Rosario v. Government Service Insurance System
MODIFICATIONFacts
The Antecedents: New San Jose Builders Inc. (NSJBI) obtained a Php 600 million loan from the Government Service Insurance System (GSIS) on December 10, 1997, secured by a mortgage on various properties, including condominium units. NSJBI was permitted to sell these units, provided the proceeds were used to repay the loan. NSJBI defaulted on the loan, leading GSIS to extrajudicially foreclose the mortgaged properties on June 17, 2003. After the redemption period expired without redemption, GSIS consolidated ownership and sought a writ of possession to evict NSJBI and any occupants. Procedural History: GSIS filed a petition for a writ of possession before the Regional Trial Court (RTC) of Quezon City. Spouses Wilfredo and Dominica Rosario (petitioners), who had purchased Unit 205 from NSJBI, intervened in the proceedings. The RTC granted the writ of possession but excluded units in the possession of third-party buyers like the petitioners. GSIS appealed to the Court of Appeals (CA), which reversed the RTC's decision, finding that the RTC gravely abused its discretion in allowing the intervention and in restraining the writ's implementation against the petitioners. The CA ruled that the petitioners' proper remedy was to seek annulment of the mortgage before the Housing and Land Use Regulatory Board (HLURB). The Petition: Petitioners seek review on certiorari of the CA's decision. They argue that as third-party possessors who were not impleaded in the original ex-parte application, they should be allowed to intervene. They contend their possession is adverse to GSIS because the mortgage was allegedly entered into without the required HLURB approval under Section 18 of Presidential Decree No. 957. Petitioners assert they should be considered co-owners rather than mere transferees of NSJBI, and their rights as condominium buyers under PD 957 warrant protection against summary dispossession.
Issue(s)
Whether the Court of Appeals erred in ruling that the RTC committed grave abuse of discretion for allowing petitioners to intervene in respondent's ex-parte application for a writ of possession, considering the rights of condominium buyers under PD 957. Whether the Court of Appeals erred in ruling that the RTC committed grave abuse of discretion in exempting Unit 205, possessed by petitioners, from the implementation of the writ of possession, particularly in light of PD 957 and the modification of the rule in China Banking Corp. v. Spouses Lozada.
Ruling
The petition is meritorious. The Supreme Court granted the petition, reversed and set aside the CA Decision and Resolution, and reinstated the RTC Resolution, ordering that the writ of possession should exclude units possessed by petitioners and third-party buyers.
Ratio Decidendi
On the propriety of intervention and exclusion from the writ of possession, and the protection afforded to condominium and subdivision buyers under PD 957: The Court reiterated that as a general rule, the highest bidder in a foreclosure sale becomes the absolute owner after the redemption period and is entitled to possession, subject to the exception concerning third-party possessors who hold the property adversely to the judgment debtor. Section 33 of Rule 39, made applicable to extrajudicial foreclosure by Section 6 of Act No. 3135, explicitly states that possession shall be given to the purchaser unless a third party is actually holding the property adversely to the judgment obligor. Jurisprudence clarifies that when third-party possessors exist, the RTC should conduct a hearing to determine the nature of their adverse possession. The Court emphasized that it is not enough for the property to be in the possession of a third party; it must be held adversely to the judgment debtor. The Court noted that a writ of possession cannot be issued against a party in possession who was not a party to the foreclosure and did not acquire possession from a person bound by the decree, but is a stranger who entered into possession before the suit commenced. The Court also highlighted that an application for a writ of possession is a summary proceeding where title and ownership questions cannot be definitively settled. The Court underscored that condominium and subdivision lot buyers are protected by Presidential Decree No. 957 (PD 957), a social justice measure designed to protect innocent buyers against unscrupulous developers and financial institutions. The Court recognized the disparity in resources between banks and individual buyers, stating that PD 957 should be read into every contract and transaction. Applying this policy, the Court held that mortgagee banks are bound to respect contracts to sell protected by PD 957, even if the property is foreclosed under Act No. 3135. The Court found that the respondent (GSIS) was aware that the mortgaged properties were part of a condominium project and that the loan was for development, implying knowledge of potential individual buyers. The loan agreement itself allowed NSJBI to sell condominium units subject to the condition that proceeds be used for loan recoupment, indicating GSIS consented to such sales and assumed the risk of individual buyers. Therefore, GSIS could not bypass the rights of these buyers through a summary application for a writ of possession without affording them an opportunity to be heard. On the modification of the ruling in China Banking Corp. v. Spouses Lozada and its application to the exemption of Unit 205: The Court acknowledged that transferees or successors of the judgment debtor are generally not considered third-party possessors. However, it deemed it proper to modify the rule based on the policy behind PD 957. The Court stated that individual buyers of condominium units or subdivision lots, while having privity with developer-mortgagors, should be excluded from the issuance or implementation of a writ of possession if they are actually occupying the unit or lot. The Court reasoned that these buyers would suffer deleterious consequences if treated as ordinary transferees, potentially being deprived of their homes through processes they are unaware of and have no control over. Thus, the Court ruled that the issuance of a writ of possession ceases to be ministerial when such a buyer intervenes, requiring a summary hearing to determine the bona fide nature of their possession. Exclusion of such buyers is without prejudice to the outcome of cases concerning the validity of the mortgage under Section 18 of PD 957.
Main Doctrine
The issuance of a writ of possession ceases to be ministerial if a condominium unit or subdivision lot buyer intervenes to protect their rights against a mortgagee bank or financial institution, requiring the court to conduct a hearing to determine the nature and source of the buyer's supposed right to the foreclosed property.