Asia United Bank vs. Goodland Company, Inc.

A notice of appeal filed by a new counsel who has not validly substituted the counsel of record is ineffective, and a bare invocation of substantial justice cannot excuse noncompliance with Rule 138, Section 26; after consolidation of title in the purchaser's name, the writ of possession is a matter of right and the duty of the courts to issue it is ministerial.

AUB and GOODLAND are the opposing parties in a proceeding under Act No. 3135, which governs the ex parte issuance of a writ of possession in foreclosure sales. AUB is the bank that holds TCT No. 223120 over the subject Makati City lot, while GOODLAND is the former registered owner under TCT No. 192674 (114645).

AUB filed an Ex-Parte Application/Petition for the Issuance of Writ of Possession over a 5,801-square-meter lot in Makati City covered by TCT No. 223120 of the Registry of Deeds of Makati in AUB's name; the property was previously registered in GOODLAND's name under TCT No. 192674 (114645). The petition alleged that, on February 20, 2000, GOODLAND executed a Third Party Real Estate Mortgage on the property in favor of AUB to secure the ₱202 million credit accommodation extended by AUB to Radiomarine Network (Smartnet) Inc. (Radiomarine).

When Radiomarine defaulted in the payment of its obligation, AUB instituted extrajudicial foreclosure proceedings against the real estate mortgage. At the public auction sale held on December 4, 2006, AUB was declared the highest bidder; on the same date, a Certificate of Sale was issued in its name and registered with the Registry of Deeds of Makati City. With the expiration of the redemption period, AUB proceeded to execute an Affidavit of Consolidation of Ownership through its First Vice-President, Florante del Mundo, and thereafter secured a Certificate Authorizing Registration from the Bureau of Internal Revenue to facilitate the transfer of the title. On December 8, 2006, TCT No. 192674 (114645) was cancelled and, in lieu thereof, TCT No. 223120 was issued in AUB's name.

GOODLAND, through its counsel Atty. Antonio Bautista, opposed the petition, denying that it executed the real estate mortgage. GOODLAND averred that the signature of the notary public appearing on the deed was a forgery and that no technical description of the property supposedly mortgaged was indicated therein; concluding that AUB's title was derived from the foreclosure of a fake mortgage, GOODLAND prayed for the petition's denial. On March 1, 2007, the RTC issued the writ of possession sought by AUB, reasoning that, as the purchaser of the property at the foreclosure sale and as the new title holder, AUB's right of possession and enjoyment had become absolute.

GOODLAND, through Atty. Bautista, filed a motion for reconsideration and a supplemental motion for reconsideration, but both were denied in the Order dated April 25, 2007, which Atty. Bautista received on June 15, 2007. GOODLAND then sought recourse with the CA by initially filing a Notice of Appeal with the RTC through Atty. Lito Mondragon of the Mondragon & Montoya Law Offices. On August 23, 2007, the RTC issued an Order denying due course to GOODLAND's notice of appeal for being legally inutile due to Atty. Mondragon's failure to properly effect the substitution of former counsel on record, Atty. Bautista. GOODLAND moved for reconsideration, but the same was denied in the Order dated February 15, 2008.

GOODLAND elevated the incident to the CA by way of a special civil action for certiorari. In its February 16, 2009 Decision, the CA granted the petition and directed the RTC to give due course to the notice of appeal, relying on Land Bank of the Philippines vs. Pamintuan Development Co. and considerations of substantial justice. AUB moved for reconsideration, but the CA denied the motion in its May 18, 2009 Resolution. The courts a quo were uniform and correct in finding that Atty. Mondragon failed to observe the prescribed procedure and that no valid substitution of counsel was actualized, but they took divergent postures as to the repercussion of such non-compliance.

• Relaxation of Rules: AUB argued that the liberal application in Land Bank of the Philippines vs. Pamintuan Development Co. is incompatible with this controversy, and that Pioneer Insurance and Surety Corporation vs. De Dios Transportation Co., Inc., which adopts the RTC's strict view, is more appropriate.

• Substantial Justice: GOODLAND insisted that the CA committed no reversible error in ordering that the notice of appeal be allowed in order not to frustrate the ends of substantial justice.

• Substitution of Counsel: Whether the CA correctly annulled the RTC orders denying due course to GOODLAND's notice of appeal despite the failure of Atty. Mondragon to validly substitute Atty. Bautista as counsel of record.
• Writ of Possession: Whether AUB's entitlement to a writ of possession became absolute after consolidation of title, making the writ ministerial and rendering the appeal an instrument of delay.

• Substitution of Counsel: No. The CA erred. Under Rule 138, Section 26, substitution requires a written application, the client's written consent, the substituted attorney's written consent, or proof of notice; Atty. Mondragon failed to comply, and a bare invocation of substantial justice cannot excuse the lapse.
• Writ of Possession: Yes. After consolidation of title in the buyer's name for failure to redeem, entitlement to a writ of possession is a matter of right; the writ is ministerial, and allowing the appeal would foster vexatious delay.

• Substitution of Counsel: Rule 138, Section 26 of the Rules of Court requires four requisites for an effectual substitution of attorney: (1) a written application for substitution; (2) filing with the written consent of the client; (3) written consent of the attorney substituted; and (4) if the consent of the attorney to be substituted cannot be obtained, at least proof of notice that the motion for substitution was served on him in the manner prescribed by the Rules. The RTC and the CA were uniform that Atty. Mondragon failed to observe this procedure, so no valid substitution of counsel was actualized. The RTC strictly held that the notice of appeal filed by Atty. Mondragon was a mere scrap of paper, while the CA relied on Land Bank of the Philippines vs. Pamintuan Development Co. and substantial justice to excuse the lapse. The SC held that Land Bank was not applicable because the new counsel there never intended to replace the counsel of record and entered their appearance as collaborating counsel; absent a formal notice of substitution, all lawyers who appear before the court or file pleadings in behalf of a client are considered counsel of the latter. By contrast, Pioneer Insurance and Surety Corporation vs. De Dios Transportation Co., Inc. adopted a strict posture and declared the notice of withdrawal of appeal filed by appellant's new counsel as a mere scrap of paper for failure to file beforehand a motion for substitution of the counsel on record, especially where the withdrawal was calculated to frustrate satisfaction of the judgment debt. Citing Fortich vs. Corona and Sebastian vs. Morales, the SC reiterated that procedural rules must be treated with utmost respect and that liberal construction is resorted to only in proper cases and under justifiable causes and circumstances. The SC emphasized that the emerging trend is inclined to liberal and flexible application of the Rules, but zealous compliance is still the general course of action; relaxation or suspension is warranted only by compelling reasons or when the purpose of justice requires it. A bare invocation of "the interest of substantial justice" will not suffice to override a stringent implementation of the rules. GOODLAND failed to advance meritorious reasons to support its plea for relaxation; the fact that it stands to lose a valuable property is inadequate to dispense with the exacting imposition of a basic rule. More importantly, allowing the appeal would contravene substantial justice because the CA and the SC would just re-litigate an otherwise non-litigious matter and compound the delay GOODLAND attempts to perpetrate to prevent AUB from rightfully taking possession. Thus, the SC denied a liberal application of the rules and held that GOODLAND's notice of appeal merits denial for failure of Atty. Mondragon to effect a valid substitution of the counsel on record.
• Writ of Possession: After the consolidation of titles in the buyer's name for failure of the mortgagor to redeem, entitlement to a writ of possession becomes a matter of right; as the confirmed owner, the purchaser's right to possession becomes absolute. There is no need for the purchaser to post a bond, and it is the ministerial duty of the courts to issue the writ upon proper application and proof of title. To accentuate the writ's ministerial character, the SC has consistently disallowed injunction to prohibit its issuance despite a pending action for annulment of mortgage or the foreclosure itself. The nature of an ex parte petition for issuance of the possessory writ under Act No. 3135 is non-litigious and summary; as an ex parte proceeding, it is brought for the benefit of one party only, and without notice to or consent by any person adversely interested. Subsequent proceedings in the appellate courts would merely involve a reiteration of these settled doctrines. AUB's right of possession is founded on its right of ownership over the property which it purchased at the auction sale; upon expiration of the redemption period and consolidation of the title, its possessory rights became absolute. The law does not require that a petition for a writ of possession be granted only after documentary and testimonial evidence shall have been offered to and admitted by the court; as long as a verified petition states facts sufficient to entitle petitioner to the relief requested, the RTC shall issue the writ prayed for. Thus, allowing GOODLAND's appeal would be unnecessarily vexatious and unjust and would contravene substantial justice.

• Substitution of Counsel under Rule 138, Section 26 — For a substitution of attorney to be effectual, the following requisites must concur: (1) a written application for substitution; (2) filing with the written consent of the client; (3) written consent of the attorney substituted; and (4) if the consent of the attorney to be substituted cannot be obtained, at least proof of notice that the motion for substitution was served on him in the manner prescribed by the Rules. The SC applied this rule to hold that Atty. Mondragon's failure to comply meant no valid substitution and the notice of appeal was ineffective.
• Liberal Construction of Procedural Rules — Rules of procedure must be faithfully followed; relaxation or suspension is warranted only for persuasive reasons and in meritorious cases, to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the prescribed procedure. A bare invocation of "the interest of substantial justice" will not suffice to override a stringent implementation of the rules. The SC applied this to reject the CA's reliance on substantial justice.
• Writ of Possession after Foreclosure — After consolidation of titles in the buyer's name for failure of the mortgagor to redeem, entitlement to a writ of possession becomes a matter of right; the purchaser's right to possession becomes absolute, no bond is needed, and the duty of the courts to issue the writ is ministerial. The proceeding under Act No. 3135 is ex parte, non-litigious, and summary. The SC applied this to hold that AUB's right to possession was absolute and that allowing GOODLAND's appeal would foster vexatious delay.

• "Under Rule 138, Section 26 of the Rules of Court, for a substitution of attorney to be effectual, the following essential requisites must concur: (1) there must be a written application for substitution; (2) it must be filed with the written consent of the client; (3) it must be with the written consent of the attorney substituted; and (4) in case the consent of the attorney to be substituted cannot be obtained, there must at least be proof of notice that the motion for substitution was served on him in the manner prescribed by the Rules of Court." — Sets the requisites for substitution; the SC found Atty. Mondragon failed to comply.
• "Further, a bare invocation of "the interest of substantial justice" will not suffice to override a stringent implementation of the rules." — Rejects the CA's reliance on substantial justice as a stand-alone ground for relaxing procedural rules.
• "It is a time-honored legal precept that after the consolidation of titles in the buyer's name, for failure of the mortgagor to redeem, entitlement to a writ of possession becomes a matter of right." — Establishes the ministerial nature of the writ after consolidation of title.
• "Substantial justice would be better served if the notice of appeal is disallowed." — Concludes that strict application of the rules served, rather than defeated, substantial justice because the appeal would foster delay.

• Land Bank of the Philippines vs. Pamintuan Development Co., 510 Phil. 839 (2005) — Distinguished; the SC held its liberal application involved collaborating counsel, not replacement, and was incompatible with this case.
• Pioneer Insurance and Surety Corporation vs. De Dios Transportation Co., Inc., G.R. No. 147010, July 18, 2003, 406 SCRA 639 — Followed; strict posture where new counsel failed to file a motion for substitution and the withdrawal was calculated to frustrate the judgment debt.
• Hon. Fortich vs. Hon. Corona, 359 Phil. 210, 220 (1998) — Relied on for the guiding principles that procedural rules must be respected and liberal interpretation is resorted to only in proper cases.
• Sebastian vs. Hon. Morales, 445 Phil. 595, 605 (2003) — Relied on to clarify that procedural rules are not to be ignored at will and relaxation is allowed only for persuasive reasons.
• Lazaro vs. Court of Appeals, 386 Phil. 412, 417 (2000) — Relied on for the rule that a bare invocation of substantial justice will not suffice.
• National Housing Authority vs. Augusto Basa, Jr., Luz Basa and Eduardo S. Basa, G.R. No. 149121, April 20, 2010 — Relied on for the rule that entitlement to a writ of possession becomes a matter of right after consolidation of title.
• Motos vs. Real Bank (A Thrift Bank), Inc., G.R. No. 171386, July 17, 2009, 593 SCRA 216, 226 — Relied on for the rule that the purchaser's right to possession becomes absolute.
• Idolor vs. Court of Appeals, 490 Phil. 808, 816 (2005) — Relied on for the characterization of an ex parte petition under Act No. 3135 as non-litigious and summary.

• Rule 138, Section 26, Rules of Court — Governs substitution of attorney; the SC applied its requisites to hold that Atty. Mondragon's failure to comply rendered the notice of appeal ineffective.
• Act No. 3135 — Governs the ex parte petition for a writ of possession in foreclosure sales; the SC described the proceeding as non-litigious and summary and held the writ ministerial after consolidation of title.
• Rule 45, Rules of Court — Basis for AUB's petition for review on certiorari before the SC.
• Rule 1, Section 6, 1997 Rules of Civil Procedure — Liberal construction principle; the SC balanced it against the need for faithful observance of procedural rules and held relaxation improper absent persuasive reasons.