Bukidnon Doctors’ Hospital, Inc. vs. Metropolitan Bank & Trust Co.

Where, after the redemption period has expired and the mortgagee has consolidated title, the mortgagor and mortgagee enter into a lease agreement over the foreclosed properties, the proper remedy to evict the mortgagor-turned-lessee is an action for ejectment or unlawful detainer under Rule 70 of the Rules of Court, not an ex parte motion for a writ of possession under Act No. 3135. The lease creates a new juridical relationship that displaces the ministerial issuance of a writ of possession founded solely on the foreclosure sale.

Petitioner Bukidnon Doctors’ Hospital, Inc. obtained a ₱25-million loan from respondent Metropolitan Bank & Trust Co. in 1995, secured by a real estate mortgage over six parcels of land in Valencia, Bukidnon. Petitioner defaulted. Respondent extrajudicially foreclosed the mortgage, emerged as the sole and highest bidder at the public auction, and, after petitioner failed to redeem within the redemption period, consolidated ownership and was issued new certificates of title on 1 October 2001. Before consolidation, petitioner had expressed a desire to continue occupying the premises to avoid disruption of hospital operations, proposing to pay monthly rent. The parties eventually agreed on a lease — monthly rent of ₱150,000 effective November 2001 — and respondent accepted rental payments. The dispute arose when respondent demanded that petitioner vacate, and petitioner refused, asserting rights under the lease.

• The Loan and Foreclosure: In 1995, petitioner obtained a ₱25-million loan from respondent, secured by a real estate mortgage on six parcels covered by TCT Nos. T-52197 to T-52202, registered in the names of petitioner’s President and Administrator. Petitioner defaulted. Respondent extrajudicially foreclosed the mortgage, acquired the properties as the sole highest bidder at public auction, and, after the redemption period lapsed without redemption, consolidated ownership. New certificates of title were issued to respondent on 1 October 2001.

• The Lease Agreement: In a letter received by respondent on 7 July 2001, petitioner proposed to continue occupying the premises and operate the hospital, offering to pay ₱100,000 monthly rent for at least three years. Respondent initially proposed ₱200,000 monthly rent, a one-month advance and three-month deposit, and a six-month review clause. The parties ultimately agreed on ₱150,000 monthly rent, with effectivity from November 2001. Respondent admitted the existence of the lease and the receipt of monthly rental payments from petitioner from November 2001 onward.

• Demand to Vacate and Motion for Writ of Possession: By letter dated 16 July 2003, respondent demanded that petitioner vacate within fifteen days. Petitioner refused, invoking the subsisting lease. On 21 August 2003, respondent filed an Ex Parte Motion for a Writ of Possession in the RTC, arguing that as the purchaser in a valid foreclosure sale and absolute owner under Act No. 3135, it was entitled to a writ of possession as a matter of right.

• Other Cases Filed by Petitioner: On 27 November 2003, petitioner filed an action for specific performance, injunction, and damages (Civil Case No. 3312-03) to enforce the lease contract and seek damages for breach. On 30 January 2004, petitioner also filed a petition for corporate rehabilitation (Spec. Pro. Case No. 2004-019) in the RTC of Cagayan de Oro City. Petitioner later voluntarily surrendered the premises on 30 November 2004 after closing hospital operations, rendering the petition moot, but the Supreme Court resolved the issue for guidance of the bench and bar.

• Propriety of the Writ of Possession: Petitioner maintained that the existence of a lease agreement, entered into after respondent consolidated ownership, precluded the issuance of an ex parte writ of possession. The lease converted the parties’ relationship from that of mortgagor-mortgagee to landlord-tenant, making ejectment under Rule 70 the proper remedy.

• No Forum-Shopping: Petitioner contended that the three cases — the specific performance action, the rehabilitation petition, and the appeal — involved different causes of action, parties, and relief sought, and thus did not constitute forum-shopping.

• Proper Mode of Appeal: Petitioner argued that it withdrew its notice of appeal before the record was transmitted and that its subsequent petition under Rule 45 raising a pure question of law was proper, as the issue no longer required examination of factual evidence.

• Ministerial Issuance of Writ: Respondent argued that as the purchaser in a valid extrajudicial foreclosure sale and the registered owner under Act No. 3135, it was entitled as a matter of right to a writ of possession, the court’s duty being ministerial. The subsequent “agreement to stay” did not negate this right; moreover, the lease was on a month-to-month basis and had already expired.

• Forum-Shopping: Respondent asserted that petitioner had engaged in forum-shopping by seeking relief in four different courts for substantially the same cause.

• Waiver and Improper Appeal: Respondent maintained that by filing a notice of appeal under Rule 41, petitioner waived the right to file a petition under Rule 45, as the two modes are mutually exclusive. Respondent also invoked the hierarchy of courts, arguing that the petition should have first been filed with the Court of Appeals.

• Forum-Shopping: Whether petitioner was guilty of forum-shopping by filing multiple cases and the instant petition.

• Waiver of Appeal: Whether petitioner waived its right to file a petition for review on certiorari under Rule 45 by initially filing a notice of appeal under Rule 41.

• Hierarchy of Courts: Whether direct recourse to the Supreme Court violated the doctrine of hierarchy of courts.

• Propriety of the Writ of Possession: Whether the trial court correctly granted an ex parte writ of possession in favor of the mortgagee-purchaser despite a lease agreement entered into between the parties after consolidation of title.

• Forum-Shopping: No forum-shopping was committed. The elements of forum-shopping — identity of parties, rights asserted, and relief sought — were absent. The specific performance action sought enforcement of the lease contract and damages for breach; the rehabilitation petition sought corporate rehabilitation; and the instant petition challenged the propriety of the writ of possession. Each action involved a distinct cause of action, and any judgment in one would not amount to res judicata in the others.

• Waiver of Appeal: Petitioner did not waive its right to file the Rule 45 petition. Under Section 9 of Rule 41, the trial court may allow withdrawal of an appeal before transmittal of the original record. Petitioner withdrew its notice of appeal realizing the only remaining issue was a question of law, and filed the petition within the extended reglementary period. Nothing in the Rules bars a party from withdrawing an ordinary appeal and timely filing a petition under Rule 45 when the issue is purely legal.

• Hierarchy of Courts: Direct appeal to the Supreme Court was proper. Section 2(c) of Rule 41 and Section 1 of Rule 45 explicitly provide that in cases where only questions of law are raised or involved, the appeal from a decision or order of the Regional Trial Court shall be to the Supreme Court by petition for review on certiorari. Because the existence of the lease agreement was admitted, the sole issue — whether the writ of possession was proper despite the lease — presented a pure question of law.

• Propriety of the Writ of Possession: The issuance of an ex parte writ of possession was improper. Under the Civil Code, an owner possesses property either through physical occupation or through another who recognizes the owner’s dominion. When the parties entered into a lease after consolidation, petitioner recognized respondent’s ownership and superior possessory right; by paying and accepting rent, respondent enjoyed possession through petitioner as lessee. Thus, respondent was already in material possession, rendering a writ of possession superfluous. The lease created a new juridical relationship governed by the law on lease, not the law on extrajudicial foreclosure. Where a mortgagor becomes a lessee after consolidation, the proper remedy to evict is an action for ejectment or unlawful detainer under Rule 70, as established in Banco de Oro Savings and Mortgage Bank v. Court of Appeals. A writ of possession under Act No. 3135 is a ministerial remedy available only where no new contractual relationship supersedes the foreclosure framework.

• Possession under the Civil Code — Under Articles 524 and 525, possession may be exercised in one’s own name or in that of another, and may be had either in the concept of owner or as a holder recognizing ownership in another. An owner of real estate possesses the property when physically occupying it or when another who recognizes his rights as owner occupies it. Thus, a lessee’s occupancy constitutes possession in the owner-lessor. The Court applied this to hold that respondent was already in material possession through petitioner-lessee.

• Writ of Possession v. Ejectment after Lease — Where, after the expiration of the redemption period and consolidation of title in the mortgagee’s name, the parties enter into an express or implied lease agreement, the remedy to evict the former mortgagor is an action for ejectment or unlawful detainer under Rule 70, not an ex parte motion for a writ of possession under Act No. 3135. The lease transforms the relationship into one of landlord and tenant, and any issue regarding the lessee’s right to continue occupying the premises must be resolved in an ejectment suit where both sides are heard. This doctrine supersedes the general rule that a writ of possession issues as a matter of course after consolidation of title in a foreclosure sale.

• Forum-Shopping — Forum-shopping requires identity of parties, rights asserted and relief prayed for, such that judgment in one action amounts to res judicata in the other. Filing multiple actions with different causes of action does not constitute forum-shopping.

• Pure Question of Law — Direct Appeal to the Supreme Court — Under Rule 41, Section 2(c) and Rule 45, Section 1, appeals from RTC orders or judgments raising only questions of law shall be taken directly to the Supreme Court by petition for review on certiorari. A question of law exists when the issue concerns the correct application of law or jurisprudence to an admitted set of facts.

• “In a nutshell, where a lease agreement, whether express or implied, is subsequently entered into by the mortgagor and the mortgagee after the expiration of the redemption period and the consolidation of title in the name of the latter, a case for ejectment or unlawful detainer, not a motion for a writ of possession, is the proper remedy in order to evict from the questioned premises a mortgagor-turned-lessee. The rationale for this rule is that a new relationship between the parties has been created. What applies is no longer the law on extrajudicial foreclosure, but the law on lease.”

• “Clearly, the respondent is in material possession of the subject premises. Thus, the trial court’s issuance of a writ of possession is not only superfluous, but improper under the law. Moreover, as a lessee, the petitioner was a legitimate possessor of the subject properties under Article 525 of the Civil Code. Thus, it could not be deprived of its lawful possession by a mere ex parte motion for a writ of possession.”

• Banco de Oro Savings and Mortgage Bank v. Court of Appeals, G.R. No. 85448, 21 February 1990, 182 SCRA 464 — Followed. The Supreme Court treated this case as controlling. In Banco de Oro, the mortgagors’ continued stay was converted into one by permission with payment of rentals, creating an implied lease; the proper remedy to evict them (and their tenants) was an ejectment suit, not a writ of possession. The Court applied the identical reasoning to the express lease in the present case.

• Vda. de Zaballero v. Court of Appeals, G.R. No. 106958, 9 February 1994, 229 SCRA 810 — Cited for the general rule that a writ of possession can be demanded as a matter of right after the redemption period expires, subject to the exception created by a subsequent lease.

• GSIS v. Bengson Commercial Buildings, Inc., 426 Phil. 111 (2002); Santos v. COMELEC, G.R. No. 155618, 26 March 2003 — Cited for the elements of forum-shopping.

• Act No. 3135, as amended by Act No. 4118, Section 7 — Governs the issuance of a writ of possession in extrajudicial foreclosure proceedings. While the provision makes the issuance ministerial after the redemption period, the Court held it inapplicable where a lease created a new relationship between the parties.

• Civil Code, Article 523, 524, and 525 — Define possession, modes of acquisition, and concepts of possession. These provisions were central to the ruling that the mortgagee-bank was already in material possession through its lessee, making the writ of possession superfluous.

• Rule 41, Section 2(c) and Section 9, Rules of Court — Section 2(c) mandates direct appeal to the Supreme Court on questions of law from RTC decisions. Section 9 permits withdrawal of an appeal before transmittal of the original record. Both were applied to uphold the propriety of the petition.

• Rule 45, Section 1, Rules of Court — Governs petitions for review on certiorari to the Supreme Court on pure questions of law.

• Rule 70, Section 1, Rules of Court — Governs actions for unlawful detainer; identified as the proper remedy for evicting a mortgagor-turned-lessee.

Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Antonio T. Carpio, Adolfo S. Azcuna.