Philippine National Bank vs. Court of Appeals

A writ of possession in an extrajudicial foreclosure proceeding will not issue where a third person is in actual possession of the property adversely to the mortgagor, such as an agricultural tenant whose security of tenure binds the purchaser as successor-in-interest. The Court held that because the leasehold relationship is not extinguished by the alienation of the landholding, the purchaser at a foreclosure sale steps into the shoes of the mortgagor and takes the property subject to the tenant's possessory rights.

In 1978, spouses Crisanto de la Cruz and Pepita Montano mortgaged two agricultural parcels of land to PNB for a P24,000 loan. Prior to the mortgage, Nildefonso Montano had been in possession of the land since before 1972. In 1983, Montano filed an agrarian case against the mortgagors to assert his tenancy rights. PNB extrajudicially foreclosed the mortgage in 1984 and purchased the properties at auction. After the redemption period lapsed, PNB sought a writ of possession, which the RTC initially granted but subsequently dissolved upon Montano's motion.

• The Mortgage and Ocular Inspection: In 1978, spouses de la Cruz and Montano mortgaged two lots to PNB for P24,000. Prior to approving the loan, PNB conducted an ocular inspection. PNB's credit investigator found Montano staying on the land and interviewed him; Montano stated he was allowed to stay because he had been ejected from an adjacent parcel.
• The Agrarian Suit: On January 18, 1983, Montano filed CAR Case No. 2387 against the mortgagors in RTC Gapan, Branch 36, asserting his rights as an agricultural tenant.
• Foreclosure and Writ of Possession: On October 12, 1984, PNB extrajudicially foreclosed the mortgage and purchased the properties at auction; the Certificate of Sale was registered on November 28, 1984. On September 24, 1986, after the redemption period lapsed, PNB filed a petition for a writ of possession, which the RTC granted on November 20, 1986.
• Dissolution of the Writ: Montano moved to dissolve the writ on December 9, 1986, claiming he was a tenant and a third party in adverse possession. The RTC granted the motion on August 28, 1990. The CA initially reversed the RTC but, upon reconsideration, affirmed the dissolution of the writ. During the appellate proceedings, PNB manifested that it had consolidated its title and a new TCT had been issued in its name.

• Petitioner maintained that consolidation of title is not a condition precedent to a writ of possession, and courts have a ministerial duty to issue the writ under Art. 428 and 429 of the Civil Code, R.A. 3135, and P.D. 385.
• Petitioner argued that the agrarian suit decision did not bind it because it was not impleaded, and its actual knowledge of the suit did not equate to registration.
• Petitioner asserted it was a purchaser in good faith and for value because the tenancy claim was not annotated on the title, and Montano's claim is barred by laches, negligence, and estoppel.
• Petitioner contended that Montano is not a "third person holding the property adversely to the mortgagor" because his stay is illegal.
• Petitioner claimed that denying the writ deprived it of its constitutional right to property.

• Respondent countered that jurisprudence requires confirmation of title before a writ issues, or during the redemption period only if a bond is posted and no third person is involved.
• Respondent acknowledged PNB's ownership but asserted his right to lawful possession as a tenant with security of tenure under existing agrarian laws.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether PNB is entitled to a writ of possession over foreclosed property notwithstanding the actual possession thereof by an adjudicated agricultural tenant.
  • Whether the decision in the agrarian case, where PNB was not impleaded, is binding upon PNB as successor-in-interest.
  • Whether PNB's status as a purchaser in good faith exempts it from respecting the tenant's security of tenure.

• Procedural: N/A
• Substantive:
  • PNB is not entitled to a writ of possession. A writ of possession in extrajudicial foreclosure will not issue if a third person is in actual possession adversely to the mortgagor. Montano, as an adjudicated agricultural tenant, is such a third person.
  • The decision in the agrarian case is binding on PNB. Under Sec. 49(b), Rule 39 of the Rules of Court, a judgment is conclusive between parties and their successors in interest by title subsequent to the commencement of the action. Because the agrarian case commenced in 1983, prior to PNB's acquisition of title in 1984, PNB is a successor-in-interest bound by the judgment.
  • PNB's claim of good faith due to lack of annotation on the title fails. PNB's credit investigator actually found Montano on the land during an ocular inspection in 1978 and interviewed him. PNB was thus on notice of another person possessing the agricultural land, which should have aroused suspicion of tenancy under P.D. 27.
  • Furthermore, under agrarian laws (R.A. 3844, P.D. 27), the leasehold relationship is not extinguished by the alienation or transfer of the landholding. The agricultural lessee's rights are enforceable against the transferee. As purchaser at auction, PNB stepped into the shoes of the mortgagor and acquired only the rights the mortgagor had at the time of levy, which was subject to the tenant's security of tenure.

• Writ of Possession in Extrajudicial Foreclosure — A writ of possession may be issued in extrajudicial foreclosure of real estate mortgage only if the debtor is in possession and no third person had intervened. If a third party is in actual possession adversely to the mortgagor, the writ will not issue.
• Security of Tenure / Non-Extinguishment of Leasehold — The leasehold relationship between landowner and tenant is not extinguished by the alienation or transfer of legal possession of the landholding (Sec. 10, R.A. 3844). The agricultural lessee's rights are enforceable against the transferee or successor-in-interest.
• Successors-in-Interest under Rule 39 — A judgment is conclusive between the parties and their successors in interest by title subsequent to the commencement of the action (Sec. 49[b], Rule 39, Rules of Court). A purchaser at a foreclosure sale subsequent to the filing of an agrarian case is bound by the judgment therein.

• "Granting that petitioner PNB's title over the subject property has been consolidated or confirmed in its favor, it is still not entitled to a writ of possession, as the same may be issued in extrajudicial foreclosure of real estate mortgage only if the debtor is in possession and no third person had intervened."
• "Also, under Sec. 10 of the same Act, the law explicitly provides that the leasehold relation is not extinguished by the alienation or transfer of legal possession of the landholding."
• "Furthermore, as purchaser at a public auction, petitioner PNB was only substituted to and acquired the right, title, interest and claim of the judgment debtor or mortgagor to the property as of the time of the levy."

• Gatchalian vs. Arlegui, L-41360, February 17, 1997 — Cited as controlling authority for the rule that a writ of possession will not issue if a third person is in actual possession adversely to the mortgagor.
• Tanpingco vs. IAC, G.R. No. 76225, 207 SCRA 652 (1992) — Cited for the doctrine that the rights of ownership are subject to limitations imposed by agrarian laws, and that the leasehold relation is not extinguished by alienation of the landholding.
• Endaya vs. Court of Appeals, G.R. No. 88113, 215 SCRA 109 (1992) — Cited to reiterate that an agricultural lessee's rights are enforceable against the transferee or landowner's successor-in-interest.
• Clapano vs. Gapultos, 132 SCRA 429 — Cited by private respondent in the lower court for the proposition that possession is given to a purchaser unless a third party is holding the property adversely to the judgment debtor.
• F. David Enterprises v. Insular Bank, 191 SCRA 516; GSIS vs. Court of Appeals, 145 SCRA 341; Banco Filipino Savings and Mortgage Bank vs. IAC, 142 SCRA 46; PNB vs. Midpantao Adil, 118 SCRA 110 — Cited by private respondent regarding conditions for the issuance of a writ of possession.

• Article 428, Civil Code — Defines ownership and the right to dispose of a thing without other limitations than those established by law. Applied to show that PNB's ownership is subject to limitations imposed by agrarian laws.
• Article 429, Civil Code — Defines the right of the owner to possess. Applied similarly to Art. 428.
• Section 7, Republic Act No. 3844 (Code of Agrarian Reforms of the Philippines) — Gives the agricultural lessee the right to work on the landholding once the leasehold relationship is established.
• Section 10, Republic Act No. 3844 — Explicitly provides that the leasehold relation is not extinguished by the alienation or transfer of legal possession of the landholding. Applied to bind PNB to Montano's tenancy rights.
• Presidential Decree No. 27 — Decreeing the emancipation of tenants from the bondage of the soil. Applied as a limitation on PNB's ownership rights and to establish that the mortgagor's only remaining right was to be paid a reasonable price for the land.
• Section 49(b), Rule 39, Rules of Court — Provides that a judgment is conclusive between parties and their successors in interest by title subsequent to the commencement of the action. Applied to bind PNB to the agrarian case judgment since it acquired title after the agrarian case was commenced.
• Act No. 3135, as amended — Governing extrajudicial foreclosure. Cited by petitioner, but the Court held the writ cannot issue due to third-party possession.

Narvasa, C.J., Melo and Panganiban, JJ., concur.