In a foreclosure case, a winning bidder who consolidates ownership over the foreclosed property is generally entitled to a writ of possession as a matter of right. However, this right is not absolute. The Supreme Court clarified that a court’s duty to issue a writ of possession is not ministerial when a third party is holding the property adversely to the debtor. This ruling highlights the importance of due process and the protection of third-party rights in foreclosure proceedings, ensuring that a writ of possession is not automatically granted when legitimate adverse claims exist.

When Does a Trust Agreement Trump a Foreclosure Sale?

This case revolves around a dispute over properties in Parañaque City. Novelita Labrador, the original owner, mortgaged the properties to Chinatrust to secure a loan. When Labrador defaulted, the mortgage was foreclosed, and Integrated Credit and Corporate Services, Co. (ICCS) emerged as the highest bidder. After Labrador failed to redeem the properties, ICCS consolidated its ownership and sought a writ of possession. However, Philippians Academy of Parañaque City opposed the writ, claiming ownership through a Declaration of Trust Agreement with Labrador. The central legal question is whether the existence of this trust agreement prevents the issuance of a writ of possession to ICCS.

The Regional Trial Court (RTC) initially denied ICCS’s petition for a writ of possession and dismissed ICCS’ motion to dismiss Philippine Academy’s counter-petition, reasoning that the trust agreement created an adversarial dispute requiring further adjudication. The Court of Appeals (CA) affirmed the RTC’s decision, but on procedural grounds, stating that the appeal was an improper remedy for an interlocutory order. The Supreme Court disagreed with the CA’s procedural decision and proceeded to resolve the substantive issues, ultimately reversing both lower courts.

The Supreme Court first addressed the procedural issue, clarifying the distinction between final and interlocutory orders. A final order disposes of the case completely, while an interlocutory order leaves something to be decided. Here, the RTC’s order was interlocutory because it did not resolve the ownership dispute, necessitating further proceedings. While an appeal is not the proper remedy for an interlocutory order, the Court noted exceptions exist when the interests of justice demand it. Finding the RTC’s inferences were mistaken, the Court relaxed the procedural rules to address the merits of the case.

Turning to the core issue, the Supreme Court reiterated the general rule that the issuance of a writ of possession to a purchaser who has consolidated ownership is a ministerial duty. However, this duty is subject to exceptions. One exception is when a third party claims a right adverse to the mortgagor/debtor. In such cases, the court must conduct a hearing to determine the nature of the adverse possession. The Court emphasized that for this exception to apply, the third party must hold the property adversely to the judgment obligor, meaning they possess the property in their own right, not merely as a successor or transferee of the debtor.

The Court then examined Philippians Academy’s claim of ownership through the Declaration of Trust Agreement. The Academy argued that Labrador held the property in trust for its benefit, thus establishing its right to the property. However, the Court found that even if a trust existed, the Academy could not be considered a third party holding the property adversely to Labrador. The Declaration of Trust was notarized two days after the Real Estate Mortgage (REM) was executed. Crucially, the REM was registered and annotated on the TCTs. The Court emphasized the declaration of trust only binds the parties of the deed and does not affect third parties.

Moreover, the Academy admitted that the loan secured by the mortgage was partly used to acquire the subject properties. This admission was critical. By benefiting from Labrador’s actions in obtaining the loan, the Academy was bound by those actions, including the mortgage. The Court further noted the absence of any allegations of fraud or breach of fiduciary duty on Labrador’s part. Therefore, the Academy, as beneficiary of the trust, was essentially a successor or assignee of Labrador and could not claim adverse possession. The court underscored that only co-owners, tenants, or usufructuaries may possess the property in their own right, independent from the mortgagor.

The Court distinguished this case from others where fraud or forgery tainted the transactions. Here, there was no evidence of fraudulent conduct by Labrador in establishing the REM. The absence of such allegations was fatal to the Academy’s claim. Without a clear showing of fraud or bad faith, the trustee’s actions bind the beneficiary. This principle protects innocent purchasers and ensures the integrity of foreclosure sales. To rule otherwise would allow parties to easily circumvent foreclosure laws by creating trusts after a mortgage is established.

Ultimately, the Supreme Court held that Integrated Credit and Corporate Services, Co. was entitled to the writ of possession. The Court determined that Philippine Academy was not holding the property adversely to the judgment debtor and ordered the Regional Trial Court of Parañaque City to issue and proceed with the implementation of the Writ of Possession in favor of ICCS.

FAQs

What was the key issue in this case?	The key issue was whether the existence of a trust agreement between the original owner and a third party prevented the issuance of a writ of possession to the purchaser in a foreclosure sale.
What is a writ of possession?	A writ of possession is a court order directing the sheriff to deliver possession of property to the person entitled to it, typically the purchaser in a foreclosure sale.
When is the issuance of a writ of possession considered a ministerial duty?	The issuance of a writ of possession is generally a ministerial duty of the court when the purchaser has consolidated ownership of the property after the redemption period.
What are the exceptions to the ministerial duty to issue a writ of possession?	Exceptions include gross inadequacy of the purchase price, a third party claiming a right adverse to the mortgagor/debtor, and failure to pay surplus proceeds to the mortgagor.
What does it mean for a third party to hold property adversely to the judgment obligor?	It means the third party possesses the property in their own right, such as a co-owner, tenant, or usufructuary, not merely as a successor or transferee of the debtor.
How did the trust agreement affect the outcome of this case?	The Court ruled that the trust agreement did not prevent the issuance of the writ because the academy’s possession was not adverse to the debtor and the academy benefited from the mortgage.
What was the significance of the timing of the mortgage and trust agreement?	The mortgage was executed and registered before the trust agreement, making the mortgage superior and binding on the beneficiary of the trust.
What is the implication of admitting that the loan proceeds were used to acquire the property?	It binds the beneficiary to the actions of the trustee in obtaining the loan and establishing the mortgage, absent any allegation of fraud.

This case underscores the importance of thoroughly investigating potential adverse claims before seeking a writ of possession in foreclosure proceedings. While the right to possession generally follows consolidation of ownership, courts must still ensure that third-party rights are respected. Parties involved in trust arrangements concerning mortgaged properties should be aware that their rights may be subordinate to those of the mortgagee, especially absent allegations of fraud or breach of fiduciary duty.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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