TL;DR

In foreclosure cases, when a property purchaser consolidates ownership, the court’s duty to issue a writ of possession is generally ministerial, meaning it must be carried out without discretion. This case clarifies that a claim by a supposed ‘third party’ to the property does not automatically halt this ministerial duty unless that party holds possession truly adverse to the original debtor, like a co-owner or tenant in their own right. A beneficiary of a trust, whose claim derives from the debtor-trustee, does not qualify as an adverse third party. This ruling reinforces the rights of purchasers in foreclosure sales to obtain possession swiftly, preventing delays from unsubstantiated third-party claims and ensuring efficiency in property recovery after foreclosure.

Trustee’s Mortgage, Beneficiary’s Burden: When a Trust Fails to Shield Foreclosed Property

This case, Integrated Credit and Corporate Services, Co. vs. Novelita Labrador and Philippians Academy of Parañaque City, revolves around a petition for a writ of possession, a legal order compelling the surrender of property to its rightful owner. The petitioner, Integrated Credit, sought this writ after purchasing foreclosed properties previously owned by Novelita Labrador. Labrador had mortgaged these properties to Chinatrust bank, which later foreclosed due to non-payment. Integrated Credit emerged as the highest bidder at the foreclosure sale and consolidated its ownership after Labrador failed to redeem the properties within the legal timeframe. However, Philippians Academy, claiming to be the true owner through a Declaration of Trust executed by Labrador, opposed the issuance of the writ, arguing they were a third party with adverse rights.

The central legal question before the Supreme Court was whether the lower courts erred in denying Integrated Credit’s petition for a writ of possession. The Court of Appeals had dismissed Integrated Credit’s appeal, deeming the lower court’s order interlocutory and the appeal an improper remedy. Integrated Credit argued that the Regional Trial Court’s (RTC) dismissal of their petition was a final order and that the issuance of a writ of possession was a ministerial duty given their consolidated title. They contended that Philippians Academy did not qualify as a third party with rights adverse to the mortgagor, Labrador.

The Supreme Court first addressed the procedural issue, clarifying that the RTC order was indeed interlocutory, as it did not fully resolve the parties’ rights and contemplated further proceedings. Generally, appeals are not allowed for interlocutory orders, and the proper remedy would be a petition for certiorari. However, recognizing the interests of substantial justice and noting the RTC’s flawed reasoning, the Court opted to relax procedural rules and address the merits of the case. This underscored a crucial point: while procedural rules are important, they should not obstruct the pursuit of justice, especially when errors are evident.

Turning to the substantive issue, the Court reiterated the principle that after consolidation of ownership following a foreclosure sale, the issuance of a writ of possession becomes a ministerial duty of the court. This duty stems from the purchaser’s established right of ownership, as evidenced by the consolidated title. Act No. 3135, the governing law for extrajudicial foreclosures, and jurisprudence firmly establish this ministerial nature. The Court cited previous rulings emphasizing that once title is consolidated, the purchaser is entitled to possession as a matter of course. This ministerial duty, however, is not absolute.

Jurisprudence has carved out exceptions where the ministerial duty to issue a writ of possession ceases. One key exception is when a third party is holding the property adversely to the judgment debtor or mortgagor. Philippians Academy invoked this exception, claiming their Declaration of Trust established them as the true owners, independent of Labrador. However, the Supreme Court rejected this argument. The Court clarified that an adverse third party must possess the property in their own right, such as a co-owner, tenant, or usufructuary – individuals with independent legal bases for possession, not merely derived from the mortgagor. The Court emphasized that a beneficiary of a trust, in this context, does not hold possession adversely to the trustee, especially when the trust arrangement is intertwined with the mortgage itself.

Crucially, the Court noted that Philippians Academy’s claim was based on a Declaration of Trust executed shortly after the Real Estate Mortgage (REM). Furthermore, the academy admitted that the loan secured by the REM partly funded the property acquisition, directly benefiting from Labrador’s actions as trustee. The trust deed was not registered, failing to bind third parties like Integrated Credit. The Court reasoned that Philippians Academy, as a beneficiary, essentially stood in Labrador’s shoes and was bound by her actions, including the mortgage. Absent any allegations of fraud or breach of fiduciary duty by Labrador in securing the loan and mortgage, the academy could not claim adverse possession to thwart the writ of possession.

The Supreme Court concluded that Philippians Academy was not a truly adverse third party but rather a successor in interest to Labrador, bound by her mortgage obligations. Therefore, the RTC erred in denying the writ of possession. The ruling underscores the limited scope of the third-party exception to the ministerial duty of issuing writs of possession and reinforces the rights of foreclosure sale purchasers to promptly obtain possession, preventing potential abuse of trust arrangements to circumvent foreclosure proceedings. The decision serves as a reminder that courts must diligently assess claims of adverse possession to ensure they are genuinely independent and not merely attempts to frustrate the lawful rights of purchasers in foreclosure sales.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Integrated Credit and Corporate Services, Co. vs. Novelita Labrador and Philippians Academy of Parañaque City, G.R. No. 233127, July 10, 2023