BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. SPOUSES JOHNSON & EVELYN CO & JUPITER REAL ESTATE VENTURES, INC., RESPONDENTS.

Bank of the Philippine Islands versus Spouses Co

The Case

This is a consolidated review of two petitions arising from a single extrajudicial foreclosure. On one side is the Bank of the Philippine Islands, the surviving corporation after its merger with Far East Bank and Trust Company, which foreclosed a real estate mortgage over eight parcels of land and later obtained a writ of possession. On the other side are the Spouses Johnson and Evelyn Co and Jupiter Real Estate Ventures, Incorporated, the mortgagors, who resisted the writ and sought to nullify the foreclosure. The case matters because it draws the boundary lines of three recurring bar topics: the ministerial nature of the writ of possession after consolidation of ownership, the correct remedy to assail such a writ, and the effect of a corporate rehabilitation stay order on a foreclosure already completed. It also settles that the ex parte procedure under Act Number 3135 does not offend due process.

Procedural History

The mortgagors first filed a complaint for nullification of the foreclosure proceedings and damages before the Regional Trial Court of Parañaque City, Branch 257. The bank, in turn, filed an ex parte petition for a writ of possession before the Regional Trial Court of Parañaque City, Branch 196. The mortgagors moved to consolidate the two cases, but Branch 196 denied the motion, ruling that a writ of possession proceeding may be maintained independently of an action to annul a document. A motion for reconsideration was likewise denied.

Branch 196 eventually issued a writ of possession in favor of the bank, but the order was mistakenly addressed to another couple. The bank moved to amend, and the court issued an Amended Order granting the writ. The mortgagors filed a notice of appeal, which the trial court gave due course, ordering the records elevated to the Court of Appeals. The bank moved for reconsideration, but the trial court denied it, holding that the substantive right to appeal cannot be overridden.

The bank then came to the Supreme Court by petition for review on certiorari under Rule 45, questioning the orders giving due course to the appeal. Meanwhile, the Court of Appeals decided the mortgagors' appeal, denying it and affirming the Amended Order, holding that the bank was entitled to the writ as a matter of right and that the issue of consolidation had become moot. The mortgagors' motion for reconsideration was denied, so they too came to the Supreme Court by petition for review on certiorari. The Court consolidated the two petitions because they involved similar parties and interrelated issues arising from the same facts.

Facts

On November 13, 1997, Jupiter Real Estate Ventures, Incorporated and the Spouses Co obtained a loan from Far East Bank and Trust Company in the amount of 9,434,200 pesos. As security, they mortgaged eight parcels of land and their improvements. The bank and Far East Bank later merged, with the bank as the surviving corporation.

The mortgagors defaulted. The bank, as successor in interest, foreclosed the real estate mortgage under Act Number 3135, as amended. At the auction sale held on July 12, 2000, the properties were sold to the bank as the highest bidder for 3,567,000 pesos. The Certificate of Sale was registered and annotated on the certificates of title on August 22, 2000. After the redemption period expired without redemption, the bank consolidated its ownership and new titles were issued in its name.

In August 2002, the mortgagors sued to nullify the foreclosure. In April 2003, the bank filed its ex parte petition for a writ of possession. In September 2003, Jupiter filed a petition for corporate rehabilitation, and a stay order was issued, but the mortgagors admitted the stay order was later lifted. The trial court denied the motion to suspend proceedings, then issued the writ of possession, later amended to name the correct spouses. The mortgagors appealed, and the bank challenged the appeal; both sides eventually reached the Supreme Court.

Issues

• Whether or not the writ of possession was validly issued in favor of the bank.
• Whether or not the trial court erred in giving due course to the notice of appeal of the mortgagors from the orders granting the writ of possession.
• Whether or not Act Number 3135, as amended, violates the Constitution.
• Whether or not the Court of Appeals erred in denying the consolidation of the writ of possession case with the action to annul the foreclosure.

Applicable Provisions

Section 7 of Act Number 3135, as amended by Act Number 4118, provides:

Section 7. 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. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property where the assessment of the real estate for taxation purposes shall have been made, and the court shall, upon the filing of such petition, if it appears that the property is in the possession of a third party, issue an order requiring such third party to appear in court at a reasonable time to be designated in the order and show cause why the possession of the property should not be given to the purchaser, and shall order the sheriff or other proper officer to forthwith place the petitioner in possession of the property and to oust the debtor and all persons claiming under him, and to levy upon the personal property of the debtor to satisfy the deficiency, if any, and in case the debtor refuses to surrender possession of the property, to remove him therefrom and place the purchaser in possession thereof, and the court shall, upon the filing of such petition, if it appears that the property is in the possession of a third party, issue an order requiring such third party to appear in court at a reasonable time to be designated in the order and show cause why the possession of the property should not be given to the purchaser.

This is the provision under which the bank sought the writ, and the Court construes it as making the writ a matter of course upon a proper ex parte petition.

Section 8 of Act Number 3135, as amended by Act Number 4118, provides:

Section 8. 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, which shall be paid in case the sale is set aside.

The Court distinguishes this remedy from an ordinary appeal, holding it available only while the purchaser has not yet obtained actual possession and before consolidation of title.

Ruling

On the first issue, the Court held that the writ of possession was validly issued. Under Section 7, the purchaser may apply for the writ during the redemption period, and upon an ex parte petition and posting of a bond, the court shall as a matter of course order its issuance. But equally settled is the rule that the writ issues as a matter of course, even without a bond, after consolidation of ownership and the issuance of a new certificate of title in the purchaser's name. Upon expiration of the redemption period, the purchaser's right to possession becomes absolute, based on ownership. Since the mortgagors did not redeem, ownership was consolidated in the bank and new titles were issued in its name, so the bank was entitled to possession and to file an ex parte motion.

The Court rejected the argument that the pending nullification case and the rehabilitation stay order barred the writ. A stay order does not enjoin the enforcement of claims, and it commences only from the appointment of a rehabilitation receiver and the issuance of the stay order. Here, the auction sale, the registration of the certificate of sale, the issuance of new titles, and even the petition for the writ were all completed before the rehabilitation petition and the stay order. The bank had already become the absolute owner.

On the second issue, the Court held that the trial court did not err in giving due course to the appeal. The order granting the writ of possession is final, not merely interlocutory, and is a proper subject of appeal. The issuance of the writ to a purchaser who has consolidated title is a ministerial function, so any assertion of discretion is misplaced and certiorari is not the proper remedy. The Court clarified, however, that this remedy of appeal differs from the remedy under Section 8 of Act Number 3135, which applies only before the purchaser obtains actual possession and before consolidation of title; after consolidation, the debtor's remedy is a separate action, such as one for annulment of mortgage or foreclosure.

On the third issue, the Court held that Act Number 3135 does not violate due process. The ex parte petition is not strictly a judicial process under Article 433 of the Civil Code but a judicial proceeding for the enforcement of the purchaser's right of possession, non-litigious in character and brought for the benefit of one party only. The Court also held that the constitutionality of the law cannot be attacked collaterally.

On the fourth issue, the Court held that consolidation was properly denied. Consolidation with the nullification case would be highly improper where title had already been consolidated in the mortgagee-purchaser's name, for it would defeat the very purpose of consolidation and impair the substantive right of possession as an incident of ownership. The cases invoked by the mortgagors were distinguishable: there was no pending incident, no third party holding adversely, and no unpaid surplus proceeds raised.

Doctrine

A Bar candidate should retain these rules. First, after the redemption period expires without redemption and the purchaser consolidates ownership with new titles issued in its name, the writ of possession issues as a matter of course, even without a bond, because possession has become an absolute right incident to ownership. Second, the order granting the writ is final and may be appealed, but the remedy under Section 8 of Act Number 3135 is available only before the purchaser obtains actual possession and before consolidation; after consolidation, the debtor must file a separate action. Third, a rehabilitation stay order does not affect a foreclosure and consolidation already completed before its issuance. Fourth, the ex parte procedure under Section 7 does not violate due process, and the law's constitutionality cannot be attacked collaterally. Fifth, consolidation of a writ of possession case with a nullification case is improper once title has been consolidated in the purchaser.

Disposition

The Supreme Court denied both petitions for lack of merit, upholding the writ of possession in favor of the bank and the orders of the trial court giving due course to the appeal.

Remember This

Memorize this line: after consolidation of ownership, the writ of possession is a matter of right and a ministerial duty of the court. Examiners use this case to test the distinction between the Section 8 remedy and an ordinary appeal, and the effect of a rehabilitation stay order on a completed foreclosure.