Title
Zarate vs. Regional Trial Court of Kalibo, Aklan
Case
G.R. No. 102305
Decision Date
Oct 13, 1999
A dispute over property execution sale involving mortgaged land; DBP's foreclosure rendered the case moot, nullifying claims under E.O. No. 81.
execution sale
mortgaged property
attachment
A

Case Summary (G.R. No. 102305)

Factual Background

The record showed that, pursuant to the Iloilo RTC judgment in Civil Case No. 16131 in favor of Tomas Hautea against Francisco Zarate, the Provincial Sheriff of Iloilo, in coordination with the Provincial Sheriff of Aklan, sold on execution the subject parcel of land—Lot 2, Plan PSU-136835—registered under TCT No. 5143 in the name of the ZARATES.

As the one-year period of redemption was about to expire, the ZARATES filed Civil Case No. 4184 for annulment of the execution sale with damages against the HAUTEAS, the Sheriffs, and the Register of Deeds. The ZARATES argued that the property was exempt from attachment and execution because it had been mortgaged to DBP. They anchored this claim on Section 14 of E.O. No. 81 and on Supreme Court rulings recognizing the exemption for properties mortgaged to DBP.

The RTC issued a restraining order preventing, for a limited period, the HAUTEAS from consolidating title, taking possession, or alienating the property. DBP, seeking to protect its asserted interest, filed a complaint in intervention with a prayer for a writ of preliminary injunction. The court admitted DBP’s intervention.

Despite the restraining order and the pendency of the ZARATES’ action, DBP proceeded to foreclose extrajudicially the ZARATES’ mortgage and enforced its lien over the property. The case noted that DBP and its counsel could not be held in contempt because DBP’s extrajudicial foreclosure and public auction sale were allegedly authorized by P.D. 385 and by the parties’ mortgage agreement.

Developments in the Trial Court

After DBP foreclosed and the property was sold in the auction, the HAUTEAS moved to drop themselves as defendants and/or dismiss the complaints against them, alleging that DBP’s foreclosure rendered the execution-sale controversy moot and academic. DBP also moved to withdraw its complaint in intervention, and no party opposed this withdrawal. Separately, the ZARATES sought leave to amend their complaint, adding that, aside from the claimed exemption issue, the execution sale was invalid due to failure to comply with notice requirements under Section 18, Rule 39 of the Rules of Court and Section 1 of P.D. 1079.

On June 26, 1991, the RTC denied the motion to amend and dismissed the complaint. The RTC observed that the ZARATES’ original action was primarily premised on alleged violations of E.O. No. 81 and related statutory provisions. It then pointed out that during the pendency of the case DBP had already foreclosed the mortgage and sold the property at public auction, making DBP’s position untenable and leading DBP to withdraw its intervention. The RTC further reasoned that the provisions relied upon were intended to protect the interests of DBP as a government corporation and did not apparently apply to private plaintiffs, and that the complaint failed to state ultimate facts showing what legal rights of the ZARATES had been violated, or any specific acts or omissions constituting a violation.

The RTC concluded that the complaint stated no cause of action. It also held that the proposed amendment could not cure the defect.

The Petition and the Parties’ Positions

The ZARATES filed a petition for review on pure questions of law, assigning three errors related to: (i) the alleged standing of the ZARATES to invoke the exemption under E.O. No. 81; (ii) the alleged error in dismissing the complaint for failure to state a cause of action despite several alleged principal causes; and (iii) the denial of their motion to admit the amended complaint.

Both public and private respondents maintained that the case had become moot and academic because DBP’s foreclosure and sale nullified the earlier levy and subsequent sale in favor of the HAUTEAS, which was the relief prayed for by the ZARATES. They also argued that DBP, an indispensable party, had withdrawn its intervention without opposition, so any judgment would not bind DBP and would therefore be futile.

The ZARATES countered that the case was not moot because DBP had not yet consolidated ownership. They asserted that they filed a separate action against DBP for annulment of foreclosure and damages in Civil Case No. 4435 and that they made a consignation of the redemption price in escrow during the still-unexpired redemption period, thereby maintaining that they retained the right to redeem.

Mootness, Exemption, and the Indispensable Party Issue

The Court was not persuaded by the ZARATES’ attempt to defeat mootness based on the lack of consolidation of DBP’s ownership. It held that Section 14 of E.O. No. 81 provides that properties mortgaged to DBP are exempt from attachment, execution, or other court process. The Court reasoned that when DBP successfully foreclosed and caused the property to be sold while the ZARATES’ annulment case was pending, DBP effectively asserted the exemption granted by DBP’s charter. When DBP then withdrew its intervention without opposition, the petition became academic because any judgment in the annulment case could no longer bind DBP or be enforced against it.

The Court further emphasized that the HAUTEAS conceded DBP’s superior lien over the mortgaged property by acknowledging that DBP enforced its lien through foreclosure. Given the claimed exemption, the Court reasoned that the HAUTEAS’ certificate of sale could not prevail, and the ZARATES’ cause of action seeking annulment of the execution sale in favor of the HAUTEAS could no longer be pursued.

Self-Executing Nature of the Charter Exemption

The Court also characterized DBP’s right to claim the exemption under Section 14 of E.O. No. 81 as self-executing, stating that the exemption from attachment or execution arose from the mere execution of the mortgage in favor of DBP. It held that once DBP had effectively enforced that exemption, it was academic to rule on the validity of the execution sale involving the HAUTEAS, especially because the HAUTEAS themselves had conceded the superiority of DBP’s lien.

In the same vein, the Court found it unnecessary, at that stage, to determine whether the ZARATES had standing to invoke the exemption in favor of DBP. It stressed that once DBP withdrew its intervention, the trial court lost jurisdiction over DBP, and any ruling on whether the property was exempt from execution could not bind DBP.

Consequence of DBP’s Withdrawal: Failure to Join Indispensable Parties

The Court explained that the ZARATES and the HAUTEAS effectively conceded the dismissal because DBP was an indispensable party—a party without whom no final determination of the case could be had. Invoking the rule on indispensable parties under Rule 3, it held that a case cannot proceed unless indispensable parties are joined; if indispensable parties are not joined, the case must be dismissed.

The Court further noted that the validity of DBP’s foreclosure was already squarely raised in the separate case (Civil Case No. 4435) where DBP was impleaded, reinforcing wh

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