Government Service Insurance System v. Court of Appeals
REITERATIONFacts
The Antecedents: Mariano R. Dulay Enterprises (Dulay) obtained real estate loans from the Government Service Insurance System (GSIS) amounting to P9,535,000.00, secured by a real estate mortgage over a parcel of land including Hotel Frederick. As of September 10, 1974, Dulay incurred arrearages of P3,335,878.81. GSIS instituted extrajudicial foreclosure proceedings, and the property was sold at public auction on November 5, 1974, to GSIS as the highest bidder for P13,426,382.00. A Certificate of Sale was issued on November 22, 1974, and registered on December 13, 1974. Procedural History: On January 7, 1975, GSIS filed an ex-parte Petition for Issuance of a Writ of Possession with the Court of First Instance (CFI) of Rizal. On January 16, 1975, Rene C. Knecht filed an Urgent Motion for Intervention, claiming Dulay had sold the property to him on May 4, 1974, and assigned the right to redeem on November 5, 1974. GSIS opposed the motion. On May 26, 1975, the CFI denied Knecht's motion for intervention. On May 27, 1975, the CFI granted GSIS's ex-parte Motion for Issuance of a Writ of Possession upon posting of a P2,000,000.00 bond. Knecht filed a special civil action for certiorari with the Court of Appeals (CA), assailing the CFI orders as grave abuse of discretion. The CA issued a preliminary injunction. On October 13, 1975, the CA rendered a decision setting aside the CFI orders, upholding Knecht's right to intervene, and making the injunction permanent. GSIS filed a motion for reconsideration, which was denied. The Petition: GSIS filed a Petition for Review on Certiorari with the Supreme Court, seeking to reverse the CA decision. The Supreme Court treated the case as a special civil action. During the pendency of the case, title to the property was consolidated in the name of GSIS on January 15, 1976. The Supreme Court issued a Writ of Preliminary Mandatory and Prohibitory Injunction on August 11, 1976, enjoining the CA from enforcing its injunction and directing Knecht to turn over possession and account for revenues. Knecht moved to dissolve the injunction, which was upheld but with suspension of the revenue deposit portion. The parties failed to reach an amicable settlement, leading GSIS to move for compliance with the August 11, 1976 Resolution.
Issue(s)
Whether the respondent Court of Appeals erred in setting aside the Orders of the Court of First Instance denying Knecht's motion for intervention and granting GSIS's writ of possession. Whether Knecht, as a claimed purchaser and assignee of redemption rights, has a legal interest warranting intervention in the ex-parte proceedings for a writ of possession. Whether the nature of ex-parte proceedings and intervention allows for intervention in a petition for writ of possession. Whether the issuance of a writ of possession under Act No. 3135 and P.D. 385 can be considered a grave abuse of discretion, and whether the respondent Court of Appeals erred in issuing a preliminary injunction without prior hearing and with a bond significantly lower than that posted by GSIS.
Ruling
The petition is granted. The assailed decision and resolution of the Court of Appeals are reversed and set aside. Private respondent Rene Knecht is directed to immediately turn over possession of the property to GSIS, render an accounting of all revenues derived from its operations from November 5, 1974, and deliver all revenues on hand as of the turn-over. The Armed Forces of the Philippines are directed to place GSIS in possession and control of the properties without delay.
Ratio Decidendi
On the propriety of the writ of possession and the alleged grave abuse of discretion: The Supreme Court held that the orders of the CFI denying intervention and granting the writ of possession were premised on Section 7 of Act No. 3135 and Section 4 of P.D. 385. Section 7 of Act No. 3135 expressly authorizes the purchaser at an extrajudicial foreclosure sale to petition the court for a writ of possession during the redemption period via an ex-parte motion. Upon filing the motion and approval of the bond, the court shall order the issuance of the writ. Citing Eugenio S. de Garcia vs. Hon. Ramon R. San Jose and Marcelo Steel Corp. vs. Court of Appeals, the Court emphasized that a judge issuing such an order, in compliance with express provisions of law, cannot be charged with acting without jurisdiction or with grave abuse of discretion. P.D. 385 further mandates that properties foreclosed by government financial institutions shall be placed in their possession and control, with the court acting on the Petition for Writ of Possession within fifteen (15) days from filing. The issuance of the writ is a legal mandate, and the judge's compliance cannot be deemed capricious or arbitrary. Therefore, the Court of Appeals erred in acting on the petition for certiorari when the CFI acted in compliance with mandatory provisions of law. Furthermore, the Supreme Court referred to a separate decision by the Court of Appeals in CA-G.R. No. Civil Case No. 08858, which affirmed the dismissal of Knecht's action for annulment of foreclosure. That decision found no fraudulent inducement by GSIS and declared the foreclosure sale valid. It noted that Dulay himself requested deferment of payments, indicating arrears, and that Knecht and Dulay Enterprises entered into the assumption of mortgage in derogation of the original contract, which required prior written consent from the mortgagee (GSIS). The presumption of regularity of the foreclosure proceedings and GSIS's consolidation of ownership was not overturned. On Knecht's right to intervene: The Supreme Court ruled that Knecht was not a proper intervenor. His claim stemmed from a Deed of Sale with Assumption of Mortgage executed by Dulay, and an alleged assignment of redemption rights. However, there was no evidence that the sale was registered, and registration is the act that transfers ownership of Torrens title land. Furthermore, the sale was made without the prior consent of GSIS, violating a condition of the mortgage contract. Without the creditor's consent, a valid novation of debtor is not effected, and Knecht was not validly substituted as debtor. Consequently, Knecht acquired no legal right over the property as against GSIS, which was obliged to recognize only Dulay as the mortgagor. Even assuming the sale's validity, Knecht's rights would be no better than those of the Dulays, whose only remaining right was the right to redeem. However, the alleged assignment of redemption rights was also not registered or annotated on the title, rendering it ineffective against GSIS. The Court reiterated that a buyer of mortgaged property without the creditor's consent has no legal right to redeem. On the nature of ex-parte proceedings and intervention: The Court clarified that intervention contemplates a suit or an action where parties introduce evidence and a decision is rendered. The proceeding for a writ of possession under Section 7 of Act No. 3135 is ex-parte, meaning it is for the benefit of one party without notice to any adversely interested person, and relief is granted without an opportunity for the adverse party to be heard. This nature is out of sync with the concept of intervention, which requires a pending litigation or trial. The rationale for the ex-parte writ is to allow the purchaser possession without delay, based on ownership. Therefore, intervention is not proper in such proceedings. Knecht's remedy, if any, would be a separate, distinct, and independent suit as outlined in Section 8 of Act No. 3135, to determine the regularity and validity of the sale, not to oppose the issuance of the writ of possession. On the injunction issued by the Court of Appeals: The Supreme Court found that the CA's injunction against implementing the writ of possession deprived GSIS of its property rights for over a decade. Section 2 of P.D. 385 explicitly prohibits restraining orders or injunctions against government financial institutions in actions taken in compliance with mandatory foreclosure, except after due hearing where 20% of arrearages have been paid. The CA's injunction, issued without prior hearing and with a bond of P1,000.00 (compared to GSIS's P2,000,000.00 bond), effectively rendered the provisions of P.D. 385 nugatory. The Court also noted the 13th Whereas Clause of P.D. 385, highlighting the necessity for the foreclosing government creditor to have a writ of possession issued without delay to prevent pilferage or loss of assets.
Main Doctrine
The issuance of a writ of possession during the redemption period following an extrajudicial foreclosure sale, as provided under Section 7 of Act No. 3135 and Section 4 of P.D. 385, is a ministerial duty of the court and cannot be characterized as a grave abuse of discretion. A third party claiming rights over the foreclosed property, not derived from the mortgagor and not registered, cannot validly intervene in the ex-parte proceedings for the issuance of a writ of possession.