THE PHILIPPINE BANK OF COMMERCE, PETITIONER, VS. HIGINIO B. MACADAEG, JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, ET AL., RESPONDENTS.

Philippine Bank of Commerce versus Macadaeg

The Case

This is a petition for certiorari filed by the Philippine Bank of Commerce against Judge Higinio B. Macadaeg of the Court of First Instance of Manila and the debtor spouses and their co-obligors, arising from a judgment for a deficiency balance on a credit accommodation. After the bank had bought the debtors' franchise at an execution sale, the trial court set that sale aside on purely equitable grounds — to spare the debtors and their drivers from grave and irreparable damage. The case matters because it fixes the moment when the trial court's jurisdiction over an execution sale is exhausted, and because it teaches that the debtor's right to choose which property shall be levied upon is personal, must be exercised at the sale itself, and may be waived.

Procedural History

The bank sued the debtors in the Court of First Instance of Manila for the unpaid balance of their credit accommodation. The debtors confessed judgment, and the trial court rendered judgment in the bank's favor. Execution issued, and the sheriff levied upon and sold the debtors' rights, interests, and participation in a certificate of public convenience. The trial court confirmed the sale. The debtors then filed a petition to set aside the order of confirmation and to declare the sale void. The trial court granted it, setting aside the sheriff's sale on equitable grounds, later holding in abeyance the bank's motion for reconsideration until other properties could be levied upon, and finally denying reconsideration. The bank came to the Supreme Court on a petition for certiorari to annul these three orders.

Facts

On September 30, 1950, Pedro B. Bautista, Dativa Gorrales Bautista, Innocencio C. Campos, and the Flash Taxi Company jointly and severally obtained a credit accommodation from the bank in the sum of 100,000 pesos. As security, in one single document, they executed a real estate mortgage over four parcels of land and a chattel mortgage over movie equipment and thirty taxicabs. The debtors failed to pay the total of 128,902.42 pesos due.

The bank extrajudicially foreclosed the real estate mortgage under Act Number 3135, as amended, and at the foreclosure sale on January 9, 1956, it acquired the mortgaged properties as the highest bidder for 68,365.60 pesos. Claiming a balance of 62,749.72 pesos, the bank did not foreclose the chattel mortgage; instead, on May 22, 1956, it filed a personal action for collection. The debtors confessed judgment, and on June 30, 1956, the trial court ordered them to pay 62,749.72 pesos with interest at seven percent per annum from May 22, 1956 until full payment.

On April 24, 1957, the court issued another order of execution. The sheriff published a notice of sale setting for auction on May 13, 1957 the debtors' rights, interests, or participation in the certificate of public convenience registered in the name of the Flash Taxi Company. The debtors received a copy of the notice by registered mail on May 9, 1957. At the sale, the bank was the highest bidder at 60,371.25 pesos, and the sheriff issued the certificate of sale two days later. The bank then sold its rights to Alberto Cruz for 66,000 pesos, and the Public Service Commission provisionally approved both transfers. Only on June 18, 1957 did the debtors file their petition to annul the sale, offering other properties and pleading irreparable damage to their taxicab business and its forty drivers.

Issues

• Whether or not the petition for certiorari is fatally defective for lack of verification.
• Whether or not the judgment for the deficiency balance is void because the real estate and chattel mortgages were embodied in one document and the bank foreclosed only the real estate mortgage.
• Whether or not the execution sale is void for lack of a valid levy.
• Whether or not the execution sale is void as made in fraud of the debtors' rights.
• Whether or not the trial court acted without jurisdiction or in grave abuse of discretion in setting aside the execution sale, after it had been consummated and confirmed, on equitable grounds.

Applicable Provisions

Section 19 of Rule 39 of the Rules of Court, on the debtor's right to direct the order of sale, provides:

The debtor may, at the time of the sale, direct which of several properties levied upon shall be first sold, and the officer shall sell the properties in the order so directed by the debtor, if it can be done without injury to the interests of the parties.

The Court holds that this right must be exercised at the time of the sale, by being present thereat and directing the order of sale to the sheriff, and that it is personal to the debtor and may be waived.

Section 14 of Rule 39, in relation to Section 7, paragraph 3, of Rule 59, requires the sheriff to send the debtor a formal notice of levy apart from the notice of sale. The Court holds that the notice of sale actually received by the debtors, stating that a levy had been made and that the property would be sold, was a substantial compliance with this requirement.

Ruling

On the first issue, the Court held that while the rules require verification of a petition for certiorari, the absence of verification is a mere formal, not jurisdictional, defect where the material facts are of record and the questions are mainly of law, and it may be waived, as the Court did in giving due course.

On the second issue, the Court held that the mere embodiment of the real estate mortgage and the chattel mortgage in one document does not fuse both securities into an indivisible whole. Both remain distinct agreements, differing in subject matter and in governing legal provisions. The bank had every right to foreclose the real estate mortgage, waive the chattel mortgage, and maintain a personal action for the unpaid balance. The debtors admitted the validity of that action when they confessed judgment.

On the third issue, the Court held that levy includes a constructive as well as an actual taking into possession of property under execution process. The notice received three days before the sale informed the debtors that a levy had been made and that the property would be sold. This was substantial compliance, and their failure to object was a waiver.

On the fourth issue, the Court held that the charge of fraud found no support. The trial court itself found that both parties acted in good faith, and such findings are conclusive in a petition for certiorari, where only jurisdictional questions may be entertained. The debtors raised the charge only after the bank had sold the franchise to a third person.

On the fifth and most important issue, the Court held that the trial court no longer had jurisdiction to grant relief at the stage it was applied for and given. The sale and delivery of the certificate of sale made the bank the owner from the time of such sale and delivery, and no confirmation of an ordinary execution sale is required. After the sale and the satisfaction of the judgment, the jurisdiction of the trial court was exhausted, and it could no longer set the sale aside except for illegality or irregularity rendering it void, which did not exist. The debtors should have objected at the sale and pointed out other properties; instead they made a personal, extrajudicial appeal for postponement, which the bank was not legally bound to grant. Their financial distress was, to a large extent, of their own making.

Doctrine

• The real estate mortgage and the chattel mortgage, though embodied in one document, remain distinct agreements; the creditor may foreclose one, waive the other, and sue for the unpaid balance.
• Levy includes constructive taking into possession; a notice of sale stating that a levy has been made is substantial compliance with the notice of levy, and the debtor's inaction waives the requirement.
• The debtor's right to direct which property shall be first sold is personal, must be exercised at the time of the sale, and may be waived.
• An execution sale is consummated by the delivery of the certificate of sale; no confirmation is required, and the trial court's jurisdiction is thereafter exhausted, leaving it powerless to set the sale aside on mere equitable grounds.
• Findings of fact of the trial court, including findings negating fraud, are conclusive in a petition for certiorari, which entertains only jurisdictional questions.

Disposition

The Court granted the petition, annulled and set aside the three orders of the trial court, and taxed costs against the debtor respondents.

Remember This

Memorize this line: after the execution sale is consummated by delivery of the certificate of sale, the trial court's jurisdiction is exhausted, and it may annul the sale only for illegality or irregularity, never on mere equity. Examiners use this case on the debtor's right to choose the property to be levied upon, on substantial compliance with the notice of levy, and on the finality of a consummated execution sale.