G.R. No. 174436; January 23, 2013
JUANITA ERMITAÑO, represented by her Attorney-in-Fact, ISABELO ERMITAÑO, Petitioner, vs. LAILANIE M. PAGLAS, Respondent.

FACTS

Petitioner Juanita Ermitaño leased a house and lot to respondent Lailanie Paglas under a one-year contract commencing November 4, 1999. Subsequently, respondent learned the property had been mortgaged to Charlie Yap and later foreclosed, with a sale registered on February 22, 2000. Yap’s brother offered to sell the property to respondent, who purchased it from Yap on June 1, 2000, via a deed stating the property remained subject to petitioner’s right of redemption. Prior to this sale, petitioner had filed a suit to nullify the mortgage and foreclosure.
Petitioner sent demand letters for unpaid rentals and to vacate, which respondent ignored, leading petitioner to file an unlawful detainer case. The Municipal Trial Court in Cities dismissed the case and awarded attorney’s fees to respondent. The Regional Trial Court affirmed the dismissal but ordered respondent to pay ₱135,000 in unpaid rentals, deleting the attorney’s fees. The Court of Appeals affirmed the dismissal, deleted the rental obligation, and reinstated attorney’s fees for respondent.

ISSUE

The core issue is whether respondent’s purchase of the foreclosed property and her subsequent refusal to pay rent and vacate constituted unlawful detainer, thereby entitling petitioner to restitution of possession and payment of unpaid rentals.

RULING

The Supreme Court ruled that the unlawful detainer case must fail. In ejectment proceedings, the sole issue is physical possession (possession de facto), not ownership. The Court found that upon the foreclosure sale and during the redemption period, the purchaser at the auction sale (Yap, and subsequently respondent as buyer from Yap) is entitled to possess the property and receive its income, including rentals. Petitioner, as the mortgagor-debtor, lost her right to collect rents from the lessee upon the foreclosure sale.
The legal logic is anchored on Act No. 3135, which governs extrajudicial foreclosure. The Court emphasized that after a foreclosure sale, the purchaser is entitled to possession and the fruits of the property. Since respondent derived her right from the foreclosure purchaser during the redemption period, her possession was not unlawful. Petitioner’s remedy was to exercise her right of redemption, not to eject respondent. However, the Court modified the CA decision by ordering respondent to pay petitioner ₱108,000 for unpaid rentals accrued before the foreclosure sale, as these were legitimately owed to petitioner prior to the transfer of rights. The award of attorney’s fees to respondent was deleted for lack of basis.