Villanueva vs. Cherdan Lending Investors Corporation

The ministerial duty of the court to issue a writ of possession in an extrajudicial foreclosure sale ceases once it appears that a third party, who was not a party to the mortgage or foreclosure proceedings, is actually holding the property under a claim of ownership adverse to the judgment debtor/mortgagor. In such case, the purchaser must bring an appropriate judicial action—such as an ejectment suit or a reivindicatory action—to recover possession, and may not dispossess the third party through a mere ex parte possessory writ.

Spouses Fortunato and Rachel Peñaredondo obtained a ₱2.2 million loan from respondent Cherdan Lending Investors Corporation, secured by a real estate mortgage over a parcel of land covered by TCT No. T-129690. Petitioner Emmanuel C. Villanueva claims to be the true owner of the same property, asserting that his title was cancelled by virtue of a falsified deed of donation executed in favor of the spouses Peñaredondo, and that he has filed civil and criminal cases to nullify that deed and punish the responsible parties. The dispute centers on whether respondent, as purchaser in the extrajudicial foreclosure sale, can obtain a writ of possession to oust petitioner, a third-party possessor who was not a party to the mortgage or foreclosure proceedings.

Spouses Fortunato and Rachel Peñaredondo obtained a loan amounting to ₱2.2 million from respondent Cherdan Lending Investors Corporation, secured by a real estate mortgage over a parcel of land covered by TCT No. T-129690. Despite demand, the spouses failed to pay the obligation, prompting respondent to extrajudicially foreclose the mortgage. At the auction sale, respondent was declared the highest bidder, a Certificate of Sale was issued and registered, and upon expiration of the redemption period, ownership was consolidated in respondent's name with a new title, TCT No. 143284, issued in its favor.

On September 28, 2001, respondent filed an ex parte petition for issuance of a writ of possession before the RTC of Parañaque City, Branch 258. The RTC granted the petition on January 7, 2002, and a writ of possession was issued. Upon service of the court order, petitioner Emmanuel C. Villanueva moved for reconsideration and for the setting aside of the writ, asserting that he is the owner and is in actual possession of the subject property. He informed the court that he had filed criminal and civil cases relating to the fraudulent transfer of ownership of the property from him to the spouses Peñaredondo. For their part, the spouses Peñaredondo separately filed a motion to quash the writ on the grounds that a civil case for declaration of nullity of mortgage was pending and that a third party was in adverse possession.

On September 30, 2002, the RTC granted petitioner's motion, recalled and set aside the writ of possession, and allowed petitioner to remain in possession pending resolution of the pending cases, while denying the spouses Peñaredondo's motion to quash. On August 27, 2004, the RTC of Parañaque City, Branch 257, dismissed Civil Case No. 98-0378 for declaration of nullity of the real estate mortgage filed by Fortunato Peñaredondo against respondent. Respondent thereafter filed a motion for alias writ of possession, which was denied on December 20, 2004, with the motion for reconsideration likewise denied on March 8, 2005.

Respondent then filed a special civil action for certiorari before the Court of Appeals, praying that the RTC orders denying the alias writ be reversed and that the RTC be directed to issue a writ of possession in respondent's favor against petitioner. The CA granted the petition on October 31, 2006, relying on PNB vs. Sanao Marketing Corporation and Ancheta vs. Metropolitan Bank and Trust Company, Inc., holding that the pendency of the case for annulment of foreclosure proceedings was not a bar to the issuance of the writ. The CA refused to apply Section 33, Rule 39 of the Rules of Court, reasoning that the provision applies only to execution sales and not to extrajudicial foreclosures under Act 3135. Petitioner's claim of actual possession and adverse ownership was not disputed by respondent.

• Adverse Possession and Ownership: Petitioner argued that he is the owner and is in actual possession of the subject property, his title having been cancelled by virtue of a falsified deed of donation executed in favor of spouses Peñaredondo, and that he had filed civil and criminal cases to nullify the deed and punish the responsible parties.
• Improper Party in CA Proceedings: Petitioner questioned whether the CA could require him to comment on a petition for certiorari wherein he was not even pleaded as a party.
• Bar by Prior Court Order: Petitioner contended that respondent's certiorari petition was barred by the RTC order dated September 30, 2002, which had recalled the writ and allowed petitioner to remain in possession.
• Propriety of Certiorari: Petitioner raised the issue of whether respondent's petition for certiorari before the CA was proper.
• Legal Impediment to Possession: Petitioner asserted that there exists a legal obstacle or impediment to placing respondent in possession of the property, given his adverse claim.
• Contrary Jurisprudence: Petitioner argued that the CA's decision and resolution were not in accord with Supreme Court rulings in Capital Credit Dimension, Inc. vs. Chua, Penson vs. Maranan, and Dayot vs. Shell Chemical Co. (Phils.), Inc.

• Pendency of Annulment Not a Bar: Respondent contended, and the CA agreed, that the pendency of a case for annulment of the real estate mortgage or foreclosure proceedings was not a bar to the issuance of the writ of possession, citing PNB vs. Sanao Marketing Corporation and Ancheta vs. Metropolitan Bank and Trust Company, Inc.
• Inapplicability of Section 33, Rule 39: Respondent maintained, through the CA's reasoning, that Section 33, Rule 39 of the Rules of Court—which authorizes possession to be given to the purchaser unless a third party is actually holding the property adversely to the judgment obligor—applies only to execution sales and not to extrajudicial foreclosures of real estate mortgages under Act 3135.

• Adverse Third-Party Possession: Whether the issuance of a writ of possession in an extrajudicial foreclosure remains a ministerial duty of the court when a third party, who was not a party to the mortgage or foreclosure proceedings, is in actual possession of the property claiming ownership adverse to the mortgagor.
• Applicability of Section 33, Rule 39: Whether Section 33, Rule 39 of the Rules of Court, which provides an exception to the issuance of a writ of possession when a third party is holding the property adversely to the judgment obligor, applies suppletorily to extrajudicial foreclosures under Act 3135.
• Distinguishing Precedents: Whether the cases cited by the Court of Appeals (Ancheta and PNB vs. Sanao), which involved mortgagors who were parties to the foreclosure proceedings, are applicable to the present case where the oppositor is a third party stranger to the mortgage and foreclosure.
• Due Process for Third-Party Possessor: Whether a third-party possessor may be dispossessed through a mere ex parte possessory writ without a separate judicial action, consistent with due process and Article 433 of the Civil Code.

• Adverse Third-Party Possession: No. The court's duty to issue a writ of possession ceases to be ministerial when a third party, who was not a party to the mortgage or foreclosure, is in actual possession claiming a right adverse to the mortgagor. The purchaser must resort to a separate judicial action to recover possession.
• Applicability of Section 33, Rule 39: Yes. Section 33, Rule 39 of the Rules of Court applies suppletorily to extrajudicial foreclosures under Act 3135 by virtue of Section 6 of Act 3135, and provides that possession may not be awarded to the purchaser when a third party is actually holding the property adversely to the judgment obligor.
• Distinguishing Precedents: No. Ancheta and PNB vs. Sanao are inapplicable because they involved mortgagors who were parties to the foreclosure proceedings objecting on the ground of pending annulment cases, whereas here the oppositor is a stranger to the mortgage claiming adverse ownership and actual possession.
• Due Process for Third-Party Possessor: No. A third-party possessor may not be dispossessed through a mere ex parte possessory writ, as this would amount to summary ejectment in violation of due process. The purchaser must bring an appropriate judicial action such as an ejectment suit or a reivindicatory action.

• Adverse Third-Party Possession: A writ of possession is an order commanding the sheriff to place a person in possession of real or personal property. Under Section 7 of Act 3135, as amended by Act 4118, it may be issued either within the one-year redemption period upon filing of a bond, or after the lapse of the redemption period without need of a bond or a separate action. The buyer in a foreclosure sale becomes the absolute owner if the property is not redeemed within one year after registration of the sale, and is entitled to possession upon consolidation of ownership and issuance of a new TCT. The issuance of the writ is ministerial upon the court after the foreclosure sale. However, this rule is not without exception. Petitioner opposed the writ on the ground that he is in actual possession under a claim of ownership, explaining that his title was cancelled by a falsified deed of donation. His claim of actual possession was not challenged, and he asserted an ownership right adverse to the mortgagors. Under these circumstances, the ministerial duty to issue the writ ceases.

• Applicability of Section 33, Rule 39: Section 33, Rule 39 of the Rules of Court provides that possession of the property shall be given to the purchaser or last redemptioner unless a third party is actually holding the property adversely to the judgment obligor. This provision is made applicable suppletorily to extrajudicial foreclosures by Section 6 of Act 3135, as amended. The CA erred in refusing to apply Section 33 on the ground that it applies only to execution sales. The purchaser's right of possession is recognized only against the judgment debtor and his successor-in-interest, not against persons whose right of possession is adverse to the latter. The Court had uniformly held in BPI vs. Icot, DBP vs. Prime Neighborhood Association, Dayot vs. Shell Chemical Company, and PNB vs. Court of Appeals that the obligation to issue an ex parte writ ceases to be ministerial once a third party in adverse possession appears.

• Distinguishing Precedents: The CA's reliance on Ancheta vs. Metropolitan Bank and PNB vs. Sanao Marketing was misplaced. Those cases involved the propriety of issuing a writ of possession pending determination of the validity of the mortgage or foreclosure proceedings, where the oppositors were mortgagors who were parties to the foreclosure. The Court held in those cases that the pendency of such determination was not a bar to issuance of the writ. In the present case, the factual milieu is different: the oppositor was a third party stranger to the mortgage who did not participate in the foreclosure proceedings, and he objected not because of a pending annulment case but because he was in actual possession claiming ownership adverse to the mortgagors. These circumstances call for the application of the line of cases holding that issuance of the possessory writ is not a ministerial duty.

• Due Process for Third-Party Possessor: The third party's possession is legally presumed to be based on a just title, a presumption that may be overcome by the purchaser in a judicial proceeding for recovery of the property. Article 433 of the Civil Code provides that actual possession under claim of ownership raises a disputable presumption of ownership, and the true owner must resort to judicial process for recovery. The ex parte petition for a writ of possession is not the kind of judicial process contemplated by Article 433; it is not an ordinary suit filed in court by which one party sues another for enforcement or protection of a right. Unlike a judicial foreclosure under Rule 68, where the action is filed before the RTC and parties are given the opportunity to be heard, an extrajudicial foreclosure under Act 3135 is initiated by filing a petition with the office of the sheriff, not with any court of justice. A third person in possession who claims a right superior to the original mortgagor is given no opportunity to be heard on his claim. To enforce the writ against such a third party would amount to summary ejectment in violation of due process, and would constitute a procedural shortcut the Court cannot sanction.

• Ministerial Duty to Issue Writ of Possession in Extrajudicial Foreclosure — It is ministerial upon the court to issue a writ of possession after a foreclosure sale and during the redemption period. After consolidation of ownership and issuance of a new TCT in the name of the purchaser, the writ issues as a matter of course without need of a bond or a separate action. This is because the buyer in a foreclosure sale becomes the absolute owner of the property if it is not redeemed within one year after registration of the sale, and is entitled to possession of the property.

• Exception: Third-Party Adverse Possession — The ministerial duty to issue a writ of possession ceases when a third party is actually holding the property adversely to the judgment debtor/mortgagor. This exception is grounded in Section 33, Rule 39 of the Rules of Court, which applies suppletorily to extrajudicial foreclosures under Act 3135 by virtue of Section 6 thereof. The purchaser's right of possession is recognized only against the judgment debtor and his successor-in-interest, not against persons whose right of possession is adverse to the latter. The third party's possession is legally presumed to be based on a just title, and the purchaser must overcome this presumption through a proper judicial proceeding—such as an ejectment suit or a reivindicatory action—in which the third party is accorded due process.

• Article 433, Civil Code — Actual Possession Under Claim of Ownership — Actual possession under claim of ownership raises a disputable presumption of ownership. The true owner must resort to judicial process for the recovery of the property. The "judicial process" contemplated means no less than an ejectment suit or a reivindicatory action, in which the ownership claims of the contending parties may be properly heard and adjudicated. An ex parte petition for a writ of possession is not such a judicial process, as it is not an ordinary suit filed in court by which one party sues another for enforcement or protection of a right.

• Due Process in Extrajudicial Foreclosure Against Third Parties — A third person in possession of an extrajudicially foreclosed property who claims a right superior to that of the original mortgagor is given no opportunity to be heard on his claim in the foreclosure proceedings, since the petition is filed with the office of the sheriff, not with any court of justice. Such a third person may not be dispossessed on the strength of a mere ex parte possessory writ, as this would amount to summary ejectment in violation of due process. The Court cannot sanction a procedural shortcut that would amount to the taking of real property without proper judicial intervention.

• "The obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the debtor/mortgagor." — This is the controlling rule applied in the case, distinguishing the ministerial duty from its exception where a third-party adverse possessor is involved.

• "The purchaser's right of possession is recognized only as against the judgment debtor and his successor-in-interest but not against persons whose right of possession is adverse to the latter." — This defines the limits of the purchaser's possessory right after a foreclosure sale, explaining why a third-party adverse possessor cannot be ousted by a mere ex parte writ.

• "It stands to reason, therefore, that such third person may not be dispossessed on the strength of a mere ex parte possessory writ, since to do so would be tantamount to his summary ejectment, in violation of the basic tenets of due process." — This articulates the due process rationale for requiring a separate judicial action before a third-party possessor can be dispossessed, tying the procedural deficiency of extrajudicial foreclosure (filing with the sheriff, not a court) to the constitutional protection of due process.

• "The Court cannot sanction a procedural shortcut. To enforce the writ against petitioner, an unwitting third party possessor who took no part in the foreclosure proceedings, would amount to the taking of real property without the benefit of proper judicial intervention." — This passage crystallizes the Court's refusal to allow summary dispossession of a third party through an ex parte mechanism, emphasizing the necessity of a proper judicial action.

• Bank of the Philippine Islands vs. Icot, G.R. No. 168061, October 12, 2009, 603 SCRA 322 — Followed. The Court relied on this case for the rule that the ministerial duty to issue an ex parte writ of possession ceases when a third party in adverse possession appears, and that the purchaser's right of possession is recognized only against the judgment debtor and his successor-in-interest.

• Development Bank of the Philippines vs. Prime Neighborhood Association, G.R. Nos. 175728 & 178914, May 8, 2009, 587 SCRA 582 — Followed. Cited for the same rule on the exception to the ministerial duty and for the principle that the third party's possession is legally presumed to be based on a just title, which may be overcome only in a judicial proceeding.

• Dayot vs. Shell Chemical Company (Phils.), Inc., G.R. No. 156542, January 26, 2007, 525 SCRA 535 — Followed. Cited for the proposition that an ex parte petition for a writ of possession is not the kind of judicial process contemplated in Article 433 of the Civil Code, and that a third party may not be dispossessed on the strength of a mere ex parte writ without violating due process.

• Philippine National Bank vs. Court of Appeals, 424 Phil. 757 (2002) — Followed. Part of the uniform line of cases holding that the obligation to issue an ex parte writ of possession ceases to be ministerial once a third party in adverse possession appears.

• Ancheta vs. Metropolitan Bank and Trust Company, Inc., 507 Phil. 161 (2005) — Distinguished. The CA relied on this case, but the Supreme Court held it inapplicable because it involved mortgagors who were parties to the foreclosure proceedings objecting on the ground of a pending annulment case, not a third-party stranger claiming adverse ownership and actual possession.

• PNB vs. Sanao Marketing Corporation, 503 Phil. 260 (2005) — Distinguished. Same as Ancheta: the oppositors were parties to the mortgage and foreclosure proceedings, unlike petitioner who was a stranger to both.

• China Banking Corporation vs. Lozada, G.R. No. 164919, July 4, 2008, 557 SCRA 177 — Cited for the rule that the buyer in a foreclosure sale becomes the absolute owner if the property is not redeemed within one year, and is entitled to possession upon consolidation of ownership and issuance of a new TCT.

• Section 7, Act 3135 (as amended by Act 4118) — Governs the issuance of a writ of possession in extrajudicial foreclosure of real estate mortgages. The writ may be issued either within the one-year redemption period upon filing of a bond, or after the lapse of the redemption period without need of a bond or a separate action. The Court applied this provision to establish the general rule of ministerial issuance, then carved out the exception based on third-party adverse possession.

• Section 33, Rule 39, Rules of Court — Provides that possession of foreclosed property shall be given to the purchaser or last redemptioner unless a third party is actually holding the property adversely to the judgment obligor. The Court held that this provision applies suppletorily to extrajudicial foreclosures under Act 3135 by virtue of Section 6 of Act 3135, contrary to the CA's ruling that it applies only to execution sales.

• Section 6, Act 3135 (as amended) — Makes the Rules of Court suppletory to the extrajudicial foreclosure proceedings under Act 3135, thereby rendering Section 33, Rule 39 applicable to extrajudicial foreclosures. The CA had erroneously refused to apply Section 33 on the ground that it governed only execution sales.

• Article 433, Civil Code — Provides that actual possession under claim of ownership raises a disputable presumption of ownership, and the true owner must resort to judicial process for recovery of the property. The Court applied this provision to hold that the purchaser must bring an appropriate judicial action—such as an ejectment suit or reivindicatory action—to dispossess a third-party claimant, and that an ex parte petition for a writ of possession is not such a judicial process.

Justice Presbitero J. Velasco, Jr., Justice Teresita J. Leonardo-De Castro, Justice Arturo D. Brion, and Justice Jose Catral Mendoza concurred.