LZK HOLDINGS AND DEVELOPMENT CORP., PETITIONER, VS. PLANTERS DEVELOPMENT BANK, RESPONDENT.

LZK Holdings versus Planters Development Bank

The Case

This is a petition for review brought by LZK Holdings and Development Corporation, the mortgagor and borrower, against Planters Development Bank, the mortgagee and purchaser at the foreclosure sale. The dispute concerns the bank's right to be placed in possession of a parcel of land it bought at an extrajudicial foreclosure sale, after the borrower failed to redeem it. The borrower resists, pointing to a writ of preliminary injunction issued by another trial court that restrained the bank from consolidating its title. The case matters because it fixes the character of the writ of possession in extrajudicial foreclosure: the issuance of that writ is a ministerial duty of the court, and it is not barred by a pending action to annul the foreclosure or by an injunction that merely stops consolidation of title.

Procedural History

Planters Bank filed an ex parte petition for the issuance of a writ of possession before the Regional Trial Court of San Fernando City, La Union, Branch 66. That court, in an order dated May 11, 2000, held in abeyance the resolution of the petition in view of an order of the Regional Trial Court of Makati City suspending the consolidation of title. The bank moved for reconsideration, which was denied. The bank then went up to the Court of Appeals on certiorari. The appellate court granted the petition and annulled and set aside the orders of the San Fernando court, holding that the writ of possession issues as a matter of course upon motion and approval of the bond, and that the Makati order was not directed to the San Fernando court and merely enjoined consolidation of title. The bank's motion for reconsideration was denied. LZK then filed the present petition for review before the Supreme Court.

Facts

LZK obtained a loan of 40,000,000 pesos from Planters Bank, secured by a mortgage on a parcel of land in Catbangen, San Fernando City, La Union, covered by a transfer certificate of title. When LZK failed to pay, the bank initiated extrajudicial foreclosure proceedings. At the auction sale held on September 21, 1998, the bank was the highest bidder. The sale was registered on March 16, 1999.

LZK first filed a complaint for annulment of the extrajudicial foreclosure, the mortgage contract, the promissory notes, and damages before the San Fernando court, but it was dismissed for improper venue. LZK then filed a similar complaint before the Regional Trial Court of Makati City, Branch 150, and sought a writ of preliminary injunction. Three days before the one-year redemption period expired, the Makati court issued a temporary restraining order enjoining the bank from consolidating title. It later ordered the issuance of a writ of preliminary injunction upon posting of a bond of 40,000,000 pesos, but LZK failed to post the bond. The bank challenged that order before the Court of Appeals, which affirmed it, and the Supreme Court denied the bank's petition for review.

Meanwhile, the bank executed a final deed of sale and an affidavit of consolidation of ownership. On December 27, 1999, well within the redemption period, the bank filed its ex parte petition for a writ of possession before the San Fernando court. That court held the petition in abeyance because of the Makati injunction. The Makati court later issued the writ of preliminary injunction after LZK posted a bond. The Court of Appeals then annulled the San Fernando orders, prompting this petition.

Issues

• Whether or not the respondent bank is entitled to possession of the foreclosed property, and whether the writ of possession should issue notwithstanding the injunction issued by the Makati court.
• Whether or not the pendency of an action for annulment of the foreclosure, mortgage contract, and promissory notes bars the issuance of the writ of possession.
• Whether or not the filing of several petitions before the Court of Appeals constituted forum shopping.

Applicable Provisions

Section 7 of Act Number 3135, as amended by Act Number 4118, governs the writ of possession during the redemption period. It provides:

In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act.

This is the provision under which the bank applied for the writ, and it fixes the bond and the ministerial character of the court's duty upon approval of that bond.

Section 8 of the same Act supplies the debtor's remedy against the sale. It provides:

The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof.

This is the subsequent proceeding to which questions of the regularity and validity of the sale must be raised, and not as an obstacle to the issuance of the writ.

Ruling

On the first issue, the Court held that the bank is entitled to possession. A writ of possession is a writ of execution employed to enforce a judgment to recover possession of land, commanding the sheriff to enter the land and give possession to the person entitled under the judgment. Under Section 7, the writ may issue to the purchaser either within the one-year redemption period upon filing of a bond, or after the lapse of that period without need of a bond. The Court stressed that the duty of the trial court to grant the writ is ministerial: it issues as a matter of course upon the filing of the proper motion and the approval of the corresponding bond, and no discretion is left to the trial court.

The Court clarified the effect of the Makati injunction. That injunction mainly enjoined the bank from consolidating its title, and it is not correct to assume that it also prohibited the bank from taking possession. Because the bank was enjoined from consolidating title, possession did not become an absolute right, and the injunction halted the tolling of the redemption period three days short of its expiration. Nonetheless, the bank applied for the writ on December 27, 1999, well within the redemption period, so the San Fernando court should have acted on the ex parte petition. The Court held that an injunction is not allowed to prohibit the issuance of a writ of possession.

On the second issue, the Court held that any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is to be determined in a subsequent proceeding under Section 8, and cannot be raised to oppose the issuance of the writ since the proceeding is ex parte. Until the foreclosure sale is annulled by a court of competent jurisdiction, the borrower is bereft of valid title and of the right to prevent the issuance of the writ.

On the third issue, the Court found no merit in the claim of forum shopping, as the trial on the merits had not even started and only preliminary matters had been resolved.

Doctrine

A Bar candidate should retain these rules. First, the issuance of a writ of possession in extrajudicial foreclosure is a ministerial duty of the court; it issues as a matter of course upon the filing of the proper motion and approval of the bond, and no discretion is left to the court. Second, a pending action for annulment of the mortgage or of the foreclosure does not stay the issuance of the writ; the debtor's remedy is a subsequent proceeding under Section 8 of Act Number 3135 to set aside the sale and cancel the writ. Third, an injunction that merely restrains consolidation of title does not bar the purchaser from obtaining possession, because an injunction is not allowed to prohibit the issuance of a writ of possession. Fourth, after the redemption period lapses without redemption, the purchaser becomes the absolute owner and may demand possession, and the bond is no longer necessary.

Disposition

The Supreme Court denied the petition for lack of merit and affirmed the decision and resolution of the Court of Appeals, with costs against the petitioner. The bank won.

Remember This

The one line to memorize: the writ of possession in extrajudicial foreclosure is ministerial and cannot be blocked by a pending annulment suit or by an injunction against consolidation of title. Examiners use this case to test the ministerial character of the writ and the rule that the validity of the foreclosure is litigated in a separate proceeding, not in the ex parte petition for possession.