In Dayot v. Shell Chemical Company, the Supreme Court clarified that a writ of possession issued in an extrajudicial foreclosure sale cannot be enforced against a third party who possesses the property under a claim of ownership. The Court emphasized that such third parties are entitled to due process and cannot be summarily ejected without a proper judicial proceeding where their rights can be fully adjudicated. This decision protects the possessory rights of individuals or entities who are not parties to the foreclosure but have a legitimate claim to the property.

Foreclosure Fallout: Can a Writ of Possession Override Third-Party Claims?

This case revolves around a dispute over land in Iloilo City, initially mortgaged by Panay Railways, Inc. (PRI) to Traders Royal Bank (TRB). PRI defaulted, leading to foreclosure and TRB acquiring the properties. TRB then sold some of these properties to Candelaria Dayot, who sought a writ of possession to eject Shell Chemical Company (Phil.), Inc. (Shell) from a portion of the land. Shell opposed, arguing it had been in possession of the property since 1975, predating the mortgage, and held its own title. The central legal question is whether a writ of possession, a remedy typically available to a purchaser in a foreclosure sale, can be used to dispossess a third party claiming ownership adverse to the original mortgagor.

The Supreme Court, in its analysis, first addressed the issue of forum shopping. Forum shopping occurs when a party files multiple cases based on the same facts and issues, seeking a favorable outcome in different courts. The Court found that Dayot was not guilty of forum shopping because the case for the writ of possession (LRC CAD. REC. NOS. 1 and 9616) and the complaint for recovery of ownership (Civil Case No. 21957) involved different issues. The writ of possession case focused on the right to possess the property as a result of the foreclosure, while the ownership case concerned the actual title to the land. Since the elements of litis pendentia (a pending suit) and res judicata (a matter already judged) were not present, there was no basis to conclude that Dayot was engaging in forum shopping.

Building on this point, the Court emphasized the nature of a writ of possession. A writ of possession is generally an ex parte order, meaning it is issued without a full hearing or the participation of all interested parties. In the context of extrajudicial foreclosure, it is primarily intended to transfer possession to the purchaser after the redemption period expires. However, this right is not absolute. As the Supreme Court pointed out, Section 33, Rule 39 of the Rules of Court provides an exception:

Sec. 33. Deed and possession to be given at expiration of redemption period; by whom executed or given.

x x x

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property at the time of levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor.

This provision makes it clear that the obligation to issue a writ of possession ceases to be ministerial when a third party is in possession, claiming a right adverse to the mortgagor. In such cases, the purchaser cannot simply rely on the writ of possession to eject the third party.

The Court further grounded its decision on fundamental principles of due process and property rights. It cited Article 433 of the Civil Code, which states:

Art. 433. Actual possession under claim of ownership raises a disputable presumption of ownership. The true owner must resort to judicial process for the recovery of the property.

This provision underscores that a person in actual possession of property, under a claim of ownership, has a presumptive right that can only be overcome through a proper judicial process, such as an ejectment suit or a reivindicatory action. An ex parte writ of possession does not meet this requirement, as it does not allow for a full and fair hearing of the third party’s claims. To allow the writ to be enforced against Shell, which had been in possession since 1975 and held its own title, would be a violation of due process.

Moreover, the Court highlighted the limitations of extrajudicial foreclosure proceedings under Act 3135. Unlike judicial foreclosure, extrajudicial foreclosure does not involve a court action where all parties can present their case. A third party in possession, claiming a superior right, has no opportunity to be heard in such proceedings. Therefore, dispossessing such a party based solely on an ex parte writ would be a summary ejectment, violating their right to due process. As the Supreme Court emphasized, “It stands to reason, therefore, that such third person may not be dispossessed on the strength of a mere ex-parte possessory writ, since to do so would be tantamount to his summary ejectment, in violation of the basic tenets of due process.”

The Court also noted that Dayot was aware of Shell’s possession of the property. Despite this knowledge, Dayot sought to enforce the writ of possession instead of pursuing the pending Civil Case No. 21957, where Shell’s claim of ownership could be properly adjudicated. The Court found this to be an improper procedural shortcut. Moreover, the Additional Stipulations of Real Estate Mortgage executed by PRI in favor of TRB explicitly “excludes those areas already sold to Shell Co., Inc. with total area of 14,920 sq. meters, known as Lot No. 6153-B and portion of Lot No. 5.” This further supports the conclusion that Shell’s possessory rights should be respected.

In summary, the Supreme Court affirmed the Court of Appeals’ decision, holding that the writ of possession could not be enforced against Shell. The Court emphasized the importance of due process, the rights of third parties in possession, and the limitations of ex parte proceedings in extrajudicial foreclosures. The ruling underscores that while a writ of possession is a valuable tool for purchasers in foreclosure sales, it cannot be used to summarily dispossess those who have a legitimate claim to the property and were not parties to the foreclosure proceedings.

FAQs

What was the key issue in this case?	The key issue was whether a writ of possession issued in an extrajudicial foreclosure could be enforced against a third party claiming ownership of the property.
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.
Who was Shell Chemical Company in this case?	Shell Chemical Company was the third party in possession of the property, claiming ownership based on a prior sale and holding its own title.
What is the significance of Article 433 of the Civil Code in this case?	Article 433 states that actual possession under a claim of ownership raises a presumption of ownership, requiring the true owner to resort to judicial process to recover the property.
What is litis pendentia?	Litis pendentia refers to a pending suit, and its presence can indicate forum shopping if multiple cases involve the same parties, rights, and relief.
What is res judicata?	Res judicata means “a matter already judged,” and it prevents parties from relitigating issues that have been finally determined by a competent court.
Why was Dayot not found guilty of forum shopping?	Dayot was not found guilty because the writ of possession case and the ownership case involved different issues and remedies, so neither litis pendentia nor res judicata applied.
What did the Supreme Court decide about the writ of possession?	The Supreme Court decided that the writ of possession could not be enforced against Shell because Shell was a third party claiming ownership, and enforcing the writ would violate due process.

This case serves as a critical reminder that the rights of possessors, especially those claiming ownership, must be carefully considered in foreclosure proceedings. It underscores the importance of due process and the limitations of relying solely on ex parte remedies when third-party interests are at stake. The ruling clarifies the circumstances under which a writ of possession can and cannot be enforced, providing valuable guidance for both purchasers in foreclosure sales and third parties claiming possessory rights.

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: Candelaria Q. Dayot, vs. Shell Chemical Company, (Phils.), Inc., G.R. NO. 156542, June 26, 2007