G.R. No. L-22958. January 30, 1971.
ESTRELLA BENIPAYO RODRIGUEZ, ET AL., petitioners, vs. HON. JUAN O. REYES, ET AL., respondents.

FACTS

Petitioners, co-heirs of the late spouses Donato Benipayo and Pura Disonglo, filed an action for partition against their brother, respondent Alberto D. Benipayo. During pre-trial, the parties agreed to have the common properties sold at public auction. Among these were two Manila lots mortgaged to the Development Bank of the Philippines (DBP). The court ordered the sale, and the published notice explicitly warned prospective bidders that the properties were mortgaged and advised them to investigate the titles and encumbrances. At the auction, respondents Jose N. Dualan and Vicente Sayson, Jr. submitted the highest bids. Petitioners moved for court approval of the sales, requesting that the proceeds be distributed after deducting the sheriff’s fees and publication expenses.
Respondents Benipayo and Dualan opposed, praying that the mortgage debt to the DBP be paid first from the proceeds and that the certificates of sale be issued free from liens. The respondent judge, entertaining doubts about the parties’ agreement on who should discharge the mortgage, suggested a re-bidding where the heirs would assume all obligations. The buyers rejected this. The court then approved the sheriff’s sale but imposed a condition: the vendors (the heirs) must clear the properties of all encumbrances incurred before the sale. Petitioners moved for reconsideration, which was denied, prompting this certiorari petition.

ISSUE

Whether the respondent judge acted with grave abuse of discretion in approving the sheriff’s sale subject to the condition that the vendor-heirs clear the properties of the pre-existing mortgage encumbrance.

RULING

Yes. The Supreme Court granted the petition, reversing the contested orders. The legal logic is anchored on the nature of execution sales and the specific terms of the published notice. The advertised sale was explicitly of mortgaged properties. The notice clearly warned bidders of the DBP mortgage and advised independent investigation. Under established jurisprudence, a sale of mortgaged property at public auction, unless expressly stated otherwise, passes title to the buyer subject to that mortgage. The buyer is presumed to have considered the encumbrance in making his bid. If respondent Dualan intended his bid to be for a property free of the lien, it was his duty to expressly state that condition; his failure to do so means the bid conforms to the normal practice of taking the property subject to the mortgage. Therefore, the trial court’s order requiring the vendors to clear the encumbrance was a misapplication of law, constituting grave abuse of discretion.
The Court also found no merit in petitioners’ ancillary arguments. The claim of no meeting of minds was inconsistent with their conduct, including authorizing redemption negotiations, which implied acceptance of the sale’s validity. The allegation of conflict of interest by a counsel was unsubstantiated by showing of prejudice. The writ of preliminary injunction was made permanent, and the vendors were not obligated to discharge the DBP mortgage from the sale proceeds. No costs.