Ocampo vs. Domalanta

A final order confirming a sheriff’s sale in a judicial foreclosure proceeding is a final order on the merits that cuts off the mortgagor’s interest, and—under the rule on conclusiveness of judgment—bars a subsequent action to annul the sale based on grounds of irregularity that were actually raised or could have been raised in the foreclosure case.

Ignacio Domalanta obtained a judgment in a contested judicial foreclosure suit (Civil Case 45778, Court of First Instance of Manila) against Isabel O. Vda. de Chi Chioco (now Isabel Ocampo). The judgment ordered Ocampo to pay P2,000.00, with 1% monthly interest from December 5, 1958, and P500.00 as attorney’s fees, and directed that upon default the mortgaged properties be sold at public auction, subject to a prior mortgage in favor of the Philippine National Bank covering the Tanza, Cavite land. Venue lay in Manila pursuant to a stipulation in the mortgage deed.

• The Foreclosure Judgment: In Civil Case 45778, the CFI of Manila adjudged Isabel Ocampo liable to Ignacio Domalanta for P2,000.00 plus 1% monthly interest and P500.00 attorney’s fees. The judgment directed that, upon failure to pay within ninety days, the mortgaged properties—including a 32,558-square-meter parcel of land in Tanza, Cavite—be sold at public auction, subject to a first mortgage held by the Philippine National Bank.

• The Sheriff’s Sale and Confirmation: Because the judgment debt remained unsatisfied, a writ of execution issued. On May 8, 1962, appellee Provincial Sheriff sold the Tanza land at public auction; Domalanta emerged as the highest bidder for P3,537.00. Domalanta moved to confirm the sale. Ocampo opposed, alleging that she was not notified of the sale and that the price was “very much lower than the actual market value” and shocking to the conscience. The court overruled her objection and confirmed the sale on June 2, 1962, expressly noting that the factual allegations had not been established by evidence and that the opposition was unverified. Ocampo did not appeal the confirmation order, which became final.

• The Second Action: Ocampo subsequently commenced Civil Case N-496 in the CFI of Cavite against Domalanta and the Provincial Sheriff, seeking to annul the sheriff’s sale on the same two grounds: lack of proper notice and an unconscionably low price. Domalanta moved to dismiss, invoking res judicata. The trial court granted the motion and dismissed the case with prejudice, a ruling it maintained upon reconsideration.

• Lack of Notice and Inadequate Price: Petitioner maintained that the sheriff’s sale was invalid because she was not properly notified of the foreclosure sale and the property was sold for an unconscionably low price, rendering the confirmation order null and void.

• No Bar by Confirmation Order: Petitioner argued that the confirmation order did not constitute a final adjudication on the merits sufficient to bar a separate action, and that the alleged irregularities vitiated the sale and could be challenged in an independent suit.

• Res Judicata: Respondent countered that the order confirming the sale was a final order that adjudicated the regularity of the sale, and that the same grounds of lack of notice and inadequate price were actually raised and rejected in the foreclosure proceeding. The order having become final and unappealed, it was conclusive between the parties under the rule on conclusiveness of judgment.

• Defective Complaint: Respondent contended that the complaint failed to state a cause of action because it did not allege that a resale would yield a higher price—an essential averment for challenging a confirmed judicial sale on the ground of price inadequacy.

• Res Judicata / Conclusiveness of Judgment: Whether a final order confirming a sheriff’s sale in a judicial foreclosure case bars a subsequent action by the judgment debtor to annul the sale on grounds that were raised in the foreclosure proceedings.

• Res Judicata / Conclusiveness of Judgment: The action was barred by the conclusiveness of the confirmation order. The order confirming the sale was a final order, not merely interlocutory; it was the proper subject of an appeal, but Ocampo did not appeal. A final confirmation order cuts off all interests of the mortgagor and vests them in the purchaser, retroacting to the date of sale. The grounds of lack of notice and unconscionable price were actually raised in opposition to the motion for confirmation and were rejected, and the order expressly noted that those allegations were not proved. Under Section 49(b) and (c), Rule 39 of the Rules of Court, a judgment in a quasi in rem action (such as judicial foreclosure) is conclusive between the parties as to matters directly adjudged; any matter that could have been raised in relation thereto—and that was in fact raised and decided—is deemed conclusively adjudged. The legitimacy of the sale was an issue that was actually and necessarily included in the anterior suit. Thus, the complaint to annul the sale was properly dismissed on the ground of res judicata.

• Finality and effect of an order confirming a foreclosure sale — An order confirming a sale of real estate in judicial foreclosure proceedings is a final order, not interlocutory, and cuts off all interests of the mortgagor in the property, vesting them in the purchaser and retroacting to the date of sale. It is the final order from which appeal may be taken in such proceedings.

• Presumption of regularity; no personal notice required — Official duty is presumed to have been regularly performed, placing on the party alleging lack of notice the burden to prove it. Personal notice of a sheriff’s sale to the judgment debtor is not required; compliance with the statutory notice by posting and publication suffices.

• Inadequacy of price as ground to set aside confirmed sale — To rescind a sale regularly made and confirmed by a competent court on the ground of inadequacy of price, the complaint must allege that a resale would bring a higher price. A bare allegation that the price is unconscionable is a mere conclusion of law and, without proof, insufficient.

• Conclusiveness of judgment (res judicata in its narrower sense) — Under Section 49(c), Rule 39, a matter that appears upon the face of a former judgment to have been adjudged, or that was actually and necessarily included therein or necessary thereto, is deemed conclusively settled between the same parties even if the causes of action are not identical. Where the question of a sheriff sale’s legality was actually raised and rejected in a prior foreclosure proceeding, a subsequent action challenging the same sale is barred by conclusiveness of judgment.

• “[C]onfirmation of sale of real estate in judicial foreclosure proceedings cuts off all interests of the mortgagor in the real estate sold and vests them in the purchaser. Confirmation retroacts to the date of the sale.”

• “An order of confirmation in court foreclosure proceedings is a final order, not merely interlocutory. The right to appeal therefrom has long been recognized. In fact, it is the final order from which appeal may be taken in judicial foreclosure proceedings.”

• “The mere averment that the price is unconscionable is nothing more than a conclusion of law. The value of such allegation is further downgraded by the lack of proof. This is one case which epitomizes the fatal distance between allegation and proof.”

• “[T]he question raised by appellant in the present suit should be ‘deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto.’ It is thus beyond doubt that the present action is barred by the conclusiveness of judgment in the anterior suit.”

• Binalbagan Estate, Inc. vs. Gatuslao, 74 Phil. 128, 131 — Cited for the rule that confirmation of a sale in judicial foreclosure cuts off all interests of the mortgagor and retroacts to the date of sale.

• La Urbana vs. Belando, 54 Phil. 930, 932 — Followed for the holdings that personal notice to the judgment debtor is not required and that a complaint to set aside a confirmed sale on the ground of inadequacy of price must aver that a resale would bring a higher price.

• Banco Español-Filipino vs. Palanca, 37 Phil. 921, 928 — Relied on to define a judicial foreclosure suit as an action quasi in rem whose judgment is conclusive only between the parties.

• Peñalosa vs. Tuason, 22 Phil. 303, 312-315; Tejedor vs. Palet, 61 Phil. 494, 502 — Invoked as authorities on the concept of conclusiveness of judgment.

• Section 49, Rule 39, Rules of Court (new Rules) — The entire provision on the effect of judgments was reproduced and analyzed. Paragraph (b) was applied to treat the confirmation order as conclusive on matters directly adjudged in the quasi in rem foreclosure suit; paragraph (c) was applied to bar relitigation of the sale’s legality, which was actually and necessarily included in the prior judgment.

• Section 16, Rule 39, 1940 Rules of Court (now Section 18, Rule 39, new Rules) — Recognized as not requiring personal notice of a sheriff’s sale; a personal notice to the judgment debtor is not mandated by the rule.

• Section 5(m), Rule 131, Rules of Court — The presumption that official duty has been regularly performed was invoked against the mortgagor’s unsubstantiated claim of lack of notice.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Sanchez, Castro, Angeles, and Fernando, JJ., concurred.