Title
Spouses Malonzo vs. Mariano
Case
G.R. No. L-53998
Decision Date
May 31, 1989
Foreclosed property occupants, claiming lease rights, contested writ of possession; SC ruled in favor of purchaser, affirming absolute right to possession post-redemption.
foreclosure
writ of possession
verbal lease contract
A

Case Summary (G.R. No. L-53998)

Mortgage, Extra-Judicial Foreclosure, and Issuance of the Writ of Possession

Universal Ventures, Inc. failed to repay its loan. Consequently, Banco Filipino caused the extra-judicial foreclosure to proceed through the City Sheriff of Manila. The foreclosure sale was held in due course. The mortgaged property was struck off to the bank as the highest bidder. After registration of the sheriff’s certificate of sale, the bank obtained a certificate of title on July 27, 1976, numbered 122496, in its name, and the mortgagor’s title was cancelled.

On the same day title was issued, Banco Filipino filed a petition for a writ of possession with the Court of First Instance of Manila, invoking Section 7 of Act No. 3135. The petition alleged that (1) Universal Ventures, Inc. did not redeem within the one-year period allowed by law, and (2) the mortgagor remained in possession together with certain other persons claiming rights under it, including petitioners Avelina Malonzo, Barbara Brown, and Bonifacia Monzon. The petition prayed that, after notice and hearing, the court issue a writ directing issuance against the respondent and all persons claiming under Universal Ventures, Inc. The petition contained a notification addressed to the Clerk of Court to set the hearing on July 30, 1976 at 9:00 in the morning, and copies were served on Universal Ventures, Inc. and on the persons alleged to be claiming rights under it.

After hearings, Judge Herminio Mariano issued an order on September 20, 1979 directing the issuance of the writ of possession. The writ was issued on March 4, 1980, and on its strength the sheriff attempted to evict occupants of the property.

The Occupants’ Responses: Civil Case for Restraint and the Prohibition Petition

Three of the persons to be evicted—Enrico Malonzo, Barbara Brown, and Bonifacia Monzon—together with the inclusion of Avelina Malonzo in the subsequent filing, brought litigation aimed at stopping enforcement. They filed suit in the same Court of First Instance of Manila against Banco Filipino and the City Sheriff, seeking to perpetually restrain the enforcement of the writ of possession and to recover damages. The case was docketed as Civil Case No. 132075. In their complaint, they asserted that they occupied their respective premises under a verbal lease contract with Universal Ventures, Inc. They also alleged that they were not parties to the writ proceeding and that an ejectment case had not been filed against them. They invoked Presidential Decree No. 20 and Batas Pambansa Blg. 25, contending that transfer of ownership by virtue of sale or mortgage was not a ground for ejectment.

Fourteen days later, these same persons—Enrico Malonzo, Barbara Brown, and Bonifacia Monzon—together with Enrico’s wife, Avelina Malonzo, instituted a second action. This time it was a special civil action for prohibition, commenced by petition dated June 6, 1980 in the Supreme Court. Respondents were Banco Filipino, the City Sheriff, and Judge Mariano who issued the writ. The petition reiterated the same thesis advanced in Civil Case No. 132075: petitioners could not be evicted because no ejectment case had been filed against them and because they were allegedly not made parties to the petition for writ of possession. They also reiterated that under Presidential Decree No. 20 and Batas Pambansa Blg. 25, transfer of ownership by sale or mortgage was not a ground for ejectment.

Core Issue Presented

The principal issue raised by the petition for prohibition was whether a writ of possession issued under Act No. 3135, in accordance with Section 7, to carry out an extra-judicial foreclosure sale, may be enforced by the sheriff against persons other than the mortgagor.

Stated differently, the Court confronted the question whether the sheriff could execute a writ of possession not only against the mortgagor, but also against occupants who claimed rights derived from the mortgagor and were not parties to an independent ejectment proceeding.

Petitioners’ Position

Petitioners maintained that they could not be ousted under the writ of possession because (1) no ejectment case had been filed against them and (2) they were not made parties to Banco Filipino’s petition for the writ of possession. They further argued that Presidential Decree No. 20 and Batas Pambansa Blg. 25 barred ejectment based on transfer of ownership brought about by sale or mortgage, thereby implying that execution of the writ of possession against them would violate those enactments.

Respondents’ Position and the Statutory Right to Possession After Redemption

Banco Filipino’s right to possession, as framed in the decision, followed from Section 7 of Act No. 3135. The Court emphasized that the petitioners did not dispute that no redemption had been made within one year from the registration of the extra-judicial foreclosure sale. Given the lapse of the redemption period, the Court treated the bank as having an absolute right to possession during and after redemption, and, after the expiration of the redemption period without redemption, the writ of possession could issue as the final process to consummate the foreclosure. In the Court’s view, issuance could be done on motion without need of a separate action for possession.

The remaining question was not whether the writ could issue, but whether it could be enforced against petitioners, who were occupants of the property at the time the sheriff attempted to evict them.

The Court’s Reasoning on Enforcement Against Persons Other Than the Mortgagor

The Court held that the writ of possession issued in an extra-judicial foreclosure could be enforced against persons other than the mortgagor, subject to the recognized exception that a third person is actually holding the property adversely to the mortgagor. This reasoning was anchored on the Court’s prior construction of Act No. 3135 in relation to Section 35, Rule 39 of the Rules of Court, which supplied the mechanism for possession after redemption.

The Court reiterated that, under Section 6 of Act No. 3135 and Sections 29 to 31 and Section 35 of Rule 39, after the redemption period expired, possession of property sold at an extra-judicial foreclosure could be given to the purchaser by the sheriff unless a third party was actually holding the property adversely to the mortgagor. The Court stressed that there was no requirement in this jurisdiction that the purchaser institute a separate and independent action for possession after the one-year period had elapsed and the sheriff’s final certificate of sale had been obtained.

The Court also reasoned that if the court could issue a writ of possession during the redemption period, there was no reason to deny the same power after the expiration of that period.

Applying these principles, the Court determined that petitioners could not be considered third parties actually holding the property adversely to the mortgagor. The Court found that petitioners derived their possessory rights exclusively from the mortgagor through verbal lease arrangements. They had been lessees at the time the property was mortgaged by their lessor to Banco Filipino. Because the mortgage was registered, the Court imputed constructive knowledge to them. Their rights were therefore limited to being notified of the application for a writ of possession and being accorded an opportunity to oppose it by showing that they were actually holding adversely.

The Court concluded that petitioners were accorded that procedural opportunity. Their right

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