G.R. No. 182842 & G.R. No. 199393, September 04, 2019
PCI LEASING & FINANCE, INC., PETITIONER, V. SPOUSES JAMES D. GUTIERREZ AND CATHERINE R. GUTIERREZ, RESPONDENTS. [and] SPOUSES DANTE R. GUTIERREZ AND LOURDES D. GUTIERREZ, DOING BUSINESS UNDER THE NAME AND STYLE OF CAPITOL ALLIED TRADING & TRANSPORT, PETITIONERS, V. PCI LEASING & FINANCE, INC., RESPONDENT.

FACTS

Spouses Dante and Lourdes Gutierrez (spouses Gutierrez), owners of Capitol Allied Trading & Transport, obtained loans totaling P48,246,000.00 from PCI Leasing & Finance, Inc. (PCI Leasing). To secure payment, they mortgaged several real properties to PCI Leasing, including: (1) a condominium unit (Burgundy Condominium) owned by their children, spouses James and Catherine Gutierrez; (2) a parcel of land in Blue Ridge Subdivision, Quezon City, also owned by spouses James and Catherine; and (3) a condominium unit (Platinum 1000 Condominium) in San Juan. Upon default by the spouses Gutierrez, PCI Leasing extrajudicially foreclosed the mortgages and purchased the properties at public auctions in July 2003. Subsequently, on October 15, 2003, PCI Leasing allowed the spouses Gutierrez to sell their San Fernando, Pampanga properties (also mortgaged to PCI Leasing) for P14,500,000.00. The proceeds were applied to the outstanding balance, which included the P12,426,676.36 obligation secured by the mortgages on the Quezon City and San Juan properties. An affidavit by PCI Leasing’s officer, Crispin Maniquis, stated that this payment fully settled the loans secured by those real estate mortgages. The unpaid balance was reduced to P13,993,047.14, secured only by chattel mortgages. On March 25, 2004, the spouses Gutierrez requested the release of the real estate mortgages, believing the application of payment constituted redemption. PCI Leasing did not immediately reply. Later, PCI Leasing filed a collection case (Civil Case No. Q-03-049661) against the spouses Gutierrez. The parties entered into a Compromise Agreement, approved by the court on November 10, 2004, which covered only the P13,993,047.14 balance secured by chattel mortgages and explicitly stated it did not novate the original loan and mortgage contracts. Meanwhile, on October 27, 2004, PCI Leasing informed the spouses Gutierrez that ownership of the Quezon City and San Juan properties had been consolidated in its name after the redemption period expired. PCI Leasing then filed petitions for writs of possession for the properties. Spouses James and Catherine filed an action for nullification of foreclosure, certificate of sale, and title and for reconveyance of their properties.

ISSUE

The core issue is whether PCI Leasing is entitled to a writ of possession over the foreclosed properties (the Quezon City and San Juan properties) as the purchaser in the extrajudicial foreclosure sale, notwithstanding the subsequent application of the proceeds from the sale of other mortgaged properties (San Fernando, Pampanga) to fully pay the specific loan obligations secured by the mortgages on the subject properties.

RULING

The Supreme Court ruled that PCI Leasing is NOT entitled to the writs of possession. The Court held that the issuance of a writ of possession is a ministerial duty only when the foreclosure sale is regular and the right to possession is clear. However, the right to possession becomes unclear when the debtor raises legitimate issues regarding the validity of the sale or the foreclosure itself. In this case, the respondents raised a substantive issue—that the obligation secured by the mortgages on the subject properties had been fully paid by the application of the proceeds from the sale of the San Fernando properties, as evidenced by PCI Leasing’s own official receipt, memorandum, and the affidavit of its officer. This payment, made before the consolidation of title, effectively extinguished the debt and the mortgage lien. Therefore, the foreclosure sale and PCI Leasing’s title stemming from it became questionable. The Compromise Agreement in the separate collection case, which covered only the chattel-mortgaged obligations and explicitly stated it was not a novation of the original contracts, did not waive the defense of payment already made. Since a serious issue exists regarding the validity of PCI Leasing’s title and right to possession, the ministerial duty to issue a writ of possession ceases, and the issue must be resolved in the pending actions for nullification of foreclosure and reconveyance. The Court affirmed the Court of Appeals’ decisions denying the writs of possession and ordered the trial courts to resolve the pending reconveyance cases with dispatch.