G.R. No. L-22958 - Rodriguez vs. Reyes

A petition for certiorari was filed by some of the children of the deceased spouses, Donato Benipayo, Jr. and Pura Disonglo, seeking relief from an order issued on April 28, 1964, by Judge Juan O. Reyes of the Manila Court of First Instance, Branch XXI.
The dispute arose from a partition case involving the common properties of the heirs, initially filed under Civil Case No. 52188.

During a pre-trial conference in a partition suit against their brother, respondent Alberto D. Benipayo, the parties agreed to sell the properties at public auction.
The properties included several lots in Albay and notably two parcels of land with improvements in Manila, which were subject to a mortgage with the Development Bank of the Philippines (DBP).
Specific details of the Manila properties were:

The mortgage on these properties had an outstanding balance of approximately P50,000.00 (with later references to a balance of P37,121.76).

The respondent judge first approved the auction sale of properties in Albay and, after their consummation, directed the sale of the Manila lots and improvements.
Notice of the auction was duly posted and published, with explicit warnings that the properties were encumbered by a valid mortgage and that prospective buyers should investigate the titles and any encumbrances.
During the auction held on March 30, 1964:

Respondent Jose N. Dualan successfully bid P235,000.00 for Lot No. 6-B-2 (TCT No. 48979).
Respondent Vicente Sayson’s bid of P173,000.00 was determined to be the highest for Lot No. 6-A (TCT No. 48978).

Petitioners objected to the sale, moved for its postponement citing their inability to participate actively, but their motion was overruled.

After the sheriff filed his return, petitioners moved for the approval of the sale, proposing deductions for the sheriff’s commission and publication expenses.
Respondents (including Alberto Benipayo and Dualan) countered:

They prayed for the court to order the payment of the mortgage debt from the sale proceeds.
They requested that the sheriff issue a certificate of sale in favor of Dualan free from all liens.
They also sought payment of a share of the proceeds (1/12) to respondent Benipayo after paying the mortgage.

The respondent judge, amid doubts regarding who should discharge the mortgage, suggested a re-bidding with the condition that the heirs assume the mortgage obligations, a proposal not accepted by the buyers.
On April 28, 1964, the judge issued an order approving the sheriff’s reports with conditions:

The vendors (heirs) were to clear the properties of all pre-existing encumbrances.
Real estate taxes, being charges on properties rather than encumbrances, were to be borne by the owner as they became due.

Petitioners’ motion for reconsideration of the April 28 order was denied, leading to the filing of the petition for certiorari.
Later, along with respondents Vicente Sayson and Alberto Benipayo, a compromise agreement was reached on May 8, 1970, which cancelled the sale of Lot No. 6-A (TCT No. 48978) against Sayson.
By June 30, 1970, the Court rendered a partial decision approving the compromise and dismissing the case as against Sayson, leaving respondent Jose N. Dualan as the remaining party.

Petitioners argued that, by invoking the doctrine of caveat emptor, respondent Dualan bought the property at his own risk and should assume responsibility for the mortgage debt.
They claimed that since Dualan was aware of the existing mortgage on the property, the established rule of caveat emptor should mandate that he discharge the mortgage obligation.

The doctrine of caveat emptor in its strictest form applies to execution sales—not to these kinds of auction sales.
The buyer, having full notice of the encumbrance, simply accepts the property subject to the mortgage.

The court highlighted that the mortgage remains as an accessory undertaking, and unless there is a stipulated assumption of debt, the principal obligors (the original mortgagors or their heirs) remain liable.
Reference was made to Civil Code provisions (notably Article 1293) that clearly require the creditor's consent for substituting the debtor.

Whether the purchaser, respondent Dualan, who bid on and acquired the property with full knowledge of the mortgage, assumed the obligation to discharge the mortgage debt by operation of the doctrine of caveat emptor.

Whether the trial court erred in ordering that the vendors (the petitioners-heirs) clear the property of its mortgage encumbrance despite the buyer’s notice and understanding during the auction sale.

Whether the absence of a meeting of the minds among the parties regarding the discharge of the mortgage debt necessitated a re-bidding of the property.

Whether the participation of Atty. Ambrosio Padilla in the auction—while acting as counsel for respondent Benipayo and representing respondent Dualan—constituted a ground for annulling the sale, particularly if it caused any prejudice to the petitioners.