Spouses Gallent vs. Velasquez

Factual Background

The Spouses Gallent owned a residential parcel covered by TCT No. S-99286 and mortgaged the property to Allied Bank as security for a loan. After default, Allied Bank foreclosed extrajudicially, became the highest bidder, and consolidated title for failure to redeem. Allied Bank later agreed to sell the property back to the Spouses Gallent under an Agreement to Sell in which the spouses paid a substantial down payment and remained in possession as tenants or lessees. The Spouses Gallent subsequently executed a Deed of Assignment of Rights in favor of their friend Velasquez, who paid the remaining balance claimed due Allied Bank, and Allied Bank then executed deeds transferring title to Velasquez, culminating in issuance of TCT No. 11814 to Velasquez.

RTC Proceedings on Writ of Possession

Velasquez filed an ex parte petition for a writ of possession in the RTC of Muntinlupa City. The Spouses Gallent opposed and sought to intervene and dismiss, but the RTC denied their motions, treated them as oppositors, and ruled that issuance of the writ was a ministerial duty upon proof of title and filing of the proper application. The RTC thereafter granted Velasquez’s petition and ordered issuance of the writ of possession.

Subsequent Civil Action by the Spouses Gallent

While the writ proceedings were pending, the Spouses Gallent filed Civil Case No. 10-102 in the RTC seeking reformation of instruments, annulment of TCT No. 11814, consignation, and damages, alleging that the Deed of Assignment to Velasquez was, in truth, an equitable mortgage and that the transfer to Velasquez involved forgery or irregularity; they sought injunctive relief to prevent Velasquez from taking possession.

Conflicting Decisions of the Court of Appeals

Two divisions of the Court of Appeals reached opposite conclusions on whether an ex parte writ of possession could issue to Velasquez. The CA 10th Division held that Velasquez, as transferee of Allied Bank, stepped into the bank’s shoes and could obtain an ex parte writ of possession because Allied Bank had acquired title by foreclosure and the spouses had assigned their rights. The CA Special 4th Division relied on Mendoza v. Salinas and held that an ex parte writ could not issue where the possessors were in actual possession under a claim of ownership adverse to the applicant; the Special 4th Division concluded that the Spouses Gallent were such adverse possessors and that Velasquez must seek an ordinary action for recovery of possession.

Issue Presented

The dispositive legal question was whether an RTC may validly issue an ex parte writ of possession to a transferee who purchased the foreclosed property indirectly from the mortgagee-purchaser after consolidation of title, when the former owner remains in possession and claims rights that may be adverse to the transferee.

Parties’ Contentions

The Spouses Gallent argued that the RTC lacked jurisdiction to issue an ex parte writ to Velasquez because he did not acquire title at the foreclosure sale but purchased from Allied Bank after consolidation, that Allied Bank and the spouses had become vendor and vendee-lessees under the Agreement to Sell, that Velasquez should have sought ejectment or reivindicatory relief, and that the spouses’ substantial payments and ongoing possession rendered the deed to Velasquez effectively an equitable mortgage. Velasquez contended that Allied Bank, as foreclosure purchaser, was entitled to a writ of possession as a matter of right after consolidation and that he, as transferee, acquired Allied Bank’s rights and thus could petition ex parte for a writ without notice.

Supreme Court’s Ruling

The Court granted the petition filed by the Spouses Gallent (G.R. No. 203949) and denied the petition filed by Velasquez (G.R. No. 205071). The Court set aside the decision of the CA 10th Division and affirmed the decision of the CA Special 4th Division. The Supreme Court held that an ex parte writ of possession could not be summarily issued against the Spouses Gallent under the facts of the case.

Legal Basis and Reasoning

The Court reaffirmed the general rule that, after consolidation of title in a purchaser at an extrajudicial foreclosure, issuance of a writ of possession is ordinarily a ministerial duty of the court upon an ex parte application, as provided by Section 7 of Act No. 3135, and consistent with jurisprudence recognizing the purchaser’s jus possidendi as an incident of ownership. The Court then explained the well-established exception: the ministerial duty ceased when the property was in the actual possession of a third party who held it under a claim of title adverse to the applicant, because actual possession under a claim of ownership raises a disputable presumption of ownership and requires judicial process for recovery. The Court surveyed applicable authorities, including the extension of Section 33, Rule 39 to extrajudicial foreclosure under Section 6 of Act No. 3135, and decisions that require a hearing where adverse possession by a third party is shown. Applying these principles, the Court examined the character of the Spouses Gallent’s transaction with Velasquez. The Court found that the substantial payments by the Spouses Gallent toward the repurchase price—P3,790,500.00 out of P4,000,000—coupled with their continued possession and the circumstances of the transfer, gave rise to the legal presumption under Article 1602 of the New Civil Code that the instrument of assignment operated as an equitable mortgage rather than an outright transfer. The Court reasoned that when the vendor remains in possession and the price is