In Philippine law, a writ of possession is not the proper remedy to evict a mortgagor who becomes a lessee of the foreclosed property after the mortgagee consolidates ownership and obtains new titles. Once a lease agreement is in place, the mortgagee-turned-lessor must pursue eviction through an unlawful detainer suit under Rule 70 of the Rules of Court, not a writ of possession. This protects the rights of lessees and recognizes the new legal relationship established by the lease.

From Mortgagor to Tenant: Can a Bank Evict Through a Writ of Possession?

The case of Bukidnon Doctors’ Hospital, Inc. v. Metropolitan Bank & Trust Co. revolves around a crucial question: Can a bank, after foreclosing on a property and entering into a lease agreement with the former owner, use a writ of possession to evict the former owner who is now a tenant? The Supreme Court addressed this issue, providing clarity on the interplay between foreclosure law and lease agreements. The hospital had obtained a loan from Metrobank, securing it with several parcels of land. When the hospital defaulted, the bank foreclosed on the mortgage, acquired the properties, and consolidated its ownership. Subsequently, the hospital and the bank entered into a lease agreement, with the hospital agreeing to pay monthly rent to continue operating on the premises. However, a dispute arose, and the bank sought to evict the hospital using a writ of possession. This prompted the legal challenge that reached the Supreme Court.

At the heart of the matter was whether the existence of a lease agreement superseded the bank’s right to a writ of possession as a remedy following foreclosure. A writ of possession is typically a ministerial order issued to a purchaser of foreclosed property, allowing them to take possession. This is especially true after the redemption period has expired. However, the Court had to consider whether this remedy remained applicable even after a new legal relationship—a lease agreement—was established between the parties. The bank argued that it was entitled to the writ of possession as a matter of right, given its status as the absolute owner of the foreclosed properties. It contended that the subsequent agreement to stay did not negate this right. The hospital, on the other hand, asserted that the lease agreement created a new set of rights and obligations, making the writ of possession an improper remedy.

The Supreme Court carefully examined the sequence of events and the legal implications of the lease agreement. The Court emphasized that possession is the holding of a thing or the enjoyment of a right, and it can be exercised either in one’s own name or in that of another. The Civil Code distinguishes between possession in the concept of owner and possession as a holder of the thing or right, with ownership pertaining to another person. In this case, the hospital, as a lessee, was a legitimate possessor of the subject properties under Article 525 of the Civil Code. The Court stated:

Article 525. The possession of things or rights may be had in one of two concepts: either in the concept of owner, or in that of the holder of the thing or right to keep or enjoy it, the ownership pertaining to another person.

The Court pointed out that once the lease agreement was in place, the relationship between the parties changed. The bank’s remedy was no longer a simple matter of enforcing its right as a purchaser in a foreclosure sale. Instead, it was governed by the laws on lease. The Court further bolstered its position by citing the case of Banco de Oro Savings and Mortgage Bank v. Court of Appeals, emphasizing that when a lease agreement is entered into after foreclosure, the proper remedy to evict the former mortgagor is an action for ejectment or unlawful detainer, not a writ of possession.

Therefore, the Supreme Court held that the writ of possession was not the correct remedy in this situation. By entering into a lease agreement, Metrobank had effectively acknowledged Bukidnon Doctors’ Hospital’s right to possess the property as a tenant. To evict the hospital, the bank was required to pursue an action for unlawful detainer under Rule 70 of the Rules of Court, which would allow the hospital to present its defenses and have the matter resolved in a full hearing. The ruling underscores the importance of honoring contractual agreements and ensuring that legal remedies are appropriate to the specific circumstances of each case. This decision serves as a crucial precedent, clarifying the rights and obligations of parties involved in foreclosure and subsequent lease agreements.

FAQs

What was the key issue in this case?	The key issue was whether a bank could use a writ of possession to evict a former mortgagor after a lease agreement had been established between the bank and the mortgagor.
What is a writ of possession?	A writ of possession is a court order directing the sheriff to place someone in possession of a property, typically used after a foreclosure sale.
When is a writ of possession typically issued?	It is typically issued as a matter of course to the purchaser of a foreclosed property after the redemption period expires, giving them the right to possess the property.
What happens when a lease agreement is made after foreclosure?	When a lease agreement is entered into, it creates a new legal relationship between the parties, and the laws on lease, rather than foreclosure, govern the eviction process.
What legal action should be used instead of a writ of possession?	An action for unlawful detainer under Rule 70 of the Rules of Court should be used to evict a former mortgagor who is now a tenant.
Why is unlawful detainer the correct remedy?	It allows the tenant to present defenses and have the matter resolved in a hearing, ensuring their rights as a lessee are protected.
What does the Civil Code say about possession?	The Civil Code distinguishes between possession in the concept of owner and possession as a holder, clarifying the rights of tenants.
What was the significance of the Banco de Oro case?	The Banco de Oro case affirmed that when a lease agreement exists, the remedy shifts from a writ of possession to an action for ejectment or unlawful detainer.
Who is protected by this ruling?	This ruling primarily protects the rights of former mortgagors who have entered into lease agreements, ensuring they cannot be evicted without due process.

This landmark decision clarifies the appropriate legal remedies in situations where a mortgagor becomes a lessee after foreclosure, emphasizing the importance of respecting contractual agreements and due process. It ensures that the rights of lessees are protected, even when they were previously the property owners. In summary, it is essential for all parties to seek legal counsel and fully understand their rights and obligations in such scenarios.

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: Bukidnon Doctors’ Hospital, Inc. vs. Metropolitan Bank & Trust Co., G.R. No. 161882, July 08, 2005