedures were not followed. The case of Republic of the Philippines v. Marawi-Marantao General Hospital, Inc. (G.R. No. 158920, November 28, 2012) clarifies important principles on the right of redemption, waiver of statutory periods, and the binding effect of contracts on government agencies.

The Facts of the Case

In 1970, Marawi-Marantao General Hospital, Inc. (MMGHI) obtained a P548,000.00 loan from the SSS, secured by a mortgage on its property in Marawi City. When MMGHI defaulted, the SSS extrajudicially foreclosed the mortgage. The property was sold at public auction on March 8, 1991, with the SSS as the highest bidder. The sheriff's certificate of sale was registered on October 16, 1991.

In 1992, Atty. Macapanton Mangondato, representing MMGHI, negotiated with the SSS to repurchase the property. He tendered P200,000.00 as partial payment. After years of negotiation, the Social Security Commission (SSC) approved the repurchase in December 1996 through Resolution No. 984-s.96.

On January 16, 1997, a deed of conditional sale was executed for P2.7 million, with a downpayment of P2 million and the balance payable in 24 monthly installments. Atty. Mangondato later paid the full balance. However, in March 1997, the SSC issued Resolution No. 224-s.97 declaring the sale a nullity, citing lack of full disclosure, failure to conduct public bidding, non-compliance with office procedure requiring two signatories, and the fact that title had not been consolidated in the SSS's name.

The Issue

The central question was whether MMGHI and Atty. Mangondato validly redeemed the property through the deed of conditional sale, despite the expiration of the redemption period and the alleged procedural irregularities.

The Ruling: Redemption Valid, SSS Bound

The Supreme Court denied the SSS's petition and upheld the validity of the redemption. The Court made several key rulings:

First, the expiration of the statutory redemption period did not invalidate the transaction. When the SSC approved the repurchase proposal in December 1996, it effectively waived or extended the original redemption period. Citing Development Bank of the Philippines v. West Negros College, Inc. and Ramirez v. Court of Appeals, the Court held that statutory redemption periods can be extended or waived by agreement of the parties. Accepting the redemption price after the period expired constitutes a waiver.

Second, the alleged violation of the bidding requirement referred only to "standard operating procedure." The SSS failed to point to any specific law, rule, or public policy violated by the resale to the previous owner. The Court emphasized that the policy of law is to aid rather than defeat the right of redemption, and public bidding is not a condition for redemption.

Third, the alleged lack of authority of Senior Deputy Administrator Atty. Godofredo Sison, who signed the deed alone, was unavailing. The SSS's own Resolution No. 207-s.91 allowed the Senior Deputy Administrator to sign contracts not exceeding P5 million. Atty. Sison enjoyed the presumption of regularity in the performance of his duties, which the SSS failed to rebut. Moreover, even assuming he lacked authority, the SSS ratified his act by accepting the P2.7 million payment.

The Contract's True Nature: A Contract to Sell

The Court examined the deed of conditional sale and found that its provisions—particularly paragraphs 10 and 12, which stated that title remains with the vendor until full payment and that the vendor shall execute a deed of absolute sale upon full payment—made the agreement a contract to sell. In a contract to sell, ownership is reserved by the seller and transfers only upon full payment of the purchase price.

Since the SSS acknowledged that the P2.7 million purchase price had been fully paid, the SSS was obligated to execute a deed of absolute sale in favor of MMGHI and Atty. Mangondato. Under Article 1159 of the Civil Code, obligations arising from contracts have the force of law between the parties and must be complied with in good faith.

Practical Takeaways

• Redemption periods can be extended or waived. A government agency that accepts payment after the statutory redemption period expires may be deemed to have waived that period.
• Internal office procedures do not bind third parties. Private parties cannot be expected to know internal government procedures, such as requirements for multiple signatories on contracts.
• Ratification cures lack of authority. Accepting payment under a contract can constitute ratification of an unauthorized act.
• Contracts to sell transfer title only upon full payment. The seller's obligation to execute a deed of absolute sale arises once the purchase price is fully paid.
• The policy favoring redemption is strong. Courts will interpret rules and procedures in a manner that aids rather than defeats the right of redemption.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.