Writ of Possession Denied When Third Party Holds Property Adversely to Mortgagor

The Supreme Court has ruled that a bank that forecloses on a property cannot automatically obtain a writ of possession when a third party is holding the property under a claim of ownership adverse to the mortgagor. In Bank of the Philippine Islands v. Icot (G.R. No. 168061, October 12, 2009), the Court denied BPI's petition for a writ of possession, affirming that the remedy is not ministerial when third-party rights are involved.

The case clarifies an important exception to the general rule on writs of possession in extrajudicial foreclosures and underscores the protection given to actual possessors of property.

The Facts of the Case

In 1976, spouses Vicente and Trinidad Velasco obtained a P50,000 loan from BPI, secured by a real estate mortgage over a parcel of land in Liloan, Cebu, covered by TCT No. 675 in Vicente Velasco's name. The spouses failed to pay, and BPI foreclosed the mortgage. At the auction sale in 1979, BPI was the highest bidder. After the spouses failed to redeem the property, BPI consolidated ownership and was issued TCT No. P-1619 in 1982.

Meanwhile, Teofilo Icot and the heirs of Genaro and Felimon Icot claimed they had been in quiet, open, and continuous possession of the property, which they allegedly acquired from their father through an extrajudicial settlement of estate in 1964. Upon learning of the mortgage, they filed cases for quieting of title against Velasco.

In 1986, the parties entered into a Compromise Agreement where Velasco recognized the respondents' ownership and title over the property. Velasco admitted he had purchased the property "unknowing that it had already been partitioned" and had mortgaged it in good faith, "without in the least intending to prejudice anyone."

In 1988, BPI and Velasco entered into a Contract to Sell for the property at P60,387, but Velasco failed to pay, and BPI cancelled the contract. In 1999, BPI filed a petition for a writ of possession with the RTC of Mandaue City.

The Issue

The sole issue was whether BPI was entitled to a writ of possession of the subject property.

The Court's Ruling

The Supreme Court denied BPI's petition, affirming the Court of Appeals' reversal of the RTC's grant of the writ.

The Court explained that a writ of possession may be issued in three instances: (1) land registration proceedings; (2) judicial foreclosure; and (3) extrajudicial foreclosure under Act 3135. This case involved the third instance.

Under Act 3135, a writ of possession may be issued either within the one-year redemption period (upon filing a bond) or after the redemption period lapses (without a bond). This right is founded on the purchaser's ownership of the property bought at auction.

However, the Court noted an exception under the Rules of Court, which provides that possession shall be given to the purchaser unless a third party is actually holding the property adversely to the judgment obligor. The exact provision is not available in the ASG law library, but the principle is well-established in jurisprudence.

Citing Development Bank of the Philippines v. Prime Neighborhood Association and Philippine National Bank v. Court of Appeals, the Court reiterated that the duty to issue a writ of possession ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the debtor/mortgagor.

The Court also cited Article 433 of the Civil Code, which states that actual possession under a claim of ownership raises a disputable presumption of ownership, and the true owner must resort to judicial process for recovery. An ex parte petition for a writ of possession is not a "judicial process" in the sense contemplated by law—it is a non-litigious proceeding where a third-party claimant has no opportunity to be heard.

In this case, the respondents were third parties holding the property under a title adverse to Velasco, the mortgagor. They were not parties to the mortgage contract. The Compromise Agreement did not make them privies to that contract, and their offer to repurchase the property did not make them Velasco's successors-in-interest. The Court held that BPI's right to a writ of possession could not be invoked against them.

Practical Takeaways

• A writ of possession is not automatic. A bank or purchaser in an extrajudicial foreclosure cannot obtain a writ of possession as a matter of right when a third party is in possession of the property claiming a right adverse to the mortgagor.
• Third-party adverse claims must be resolved in a proper action. The purchaser must file an ejectment suit or a reivindicatory action (accion reivindicatoria) to recover possession and resolve ownership claims, not rely on an ex parte possessory writ.
• Actual possession enjoys a legal presumption of just title. Under Article 433 of the Civil Code, one who claims ownership over property possessed by another must bring the appropriate judicial action to recover it.
• A compromise agreement in a quieting of title case does not bind third parties to the mortgage. Merely mentioning the mortgage in such an agreement does not make the claimants parties to the mortgage contract.
• Due process protects third-party possessors. An ex parte proceeding under Act 3135 does not give a third-party claimant the opportunity to be heard, so dispossession through such a writ would violate basic tenets of due process.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.