Cabuhat vs. Development Bank of the Philippines

A petition to set aside an extrajudicial foreclosure sale and to cancel the writ of possession under Section 8 of Act No. 3135 is not premature if filed before the purchaser is given possession, provided it is filed in the same proceedings in which possession was requested and not later than thirty days after the purchaser was given possession; the petition, however, is confined to two exclusive grounds — that the mortgage was not violated or that the sale did not comply with Sections 1 to 4 of the Act — both of which presuppose the existence and validity of the mortgage, so that a challenge to the mortgage's existence or to the validity of the foreclosure must be raised in a separate action.

The petitioners, Roger and Conchita Cabuhat, were the mortgagors of a 292-square-meter lot in Barangay Poblacion, Municipality of Narra, Palawan, originally registered in Roger's name under Original Certificate of Title No. C-2372; the respondent, the Development Bank of the Philippines, is the mortgagee-creditor that extrajudicially foreclosed the property. Extrajudicial foreclosure of real estate mortgages is governed by Act No. 3135, which prescribes in Section 7 an ex parte, non-litigious proceeding for the issuance of a writ of possession to the purchaser, and in Section 8 a summary remedy by which the debtor may petition to set aside the sale and cancel the writ of possession within a fixed period. The controversy turns on the proper construction of those two provisions and on the narrow scope of the Section 8 remedy.

The subject of the case is a 292-square-meter parcel of land in Barangay Poblacion, Municipality of Narra, Palawan, formerly covered by Original Certificate of Title No. C-2372 and registered in the name of petitioner Roger Cabuhat. On August 30, 1993, Roger, together with his parents Rodolfo and Conchita Cabuhat, mortgaged the lot to the Development Bank of the Philippines to secure a two-million-peso loan; the mortgage was annotated on August 31, 1993 as Entry No. 6501. DBP allegedly released or cancelled this mortgage on October 26, 1998. Four days later, on October 30, 1998, Conchita and Roger mortgaged the same lot to DBP once more, this time to secure their outstanding six-million-peso loan; that mortgage was annotated on November 27, 1998 as Entry No. 11815.

When the Cabuhats failed to pay their loan, DBP extrajudicially foreclosed the property and won the public auction with a bid of P2,001,900. DBP received a Certificate of Sale dated June 28, 1999, which was annotated on OCT No. C-2372 on July 6, 1999. Because the Cabuhats failed to redeem the lot, DBP consolidated title in its name, and on December 10, 2003, TCT No. T-17115 was issued cancelling OCT No. C-2372.

On July 25, 2005, DBP filed an ex parte petition for the issuance of a writ of possession, docketed as Civil Case No. 1741 before RTC Puerto Princesa City, Branch 48. The RTC notified the Cabuhats, who filed an opposition, but on May 15, 2007 the court issued the writ on the ground that issuance was its ministerial duty upon the purchaser's consolidation of title following non-redemption.

On October 27, 2011, the Cabuhats filed an Urgent Motion/Petition to Set Aside the Foreclosure Sale and to Cancel the Writ of Possession. Citing the June 29, 1999 Certificate of Sale, they claimed that the foreclosure had been executed pursuant to the cancelled August 31, 1993 mortgage instead of the existing October 30, 1998 mortgage, and that the foreclosure and the writ of possession were therefore void for stemming from an inexistent contract; they further invoked the RTC's equity jurisdiction to suspend implementation of the writ. The following day, October 28, 2011, the RTC refused to suspend implementation because of the writ's ministerial character but required DBP to comment, and on November 22, 2011 the writ of possession was finally implemented.

In its December 9, 2011 Comment, DBP pointed out that it had already sold and turned over the subject lot to a buyer on November 22, 2011, leaving it without legal interest in the case, and that the Cabuhats were forum shopping because they had already filed a complaint to set aside the same foreclosure proceedings and to nullify the 1998 mortgage, docketed as Civil Case No. 4546 before RTC Puerto Princesa, Branch 95. In their Reply, the Cabuhats emphasized that DBP had raised only two issues — its lack of legal interest and the alleged forum shopping — and insisted that unlike Civil Case No. 1741, Civil Case No. 4546 involved the 1998 mortgage, not the cancelled 1993 mortgage. On April 4, 2012, the Cabuhats filed an Omnibus Motion praying that the RTC immediately resolve DBP's opposition and the validity of an extrajudicial foreclosure of an inexistent or cancelled mortgage. The RTC found that DBP remained a real party-in-interest despite the sale because no motion for substitution of parties had been filed, and rejected the forum shopping argument on the ground that an ex parte proceeding for the issuance of a writ of possession is not a judgment on the merits that can amount to res judicata.

• Pure Questions of Law: The Cabuhats justified their direct resort to the Supreme Court by asserting that they raised only pure questions of law.
• Misinterpretation of Section 8: They argued that the RTC misinterpreted Section 8 of Act No. 3135 because the law does not prohibit the mortgagor from filing the petition to set aside the foreclosure before the purchaser actually acquires possession.
• Dismissal on a Ground Not Raised: They argued that the dismissal of their petition based on a ground that DBP did not raise was invalid.
• Void Foreclosure: They insisted that the foreclosure was void because (a) DBP did not have a special power of authority to foreclose the property, and (b) the foreclosure was made pursuant to the cancelled or inexistent 1993 mortgage.

• Foreclosure under the 1998 Mortgage: DBP countered that it foreclosed the property pursuant to the October 30, 1998 mortgage after the Cabuhats failed to pay their loan.
• Loss of Legal Interest and Substitution: It reiterated that it had already lost legal interest over the property and moved to be substituted by the buyer.
• Interpretation of Section 8: Citing Sps. Ong vs. Court of Appeals, DBP adopted the RTC's interpretation of Section 8 of Act No. 3135.
• Forum Shopping and Pending Case: It pointed out that the Cabuhats already had a pending case to set aside the foreclosure sale in Civil Case No. 4546, and emphasized that in their complaint the Cabuhats admitted that the foreclosure was made pursuant to the 1998 mortgage.
• Improper Subject of Certiorari: It protested that the existence or validity of the mortgage and the foreclosure sale is a factual matter and an improper subject of a review on certiorari.

• Propriety of the Remedy: Whether the petition raises only pure questions of law so as to warrant review by the Supreme Court on certiorari.
• Timeliness under Section 8: Whether a petition to set aside the foreclosure sale and cancel the writ of possession under Section 8 of Act No. 3135 may be filed before the purchaser is actually placed in possession of the property.
• Scope of Section 8: Whether a petition under Section 8 of Act No. 3135 may be availed of to assail the existence and validity of the mortgage and of the foreclosure itself.
• Dismissal on a Ground Not Raised by Respondent: Whether the dismissal of the petition may rest on a ground that the respondent did not raise.

• Propriety of the Remedy: No. The contention that the foreclosure was made pursuant to a void, cancelled, or inexistent mortgage is a question of fact beyond the scope of a review on certiorari, and the petition was therefore the wrong remedy.
• Timeliness under Section 8: No, the petition was not premature. Section 8 bars only the filing of the petition beyond thirty days from the purchaser's possession; it does not prohibit an earlier filing once the sale has taken place, the cause of action having already ripened.
• Scope of Section 8: No. A Section 8 petition is confined to two exclusive grounds — that the mortgage was not violated, or that the sale did not comply with Sections 1 to 4 of Act No. 3135 — both of which presuppose the existence and validity of the mortgage; the Cabuhats' challenge to the foreclosure's validity exceeded that scope.
• Dismissal on a Ground Not Raised by Respondent: The RTC's stated ground of prematurity was erroneous, but the dismissal was nonetheless sustained because the petition fell outside the permissible scope of Section 8.

• Propriety of the Remedy: As DBP observed, the petition does not raise pure questions of law. Despite the Cabuhats' insistence, DBP maintained that the foreclosure was based on the 1998 mortgage — a valid and existing agreement — while the Cabuhats contended that the foreclosure was made pursuant to a void, cancelled, or inexistent mortgage. That contention is a question of fact beyond the scope of the review, and it alone warranted the outright dismissal of the petition for being the wrong remedy.

• Timeliness under Section 8: The RTC misread the reglementary period under Section 8 of Act No. 3135 when it held that a petition to set aside the sale and cancel the writ of possession cannot be filed until the purchaser is placed in possession. The provision states that 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. It does not prohibit a purchaser from filing the petition before the purchaser enters into possession; the limitation merely prohibits filing beyond thirty days from the purchaser's possession. The rationale lies in the character of the proceeding: a petition to set aside the sale and/or cancel the writ of possession is filed in the same proceedings in which possession is requested, and under Section 7 that proceeding is ex parte and non-litigious, with no need to notify or hear the mortgagor. Because Act No. 3135 does not require the creditor to notify the debtor or mortgagor of the extrajudicial foreclosure, a mortgagor may not discover the proceedings until the writ of possession is implemented; Section 8 supplies a thirty-day cutoff reckoned from the date the mortgagor is presumed to have received notice. It does not, however, prohibit the mortgagor from filing the petition earlier should he learn of the proceedings beforehand, and the petition is not premature if the sale has already taken place because the cause of action has already ripened. DBP's reliance on Ong vs. Court of Appeals is misplaced: the thrust of Ong is that the mortgagor cannot restrain the issuance or implementation of a writ of possession under Section 7 because it is ministerial upon the RTC to put the purchaser in possession upon (1) the mortgagor's failure to redeem and (2) consolidation of title in the purchaser's name; consistent with the law, Ong does not prohibit the mortgagor from filing the petition before the purchaser actually enters possession.

• Scope of Section 8: Even though the petition before the RTC was not premature, it was still subject to dismissal for going beyond the scope of Section 8. The provision limits the petition to two grounds: (1) that the mortgage was not violated, meaning the debtor has not missed any payment of his loan; or (2) that the foreclosure sale did not comply with the procedural requirements under Sections 1 to 4 of Act No. 3135. These grounds are exclusive, and both implicitly admit the existence and validity of the mortgage — a fact that the Cabuhats' petition denies. Their October 27, 2011 Urgent Motion/Petition accordingly went beyond the permissible scope of Section 8. A Section 8 petition is filed in the same proceedings where possession is requested; it is a summary proceeding under Section 7 because the issuance of a writ of possession is a ministerial function of the RTC. This possessory proceeding is not a judgment on the merits but simply an incident in the transfer of title, and consequently cannot produce the effect of res judicata. A Section 8 proceeding is narrowly designed only to set aside the sale and/or the order granting possession under Section 7; it cannot annul the validity of the foreclosure or of the mortgage, and, due to its very limited scope, cannot entertain issues beyond the procedural irregularities in the sale. The remedy of a litigant who challenges the existence of the mortgage or the validity — not the regularity — of the foreclosure is a separate action to annul them, and these grounds outside Section 8 must be threshed out in a full-blown trial. The Court likewise noted the pendency of Civil Case No. 4546, where the parties were already litigating the validity of both the foreclosure sale and the mortgage that led to the sale, the present petition only contributing to a multiplicity of suits that clog the dockets.

• Dismissal on a Ground Not Raised by Respondent: The RTC's stated ground — that the petition was filed before DBP entered possession and was therefore premature — finds no support in Section 8, which permits an earlier filing once the sale has taken place. The dismissal was nonetheless sustained on a different footing: even if the rules of procedure were relaxed to accommodate the petition, it had to be denied for lack of merit because the relief sought lay outside the two exclusive grounds that Section 8 authorizes.

• Ministerial duty to issue the writ of possession under Section 7 of Act No. 3135 — Upon the mortgagor's failure to redeem and the consolidation of title in the purchaser's name, it becomes the ministerial function of the RTC to issue the writ of possession placing the purchaser in possession; the proceeding is ex parte and non-litigious, requiring neither notice to nor hearing of the mortgagor. The Court applied this principle in explaining why the mortgagor cannot restrain the issuance or implementation of the writ and why Ong vs. Court of Appeals did not bar the filing of a Section 8 petition before the purchaser actually enters possession.

• Two exclusive grounds under Section 8 of Act No. 3135 — A petition to set aside the foreclosure sale and cancel the writ of possession may be grounded only on (1) the mortgage not having been violated, meaning the debtor has not missed any payment of his loan, or (2) the sale not having complied with the procedural requirements under Sections 1 to 4 of Act No. 3135. These grounds are exclusive, and both implicitly admit the existence and validity of the mortgage. Because the Cabuhats' petition denied the mortgage's existence, it exceeded this scope and was properly dismissed.

• Thirty-day cutoff under Section 8 reckoned from the purchaser's possession — The thirty-day period is a cutoff, not a waiting period. The debtor may file the petition in the same proceedings in which possession was requested at any time before the lapse of thirty days after the purchaser was given possession; the law does not prohibit an earlier filing. Because Act No. 3135 does not require notice of the extrajudicial foreclosure to the mortgagor, the reckoning point is the date on which the mortgagor is presumed to have received notice, and the petition is not premature if the sale has already taken place, the cause of action having ripened.

• Summary and non-litigious character of the Section 8 proceeding; no res judicata — The Section 8 remedy is summary and is merely an incident in the transfer of title, not a judgment on the merits; it therefore cannot produce the effect of res judicata. It is narrowly designed only to set aside the sale and/or the order granting possession under Section 7 and cannot annul the validity of the foreclosure or of the mortgage.

• Separate annulment action for challenges to the mortgage's existence or the foreclosure's validity — A litigant who assails the existence of the mortgage, or the validity as distinguished from the regularity of the foreclosure, must file a separate action to annul them, where grounds outside Section 8 may be threshed out in a full-blown trial. The Section 8 proceeding cannot entertain issues beyond the procedural irregularities in the sale.

• Review on certiorari limited to questions of law — A contention that turns on whether the foreclosure was effected under a cancelled mortgage or under a subsisting one is a question of fact beyond the scope of a petition for review on certiorari, and a petition raising it is the wrong remedy.

• "The provision does not prohibit a purchaser from filing the petition before the purchaser enters into possession. The limitation merely prohibits the filing of the petition beyond thirty days from the purchaser's possession of the property." — This passage supplies the ratio for the timeliness issue, construing Section 8 of Act No. 3135 as a cutoff rather than a waiting period and correcting the RTC's contrary reading.

• "A petition under Section 8 is limited to two grounds: (1) that the mortgage was not violated, meaning the debtor has not missed any payments of his loan; or (2) that the foreclosure sale did not comply with the procedural requirements under Sections 1-4 of Act No. 3135. These grounds are exclusive. More importantly, both grounds implicitly admit the existence and validity of the mortgage – a fact that the Cabuhats' petition denies." — This is the canonical formulation of the two exclusive grounds under Section 8 and the reason the Cabuhats' petition was dismissed despite being timely.

• "The remedy of a litigant who challenges the existence of the mortgage or the validity - not the regularity - of the foreclosure is a separate action to annul them. These grounds outside Section 8 have to be threshed out in a full-blown trial." — This passage states the remedial consequence of the narrow scope of Section 8 and is the rule most likely to be cited in later jurisprudence on foreclosure remedies.

• "A Section 8 proceeding is narrowly designed only to set aside the sale and/or the order granting possession under Section 7. It cannot annul the validity of the foreclosure or of the mortgage. Due to its very limited scope, it cannot entertain issues beyond the procedural irregularities in the sale." — This defines the outer boundary of the Section 8 remedy and explains why the proceeding cannot produce the effect of res judicata.

• Sps. Ong vs. Court of Appeals, 388 Phil. 857 (2000) — Cited by DBP for the proposition that the mortgagor cannot restrain the issuance or implementation of the writ of possession under Section 7. The Court distinguished it, holding that the thrust of Ong is the ministerial character of the writ upon the mortgagor's failure to redeem and the consolidation of title in the purchaser's name, and that Ong does not prohibit the mortgagor from filing a Section 8 petition before the purchaser actually enters possession.

• Section 8, Act No. 3135 — Quoted in full in the decision. Construed to permit the filing of a petition to set aside the sale and cancel the writ of possession before the purchaser is given possession, subject only to the thirty-day cutoff, and to confine the remedy to two exclusive grounds. Applied to hold that the Cabuhats' October 27, 2011 petition was within the period but outside the provision's scope.
• Section 7, Act No. 3135 — Cited as the source of the ex parte, non-litigious proceeding for the issuance of the writ of possession and of the ministerial character of that issuance. It supplied the rationale for reckoning the thirty-day period from the purchaser's possession and for the rule that a Section 8 proceeding cannot produce the effect of res judicata.
• Sections 1 to 4, Act No. 3135 — Set out the procedural requirements for the extrajudicial sale, namely the place of sale, the posting and publication of notices of sale, and the conduct of the public auction. Non-compliance with these provisions constitutes the second exclusive ground for a petition under Section 8.

Antonio T. Carpio (Chairperson), Mariano C. del Castillo, Jose Catral Mendoza, and Marvic M.V.F. Leonen.