Welbilt Construction Corp. vs. Heirs of Cresenciano C. De Castro

A condominium corporation may extra-judicially foreclose a unit to enforce a lien for unpaid assessments where its authority to foreclose is established by the Master Deed, the By-Laws, and a board resolution, and not solely by the Condominium Act or a mere annotated notice of assessment; First Marbella does not preclude foreclosure when such additional authority exists.

Welbilt Construction Corporation and Wack Wack Condominium Corporation are the developer and management body, respectively, of Wack Wack Apartments Building, a condominium project; Spouses Eugenio Juan and Matilde Gonzalez are owners thereof. Cresenciano C. De Castro was the registered owner of Unit 802, covered by Condominium Certificate of Title No. 2826. The unit was governed by the Master Deed with Declaration of Restrictions and the condominium corporation's By-Laws. Under Section 20 of the Condominium Act, assessments made pursuant to a duly registered declaration of restrictions become a lien on the condominium and may be enforced in the same manner as judicial or extra-judicial foreclosure of real property.

Welbilt Construction Corporation and Wack Wack Condominium Corporation are the developer and management body, respectively, of Wack Wack Apartments Building, while Spouses Eugenio Juan and Matilde Gonzalez are the owners thereof. Cresenciano C. De Castro was the registered owner of Unit 802 of the condominium, covered by Condominium Certificate of Title No. 2826. The unit was subject to the Master Deed with Declaration of Restrictions of Wack Wack Condominium and the condominium corporation's By-Laws.

De Castro failed to pay assessment dues amounting to P79,905.41 as of July 31, 1986 despite demand. Because of this, the petitioners caused the annotation of a lien for unpaid assessments and other dues at the back of De Castro's title on August 14, 1986 pursuant to Section 4 of the Master Deed.

As the dues remained unsettled, the petitioners filed a petition for the extra-judicial foreclosure of the subject property with the Office of the Ex-Officio Sheriff of Pasig City on October 27, 1986. The requirements of publication and posting of notice were complied with, and the public auction was set on February 10, 1987. De Castro received a copy of the notice on January 29, 1987. Petitioners emerged as the highest bidder for P88,809.94, and a certificate of sale was issued in their favor on February 10, 1987. On April 2, 1987, the sale was registered with the Register of Deeds of Pasig City and annotated at the back of De Castro's title. De Castro failed to redeem the property.

When requested to surrender his owner's duplicate copy of CCT No. 2826, De Castro filed a petition for annulment of foreclosure proceedings before the Securities and Exchange Commission, which then had jurisdiction over intra-corporate disputes. In that petition, De Castro argued that the petitioners had no legal personality to invoke the Condominium Act and should have availed of other remedies in law; that the annotation of assessment dues and certificate of sale, and the extra-judicial proceedings, were highly irregular and devoid of factual and legal basis; that the assessments imposed were excessive, oppressive, unconscionable, and arbitrary; and that the petitioners had no special power of attorney or authority, nor was there any agreement between the parties to that effect. For their part, the petitioners countered that the foreclosure was lawful pursuant to the Master Deed to which De Castro was bound as a unit owner; that the assessment was fair and reasonable because the rate used was the same applied to all condominium unit owners; and that De Castro was notified of the foreclosure proceedings but never made any opposition nor attended the foreclosure sale.

Sometime in February 1992, during the pendency of the case, De Castro died and was substituted by the Heirs of Cresenciano C. De Castro. The RTC found that De Castro was aware of his unsettled dues and penalties; that he could not deny being bound by the Master Deed, which gave authority to the petitioners to issue assessments against him for unpaid dues and penalties; that the By-Laws authorized the Board of Directors to enforce collection of unpaid assessments duly levied by any of the remedies provided by the Condominium Act and other pertinent laws, such as foreclosure; that the Master Deed was annotated on CCT No. 2826; and that the Master Deed and By-Laws constituted the contract between the unit owner and the condominium corporation. The RTC also noted Board Resolution No. 84-007, signed by De Castro as a member of the Board of Directors at that time, authorizing the foreclosure of condominium apartment units with unpaid or delinquent accounts and designating Arch. Eugenio Juan Gonzalez as attorney-in-fact for that purpose.

• Validity of Foreclosure Under the Master Deed: Petitioners maintained that the foreclosure was lawful pursuant to the Master Deed to which De Castro was bound as a unit owner.
• Reasonableness of Assessments: Petitioners averred that the assessment was fair and reasonable because the rate used in computing it was the same applied to all condominium unit owners.
• Notice and Non-Opposition: Petitioners asserted that De Castro was notified of the foreclosure proceedings but never made any opposition and did not attend the foreclosure sale.

• Lack of Legal Personality and Wrong Remedy: De Castro argued that petitioners had no legal personality to invoke the Condominium Act and should have availed of other remedies in law.
• Irregularity of Annotation and Foreclosure: De Castro argued that the annotation of assessment dues and certificate of sale, and the extra-judicial proceedings, were highly irregular and devoid of factual and legal basis.
• Excessive and Oppressive Assessments: De Castro argued that the assessments imposed were excessive, oppressive, unconscionable, and arbitrary.
• Absence of Special Authority: De Castro argued that petitioners had no special power of attorney or authority granted to them, nor was there any agreement between the parties to that effect.

• Authority to Extra-Judicially Foreclose: Whether the Court of Appeals erred in declaring the extra-judicial foreclosure proceeding null and void.

• Authority to Extra-Judicially Foreclose: Yes. The Court of Appeals erred. Petitioners had sufficient authority to extra-judicially foreclose under the Master Deed, the By-Laws, Board Resolution No. 84-007, and Section 20 of the Condominium Act; First Marbella was inapplicable because the foreclosure was not based solely on the annotated notice of assessment.

• Authority to Extra-Judicially Foreclose: The CA's conclusion that the extra-judicial foreclosure was null and void rested on First Marbella Condominium Association, Inc. vs. Gatmaytan, which held that a petition for extra-judicial foreclosure must be supported by evidence that the petitioner holds a special power or authority to foreclose; without such proof, the Clerk of Court as Ex-Officio Sheriff is precluded from acting. Section 20 of the Condominium Act provides that assessments made in accordance with a duly registered declaration of restrictions are the obligation of the unit owner and become a lien upon the condominium when registered, and that such liens may be enforced in the same manner provided by law for judicial or extra-judicial foreclosure of mortgage of real property. The provision does not itself grant authority to foreclose; it prescribes the procedure, which must comply with Section 1 of Act No. 3135, Circular No. 7-2002, and Supreme Court Administrative Matter No. 99-10-05-0. In First Marbella, the only basis for foreclosure was a mere notice of assessment annotated on the condominium certificate of title, and neither the annotation nor the law vested sufficient authority. Here, however, the foreclosure was not based merely on the annotated notice of assessment nor solely on the Condominium Act; it was also based on the Master Deed and the condominium corporation's By-Laws. The RTC found that Section 1, Article V of the By-Laws authorized the Board to assess penalties and expenses, and that Section 5, Article V of the By-Laws provided that upon a member's default in the payment of any assessment duly levied in accordance with the Master Deed and By-Laws, the Board of Directors may enforce collection by any of the remedies provided by the Condominium Act and other pertinent laws, such as foreclosure. The Master Deed was annotated on CCT No. 2826, and the Master Deed and By-Laws constituted the contract between the unit owner and the condominium corporation; as a unit owner, De Castro was bound by them. Under Section 20 of the Condominium Act and Section 5, Article V of the By-Laws, the assessments constituted a lien that could be enforced by judicial or extra-judicial foreclosure. Petitioners were therefore authorized to institute the foreclosure proceeding. This conclusion was reinforced by Board Resolution No. 84-007, signed by De Castro as a member of the Board of Directors, which authorized the President, Arch. Eugenio Juan Gonzalez, and/or the law offices of Siguion Reyna, Montecillo and Ongsiako, and/or whomsoever Gonzalez may appoint or designate, to effect foreclosure of condominium apartment units with unpaid or delinquent accounts; designated Gonzalez as attorney-in-fact for the purpose of foreclosure; and authorized him to execute and deliver documents necessary to give effect to that authority. The Court also relied on Wack Wack Condominium Corp. vs. Court of Appeals, where, in a similar case involving the same petitioners and another unit owner, it had ruled that the Condominium Act and the By-Laws recognize and authorize assessments upon a condominium unit to constitute a lien enforceable by judicial or extra-judicial foreclosure. Petitioners' authority to foreclose had thus long been established, and the CA erred in setting aside the foreclosure.

• Condominium assessment lien and foreclosure procedure — Under Section 20 of the Condominium Act (Republic Act No. 4726), assessments made in accordance with a duly registered declaration of restrictions are the obligation of the unit owner and, together with charges, become a lien upon the condominium when registered with the Register of Deeds. The lien may be enforced in the same manner provided by law for judicial or extra-judicial foreclosure of mortgage of real property. The provision prescribes the procedure but does not itself grant the management body authority to foreclose; the foreclosure must comply with Act No. 3135 and the related circulars requiring proof of special authority.
• Proof of special authority to extra-judicially foreclose — A petition for extra-judicial foreclosure must be supported by evidence that the petitioner holds a special power or authority to foreclose. Under First Marbella, without such proof, the Clerk of Court as Ex-Officio Sheriff is precluded from acting on the application. The authority may arise from the contract between the parties and the condominium's governing instruments, not only from the Condominium Act or a mere annotated notice of assessment.
• Master Deed and By-Laws as binding contract — The Master Deed with Declaration of Restrictions and the condominium corporation's By-Laws constitute the contract between the unit owner and the condominium corporation. A unit owner is bound by the rules and restrictions embodied in them pursuant to the Condominium Act. Where the By-Laws authorize the Board of Directors to enforce collection of unpaid assessments by any remedy under the Condominium Act and other pertinent laws, such as foreclosure, that authorization supports extra-judicial foreclosure.
• First Marbella distinction — First Marbella applies where the only basis for extra-judicial foreclosure is a mere notice of assessment annotated on the condominium certificate of title; neither the annotation nor the Condominium Act alone vests sufficient authority to foreclose. It does not apply where the foreclosure is also based on the Master Deed, the By-Laws, and a board resolution granting authority to foreclose.
• Board resolution as authority to foreclose — A board resolution of the condominium corporation authorizing its president or attorney-in-fact to effect foreclosure of units with unpaid or delinquent accounts may supply the special authority required for extra-judicial foreclosure, especially where the unit owner signed the resolution as a director.

• "such liens may be enforced in the same manner provided for by law for the judicial or extra-judicial foreclosure of mortgage or real property." — The Court quoted Section 20 of the Condominium Act to show that the provision prescribes the procedure for enforcing assessment liens but does not itself grant the management body authority to foreclose.
• "Without proof of petitioner's special authority to foreclose, the Clerk of Court as Ex-Officio Sheriff is precluded from acting on the application for extra-judicial foreclosure." — The Court cited First Marbella to state the proof requirement, then distinguished it from the present case.
• "In the case at bar, the foreclosure was not merely based on the the notice of assessment annotated on CCT No. 2826 nor solely upon the Condominium Act but also on the Master Deed and the condominium corporation's By-Laws." — This passage is the Court's distinction of First Marbella and its basis for finding sufficient authority to foreclose.
• "Clearly, petitioners were authorized to institute the foreclosure proceeding to enforce the lien upon the condominium unit." — The Court's conclusion after considering the Master Deed, the By-Laws, and Board Resolution No. 84-007.

• First Marbella Condominium Association, Inc. vs. Gatmaytan, 579 Phil. 432 (2008) — Cited by the CA as the basis for reversing the RTC; the Supreme Court distinguished it, holding that it applies where the only basis for foreclosure is a mere notice of assessment annotated on the certificate of title, unlike the present case where authority also arose from the Master Deed, By-Laws, and board resolution.
• Wack Wack Condominium Corp. vs. Court of Appeals, 290 Phil. 357 (1992) — A prior case involving the same petitioners and another unit owner; the Court relied on it to confirm that the Condominium Act and the By-Laws recognize and authorize assessments upon a condominium unit to constitute a lien enforceable by judicial or extra-judicial foreclosure.

• Section 20, Republic Act No. 4726 (Condominium Act) — Provides that assessments made in accordance with a duly registered declaration of restrictions are the obligation of the unit owner and, with charges, become a lien upon the condominium when registered with the Register of Deeds; such liens may be enforced in the same manner provided by law for judicial or extra-judicial foreclosure of mortgage of real property. The Court held that this provision prescribes the procedure but does not itself grant authority to foreclose.
• Section 1, Act No. 3135 — Prescribes the procedure for extra-judicial foreclosure of real properties subject to real estate mortgage and requires a special power inserted in or attached to the real estate mortgage. In relation to Circular No. 7-2002 and Supreme Court Administrative Matter No. 99-10-05-0, it requires that the petition for extra-judicial foreclosure be supported by evidence of special authority to foreclose.
• Circular No. 7-2002 — Guidelines for the Enforcement of the Supreme Court Resolution of December 14, 1999 in Administrative Matter No. 99-10-05-0, as amended; effective April 22, 2002. It requires that the special power of attorney authorizing the extra-judicial foreclosure be either inserted into or attached to the deed of real estate mortgage.
• Supreme Court Administrative Matter No. 99-10-05-0 — Re: Procedure in Extra-Judicial or Judicial Foreclosure of Real Estate Mortgage; effective January 15, 2000. Cited with Circular No. 7-2002 as requiring proof of special authority to foreclose.

Leonardo-De Castro (Acting Chairperson), Del Castillo, Jardeleza, and Gesmundo, JJ., concur.