Spouses Saguan vs. Philippine Bank of Communications

After consolidation of ownership in the purchaser's name upon the mortgagor's failure to redeem, the issuance of a writ of possession to a purchaser in an extrajudicial foreclosure sale becomes a ministerial function of the court, and the purchaser's non-remittance of the surplus proceeds does not convert that function into a discretionary one; the mortgagor's remedy to recover the surplus is a separate civil action for collection of a sum of money.

Spouses Ruben and Violeta Saguan obtained a ₱3 Million loan from the Philippine Bank of Communications, securing the obligation with a mortgage over five parcels of land covered by TCT Nos. 24274, 38894, 37455, 66339 and 19365, all of the Register of Deeds of the Province of Davao, together with the improvements thereon. The mortgage was constituted under a special power authorizing extrajudicial foreclosure, a mode of foreclosure governed by Act No. 3135, as amended by Act No. 4118. The dispute required the Court to reconcile the ministerial character of a writ of possession under that statute with the mortgagor's right to the surplus proceeds of the foreclosure sale recognized in Sulit vs. Court of Appeals.

Spouses Ruben and Violeta Saguan obtained a loan of ₱3 Million from the Philippine Bank of Communications. To secure the obligation, they mortgaged five parcels of land covered by TCT Nos. 24274, 38894, 37455, 66339 and 19365, all of the Register of Deeds of the Province of Davao, together with the improvements therein.

Because the spouses defaulted in the payment of their mortgage indebtedness, the bank extrajudicially foreclosed the mortgage. At the auction sale held on January 5, 1998, the bank was the only and highest bidder, bidding ₱6,008,026.74. A sheriff's certificate of sale dated January 12, 1998 was executed and annotated at the back of the spouses' titles on February 18, 1998. When the spouses failed to redeem the properties within the one-year period ending February 18, 1999, TCT Nos. T-154065, T-154066, T-154067, T-154068 and T-154069 were issued in the name of the bank in lieu of the old ones, and the bank consolidated ownership of the properties in its favor.

Since the parcels of land remained in the physical possession of the spouses and other persons who were co-petitioners in the petition before the Court of Appeals, the bank, after due demand, filed a petition for writ of possession with Branch 31, Regional Trial Court, Tagum City. The spouses filed an Opposition, to which the bank filed a Comment, and the spouses thereafter filed a Reply. In their Opposition and Reply, the spouses argued that a writ of possession should not issue considering the bank's failure to return the excess or surplus proceeds of the extrajudicial foreclosure sale, invoking Sulit vs. Court of Appeals. The bank countered by pointing to the spouses' remaining unsecured obligations, to which the excess or surplus proceeds had been applied. The spouses' loan obligation stood at ₱4,498,390.20 inclusive of interests, while the mortgaged properties were sold to the bank for ₱6,008,026.74, resulting in a surplus of ₱1,509,636.20.

After the hearing on the bank's evidence, the RTC issued two separate orders requiring the bank to file a Formal Offer of Evidence. The bank failed to comply within the prescribed time frame, prompting the spouses to file a motion to dismiss grounded on Section 3, Rule 17 of the Rules of Court. The bank thereafter belatedly filed its Formal Offer of Evidence. The RTC admitted the bank's offer of exhibits, rendering the motion to dismiss moot and academic, then denied the spouses' Motion to Present Evidence and granted the petition for writ of possession. The spouses' Motion for Reconsideration was likewise denied.

The Court of Appeals, on petition for certiorari and mandamus, rejected the spouses' allegations of grave abuse of discretion and affirmed the bank's entitlement to a writ of possession as a matter of right, the bank having consolidated its ownership over the parcels of land upon expiration of the redemption period. It held that the issue of the failure to return the excess or surplus proceeds had been squarely met by the bank, thereby distinguishing the case from Sulit vs. Court of Appeals, and upheld the general rule that the issuance of a writ of possession to a purchaser in an extrajudicial foreclosure sale is merely a ministerial function of the court.

• Non-Remittance of Surplus Proceeds: Petitioners argued that a writ of possession should not issue considering respondent's failure to return the excess or surplus proceeds of the extrajudicial foreclosure sale, relying on the ruling in Sulit vs. Court of Appeals.
• Conversion to Discretionary Function: Petitioners insisted that respondent's failure to return the excess or surplus proceeds converted the issuance of a writ of possession from a ministerial to a discretionary function of the trial court.
• Dismissal for Failure to Comply with Orders: Petitioners filed a motion to dismiss the petition for writ of possession grounded on Section 3, Rule 17 of the Rules of Court, based on respondent's failure to comply with the RTC's Orders on the filing of a formal offer of evidence.

• Application of Surplus to Unsecured Obligations: Respondent countered that petitioners had remaining unsecured obligations with it, to which the excess or surplus proceeds of the auction sale were validly, albeit unilaterally, applied.
• Entitlement to Writ as a Matter of Right: Respondent maintained its entitlement to a writ of possession as a matter of right, having consolidated its ownership over the parcels of land upon expiration of the redemption period.

• Writ of Possession Despite Non-Remittance of Surplus: Whether the RTC should have issued a writ of possession considering respondent's failure to remit the excess or surplus proceeds of the extrajudicial foreclosure sale.
• Unilateral Application of Surplus to Unsecured Obligations: Whether respondent may unilaterally apply the excess or surplus proceeds of the extrajudicial foreclosure sale to petitioners' remaining unsecured obligations.
• Motion to Dismiss for Failure to Comply with Orders: Whether the RTC should have granted petitioners' motion to dismiss the petition for writ of possession based on respondent's failure to comply with the RTC's Orders on the filing of a formal offer of evidence.

• Writ of Possession Despite Non-Remittance of Surplus: Yes. After consolidation of ownership in the purchaser's name upon the mortgagor's failure to redeem, the issuance of a writ of possession upon proper application and proof of title is a ministerial function of the court, and the purchaser's non-remittance of the surplus proceeds does not convert it into a discretionary one.
• Unilateral Application of Surplus to Unsecured Obligations: No. The mortgage subjected the property only to the fulfillment of the obligation for whose security it was constituted, and obligations not collateralized by the foreclosed properties cannot be satisfied from the surplus; the mortgagor's remedy lies in a separate civil action for collection of a sum of money.
• Motion to Dismiss for Failure to Comply with Orders: No. The trial court's liberality in giving respondent ample time and opportunity to complete the presentation of its evidence carried no taint of partiality, and petitioners were not denied due process.

• Writ of Possession Despite Non-Remittance of Surplus: A writ of possession may be issued either (1) within the one-year redemption period, upon the filing of a bond, or (2) after the lapse of the redemption period, without need of a bond. Within the redemption period, the purchaser may apply for a writ of possession by filing an ex-parte motion under oath in the corresponding registration or cadastral proceeding, and upon approval of the bond the court is expressly directed to issue the order. After the lapse of the redemption period, a writ of possession may be issued in favor of the purchaser as the mortgagor is considered to have lost interest over the foreclosed property; the purchaser, who has a right to possession after the expiration of the redemption period, becomes the absolute owner when no redemption is made. The bond is no longer needed, and the purchaser may demand possession at any time following consolidation of ownership in his name and the issuance to him of a new TCT. After consolidation of title in the purchaser's name for failure of the mortgagor to redeem, the purchaser's right to possession ripens into the absolute right of a confirmed owner, and the issuance of a writ of possession becomes merely a ministerial function that the court cannot exercise discretion over. The propriety of the writ was heightened in this case where the bank's right to possession extended after the expiration of the redemption period and became absolute upon the spouses' failure to redeem. Sulit vs. Court of Appeals was decided under a different factual milieu: there, the plea for a writ of possession was made during the redemption period and title had not yet been consolidated in favor of the purchaser, whereas here the spouses failed to exercise their right of redemption within the one-year reglementary period and ownership was consolidated in, and corresponding titles issued in favor of, the bank. The proceeding in a petition for a writ of possession is ex-parte and summary in nature, brought for the benefit of one party only and without need of notice to any person claiming an adverse interest, wherein relief is granted even without giving the person against whom the relief is sought an opportunity to be heard; it is a non-litigious proceeding authorized under Act No. 3135, as amended. The debtor is not without recourse, however, as Section 8 of Act No. 3135 allows a petition to set aside the sale and cancel the writ of possession in the same proceedings where the writ was requested. Here, the spouses did not challenge the validity of the foreclosure nor seek to set aside the foreclosure sale; their only remaining contention was the disposition of the excess or surplus proceeds, and they did not question the consolidation of ownership in favor of the bank but simply demanded payment of the sum of money supposedly still owing them. Article 427, in relation to Article 428, of the Civil Code provides that ownership may be exercised over things or rights and grants the owner a right of action for recovery against the holder and possessor thereof.

• Unilateral Application of Surplus to Unsecured Obligations: The bank's stance that the spouses had remaining unsecured obligations to which the excess or surplus proceeds were validly, albeit unilaterally, applied was unacceptable. Surplus money arising from a sale of land under a decree of foreclosure stands in the place of the land itself with respect to liens thereon or vested rights therein; it is constructively, at least, real property and belongs to the mortgagor or his assigns, and the right of a mortgagor to the surplus proceeds is a substantial right which must prevail over rules of technicality. Surplus money gains much significance where there are junior encumbrancers on the mortgaged property: when there are several liens upon the premises, the surplus money must be applied to their discharge in the order of their priority; a junior mortgagee may have his rights protected by an appropriate decree as to the application of the surplus; his lien on the land is transferred to the surplus fund; and a senior mortgagee realizing more than the amount of his debt is regarded as a trustee for the benefit of junior encumbrancers. The foreclosure of the spouses' properties was meant to answer only the obligation secured by the mortgage, and Article 2126 of the Civil Code unequivocally states that the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. Even if the spouses had remaining obligations with the bank, these obligations, as conceded by the bank itself, were not collateralized by the foreclosed properties. Under Section 1 of Act No. 3135 as amended, the special power of attorney authorizing the extrajudicial foreclosure of the real estate mortgage must be either inserted or stated in the mortgage deed itself, or the authority attached thereto; thus, the spouses' supposed remaining obligations, not secured by the mortgage, could not be made subject, or even susceptible, to the extrajudicial foreclosure of mortgage. The spouses' remedy lies in a separate civil action for collection of a sum of money. Where the mortgagee retains more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus; in the same case, both parties can establish their respective rights and obligations after a proper liquidation of the expenses of the foreclosure sale and other interests and claims chargeable to the purchase price of the foreclosed property, and the court can then determine the proper application of compensation with respect to the bank's claim on the spouses' remaining unsecured obligations. The bank is not precluded from itself filing a case to collect on the spouses' remaining debt. The spouses' cause of action prescribes in ten (10) years from the time of the auction sale on January 5, 1998, when the excess or surplus proceeds should have been returned to them.

• Motion to Dismiss for Failure to Comply with Orders: There was no grave abuse of discretion in the trial court's liberality in giving ample time and opportunity for the bank to complete the presentation of its evidence. It was a liberality that carried no taint of partiality. Despite the ex-parte nature of the proceedings, the RTC also allowed the spouses to file pleadings to oppose the petition for the issuance of the writ of possession. The spouses were clearly not denied due process, and the trial judge acted accordingly in admitting the bank's uncontroverted evidence. On the procedural point, the spouses' remedy of certiorari before the Court of Appeals was incorrect: a special civil action for certiorari may be availed of only if the lower tribunal has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and if there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law. The RTC issued the writ of possession in compliance with the express provisions of Act No. 3135 and could not be charged with grave abuse of discretion, there being no showing that, in the exercise of its judgment, it acted in a capricious, whimsical, arbitrary or despotic manner tantamount to lack of jurisdiction. Absent grave abuse of discretion, the spouses should have filed an ordinary appeal instead of a petition for certiorari; the soundness of the order granting the writ of possession is a matter of judgment with respect to which the remedy of the aggrieved party is ordinary appeal, and an error of judgment committed by a court in the exercise of its legitimate jurisdiction is not the same as grave abuse of discretion. Nonetheless, the Court allowed this procedural lapse to pass without incident and resolved the issues raised.

• Ministerial nature of the writ of possession after consolidation of ownership — After consolidation of title in the purchaser's name for failure of the mortgagor to redeem the property, the purchaser's right to possession ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ of possession, upon proper application and proof of title, to a purchaser in an extrajudicial foreclosure sale becomes merely a ministerial function, and the court cannot exercise its discretion or judgment. The Court applied this doctrine to affirm the writ issued in favor of the bank, whose ownership had been consolidated upon the spouses' failure to redeem.

• Two instances for the issuance of a writ of possession under Act No. 3135 — A writ of possession may be issued either (1) within the one-year redemption period, upon the filing of a bond, or (2) after the lapse of the redemption period, without need of a bond. Within the redemption period, the purchaser may apply by filing an ex-parte motion under oath in the corresponding registration or cadastral proceeding, and upon approval of the bond the court is expressly directed to issue the order. After the lapse of the redemption period, the writ may issue as the mortgagor is considered to have lost interest over the foreclosed property, and the bond is no longer needed.

• Ex-parte and summary nature of a petition for a writ of possession — A petition for a writ of possession is a judicial proceeding brought for the benefit of one party only and without need of notice to any person claiming an adverse interest, wherein relief is granted even without giving the person against whom the relief is sought an opportunity to be heard. It is a non-litigious proceeding authorized under Act No. 3135, as amended. The Court relied on this characterization to explain why the mortgagor's claim to surplus proceeds cannot be litigated within the writ of possession proceeding.

• Surplus proceeds belong to the mortgagor and stand in the place of the land — Surplus money arising from a sale of land under a decree of foreclosure stands in the place of the land itself with respect to liens thereon or vested rights therein; it is constructively, at least, real property and belongs to the mortgagor or his assigns. The right of a mortgagor to the surplus proceeds is a substantial right which must prevail over rules of technicality. Where there are several liens upon the premises, the surplus money must be applied to their discharge in the order of their priority; a junior mortgagee's lien on the land is transferred to the surplus fund; and a senior mortgagee realizing more than the amount of his debt is regarded as a trustee for the benefit of junior encumbrancers.

• Mortgage secures only the obligation for which it was constituted — Under Article 2126 of the Civil Code, the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. Obligations not collateralized by the foreclosed properties cannot be made subject, or even susceptible, to the extrajudicial foreclosure of mortgage, and the mortgagee may not unilaterally apply the surplus proceeds to such unsecured obligations.

• Remedy of the mortgagor for surplus proceeds — Where the mortgagee retains more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus in a separate civil action for collection of a sum of money. In that action, both parties can establish their respective rights and obligations after a proper liquidation of the expenses of the foreclosure sale and other interests and claims chargeable to the purchase price of the foreclosed property, and the court can determine the proper application of compensation with respect to the mortgagee's claim on the mortgagor's remaining unsecured obligations.

• Special power of attorney for extrajudicial foreclosure — Under Section 1 of Act No. 3135 as amended, the special power of attorney authorizing the extrajudicial foreclosure of the real estate mortgage must be either (1) inserted or stated in the mortgage deed itself, or (2) attached thereto. Only the obligation secured by the mortgage may be enforced through extrajudicial foreclosure.

• "After consolidation of title in the purchaser's name for failure of the mortgagor to redeem the property, the purchaser's right to possession ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ of possession, upon proper application and proof of title, to a purchaser in an extrajudicial foreclosure sale becomes merely a ministerial function." — This passage states the ratio decidendi on the first issue, establishing that the writ issues as a matter of right once ownership is consolidated and that the court exercises no discretion.

• "We cannot simply ignore the importance of surplus proceeds because by their very nature, surplus money arising from a sale of land under a decree of foreclosure stands in the place of the land itself with respect to liens thereon or vested rights therein. They are constructively, at least, real property and belong to the mortgagor or his assigns. Inevitably, the right of a mortgagor to the surplus proceeds is a substantial right which must prevail over rules of technicality." — This passage defines the nature of surplus proceeds and the mortgagor's substantial right thereto, and is the canonical formulation relied upon to reject the bank's unilateral application of the surplus to unsecured obligations.

• "Simply put, even if petitioners have remaining obligations with respondent, these obligations, as conceded by respondent itself, were not collateralized by the foreclosed properties." — This passage applies Article 2126 of the Civil Code to the facts, holding that only the secured obligation may be satisfied from the foreclosure proceeds.

• "However, petitioners' remedy lies in a separate civil action for collection of a sum of money." — This passage identifies the mortgagor's proper remedy for the recovery of surplus proceeds, distinguishing it from the ex-parte writ of possession proceeding.

• Sulit vs. Court of Appeals, G.R. No. 119247, February 17, 1997, 268 SCRA 441 — Distinguished. The Court held that Sulit was decided under a different factual milieu because the plea for a writ of possession there was made during the redemption period and title had not yet been consolidated in favor of the purchaser, whereas the spouses here failed to redeem and ownership was consolidated in the bank's name. Sulit was nonetheless relied upon for its pronouncements on the nature and importance of surplus proceeds.
• Philippine National Bank vs. Sanao Marketing Corporation, G.R. No. 153951, July 29, 2005, 465 SCRA 287 — Cited for the rule that a writ of possession may be issued either within the one-year redemption period upon the filing of a bond, or after the lapse of the redemption period without need of a bond, and for the principle that an error of judgment is correctible by appeal while errors of jurisdiction are reviewable by certiorari.
• Samson vs. Rivera, G.R. No. 154355, May 20, 2004, 428 SCRA 759 — Cited for the rule that upon approval of the bond the court is expressly directed to issue the order for a writ of possession, that the purchaser becomes the absolute owner when no redemption is made, and that the issuance of the writ is a ministerial function.
• Spouses Oliveros vs. Metropolitan Bank and Trust Company, Inc., G.R. No. 165963, September 3, 2007 — Cited for the enumeration of other instances when a writ of possession may issue and for the ex-parte and summary nature of the proceeding.
• Yulienco vs. Court of Appeals, 441 Phil. 397 (2002) — Cited for the rule that after the lapse of the redemption period, a writ of possession may be issued in favor of the purchaser in a foreclosure sale as the mortgagor is considered to have lost interest over the foreclosed property.
• De Vera vs. Agloro, G.R. No. 155673, January 14, 2005, 448 SCRA 203 — Cited for the rule that the issuance of a writ of possession to a purchaser in an extrajudicial foreclosure sale is merely a ministerial function.
• China Banking Corporation vs. Ordinario, 447 Phil. 557 (2003) — Cited, together with other cases, for the ministerial character of the duty of the trial court to grant a writ of possession.
• Spouses Ong vs. Court of Appeals, 388 Phil. 857 (2000) — Cited, together with other cases, for the ministerial character of the duty of the trial court to grant a writ of possession.
• Santiago vs. Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, March 18, 2005, 453 SCRA 756 — Cited for the ex-parte and summary nature of the petition for a writ of possession.
• Kleinman vs. Neubert, 172 NW 315 — Cited in Sulit for the rule that where the mortgagee retains more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus.

• Section 6, Act No. 3135 (as amended by Act No. 4118) — Governs redemption, allowing the debtor, his successors-in-interest, or any judicial creditor or judgment creditor of the debtor, or any person having a lien on the property subsequent to the mortgage, to redeem the property within one year from and after the date of the sale. The spouses failed to exercise this right within the one-year period ending February 18, 1999, which resulted in the consolidation of ownership in the bank's name.
• Section 7, Act No. 3135 — Governs possession during the redemption period, allowing the purchaser to petition the court for possession upon the filing of a bond equivalent to the use of the property for twelve months, and directing the court, upon approval of the bond, to order the issuance of a writ of possession. The Court cited this provision in distinguishing the two instances when a writ of possession may issue.
• Section 8, Act No. 3135 — Provides the debtor's remedy to petition that the sale be set aside and the writ of possession cancelled, not later than thirty days after the purchaser was given possession, on the ground that the mortgage was not violated or the sale was not made in accordance with the provisions of the Act. The Court noted that the spouses did not avail of this remedy, as they did not challenge the validity of the foreclosure.
• Section 1, Act No. 3135 — Requires that the special power of attorney authorizing the extrajudicial foreclosure of the real estate mortgage be either inserted or stated in the mortgage deed itself, or attached thereto. The Court applied this provision to hold that the spouses' remaining obligations, not secured by the mortgage, could not be made subject to the extrajudicial foreclosure.
• Article 427, Civil Code — Provides that ownership may be exercised over things or rights. Cited in relation to Article 428 to support the owner's right of action for recovery against the holder and possessor of the property.
• Article 428, Civil Code — Provides that the owner has the right to enjoy and dispose of a thing, without other limitations than those established by law, and has a right of action against the holder and possessor of the thing in order to recover it. Cited together with Article 427 to uphold the bank's right to possession.
• Article 2126, Civil Code — Provides that the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. The Court applied this provision to hold that the mortgage secured only the specific obligation for which it was constituted, and that the spouses' remaining unsecured obligations could not be satisfied from the surplus.
• Article 1144, Civil Code — Provides for a ten-year prescriptive period. Cited to note that the spouses' cause of action for the recovery of the surplus proceeds prescribes in ten (10) years from the time of the auction sale on January 5, 1998, when the excess or surplus proceeds should have been returned to them.
• Articles 1278 and 1279, Civil Code — Govern compensation as a mode of extinguishing obligations. Cited to note that in the separate action, the court can determine the proper application of compensation with respect to the bank's claim on the spouses' remaining unsecured obligations.
• Section 3, Rule 17, Rules of Court — Governs dismissal due to the fault of the plaintiff, allowing dismissal upon motion of the defendant or upon the court's own motion if the plaintiff fails, for no justifiable cause, to comply with the Rules or any order of the court. The spouses invoked this provision in moving to dismiss the petition for writ of possession, but the RTC admitted the bank's belated Formal Offer of Evidence and rendered the motion moot and academic.
• Section 1, Rule 65, Rules of Court — Provides that a special civil action for certiorari may be availed of only if the lower tribunal has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and if there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law. The Court noted that the spouses' remedy of certiorari before the Court of Appeals was incorrect, as the proper remedy was ordinary appeal, but allowed the procedural lapse to pass without incident.

• Consuelo Ynares-Santiago (Chairperson)
• Ma. Alicia Austria-Martinez
• Minita V. Chico-Nazario
• Ruben T. Reyes