Spouses Gallent vs. Velasquez

An ex parte writ of possession ceases to be a ministerial duty of the court when the property is held by a third party in adverse possession under a claim of ownership or right in their own right—not merely as successor or transferee of the debtor-mortgagor—as when the arrangement between the parties constitutes an equitable mortgage under Article 1602 of the Civil Code.

George A. Gallent, Sr. was the registered owner of a 761-square-meter residential property at No. 3, Angeles Street, Alabang Hills Village, Muntinlupa City, covered by TCT No. S-99286. On December 20, 1996, the Spouses George and Mercedes Gallent mortgaged the property to Allied Banking Corporation as security for a loan of ₱1.5 Million. After the Spouses Gallent defaulted and the loan ballooned to ₱4,631,974.66, Allied Bank extrajudicially foreclosed the mortgage, emerged as highest bidder at public auction, and consolidated ownership when the Spouses Gallent failed to redeem within one year. Allied Bank then agreed to sell the property back to the Spouses Gallent, who later involved close family friend Juan Velasquez to help settle remaining amortizations, leading to a Deed of Assignment of Rights in his favor.

George A. Gallent, Sr. was the registered owner of a 761-square-meter residential property covered by TCT No. S-99286, located at No. 3, Angeles Street, Alabang Hills Village, Muntinlupa City, with improvements consisting of a two-storey house and a swimming pool. On December 20, 1996, the Spouses George and Mercedes Gallent mortgaged the property to Allied Banking Corporation as security for a loan of ₱1.5 Million. The Spouses Gallent failed to pay their loan, which had ballooned to ₱4,631,974.66, prompting Allied Bank to extrajudicially foreclose the mortgaged property. At the public auction, Allied Bank emerged as the highest bidder and was issued a certificate of sale dated September 25, 2000. When the Spouses Gallent failed to redeem the property within one year, Allied Bank consolidated its ownership, and TCT No. S-99286 was cancelled and replaced with TCT No. 8460 in the name of Allied Bank.

On June 11, 2003, Allied Bank agreed to sell back the foreclosed property to the Spouses Gallent for ₱4 Million, as evidenced by an Agreement to Sell, under which the Spouses Gallent paid a down payment of ₱3.5 Million evidenced by O.R. No. 0990687-A dated March 12, 2003, with the balance payable in 12 monthly amortizations. The agreement also stipulated that the Spouses Gallent would be allowed to keep possession of the property as tenants or lessees of Allied Bank. Due to financial difficulties sometime in October 2003, the Spouses Gallent sought the help of their close family friend, Juan Velasquez, to settle their remaining monthly amortizations. As an inducement, they agreed that Velasquez would have the property registered under his name until they had repaid him.

On October 24, 2003, the Spouses Gallent executed a Deed of Assignment of Rights, assigning to Velasquez all their rights, interests, and obligations under the Agreement to Sell with Allied Bank. Velasquez paid Allied Bank the remaining balance of ₱216,635.97, evidenced by O.R. No. 0006352. On November 5, 2003, Allied Bank and Velasquez executed a Deed of Absolute Sale over the property for ₱4 Million, with George himself signing as an instrumental witness. That instrument was not registered. Velasquez instead caused another Deed of Sale dated November 19, 2003, showing a lower selling price of ₱1.2 Million to be registered, purportedly for tax purposes. On November 28, 2003, TCT No. 11814 was issued under Velasquez's name, replacing TCT No. 8460.

More than four years later, on June 27, 2008, Velasquez sent a demand letter to the Spouses Gallent to vacate the property, but they refused. On July 6, 2009, Velasquez filed an ex parte petition for issuance of a writ of possession in the RTC of Muntinlupa City, docketed as LRC Case No. 09-055. The Spouses Gallent sought to dismiss the petition by filing Consolidated Motions for Leave to Intervene and to Dismiss on January 14, 2010, but the RTC denied these on February 12, 2010, treating the Spouses Gallent as oppositors and finding the petition sufficient in form and substance. The RTC denied their motion for reconsideration on April 13, 2010, and on July 7, 2010, rendered a decision granting the writ of possession as a ministerial duty, the redemption period having expired. The Spouses Gallent had by then substantially paid ₱3,790,500.00 out of the ₱4 Million repurchase price, with Velasquez having assumed only the remaining ₱216,635.97. The Spouses Gallent contended that their Deed of Assignment was in reality an equitable mortgage and had filed Civil Case No. 10-102 for reformation of the deed into a mortgage and annulment of TCT No. 11814.

• Jurisdiction: Petitioner Spouses Gallent argued that the RTC had no jurisdiction to issue an ex parte writ of possession to Velasquez, since he did not acquire the property at a foreclosure sale but purchased it directly from Allied Bank after the bank had consolidated title.
• New Contractual Relations: Petitioner maintained that under the Agreement to Sell, Allied Bank and the Spouses Gallent entered into new contractual relations as vendees-lessees and vendor-lessor, and ceased to be mortgagors and mortgagee.
• Proper Remedy: Petitioner argued that Velasquez should have filed an action for ejectment or for recovery of ownership or possession, not an ex parte petition for writ of possession.
• Adverse Claim: Petitioner asserted that the RTC's duty to issue the writ had ceased to be ministerial in view of the Spouses Gallent's adverse claim upon the property based on their substantial payment of the purchase price, in addition to the alleged forgery of the deed of sale between Velasquez and Allied Bank.
• Equitable Mortgage: Petitioner contended that the Deed of Assignment of Rights executed in favor of Velasquez was in reality an equitable mortgage under Article 1602 of the New Civil Code, their true agreement being to secure repayment of the amount advanced by Velasquez rather than to transfer their interest in the property.

• Writ of Possession to Transferee: Whether the RTC may validly issue an ex parte writ of possession to the transferee of the winning bidder at an extrajudicial foreclosure sale, who acquired the property after consolidation of title in the purchaser's name.
• Adverse Possession Exception: Whether the court's ministerial duty to issue an ex parte writ of possession ceases when the property is held by a party claiming adverse possession under a claim of ownership in their own right.
• Equitable Mortgage: Whether the Deed of Assignment of Rights executed by the Spouses Gallent in favor of Velasquez constitutes an equitable mortgage under Article 1602 of the Civil Code, such that the Spouses Gallent may be considered adverse possessors in their own right.

• Writ of Possession to Transferee: Yes, in principle. A transferee of the foreclosure purchaser steps into the shoes of the purchaser and may petition the court for an ex parte writ of possession, since the right to possession follows the property to its new owner.
• Adverse Possession Exception: Yes. The ministerial duty to issue an ex parte writ of possession ceases when a third party—not the debtor-mortgagor—holds the property adversely to the debtor/mortgagor, in their own right and not merely as successor or transferee of the debtor.
• Equitable Mortgage: Yes. The Deed of Assignment of Rights was presumed to be an equitable mortgage under Article 1602 of the Civil Code, given the Spouses Gallent's substantial payment of the repurchase price and their continued possession of the property, entitling them to retain possession as adverse claimants in their own right.

• Writ of Possession to Transferee: The general rule is that after consolidation of title in the buyer's name, it is the ministerial duty of the court to issue a writ of possession upon an ex parte petition by the new owner as a matter of right. The purchaser in an extrajudicial foreclosure becomes the absolute owner if no redemption is made within one year from registration of the certificate of sale. As absolute owner, the purchaser is entitled to all rights of ownership under Articles 427–429 of the Civil Code, including possession or jus possidendi. Section 7 of Act No. 3135, as amended, imposes this ministerial duty upon the RTC. When the foreclosed property is in turn sold or transferred, the right to possession follows the property to its new owner. In Laureano vs. Bormaheco, the mortgagee-purchaser PNCB sold the foreclosed lots to Bormaheco, Inc., which then filed an ex parte petition for a writ of possession; the Court held that Bormaheco became the new owner entitled to all rights and interests that PNCB acquired, including the right to a writ of possession. The ex parte application is a non-litigious summary proceeding without need to post a bond after consolidation of title, and not even a pending action to annul the mortgage or foreclosure sale stays its issuance.

• Adverse Possession Exception: The ministerial duty to issue an ex parte writ of possession ceases once it appears that a third party, not the debtor-mortgagor, is in possession of the property under a claim of title adverse to that of the applicant. Section 33 of Rule 39 of the Rules of Court provides that possession shall be given to the purchaser "unless a third party is actually holding the property adversely to the judgment obligor." Pursuant to Section 6 of Act No. 3135, this provision has been extended to extrajudicial foreclosure sales. In China Banking Corporation vs. Spouses Lozada, the Court held that for the exception to apply, the property need not only be possessed by a third party but also held adversely to the debtor/mortgagor. The exception contemplates a situation where a third party holds the property by adverse title or right, such as that of a co-owner, tenant, or usufructuary, possessing in their own right and not merely as successor or transferee of the debtor. In Okabe vs. Saturnina, the Court ruled that if the purchaser is a third party who acquired the property after the redemption period, a hearing must be conducted to determine whether possession is still with the mortgagor or already with a third party holding adversely; if the latter, the remedy of a writ of possession is no longer available, and the purchaser must resort to an ordinary action of ejectment.

• Equitable Mortgage: The Spouses Gallent's substantial payment of ₱3,790,500.00 out of the ₱4 Million repurchase price, as against Velasquez's assumption of only ₱216,635.97, entitled them to the legal presumption that their assignment to Velasquez was an equitable mortgage under Article 1602 of the Civil Code. An equitable mortgage is one which, although lacking in some formality, reveals the intention of the parties to charge real property as security for a debt. Article 1602 provides that a contract shall be presumed to be an equitable mortgage when the vendor remains in possession as lessee or otherwise, or when the price of a sale is unusually inadequate. The Spouses Gallent remained in possession of the property, and the price attributed to the second deed of sale (₱1.2 Million) was unusually inadequate. In determining the nature of a contract, the Court is not bound by the title given to it by the parties but by their intention, as shown by their conduct, words, actions, and deeds prior to, during, and immediately after executing the agreement. The controversy was no longer an offshoot of the extrajudicial foreclosure but the result of a subsequent personal transaction between the Spouses Gallent and Velasquez, which the law recognizes as an equitable mortgage. As mortgagors in an equitable mortgage, the Spouses Gallent retained possession of the property as security and had a superior right to retain possession in their own right, precluding summary ejectment via ex parte writ.

• Ministerial Duty to Issue Writ of Possession — After consolidation of title over foreclosed property in the buyer's name, it is the ministerial duty of the court to issue a writ of possession upon an ex parte petition by the new owner as a matter of right. No bond is required after consolidation, and not even a pending action for annulment of mortgage or foreclosure sale stays the issuance. The Court applied this doctrine to confirm that Velasquez, as transferee of Allied Bank, generally stepped into the bank's shoes and could seek an ex parte writ.

• Adverse Possession Exception to Ministerial Duty — The ministerial duty to issue an ex parte writ of possession ceases when a third party, not the debtor-mortgagor, is in actual possession of the property under a claim of title or right adverse to that of the applicant. The third party must possess in their own right—not merely as successor or transferee of the debtor/mortgagor. The Court applied this exception by finding that the Spouses Gallent, as mortgagors under an equitable mortgage, held the property adversely in their own right.

• Equitable Mortgage Presumption (Article 1602, Civil Code) — A contract shall be presumed to be an equitable mortgage when, among others: (1) the price of a sale with right to repurchase is unusually inadequate; (2) the vendor remains in possession as lessee or otherwise; (3) upon or after expiration of the right to repurchase another instrument extending the period is executed; (4) the purchaser retains part of the purchase price; (5) the vendor binds himself to pay taxes on the thing sold; or (6) in any other case where it may be fairly inferred that the real intention of the parties is to secure payment of a debt or performance of an obligation. The Court applied paragraphs (2) and (6), finding that the Spouses Gallent remained in possession and that the real intention was to secure repayment of the amount advanced by Velasquez.

• Right of Possession Follows Ownership (Jus Possidendi) — Possession being an essential right of the owner, after consolidation of title the purchaser in a foreclosure sale may demand possession as a matter of right. When the thing purchased is in turn sold or transferred, the right to possession follows the thing sold to its new owner. The Court relied on this principle to establish the general rule before carving out the adverse possession exception.

• "The exception provided under Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third party holds the property by adverse title or right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and usufructuary possess the property in their own right, and they are not merely the successor or transferee of the right of possession of another co-owner or the owner of the property." — This passage, quoted from China Banking Corporation vs. Spouses Lozada, defines the scope of the adverse possession exception: the third-party possessor must hold by a title or right independent of the debtor-mortgagor's, not merely as the debtor's successor or transferee.

• "if the purchaser is a third party who acquired the property after the redemption period, a hearing must be conducted to determine whether possession over the subject property is still with the mortgagor or is already in the possession of a third party holding the same adversely to the defaulting debtor or mortgagor. If the property is in the possession of the mortgagor, a writ of possession could thus be issued. Otherwise, the remedy of a writ of possession is no longer available to such purchaser, but he can wrest possession over the property through an ordinary action of ejectment." — This passage, quoted from Okabe vs. Saturnina, establishes the procedural requirement when a third-party transferee seeks a writ of possession: a hearing must first determine whether the property remains with the mortgagor or is held by an adverse third-party possessor.

• "the law deems the contract as an equitable mortgage" — This phrase, drawn from Rockville Excel International Exim Corporation vs. Spouses Culla and Miranda, encapsulates the equitable principle that when the vendor remains in possession as lessee or otherwise, or the price is unusually inadequate, the transaction is presumed to be an equitable mortgage rather than a true sale, notwithstanding the form or title the parties gave it.

• "this controversy can no longer be considered as an offshoot of the extrajudicial foreclosure proceedings involving Allied Bank, but rather is the result of a subsequent personal transaction between the Spouses Gallent and Velasquez, which they called an assignment; but which the law otherwise recognizes as an equitable mortgage." — This passage states the Court's ratio decidendi: the dispute had transformed from a foreclosure-related matter into one governed by the law on equitable mortgage, shifting the analysis from the ministerial writ framework to the adverse possession exception.

• Mendoza vs. Salinas, 543 Phil. 380 (2007) — Controlling precedent on the three instances where an ex parte writ of possession may issue as a ministerial duty: (a) land registration cases under Act No. 496; (b) judicial foreclosure of real estate mortgage; and (c) extrajudicial foreclosure under Act No. 3135. Also established that the ministerial duty ceases when the writ is sought against actual possessors under a claim of ownership. The CA Special 4th Division relied on this case; the Supreme Court affirmed its applicability.

• Laureano vs. Bormaheco, Inc., 404 Phil. 80 (2001) — Followed. Held that a transferee of the foreclosure purchaser becomes the new owner entitled to all rights and interests of its predecessor, including the right to a writ of possession, and that no notice need be served upon the former mortgagors who lost all interests upon failure to redeem.

• China Banking Corporation vs. Spouses Lozada, 579 Phil. 454 (2008) — Followed. Held that for the adverse possession exception to apply, the property must not only be possessed by a third party but held adversely to the debtor/mortgagor, and the third party must possess in their own right, not merely as successor or transferee of the debtor.

• Okabe vs. Saturnina, G.R. No. 196040, Aug. 26, 2014, 733 SCRA 652 — Followed. Established the procedural rule that when the purchaser is a third party who acquired after the redemption period, a hearing must be conducted to determine whether possession is still with the mortgagor or with an adverse third-party possessor.

• BPI Family Savings Bank, Inc. vs. Golden Power Diesel Sales Center, Inc., 654 Phil. 382 (2011) — Followed. Held that a pending action for annulment of mortgage or foreclosure sale does not stay issuance of the writ of possession, and that it was error to issue an ex parte writ where a third party has raised actual possession upon a claim of ownership adverse to the debtor or mortgagor.

• Asia United Bank vs. Goodland Company, Inc., 650 Phil. 174 (2010) — Followed. Described the ex parte application for writ of possession under Act No. 3135 as a non-litigious, summary proceeding brought for the benefit of one party only, without notice to any person adversely interested.

• Spouses Arquiza vs. CA, 498 Phil. 793 (2005) — Followed. Reiterated that no ordinary action is necessary for the purchaser at an extrajudicial foreclosure to gain possession; the mere filing of an ex parte motion suffices, and no bond is required.

• Rockville Excel International Exim Corporation vs. Spouses Culla and Miranda, 617 Phil. 328 (2009) — Followed. Held that when the vendor remains in possession of the property sold as lessee or otherwise, or the price is unusually inadequate, the law deems the contract an equitable mortgage.

• Capital Credit Dimension, Inc. vs. Chua, G.R. No. 157213, Apr. 28, 2004, 428 SCRA 259 — Followed. Held that third-party occupants should not be adversely affected by an ex parte writ of possession sought by a party when they are not parties to any forgery, and cannot be summarily ejected without due process.

• Unchuan vs. CA, 244 Phil. 733 (1988) — Followed. Established that the proper procedure when adverse possession is claimed is for the trial court to order a hearing to determine the nature of the adverse possession, conformably with the principle of due process.

• Section 7, Act No. 3135 (as amended by Act No. 4118) — Governs the issuance of writ of possession in extrajudicial foreclosure sales. Provides that the purchaser may petition the court for possession of the property through an ex parte motion, furnishing bond during the redemption period. The Court applied this provision to establish the general rule that issuance of the writ is a ministerial duty upon proper application and proof of title.

• Section 6, Act No. 3135 — Extends the redemption provisions and, by reference, the application of Section 33 of Rule 39 of the Rules of Court to extrajudicial foreclosure sales. The Court relied on this provision to apply the adverse possession exception to extrajudicial foreclosure contexts.

• Section 33, Rule 39, Rules of Court — Provides that possession of property sold at execution sale shall be given to the purchaser "unless a third party is actually holding the property adversely to the judgment obligor." The Court applied this as the statutory basis for the adverse possession exception to the ministerial duty to issue a writ of possession.

• Article 1602, Civil Code of the Philippines — Enumerates the instances where a contract is presumed to be an equitable mortgage, including when the vendor remains in possession as lessee or otherwise, and when the price of a sale is unusually inadequate. The Court applied this provision to presume that the Spouses Gallent's Deed of Assignment of Rights was an equitable mortgage, entitling them to retain possession as adverse claimants.

• Articles 427, 428, and 429, Civil Code of the Philippines — Define ownership and its attendant rights, including the right to enjoy and dispose of the thing owned (jus utendi, jus fruendi, jus abutendi, jus disponendi) and the right to exclude others from possession (jus vindicandi). The Court cited these provisions to establish that possession (jus possidendi) is an essential right of ownership that follows the property to its new owner.

• Article 433, Civil Code of the Philippines — Provides that actual possession under claim of ownership raises a disputable presumption of ownership, requiring the true owner to resort to judicial process for recovery of the property. The Court referenced this provision through Mendoza vs. Salinas to support the principle that adverse possessors cannot be summarily ejected.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Jose Portugal Perez, and Francis H. Jardeleza concurred in the decision. No separate concurring opinions were noted.