RIGHTS OF LESSEES AS THIRD PARTY IN A FORECLOSED PROPERTY

It was not a great day yesterday. I never thought that the unit we are leasing for our business and at the same time our residence will be taken by the bank, which we didn't know they are the new owner. The Writ of Possession, issued by the court was executed by the sheriff yesterday.

Last year, we leased a unit along Kamias Road, Quezon City to put up our business. It is a seven-unit property--four units are commercial/residential type, and the other three are residential only. Until last week when all of the tenants were served a five-day notice to vacate, the tenants had no knowledge that there has been a case regarding the property that we are leasing. All along during the period that the tenants leasing their units, the owner never informed about the court case.

Background of the Case. The property is now owned by a bank as decided by the court in a foreclosure suit. The owner, as I understand, made a loan at that bank and the collateral is the subject property. The owner defaulted in paying the loan so the bank instituted a foreclosure suit. The bank prevails in that case and as the highest bidder in the public auction, the property was awarded to the bank and at the same time transferred the ownership (by virtue of the new TCT). There were reconsiderations and appeals filed by the former owner and until recently the court issued a second writ of possession.

After the notice to vacate was served last week, the (former) owner told us that they were making steps to prevent the execution. So, as I have units in law, I am not yet a graduate, I researched about the rights of the lessees in this kind of case, as the lessees were in good faith as they were not aware of the case, and they had not defaulted in paying their rents, so what are their rights, I believe meron, we have the rights, as we are not involved in this case in the first place, in other words, Naiipit lang kami dito sa kaso na ito... I know that the Writ once issued, jt js ministerial on the part of the the sheriff to act on the writ, but there may be an exemption to this.

As it looks like the lessees are third parties in this case, I found cases, as decided by our Supreme Court, which have similarities in our situation, and enunciated the rights of lessees and the exemption to the ministerial duty of the sheriff to act on the writ of possession.


PNB vs. CA (G.R. 135219, January 17, 2002)

Sometime during the late 70s, the spouses Godofredo and Wilma Monsod obtained a loan from petitioner Philippine National Bank (PNB). To secure their loan, the Monsods mortgaged to PNB a parcel of land located in Parañaque.

Due to Monsods' failure to pay their loan obligation, PNB extrajudicially foreclosed the mortgage. At the auction sale of the subject real property, PNB was declared the highest bidder.

Upon expiration of the redemption period on July 12, 1985, ownership of the property was consolidated in PNB. Thereafter, TCT No. S-84843 was cancelled and TCT No. 99480 was issued in PNB's name.

On June 23, 1992, PNB filed an "Ex-Parte Petition for the Issuance of Writ of Possession." Pursuant to the provisions of Act No. 3135, as amended, the trial court conducted an ex parte hearing. PNB's representative testified that the foreclosed property is occupied by one Ernesto Austria.

On August 28, 1992, the trial court granted PNB's petition and a writ of possession was issued.

On December 11, 1992, respondents Ernesto and Loreto Quintana Austria filed a "Motion for Intervention and to Recall and/or Stop the Enforcement of the Writ of Possession." The Austrias alleged that they are the actual occupants of the subject lot, which they purportedly bought from the Monsods as early as 1974. PNB allegedly knew of this fact even before it granted the loan to the Monsods, because the bank's credit investigators were advised of the same when they inspected the property in the summer of 1976. Consequently, the Austrias maintained that the issuance of the possessory writ ex parte was improper, since it will deprive them of their property without due process.

The basic issue to be resolved in this case is whether or not an ex-parte writ of possession issued pursuant to Act No. 3135, as amended, can be enforced against a third person who is in actual possession of the foreclosed property and who is not in privity with the debtor/mortgagor.

Petitioner PNB submits that since it is the registered owner of the property, it is entitled to a writ of possession as a matter of right. The bank insists that it could rely on the title of the registered land which does not have any annotation of respondents' supposed rights.

Petitioner PNB likewise avers that the trial court could not now belatedly refuse to enforce the writ of possession against respondents. The trial court had already issued a total of four possessory writs directing the ouster of all occupants of the lot, including respondents herein.

On the other hand, respondents assert that the trial court correctly held that the writ of possession can only be implemented against the debtor/mortgagor and his successors-in-interest. Since respondents acquired their rights as owners of the property by virtue of a sale made to them by the Monsods prior to the bank's mortgage lien, respondents can not be dispossessed therefrom without due notice and hearing, through the simple expedient of an ex-parte possessory writ.

Supreme Court's Ruling
We agree with respondents (the Austrias). Under applicable laws and jurisprudence, they can not be ejected from the property by means of an ex-parte writ of possession.

The operative provision under Act No. 3135, as amended,25 is Section 6, which states:

Sec. 6. Redemption. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of section four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. (Italics ours)

Despite the evolutionary development of our procedural laws throughout the years, the pertinent rule in the Code of Civil Procedure26 remains practically unchanged. Particularly, Rule 39, Section 33, second paragraph, which relates to the right of possession of a purchaser of property in an extrajudicial foreclosure sale:

Sec. 33. x x x

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property at the time of levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor. (Italics ours)

"Thus, in Barican v. Intermediate Appellate Court, we held that the obligation of a 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. The same principle was inversely applied in a more recent case, where we ruled that a writ of possession may be issued in an extrajudicial foreclosure of real estate mortgage, only if the debtor is in possession and no third party had intervened. Although the factual nuances of this case may slightly differ from the aforecited cases, the availing circumstances are undeniably similar – a party in possession of the foreclosed property is asserting a right adverse to the debtor/mortgagor and is a stranger to the foreclosure proceedings in which the ex-parte writ of possession was applied for.

It should be stressed that the foregoing doctrinal pronouncements are not without support in substantive law. Notably, the Civil Code protects the actual possessor of a property, to wit:

Art. 433. 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.

Under the aforequoted provision, one who claims to be the owner of a property possessed by another must bring the appropriate judicial action for its physical recovery. The term “judicial process” could mean no less than an ejectment suit or reinvindicatory action, in which the ownership claims of the contending parties may be properly heard and adjudicated.

An ex-parte petition for issuance of a possessory writ under Section 7 of Act No. 3135 is not, strictly speaking, a “judicial process” as contemplated above. Even if the same may be considered a judicial proceeding for the enforcement of one’s right of possession as purchaser in a foreclosure sale, it is not an ordinary suit filed in court, by which one party “sues another for the enforcement or protection of a right, or the prevention or redress of a wrong.” It should be emphasized that an ex-parte petition for issuance of a writ of possession is a non-litigious proceeding authorized in an extrajudicial foreclosure of mortgage pursuant to Act 3135, as amended. Unlike a judicial foreclosure of real estate mortgage under Rule 68 of the Rules of Court, any property brought within the ambit of the act is foreclosed by the filing of a petition, not with any court of justice, but with the office of the sheriff of the province where the sale is to be made.

As such, a third person in possession of an extrajudicially foreclosed realty, who claims a right superior to that of the original mortgagor, will have no opportunity to be heard on his claim in a proceeding of this nature. 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.

Besides, as earlier stressed, Article 433 of the Civil Code, cited above, requires nothing less than an action for ejectment to be brought even by the true owner. After all, the actual possessor of a property enjoys a legal presumption of just title in his favor, which must be overcome by the party claiming otherwise.

In the case at bar, petitioner PNB admitted that as early as 1990, it was aware that the subject lot was occupied by the Austrias. Yet, instead of bringing an action in court for the ejectment of respondents, it chose to simply file an ex-parte petition for a writ of possession pursuant to its alleged right as purchaser in the extra-judicial foreclosure sale. We cannot sanction this procedural shortcut. To enforce the writ against an unwitting third party possessor, who took no part in the foreclosure proceedings, would be tantamount to the taking of real property without the benefit of proper judicial intervention.

Consequently, it was not a ministerial duty of the trial court under Act No. 3135 to issue a writ of possession for the ouster of respondents from the lot subject of this instant case. The trial court was without authority to grant the ex-parte writ, since petitioner PNB’s right of possession under said Act could be rightfully recognized only against the Monsods and the latter’s successors-in-interest, but not against respondents who assert a right adverse to the Monsods.

Hence, the trial court cannot be precluded from correcting itself by refusing to enforce the writs it had previously issued. Its lack of authority to direct issuance of the writs against respondents assured that its earlier orders would never attain finality in the first place." (PNB v. CA ,G.R. No. 135219, January 17, 2002)


GADIL, complainant, vs. CORDOVA, Sheriff IV, respondent
(A.M. No. P-04-1832, February 23, 2005)

In 1996, complainant purchased Unit 9 of Trinar Townhouse on installment from Trinidad dela Cruz, President of Trinar Development Corporation. The complainant and her family occupied the unit in the same year.

In 2003, the complainant was informed that a Writ of Possession and Notice to Vacate were served by the respondent on the other unit owners of Trinar Townhouse. The writ was issued by the RTC Las Piñas City in LRC Case No. LP-02-0065 entitled "In Re: Ex-Parte Petition for Issuance of a Writ of Possession Under Act No. 3135, As Amended By Act No. 4118, Trinar Development (Spouses Deogracias Aranda and Perpetua Aranda), Union Bank of the Philippines, Petitioner."

Complainant subsequently learned that the unit she purchased was one of the townhouses sought to be recovered by Union Bank from Spouses Deogracias and Perpetua Aranda. On January 23, 2003, the complainant sent a letter to the respondent through her lawyer to inform him that: 1) the Writ of Possession and Notice to Vacate which were addressed to spouses Deogracias and Perpetua Aranda were not binding on the Complainant as she was not a party to the transaction between the spouses Aranda and Union Bank; 2) the Complainant did not derive ownership over Unit 9 of Trinar Townhouse from the spouses Aranda; and 3) there is a pending case filed at the HLURB by the unit owners against Union Bank.

Despite the complainant's letter, respondent visited the complainant's residence on January 24, 2003 together with Union Bank's representative, security guards, a barangay official and some armed men. After reaching the residence, the respondent ordered the complainant to vacate and surrender possession of the townhouse unit.

The complainant informed respondent that she had already paid for the unit and pleaded for mercy since she and one of her children were suffering from fever. She requested that she be given sufficient time to verify why she was being ousted from her home. Respondent agreed to leave her after the complainant signed a paper stating that she was to vacate the townhouse on January 27, 2003.

Thereafter, complainant filed a motion to issue a cease and desist order with the HLURB. She also sent a letter to respondent requesting for the deferment of their eviction. Despite this, the respondent proceeded with the eviction and padlocked her house on January 27, 2003.

A cease and desist order was issued by the HLURB on January 31, 2003.

On January 31, 2003, complainant filed with the Las Piñas RTC an Opposition to an ex-parte Motion (For Issuance of a Break-Open Order) with a supplemental motion to quash the writ of possession issued by it. On February 3, 2003, the RTC of Las Piñas City, acting on complainant's Opposition, declared the writ of possession it issued as unenforceable against complainant. The court observed that the complainant was a third person in actual possession of the foreclosed property and not in privity with Trinar Development Corporation and spouses Aranda. The court concluded that the complainant could not be ejected from the property by means of an ex-parte writ of possession as this would violate her right to due process.

Supreme Court's Ruling
While the respondent correctly asserts that it is his(sheriff) ministerial duty to act on a writ of execution, this duty has its limitations. As ruled in Casano v. Magat, a sheriff ought to know what is inherently right and inherently wrong. In that case, the judgment debtor's lawyer informed the sheriff that the mortgage contract omitted to contain a stipulation authorizing the judgment creditor to extrajudicially foreclose the property. Despite the complainant's protestations, the sheriff proceeded with the extrajudicial foreclosure sale. The Court determined that the sheriff was administratively liable and pointed out that, though the issue may have been too technical for the sheriff to decide on the spot, it would have been prudent for him to have brought the protest to the attention of the court concerned. We likewise declare that the respondent's carrying out the writ of execution despite the complainant's assertions without bringing the matter to the attention of the issuing judge constitutes simple misconduct. Indeed, the respondent forgets that he must not only act with promptness in implementing a writ of execution but must also perform this duty with the prudence, caution and attention that careful men usually exercise in the management of their affairs.

IN VIEW WHEREOF, respondent Ronald C. Cordova is found GUILTY of simple misconduct and is hereby ORDERED to pay a fine with a WARNING that commission of the same or similar act in the future will be dealt with more severely.

UY v. LAND BANK ( G.R. No. 136100. July 24, 2000)

In the case, Land Bank filed before the MTCC a complaint for unlawful detainer against Felipe Uy. The bank claimed ownership of two parcels of land and sought the ejectment of petitioner, the occupant of the premises.

The properties were originally owned by a certain Tia Yu. Tia Yu, through a special power of attorney, authorized Gold Motors Parts Corporation to mortgage the same as security for a loan extended by the bank to Gold Motors. Gold Motors mortgaged the properties to Land Bank but it eventually defaulted on the loan, prompting Land Bank to initiate foreclosure proceedings. The highest bidder in the foreclosure sale, Land Bank was subsequently issued a certificate of sale in its favor. The defendant, Felipe Uy, averred that he furnished Tia Yu the materials used to construct the house on the land but Tia Yu failed to pay fully for the value of said materials. Thus, he and Tia Yu agreed that the former shall occupy the house and apply the rent as payment to the balance of Tia Yu’s debt amounting to P400,000.00. The terms of their agreement were later put into writing in a Lease Contract. On March 31, 1989, the MTCC rendered a decision finding in Uy’s favor. The court found that at the time the mortgage was constituted the bank was aware that petitioner was leasing the property.

The Supreme Court says "In respect of the lease on the foreclosed property, the buyer at the foreclosure sale merely succeeds to the rights and obligations of the pledgor-mortgagor subject to the provisions of Article 1676 of the Civil Code on its possible termination.This article provides that:

“[t]he purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease.” In short, the buyer at the foreclosure sale, as a rule, may terminate an unregistered lease except when it knows of the existence of the lease.

The MTCC in this case found it difficult to believe that respondent did not know of the existence of the lease since it was the bank’s practice to conduct periodic inspections on the property.

The only conclusion that can be drawn from the foregoing is that Land Bank knew of the lease and, under Article 1676 of the Civil Code, it may not terminate the same.

The rights, therefore, acquired by the defendant as lessee of the estate above referred to, which were known to the estate above referred to, which were known to the plaintiff at the time of purchasing it, cannot be prejudiced, as they cannot be affected by such a transfer.

The plaintiff is not, therefore, entitled to terminate the lease in question, and having been subrogated into the legal situation of the lessor, created by the contract of lease which was known to [plaintiff], it is [plaintiff’s] duty to respect it in toto.

The issuance of the Transfer Certificates of Title (TCT) over the properties in respondent's name does not entitle it to disregard the lease. A TCT is mere evidence of ownership, and ownership may be subjected to limitations imposed by law, in this case, by Article 1676 of the Civil Code."

I believe as innocent lessees in this case, we have some rights, but unfortunately the sheriff and the bank decided to enforce the writ, so the tenants had nothing to do but to vacate their units.

Luckily, we found a new unit just beside the property to continue our life, but we cannot immediately move since it needs to be cleaned and to construct some little details in the house, maybe after two days we can move to the new rented unit.

For the meantime, the bank allowed us to stay in our current unit which the bank now possessed, since we have business, and we informed the bank and showed the new unit to them on the same day the writ was executed, but some of our things ay nasa labas na hindi binalik nung pinapavacate na yun mga tenants. Tomorrow may be we can transfer to the new unit, hopefully.