TOP ART SHIRT MANUFACTURING, INCORPORATED, MAXIMO AREJOLA AND TAN SIU KHENG, PETITIONERS, VS. METROPOLITAN BANK AND TRUST COMPANY AND THE COURT OF APPEALS, RESPONDENTS.

Top Art Shirt Manufacturing versus Metropolitan Bank and Trust Company

The Case

This is a petition for review on certiorari brought by Top Art Shirt Manufacturing, Incorporated and the spouses Maximo Arejola and Tan Siu Kheng against Metropolitan Bank and Trust Company. The dispute concerns the possession of a parcel of land in Quezon City that the bank bought at an extrajudicial foreclosure sale and later had titled in its own name. The bank asked the trial court for a writ of possession, and the trial court granted it, then later recalled it on a motion filed by the debtor corporation. The case matters because it fixes the rule on when the issuance of a writ of possession in an extrajudicial foreclosure becomes a ministerial duty of the court, and when a third party in adverse possession may block it.

Procedural History

Metrobank filed a petition for the issuance of a writ of possession before the Regional Trial Court of Quezon City, Branch 222, in a land registration case. The trial court granted the petition in a decision dated 25 May 2005 and ordered a writ of possession to issue. A writ was issued on 3 April 2006. Top Art then filed a motion to quash the writ, and in an order dated 9 November 2006 the trial court cancelled and set aside the writ and directed the sheriff to restore possession to Top Art and to Walter Santillan. The trial court denied the bank's motion for reconsideration in an order dated 2 February 2007.

Metrobank went to the Court of Appeals on a petition for certiorari, imputing grave abuse of discretion. The Court of Appeals granted the petition in a decision dated 29 April 2008, annulled the two orders of the trial court, and reinstated the decision of 25 May 2005 granting the writ of possession. The appellate court held that the trial court exceeded its jurisdiction in entertaining a mere motion to quash, and that Top Art was neither a redemptioner nor the debtor-mortgagor contemplated by the law. The motion for reconsideration was denied in a resolution dated 31 July 2008. Hence this petition for review on certiorari under Rule 45.

Facts

On 26 March 2000, Top Art obtained two dollar-denominated loans from Metrobank. The loans were secured by real estate mortgages executed by Maximo Arejola, as president of Top Art, and his wife Tan Siu Kheng, over their real properties, one of which was the 480-square-meter property on Mayon Street, Quezon City, covered by a transfer certificate of title in their names. Top Art failed to pay despite demands, so the bank foreclosed the mortgage extrajudicially.

The property was sold at public auction on 15 May 2001 to Metrobank as the highest bidder. A certificate of sale was issued that same day and registered on 11 September 2001, and the sale was annotated on the title. The spouses did not redeem within the statutory period. Title was consolidated in the bank, and a new certificate of title was issued in its name.

Top Art then filed a motion to quash the writ of possession. It argued that the bank failed to disclose in its certification against forum shopping that a civil case was pending between one Walter Santillan and Maximo Arejola and the bank, involving a claimed ten-year lease over the property. Top Art also argued that no bond had been posted. The trial court set aside the writ and ordered possession restored. The Court of Appeals reversed, and the matter reached the Supreme Court.

Issues

• Whether or not Top Art has the legal standing to quash the writ of possession issued in favor of Metrobank.
• Whether or not the trial court erred in recalling the writ of possession on the basis of a mere motion to quash filed by Top Art.
• Whether or not the exception to the ministerial duty to issue a writ of possession applies, that is, whether a third party was actually holding the property adversely to the debtor or mortgagor.

Applicable Provisions

Section 7 of Act Numbered 3135, as amended, governs the purchaser's right to possession during the redemption period:

SEC. 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 or 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 encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety six as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.

This provision is the source of the purchaser's right to possession and of the court's duty to issue the writ upon a proper ex parte application.

Section 33 of Rule 39 of the Rules of Court states the rule after the redemption period expires:

SEC. 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. - If no redemption be made within one (1) year from the date of the registration of the certificate of sale, the purchaser is entitled to a conveyance and possession of the property; x x x. Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of the levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor.

This is the provision that creates the lone exception: possession will not be given where a third party is actually holding the property adversely to the judgment obligor.

Ruling

On the first issue, the Court held that Top Art has no legal standing to quash the writ. Top Art was not the owner of the property, but it was the debtor of the bank. The spouses executed the mortgages only to secure Top Art's loans, and the property was foreclosed because Top Art failed to pay. Top Art therefore cannot claim to be a third party to the loan transactions; it was a principal party thereto. Neither does it assert any right to the property adverse to the spouses. It shares exactly the same rights as they do against the bank.

On the second issue, the Court held that the trial court erred in recalling the writ on a mere motion. The remedy of the purchaser is an ex parte petition under Section 7, and the order for a writ of possession issues as a matter of course. The Court quoted its earlier ruling that no discretion is left to the court, and that any question on the regularity and validity of the sale is left to a subsequent proceeding. The Court added that after consolidation of ownership and issuance of a new title, the writ issues even without a bond, and that its issuance becomes a ministerial duty of the court.

On the third issue, the Court held that the exception does not apply. Top Art did not allege that it was in possession; it invoked the possession of Santillan as lessee. But mere allegation is not evidence and is not equivalent to proof, and Santillan never intervened in the case. Between the two, Santillan was the proper party to question the writ. Even if he were in adverse possession, he had remedies: a terceria, and an independent separate action to vindicate his claim. Since no third party was shown to be holding the property adversely to the debtor or mortgagor, the general rule governed, and the trial court had the ministerial duty to grant the ex parte petition.

Doctrine

Upon the filing of a proper ex parte petition and, during the redemption period, the posting of a bond, the court must issue a writ of possession as a matter of course; no discretion is left to it. After the redemption period expires without redemption and title is consolidated in the purchaser's name, the writ issues even without a bond, and its issuance is a ministerial duty.

The lone exception, drawn from Section 33 of Rule 39, is that possession will not be awarded where a third party is actually holding the property adversely to the judgment obligor. For the exception to apply, the possessor must be a genuine third party, and the adverse possession must be shown, not merely alleged. A debtor whose loan was secured by the mortgage is not a third party and cannot invoke the exception.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed; the writ of possession in favor of Metrobank stands.

Remember This

Memorize the line: the writ of possession is a ministerial duty of the court, and only a third party actually holding the property adversely to the debtor or mortgagor can block it. Examiners use this case to test the ministerial nature of the writ after consolidation of title, and the standing of a debtor-mortgagor who tries to quash it by mere motion.