ACT NO.

3135 AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REALESTATE MORTGAGES SECTION 1. When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following election shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power. SECTION 2. Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is subject to stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated. SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. SECTION 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos each day of actual work performed, in addition to his expenses.

SECTION 5. At any sale, the creditor, trustee, or other persons authorized to act for the creditor, may participate in the bidding and purchase under the same conditions as any other bidder, unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made. SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law,

and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. SECTION 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order of possession shall continue in effect during the pendency of the appeal. SECTION 9. When the property is redeemed after the purchaser has been given possession, the redeemer shall be entitled to deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any part thereof was rented; if the purchaser occupied the property as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer may deduct from the price the interest of one per centum per month provided for in section four hundred and sixty-five of the Code of Civil Procedure.

SECTION 10. approval. Approved: March 6, 1924

This Act shall take effect on its

ACT NO. 4118 AN ACT TO AMEND ACT NUMBERED THIRTY-ONE HUNDRED AND THIRTY-FIVE, ENTITLED "AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES." SECTION 1. Section six of Act Numbered Thirty-one hundred and thirty-five, entitled "An Act to regulate the sale of property under special powers inserted in or annexed to realestate mortgages," is hereby amended to read as follows: "SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act." SECTION 2. The following three sections are hereby inserted after section six of said Act Numbered Thirty-one hundred and thirty-five: "SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve

months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. "SEC. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties

may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninetysix; but the order of possession shall continue in effect during the pendency of the appeal. "SEC. 9. When the property is redeemed after the purchaser has been given possession, the redeemer shall be entitled to deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any part thereof was rented; if the purchaser occupied the property as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer may deduct from the price the interest of one per centum per month provided for in section four hundred and sixty-five of the Code of Civil Procedure." SECTION 3. The number of the present section seven of said Act Numbered Thirty-one hundred and thirty-five is hereby changed, making it section ten. SECTION 4. This Act shall take effect on its approval. Approved, December 7, 1933

SECOND DIVISION [G.R. No. L-69294. June 30, 1987.] ZACARIAS COMETA AND HERCO REALTY AND AGRIDEVELOPMENT CORPORATION, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT AND JOSE FRANCO, respondents. DECISION GUTIERREZ, JR., J p: This is a petition for review of the decision of the then Intermediate Appellate Court, now Court of Appeals, granting the issuance of a writ of possession in favor of respondent Jose Franco thus placing him in possession of certain real properties sold to him as judgment creditor and highest bidder at an execution sale. The appellate court reversed an earlier decision of the Regional Trial Court. On July 2, 1976, in a suit for damages filed by respondent Jose Franco, entitled "Jose Franco v. Zacarias Cometa" and docketed as Civil Case No. 17585, the then Court of First Instance of Rizal, Branch XV, awarded to the respondent the sum of P57,396.85. The judgment became final and a writ of execution was issued on March 9, 1978. Thereafter, the sheriff levied on execution three commercial lots of Cometa (Rollo, p. 122) and sold them at public auction on October 17, 1978 to the respondent for the amount of the judgment. The sheriff's return was made on March 12, 1981. On November 17, 1981, petitioner Herco Realty and AgriDevelopment Corporation filed with the same Branch XV of the Court of First Instance of Rizal an action to annul the levy on execution and sale at public auction of the real properties. It alleged that the ownership of the lots had been transferred to it by Cometa before the execution sale. It assailed the validity of the levy and sale on the ground that the sheriff, in disregard of the proper procedural practice, immediately proceeded against Cometa's real properties without first exhausting his personal properties, that the properties were sold en masse and not by each

parcel, and that the said properties which are commercial lots situated in Guadalupe, Makati and are conservatively valued at P500,000.00 were sold only for P57,396.85, the amount of the judgment. On March 22, 1982, the trial court in the first case issued an order directing the Registrar of Deeds of Rizal to cancel Cometa's certificates of title to the lots and to issue new ones in favor of the respondent. Cometa went to this Court on petition for certiorari questioning the said order. On February 28, 1983, however, the petition was dismissed for lack of merit. On May 13, 1983, the respondent filed with the Regional Trial Court, Branch 140, National Capital Region, a motion for the issuance of a writ of possession. The petitioner opposed the motion on the ground that there is pending before another Regional Trial Court an action for the annulment of the levy and sale of the properties in question. On August 12, 1983, the trial court issued an order granting the motion but the same was reconsidered and set aside on November 18, 1983 on the ground that the issuance of a writ of possession was premature. The respondent instituted a special civil action for certiorari before this Court on June 27, 1984 but the case was referred to the then Intermediate Appellate Court. On October 4, 1984, the appellate court ruled for the respondent and granted the issuance of the writ in his favor. Hence, this petition for certiorari filed by the petitioners Zacarias Cometa and Herco Realty and Agri-Development Corporation. The only issue in this case is whether or not Regional Trial Court, Branch 140, can order petitioner Cometa to deliver the possession of the properties sold at public auction to the respondent in spite of the pendency of Civil Case No. 43846 in another Regional Trial Court for the annulment of the levy and sale of said properties. The petitioners maintain the negative. They allege that the issuance of a writ of possession is premature because the validity of the levy and sale on execution is still in issue. They take

exception to the finding of the respondent appellate court that their failure to redeem the properties within the redemption period authorized the trial court under Section 35, Rule 39 of the Revised Rules of Court, to place the purchaser or judgment creditor in possession of the said properties. They further assail the respondent court's finding that the "petitioner has only himself to blame that more property was sold by the sheriff, or that the value of the property sold to satisfy his debt far exceeded the judgment against him, for he could, and should, have been present at the auction to direct the manner and order of the sale of his various property (sic)" (Rollo, p. 27). On the other hand, the respondent asserts that this Court disposed of Civil Case No. 17585 when it issued resolutions dated February 9, 1983 and May 4, 1983 denying, for lack of merit, the petitioner's prayer to reverse the trial court's order for entry of judgment and issuance of new certificates of title in favor of the respondent. He states that what the lower court has to do is ministerial and mandatory. He contends that in this case, even Civil Case No. 43846 which seeks the annulment of the levy and sale of the properties may be dismissed on the ground of res judicata. We sustain the petitioner's view. The resolution of this case calls for a consideration of the nature of a writ of possession as it relates to an execution sale. In the case of Mabale v. Apalisok (88 SCRA 234), this Court held: ". . . That writ is available (1) in a land registration proceeding, which is a proceeding in rem (Sec. 17, Act No. 496; Estipona v. Navarro, L-41825, January 30, 1976, 69 SCRA 285, 291); (2) in an extrajudicial foreclosure of a realty mortgage (Sec. 7, Act No. 3135); (3) in a judicial foreclosure of a mortgage, a quasi in rem proceeding, provided that the mortgagor is in possession of the mortgaged realty and no third person, not a party to the foreclosure suit, had intervened (Rivera v. Court of First Instance of Nueva Ecija and Rupac, 61 Phil. 201; Ramos v. Maalac and

Lopez, 89 Phil. 270, 275) and (4) in execution sales (last par. of sec. 35, Rule 39, Rules of Court)." The possession of the property sold at an execution sale shall be conferred on the purchaser under the conditions set by Section 35 of Rule 39, Rules of Court, to wit: "Sec. 35. Deed and possession to be given at expiration of redemption period. By whom executed or given. If no redemption be made within twelve (12) months after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession of the property; or, if so redeemed whenever sixty (60) days have elapsed and no other redemption has been made, and notice thereof given, and the time of redemption has expired, the last redemptioner, or his assignee, is entitled to the conveyance and possession, but in all cases the judgment debtor shall have the entire period of twelve (12) months from the date of the sale to redeem the property. The deed shall be executed by the officer making the sale or by his successor in office, and the latter case shall have the same validity as though the officer making the sale had continued in office and executed it. "Upon the execution and delivery of said deed the purchaser, or redemptioner, or his assignee, shall be substituted to and acquire all the right, title, interest and claim of the judgment debtor to the property as of the time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be effective as of the date of the deed. 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 debtor." From the foregoing discussion, it can be seen that the writ of possession may issue in favor of a purchaser in an execution sale when the deed of conveyance has been executed and delivered to him after the period of redemption has expired and no redemption has been made by the judgment debtor.

A writ of possession is complementary to a writ of execution (see Vda. de Bogacki v. Inserto, 111 SCRA 356, 363), and in an execution sale, it is a consequence of a writ of execution, a public auction sale, and the fulfillment of several other conditions for conveyance set by law. The issuance of a writ of possession is dependent on the valid execution of the procedural stages preceding it. Any flaw afflicting any of its stages, therefore, could affect the validity of its issuance. In the case at bar, the validity of the levy and sale of the properties is directly put in issue in another case by the petitioners. This Court finds it an issue which requires pre-emptive resolution. For if the respondent acquired no interest in the property by virtue of the levy and sale, then, he is not entitled to its possession. The respondent appellate court's emphasis on the failure of the petitioner to redeem the properties within the period required by law is misplaced because redemption, in this case, is inconsistent with the petitioner's claim of invalidity of levy and sale. Redemption is an implied admission of the regularity of the sale and would estop the petitioner from later impugning its validity on that ground. (See Castillo v. Nagtalon, 4 SCRA 48, 53.) Moreover, equitable considerations constrain us to reverse the decision of the respondent court. The fact is undisputed that the properties in question were sold at an unusually lower price than their true value. Properties worth at least P500,000.00 were sold for only P57,396.85. We do not comment on the consequences of the inadequacy because that is the very issue which confronts the court below in the pending case. It appearing, however, that the issuance of the writ of possession would and might work injustice because the petitioner might not be entitled thereto, we rule that it be withheld. WHEREFORE, the decision appealed from is hereby REVERSED. The order of the trial court dated November 18, 1983 is reinstated. SO ORDERED. Fernan (Chairman), Paras, Padilla, Bidin and Cortes, JJ., concur.

SECOND DIVISION [G.R. No. 78012. November 29, 1988.] DELTA MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS, TENTH DIVISION and NATALIA CARPENA OPULENCIA, respondents. Salva, Villanueva, Valera & Associates Law Offices for petitioner. Amado A. Amador, Jr., for private respondent. SYLLABUS 1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; EXECUTION; SALES ON EXECUTION MUST BE PRECEDED BY A PRIOR LEVY ON EXECUTION; CONCEPT OF LEVY ON EXECUTION OF A JUDGMENT, EXPLAINED. It is basic that sales on execution must be preceded by a prior levy on execution. The levy on execution of a judgment consists in the act or acts by which an officer sets apart or appropriates a part or the whole of the property of the judgment debtor for purposes of the prospective execution sale (Llenares vs. Valdevella, et al., 46 Phil. 358 [1924]). Levy is the essential act by which the property is set apart for the satisfaction of the judgment and taken into custody of the law (Del Rosario vs. Yatco, L-18735, December 29, 1966, 18 SCRA 1263). And in case of levy upon a realty, notice of levy is required to be filed with the Register of Deeds. 2. ID.; ID.; ID.; ID.; SALE OD REAL PROPERTY ON EXECUTION; COMPLIANCE THEREWITH, INADEQUATE. Section 18, Rule 39 of the Rules of Court also provides that, before any sale of real property on execution, notice thereof must be given by posting copies of the notice of sale for twenty [20] days in three [3] public places in the municipality or city where the property is situated and also where the property is to be sold, and if the assessed value of the property exceeds P400.00, copy of the notice is to be published once a week, for the same period in a newspaper of general circulation in the corresponding province or city. That compliance with said requisites was inadequate is shown

by the Sheriff's Return, which mentioned only the publication but not the posting. 3. ID.; EVIDENCE; DISPUTABLE PRESUMPTIONS PRESUMPTION THAT OFFICIAL DUTIES WERE REGULARLY PERFORMED CANNOT BE INVOKED. The presumption that official duties were regularly performed (Section 5 [m], Rule 131) cannot be invoked considering the peculiar circumstances obtaining. 4. ID.; CIVIL PROCEDURE; JUDGMENT; EXECUTION; ISSUANCE OF A WRIT OF POSSESSION COMPLEMENTARY TO A WRIT THEREOF. The issuance of a Writ of Possession is complementary to a Writ of Execution and is likewise dependent on the valid execution of the procedural stages preceding it. Any flaw afflicting any of those stages, affects the validity of its issuance (Cometa vs. IAC, L-69294, June 30, 1987, 151 SCRA 563). 5. ID.; ID.; ID.; ID.; PURCHASER OR HIS ASSIGNEE ENTITLED TO A CONVEYANCE AND POSSESSION OF PROPERTY IF NO REDEMPTION BE MADE WITHIN TWELVE MONTHS AFTER SALE. The irregularity of having two highest bidders at the same Sheriff's sale, both offering the same highest bid for the same property has not been satisfactorily explained. A Certificate of Sale was issued to DELTA as the highest bidder on 30 April 1980 after the auction sale (Annex "D", p. 42, Rollo). But the Final Deed of Sale was issued on 31 August 1985 in favor of one Jose Ch. Alvarez, who was listed therein as the highest bidder of the property sold in the auction sale (Annex "E", p. 43, Rollo). This runs counter to Section 35, Rule 39 of the Rules of Court explicitly providing that if no redemption be made within twelve [12] months after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession of the property. DECISION MELENCIO-HERRERA, J p:

Sought in this Petition are a review and a reversal of the Decision of respondent Court of Appeals, ** promulgated on 19 February 1987, in CA-G.R. SP. No. 08406, entitled "Opulencia vs. Hon. de la Cruz, et al.," as well as its Resolution of 2 April 1987 denying reconsideration. LLjur The spouses Manuel and Natalia Carpena Opulencia (hereafter the OPULENCIAS) became indebted to petitioner Delta Motor Corporation (DELTA, for brevity) for the construction of the building, supply and installation of their ice plant equipment in the total amount of P1,438,090.58. As security for the payment of these obligations, they executed a real estate mortgage over their land, building and ice plant equipment in favor of DELTA. For failure of the OPULENCIAS to pay their obligation, DELTA filed a Complaint against them on 21 May 1975, docketed as Civil Case No. 21335, before the Regional Trial Court of Pasig, Branch CLX. On 23 August 1978, the OPULENCIAS entered into a Compromise Agreement confessing to an obligation of P1,644,496.19 plus 12% annual interest, payable without need of demand in eighty-four [84] equal monthly installments beginning 30 April 1978. An acceleration clause in the agreement provided for immediate demandability in case of default in any one payment. The Trial Court approved the aforesaid Agreement on 29 November 1978. On 6 August 1979, for failure of the OPULENCIAS to comply with the terms and conditions of the Compromise Agreement, the Trial Court issued a Writ of Execution for the full compromise amount. Pursuant thereto, on 27 August 1979, a Special Sheriff levied execution, not on the Torrens Title covering the mortgaged properties, but on two [2] Tax Declarations at the Office of the City Assessor of Batangas City. The first, Tax Declaration No. 44126, covered 4,475 square meters of land at Batangas City; and the second, Tax Declaration No. 14266, covered the improvement thereon, an ice plant built on the land.

In his Notice of Sale, dated 11 January 1980, the Special Sheriff set the auction sale of both properties for 30 April 1980. On the said date, the Special Sheriff issued a Certificate of Sale to DELTA as the highest bidder at the auction sale on a bid of P2,147,162.49. LibLex The sale, however, was not registered and annotated at the back of the covering title, OCT No. RO-124 (0-722), of the Register of Deeds of Batangas, until approximately four [4] years later, or, on 26 June 1984 for the reason that the title still had to be judicially reconstituted after the said title was burned when the Office of the Register of Deeds of Batangas City was razed by fire and the owner's copy was also lost. The one-year period within which to redeem the mortgaged properties having lapsed without any redemption having been effected, a Final Deed of Sale on the same bid of P2,147,162.49 was issued on 31 August 1985 in favor of one Jose Ch. Alvarez whose name appeared in the said Final Deed of Sale as the highest bidder of the properties sold, instead of DELTA, although the first Certificate of Sale issued after the 30 April 1980 auction sale listed DELTA as the highest bidder. On 27 September 1985 the Trial Court approved the Sheriff's Final Deed of Sale and issued a Writ of Possession on 30 September 1985. On 29 October 1985 the OPULENCIAS filed an Urgent Petition for Relief from execution of judgment and to set aside the Writ of Possession on the ground of irregularity in the implementation of the Writ of Execution by the Sheriff. The Petition was denied by the Trial Court on 23 December 1985. On a Petition for Certiorari and Prohibition, the Appellate Court, in its Decision promulgated on 19 February 1987, reversed the Trial Court holding that "the actuations of the special sheriff from levy on the properties to the issuance of certificates of sale were attended by irregularities serious enough to invalidate all proceedings had pursuant to the writ of execution" (p. 3, CA Decision, p. 109, Rollo),

"without however prejudice to whatever rights which have accrued to Delta from the August 23, 1978 Compromise Agreement" (p. 6, CA Decision, p. 112, Rollo). It is the aforesaid judgment of reversal, invalidating the approval by the Trial Court on 27 September 1985 of the Final Deed of Sale, and its issuance of a Writ of Possession on 30 September 1985, that is assailed in the instant Petition, predicated on the following averments: "I. The decision in Civil Case No. 21335 (Delta vs. Opulencia, et al.) has long become final and executory. "II. Private respondent bound their properties under the compromise agreement. "III. Execution issues as a matter of right and is mandatory when the judgment becomes final, this petition filed in the Court of Appeals was improper to alter or repeal a ministerial act. "IV. Under the facts and the law, a writ of possession must issue ministerially. "V. Possession of premises have been delivered or transferred to bidder as shown by notice of delivery. "VI. Honorable Court of Appeals erred in not dismissing the petition for certiorari, etc. "VII. Private respondent is barred by laches, having voluntarily ratified the execution of the judgment. "VIII. Hon. Court of appeals erred in holding that there was no valid levy and no valid notice of sale. "IX. That the RTC Judge in denying the petition for relief and to set aside writ of possession did not act without or in excess of jurisdiction and with grave abuse of discretion. "X. The appearance of two (2) certificates of sale did not and will not prejudice private respondent." (pp. 5-7, Memorandum for the Petitioner, pp. 175-177, Rollo). We resolved to give due course and required the submittal of memoranda by the parties with which they have complied.

There is no gainsaying that, as DELTA alleges, the Decision in Civil Case No. 21335 (Delta vs. Opulencia, et al.) approving the Compromise Agreement between the parties had become final and executory; that the OPULENCIAS bound their properties under the Compromise Agreement of 23 August 1978; that execution issues as a matter of right once the judgment has become final and that a Writ of Possession follows ministerially thereafter. These are not the points in controversy, however. They are of marginal relevance. The threshold issue is the validity of the levy and sale on execution and of the Writ of Possession which ensued thereafter. The factual findings of respondent Appellate Court are: (1) that there was no valid levy on the properties so that there was nothing that the Sheriff could have sold, citing a Certification of the Register of Deeds of Batangas City that no notice of levy or Writ of Execution was ever presented or filed in that Office for registration and annotation at the back of OCT No. 0-772: (2) that even assuming that there had been a valid levy, still, proper posting was not effected as required by Section 18, Rule 39, of the Rules of Court. The Sheriffs Return mentioned the publication of the notice of sale but nothing was mentioned of the required posting. And more significantly, (3) the Special Sheriff issued two [2] Certificates of Sale over the same properties in favor of two [2] different buyers both as the highest bidders, one of whom was DELTA and the other, Alvarez, although respondent Appellate Court found as a fact that Alvarez was not a participant at the auction sale much less the highest bidder. As said Court held, "the conclusion must be that Alvarez' certificate of sale is spurious and constitutes an attempt to vary the results of official actuations" (p. 5, CA Decision, p. 111, Rollo). llcd Not only are the foregoing findings of fact of respondent Appellate Court entitled to the highest respect from, and binding, on this Court but its conclusions derived from those facts are supported by law and jurisprudence.

It is basic that sales on execution must be preceded by a prior levy on execution. The levy on execution of a judgment consists in the act or acts by which an officer sets apart or appropriates a part or the whole of the property of the judgment debtor for purposes of the prospective execution sale (Llenares vs. Valdevella, et al., 46 Phil. 358 [1924]). Levy is the essential act by which the property is set apart for the satisfaction of the judgment and taken into custody of the law (Del Rosario vs. Yatco, L-18735, December 29, 1966, 18 SCRA 1263). And in case of levy upon a realty, notice of levy is required to be filed with the Register of Deeds. "To effect a levy upon a realty, the sheriff is required to do two specific things: (1) File with the Register of Deeds a copy of the order, description of the attached property and notice of attachment, and (2) Leave with the occupant of the property copy of the same order, description and notice. These are prerequisites to a valid levy, non-compliance with any of which is fatal. For the weight of authority is to the effect that a special statutory provision respecting the manner of carrying out levy of attachment must be strictly complied with, and departure therefrom shall invalidate the levy. (Philippine Surety and Ins. Co. Inc. vs. Zabal, L-21556, October 31, 1967, 21 SCRA 682). [Emphasis supplied] In this case, notice of levy was filed with the City Assessor's Office on two tax declarations covering the properties in question and not on the title itself as provided for by the Land Registration Act, which requires all transactions respecting property covered by Torrens Titles to be recorded with the Register of Deeds. Consequently, the levy made by the Special Sheriff herein could not bind the land nor create a lien on the property. While the original of OCT No. 0-722 was admittedly burned on 23 May 1979 and the owner's copy lost, copy of the levy could have been preliminary furnished the Register of Deeds. Besides, the Appellate Court found, as a fact, that DELTA had in its possession authentic copies of Decree No. N-142968 from which OCT No. 722 was issued and of the technical description of the land (p. 3, CA

Decision, p. 109 Rollo). The loss of the original and copy of the title, therefore, was no justification for failure to cause the annotation of the lien on execution with the Register of Deeds. Section 18, Rule 39 of the Rules of Court also provides that, before any sale of real property on execution, notice thereof must be given by posting copies of the notice of sale for twenty [20] days in three [3] public places in the municipality or city where the property is situated and also where the property is to be sold, and if the assessed value of the property exceeds P400.00, copy of the notice is to be published once a week, for the same period in a newspaper of general circulation in the corresponding province or city. That compliance with said requisites was inadequate is shown by the Sheriff's Return, which mentioned only the publication but not the posting. The presumption that official duties were regularly performed (Section 5 [m], Rule 131) cannot be invoked considering the peculiar circumstances obtaining. The issuance of a Writ of Possession is complementary to a Writ of Execution and is likewise dependent on the valid execution of the procedural stages preceding it. Any flaw afflicting any of those stages, affects the validity of its issuance (Cometa vs. IAC, L69294, June 30, 1987, 151 SCRA 563). LLjur The irregularity of having two highest bidders at the same Sheriff's sale, both offering the same highest bid for the same property has not been satisfactorily explained. A Certificate of Sale was issued to DELTA as the highest bidder on 30 April 1980 after the auction sale (Annex "D", p. 42, Rollo). But the Final Deed of Sale was issued on 31 August 1985 in favor of one Jose Ch. Alvarez, who was listed therein as the highest bidder of the property sold in the auction sale (Annex "E", p. 43, Rollo). This runs counter to Section 35, Rule 39 of the Rules of Court explicitly providing that if no redemption be made within twelve [12] months after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession of the property. Alvarez has not been shown to be the assignee of DELTA.

DELTA'S posture that said two [2] sales will not in any way prejudice the OPULENCIAS, since DELTA recognizes the sale of the property to Alvarez, can not be allowed to overcome the irregularities in the proceedings concerning the sale. An anomalous situation cannot pass unchallenged. The OPULENCIAS acted seasonably after the approval by the Trial Court of the Sheriff's Final Deed of Sale and its issuance of the Writ of Possession and they cannot be held barred by laches. It was not the compromise judgment of the Trial Court of 29 November 1978 that they were assailing but the execution of that judgment. It should be stressed, however, that while irregularities attended the proceedings concerning the execution sale sufficient to affect the Writ of Possession which is but a consequence thereof, the OPULENCIAS are bound by the terms of the Compromise Agreement they had executed on 23 August 1978 and approved by the Trial Court on 29 November 1978. They cannot be allowed to renege on the same on the ground that the husband did not sign said Agreement it appearing that the spouses mortgaged the same properties in favor of DELTA to secure the very same judgment obligation and that in their Petition for Reconstitution of OCT 0722, said spouses acknowledged their obligation to DELTA, thereby evidencing that the obligation is actually conjugal. It is still incumbent upon the OPULENCIAS to pay their judgment obligation to DELTA plus interest at the legal rate and back real estate taxes paid thus far. WHEREFORE, the judgment appealed from is hereby MODIFIED in that the spouses Manuel and Natalia Opulencia are hereby ordered to pay Delta Motors Corporation the sum of P2,147,162.49 plus interest at the legal rate, back real estate taxes, and costs, the same to be paid into the Trial Court within a period of ninety [90] days from the date of service of this judgment, and in case of default of such payment, the properties mortgaged shall be sold in the manner and under the regulations that govern sales of real

estates under execution, the proceeds realized to be turned over to petitioner Delta Motors Corporation. SO ORDERED. Paras, Padilla, Sarmiento and Regalado, JJ ., concur. Footnotes ** Penned by Justice Serafin E. Camilon and concurred in by Justices Ricardo L. Provone, Jr. and Bonifacio A. Cacdac, Jr.

SECOND DIVISION [G.R. No. 119247. February 17, 1997.] CESAR SULIT, petitioner, vs. COURT OF APPEALS and ILUMINADA CAYCO, respondents. Jesus M. Bautista for petitioner Benjamin A. Opea for private respondent. SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; MORTGAGE; INTEREST; LEGAL RATE OF 12% PER ANNUM ON DUE AND DEMANDABLE LOAN IN THE ABSENCE OF STIPULATION. It is elementary that in the absence of a stipulation as to interest, the loan due will now earn interest at the legal rate of 12% per annum. LLjur 2. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS THAT EVIDENCE WILLFULLY SUPPRESSED IS ADVERSE IF PRODUCED; APPLIED IN CASE AT BAR. It baffles this Court why petitioner has continually failed up to the present to submit documentary evidence of the alleged expenses of the foreclosure sale, and this in spite of the express requirement therefor in the certificate of sale issued by the notary public for the purpose of computing the actual amount payable by the mortgagor or redemptioner in the event of redemption. It may thus be safely presumed that such evidence having been willfully suppressed, it would be adverse if produced. 3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; MORTGAGE; FORECLOSURE SALE; ISSUANCE OF WRIT OF POSSESSION, MINISTERIAL. The governing law thus explicitly authorizes the purchaser in a foreclosure sale to apply for a writ of possession during the redemption period by filing an ex parte motion under oath for that purpose in the corresponding registration or cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and the approval of the corresponding bond, the law also in express terms directs the court to issue the order for a writ of possession. No discretion

appears to be left to the court. Any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is to be determined in a subsequent proceeding as outlined in Section 8 of Act 3135, and it cannot be raised as a justification for opposing the issuance of the writ of possession since, under the Act, the proceeding for this is ex parte. Such recourse is available to a mortgagee, who effects the extrajudicial foreclosure of the mortgage, even before the expiration of the period of redemption provided by law and the Rules of Court. 4. ID.; ID.; ID.; ID.; ID.; EXCEPTION. The rule is however, not without exception. Under Section 35, Rule 39 of the Rules of Court, which is made applicable to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure "unless a third party is actually holding the property adversely to the judgment debtor." 5. ID.; ID.; ID.; ID.; ID.; ID.; WHERE FORECLOSED PROPERTY WAS SOLD 40% IN EXCESS OF THE MORTGAGE DEBT. The case at bar is quite the reverse, in the sense that instead of an inadequacy in price, there is due in favor of private respondent, as mortgagor, a surplus from the proceeds of the sale equivalent to approximately 40% of the total mortgage debt, which excess is indisputably a substantial amount. Nevertheless, it is our considered opinion, and we so hold, that equitable considerations demand that a writ of possession should also not issue in this case. 6. ID.; ID.; ID.; ID.; APPLICATION OF PROCEEDS TO MORTGAGOR'S OBLIGATION, AN ACT OF PAYMENT; MORTGAGEE, CONSIDERED TRUSTEE OF THE BALANCE. In forced sales low prices are generally offered and the mere inadequacy of the price obtained at the sheriff's sale, unless shocking to the conscience, has been held insufficient to set aside a sale. This is because no disadvantage is caused to the

mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price becomes immaterial since the judgment debtor may reacquire the property or sell his right to redeem, and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale. The application of the proceeds from the sale of the mortgaged property to the mortgagor's obligation is an act of payment, not payment by dation; hence, it is the mortgagee's duty to return any surplus in the selling price to the mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fund, and, being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption. 7. ID.; ID.; ID.; ID.; MERE INADEQUACY OF PRICE, NOT SUFFICIENT TO SET ASIDE FORECLOSURE SALE; REASON. The general rule that mere inadequacy of price is not sufficient to set aside a foreclosure sale is based on the theory that the lesser the price the easier it will be for the owner to effect the redemption. The same thing cannot be said where the amount of the bid is in excess of the total mortgage debt. The reason is that in case the mortgagor decides to exercise his right of redemption, Section 30 of Rule 39 provides that the redemption price should be equivalent to the amount of the purchase price, plus one per cent monthly interest up to the time of the redemption, together with the amount of any assessments or taxes which the purchaser may have paid thereon after purchase, and interest on such last-named amount at the same rate. LibLex 8. ID.; ID.; ID.; RIGHT OF REDEMPTION, LIBERALLY CONSTRUED. Where the redemptioner chooses to exercise his right of redemption, it is the policy of the law to aid rather than to

defeat his right. It stands to reason, therefore, that redemption should be looked upon with favor and where no injury will follow, a liberal construction will be given to our redemption laws, specifically on the exercise of the right to redeem. Conformably hereto, and taking into consideration the facts obtaining in this case, it is more in keeping with the spirit of the rules, particularly Section 30 of Rule 39, that we adopt such interpretation as may be favorable to the private respondent. 9. ID.; ID.; ID.; FORECLOSURE SALE; MORTGAGEE ACCOUNTABLE FOR PROCEEDS OF SALE EVEN IF MADE ON CREDIT. In case of a surplus in the purchase price, however, there is jurisprudence to the effect that while the mortgagee ordinarily is liable only for such surplus as actually comes into his hands, but he sells on credit instead of for cash, he must still account for the proceeds as if the price were paid in cash, and in an action against the mortgagee to recover the surplus, the latter cannot raise the defense that no actual cash was received. We cannot simply ignore the importance of surplus proceeds because by their very nature, surplus money arising from a sale of land under a decree of foreclosure stands in the place of the land itself with respect to liens thereon or vested rights therein. They are constructively, at least, real property and belong to the mortgagor or his assigns. Inevitably, the right of a mortgagor to the surplus proceeds is a substantial right which must prevail over rules of technicality. Since it has never been denied that the bid price greatly exceeded the mortgage debt, petitioner cannot be allowed to unjustly enrich himself at the expense of private respondent. 10. ID.; ID.; ID.; FORECLOSURE SALE; SURPLUS MONEY; APPLIED TO LIEN ACCORDING TO THEIR PRIORITY. Surplus money, in case of a foreclosure sale, gains much significance where there are junior encumbrancers on the mortgaged property. Jurisprudence has it that when there are several liens upon the premises, the surplus money must be applied to their discharge in the order of their priority. A junior

mortgagee may have his rights protected by an appropriate decree as to the application of the surplus, if there be any, after satisfying the prior mortgage. His lien on the land is transferred to the surplus fund. And a senior mortgagee, realizing more than the amount of his debt on a foreclosure sale, is regarded as a trustee for the benefit of junior encumbrancers. 11. REMEDIAL LAW; EVIDENCE; CREDIBILITY; FINDINGS OF FACTS OF THE LOWER COURTS, GENERALLY BINDING AND CONCLUSIVE ON APPEAL. A question of noncompliance with the notice and publication requirements of an extrajudicial foreclosure sale is a factual issue and the resolution thereof by the lower courts is binding and conclusive upon this Court, absent any showing of grave abuse of discretion. In the case at bar, both the trial court and respondent Court of Appeals have found that the sale was conducted in accordance with law. No compelling reason exists in this case to justify a rejection of their findings or a reversal of their conclusions. 12. ID.; ACTIONS; MOTION TO SET ASIDE FORECLOSURE SALE AND TO DEFER ISSUANCE OF WRIT OF POSSESSION WHERE EX-PARTE PETITION FOR ISSUANCE OF SAID WRIT WAS PENDING, TREATED AS SUBSTANTIAL COMPLIANCE WITH SECTION 112 OF THE LAND REGISTRATION ACT. There is likewise no merit in the argument that if private respondent had wanted to question the validity of the sale, she should have filed a petition to set the same aside and to cancel the writ of possession. These, it is argued, should have been disposed of in accordance with the summary procedure laid down in Section 112 of the Land Registration Act, provided the petition is filed not later than thirty days after the purchaser was given possession of the land. Considering, however, that private respondent has filed a motion to set aside the sale and to defer the issuance of a writ of possession before the court where the ex parte petition for issuance of such writ was then pending, we deem the same to be substantial compliance with the statutory prescription.

13. CIVIL LAW; OBLIGATIONS AND CONTRACTS; MORTGAGE; FORECLOSURE SALE; REMEDY OF MORTGAGOR AGAINST MORTGAGEE RETAINING MORE OF THE PROCEEDS OF SALE. If the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus. This is likewise in harmony with the decisional rule that in suing for the return of the surplus proceeds. the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made. In the early case of Caparas vs. Yatco, etc., et al., it was also held that where the mortgagee has been ordered by the court to return the surplus to the mortgagor or the person entitled thereto, and the former fails to do so and flagrantly disobeys the order, the court can cite the mortgagee for contempt and mete out the corresponding penalty under Section 3(b) of the former Rule 64 (now Rule 71) of the Rules of Court. prLL DECISION REGALADO, J p: The primary issue posed before the Court, in this appeal by certiorari from a decision 1 of the Court of Appeals, is whether or not the mortgagee or purchaser in an extrajudicial foreclosure sale is entitled to the issuance of a writ of possession over the mortgaged property despite his failure to pay the surplus proceeds of the sale to the mortgagor or the person entitled thereto. Secondarily, it calls for a resolution of the further consequences of such non-payment of the full amount for which the property was sold to him pursuant to his bid. The material facts, as found by respondent court, are not disputed: "It appears from the record that on 9 June 1992 petitioner (herein private respondent) Iluminada Cayco executed a Real Estate Mortgage (REM) over Lot 2630 which is located in Caloocan City and covered by TCT No. (23211) 11591 in favor of private respondent (herein petitioner) Cesar Sulit, to secure a loan of P4

Million. Upon petitioner's failure to pay said loan within the stipulated period, private respondent resorted to extrajudicial foreclosure of the mortgage as authorized in the contract. Hence, in a public auction conducted by Notary Public Felizardo M. Mercado on 28 September 1993 the lot was sold to the mortgagee, herein private respondent, who submitted a winning bid of P7 Million. As stated in the Certificate of Sale executed by the notary public (Annex B, petition), the mortgaged property was sold at public auction to satisfy the mortgage indebtedness of P4 Million. The Certificate further states as follows: IT IS FURTHER CERTIFIED, that the aforementioned highest bidder/buyer, CESAR SULIT, being the petitioner/mortgagee thereupon did not pay to the undersigned Notary Public of Kalookan City the said sum of SEVEN MILLION PESOS (P7,000,000.00), Philippine Currency, the sale price of the abovedescribed real estate property together with all improvements existing thereon, which amount was properly credited to the PARTIAL satisfaction of the mortgage debt mentioned in the said real estate mortgage, plus interests, attorney's fees and all other incidental expenses of foreclosure and sale (par. 2, Annex B, petition). On 13 December 1993 private respondent petitioned the Regional Trial Court of Kalookan City for the issuance of a writ of possession in his favor. The petition was docketed as LRC Case No. C-3462 and assigned to Branch 131, presided over by public respondent. On 17 January 1994 respondent Judge issued a decision (should have been denominated as order), the dispositive part of which reads: WHEREFORE, finding the subject petition to be meritorious, the same is hereby GRANTED. As prayed for, let a Writ of Possession be issued in favor of herein petitioner, Cesar Sulit, upon his posting of an indemnity bond in the amount of One Hundred Twenty Thousand (P120,000.00) Pesos (Annex C, petition).

On 28 March 1994 petitioner filed a Motion to have the auction sale of the mortgaged property set aside and to defer the issuance of the writ of possession. She invited the attention of the court a quo to some procedural infirmities in the said proceeding and further questioned the sufficiency of the amount of bond. In the same Motion petitioner prayed as an alternative relief that private respondent be directed to pay the sum of P3 Million which represents the balance of his winning bid of P7 Million less the mortgage indebtedness of P4 Million (Annex D, petition). This Motion was opposed by private respondent who contended that the issuance of a writ of possession upon his filing of a bond was a ministerial duty on the part of respondent Judge (Annex E), to which Opposition petitioner submitted a Reply (Annex F, petition). On 11 May 1994 respondent Judge denied petitioner's Motion and directed the issuance of a writ of possession and its immediate enforcement by deputy sheriff Danilo Norberte (Annex G, petition)." 2 (Emphasis words supplied for clarity). From the aforesaid orders of the court a quo, herein private respondent Iluminada Cayco filed on May 26, 1994 a petition for certiorari with preliminary injunction and/or temporary restraining order before respondent Court of Appeals, which immediately issued a status quo order restraining the respondent judge therein from implementing his order of January 17, 1994 and the writ of possession issued pursuant thereto. Subsequently, respondent court rendered judgment on November 11, 1994, as follows: "IN JUDGMENT, We grant the writ of certiorari and the disputed order of 17 January 1994 which precipitately directed the issuance of a writ of possession in favor of private respondent and the subsequent order of 11 May 1994 which denied petitioner's Motion for Reconsideration are hereby SET ASIDE. Accordingly, private respondent is ordered to pay unto petitioner, through the notary public, the balance or excess of his bid of P7 Million after deducting therefrom the sum of P4,365.280 which represents the mortgage debt and interest up to the date of the

auction sale (September 23, 1993), as well as expenses of foreclosure based on receipts which must be presented to the notary public. In the event that private respondent fails or refuses to pay such excess or balance, then the auction sale of 28 September 1993 is deemed CANCELLED and private respondent may foreclose the mortgage anew either in a judicial or extrajudicial proceeding as stipulated in the mortgage contract." Corollary to the principal issue earlier stated, petitioner asserts that respondent Court of Appeals gravely erred when it failed to appreciate and consider the supposed legal significance of the bouncing checks which private respondent issued and delivered to petitioner as payment for the agreed or stipulated interest on the mortgage obligation. He likewise avers that a motion for reconsideration or an appeal, and not certiorari, is the proper remedy available to herein private respondent from an order denying her Motion to defer issuance of the writ of possession. Moreover, it is claimed that any question regarding the propriety of the sale and the issuance of the writ of possession must be threshed out in a summary proceeding provided for in Section 8 of Act 3135. There is no merit in petitioner's contention that the dishonored checks amounting to a total of P1,250,000.00, allegedly representing interest of 5% per month from June 9, 1992 to December 9, 1992, were correctly considered by the trial court as the written agreement between the parties. Instead, we find the explanation of respondent court in rejecting such postulate, on the basis of Article 1956 of the Civil Code, 3 to be more logical and plausible, to wit: "It is noteworthy that the Deed of Real Estate Mortgage executed by the parties on 9 June 1992 (Annex A, Petition) does not contain any stipulation for payment of interest. Private respondent who maintains that he had an agreement with petitioner for the payment of 5% monthly interest did not produce any other writing

or instrument embodying such a stipulation on interest. It appears then that if any such agreement was reached by the parties, it was merely a verbal one which does not conform to the aforequoted statutory provision. Certainly, the dishonored checks claimed to have been issued by petitioner in payment of interest could not have been the written stipulation contemplated in Article 1956 of the Code. Consequently, in the absence of a written stipulation for the imposition of interest on the loan obtained by petitioner, private respondent's assessment thereof has no legal basis." 4 It is elementary that in the absence of a stipulation as to interest, the loan due will now earn interest at the legal rate of 12% per annum 5 which, according to respondent court, is equivalent to P365,280.00 computed from December 10, 1992, after private respondent's obligation became due, until September 23, 1993, the date of the auction sale. It is this amount which should further be deducted from the purchase price of P7,000,000.00, together with any other expenses incurred in connection with the sale, such as the posting and publication of notices, notarial and documentary fees and assessments or taxes due on the disputed property. cdtai It baffles this Court, therefore, why petitioner has continually failed up to the present to submit documentary evidence of the alleged expenses of the foreclosure sale, and this in spite of the express requirement therefor in the certificate of sale 6 issued by the notary public for the purpose of computing the actual amount payable by the mortgagor or redemptioner in the event of redemption. It may thus be safely presumed that such evidence having been willfully suppressed, it would be adverse if produced. 7 Coming now to the main issue in this case, petitioner argues that it is ministerial upon the court to issue a writ of possession after the foreclosure sale and during the period of redemption, invoking in support thereof Sections 7 and 8 of Act 3135 which conjointly provide: "Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province

or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. "Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Number Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four

hundred and ninety-six; but the order of possession shall continue in effect during the pendency of the appeal." The governing law thus explicitly authorizes the purchaser in a foreclosure sale to apply for a writ of possession during the redemption period by filing an ex parte motion under oath for that purpose in the corresponding registration or cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and the approval of the corresponding bond, the law also in express terms directs the court to issue the order for a writ of possession. No discretion appears to be left to the court. Any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is to be determined in a subsequent proceeding as outlined in Section 8, and it cannot be raised as a justification for opposing the issuance of the writ of possession since, under the Act, the proceeding for this is ex parte. 8 Such recourse is available to a mortgagee, who effects the extrajudicial foreclosure of the mortgage, even before the expiration of the period of redemption provided by law and the Rules of Court. 9 The rule is, however, not without exception. Under Section 35, Rule 39 of the Rules of Court, which is made applicable to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure "unless a third party is actually holding the property adversely to the judgment debtor." 10 Thus, in the case of Barican, et al. vs. Intermediate Appellate Court, et al., 11 this Court took into account the circumstances that long before the mortgagee bank had sold the disputed property to the respondent therein, it was no longer the judgment debtor who was in possession but the petitioner spouses who had assumed the mortgage, and that there was a pending civil case involving the rights of third parties. Hence, it was ruled therein that under the

circumstances, the obligation of a court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage case ceases to be ministerial. Now, in forced sales low prices are generally offered and the mere inadequacy of the price obtained at the sheriff's sale, unless shocking to the conscience, has been held insufficient to set aside a sale. This is because no disadvantage is caused to the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price becomes immaterial since the judgment debtor may reacquire the property or sell his right to redeem, and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale. 12 However, also by way of an exception, in Cometa, et al. vs. Intermediate Appellate Court, et al. 13 where the properties in question were found to have been sold at an unusually lower price than their true value, that is, properties worth at least P500,000.00 were sold for only P57,396.85, this Court, taking into consideration the factual milieu obtaining therein as well as the peculiar circumstances attendant thereto, decided to withhold the issuance of the writ of possession on the ground that it could work injustice because the petitioner might not be entitled to the same. The case at bar is quite the reverse, in the sense that instead of an inadequacy in price, there is due in favor of private respondent, as mortgagor, a surplus from the proceeds of the sale equivalent to approximately 40% of the total mortgage debt, which excess is indisputably a substantial amount. Nevertheless, it is our considered opinion, and we so hold, that equitable considerations demand that a writ of possession should also not issue in this case. Rule 68 of the Rules of Court provides: Sec. 4. Disposition of proceeds of sale. The money realized from the sale of mortgaged property under the regulations

hereinbefore prescribed shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off such mortgage or other encumbrances, the same shall be paid to the junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment of such encumbrancers, then to the mortgagor or his agent, or to the person entitled to it." The application of the proceeds from the sale of the mortgaged property to the mortgagor's obligation is an act of payment, not payment by dation; hence, it is the mortgagee's duty to return any surplus in the selling price to the mortgagor. 14 Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fund, and, being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption. 15 Commenting on the theory that a mortgagee, when he sells under a power, cannot be considered otherwise than as a trustee, the vice-chancellor in Robertson vs. Norris (1 Giff. 421) observed: "That expression is to be understood in this sense: that with the power being given to enable him to recover the mortgage money, the court requires that he shall exercise the power of sale in a provident way, with a due regard to the rights and interests of the mortgagor in the surplus money to be produced by the sale." 16 The general rule that mere inadequacy of price is not sufficient to set aside a foreclosure sale is based on the theory that the lesser the price the easier it will be for the owner to effect the redemption. 17 The same thing cannot be said where the amount of the bid is in excess of the total mortgage debt. The reason is that in case the mortgagor decides to exercise his right of redemption. Section 30 of Rule 39 provides that the redemption price should be equivalent

to the amount of the purchase price, plus one percent monthly interest up to the time of the redemption, 18 together with the amount of any assessments or taxes which the purchaser may have paid thereon after purchase, and interest on such last-named amount at the same rate. 19 Applying this provision to the present case would be highly iniquitous if the amount required for redemption is based on P7,000,000.00, because that would mean exacting payment at a price unjustifiably higher than the real amount of the mortgage obligation. We need not elucidate on the obvious. Simply put, such a construction will undeniably be prejudicial to the substantive rights of private respondent and it could even effectively prevent her from exercising the right of redemption. Where the redemptioner chooses to exercise his right of redemption, it is the policy of the law to aid rather than to defeat his right. It stands to reason, therefore, that redemption should be looked upon with favor and where no injury will follow, a liberal construction will be given to our redemption laws, specifically on the exercise of the right to redeem. Conformably hereto, and taking into consideration the facts obtaining in this case, it is more in keeping with the spirit of the rules, particularly Section 30 of Rule 39, that we adopt such interpretation as may be favorable to the private respondent. Admittedly, no payment was made by herein petitioner, as the highest bidder, to the notary public who conducted the extrajudicial foreclosure sale. We are not unmindful of the rule that it is not necessary for the mortgagee to pay cash to the sheriff or, in this case, the notary public who conducted the sale. It would obviously serve no purpose for the sheriff or the notary public to go through the idle ceremony of receiving the money and paying it back to the creditor, under the truism that the lawmaking body did not contemplate such a pointless application of the law in requiring that the creditor must bid under the same conditions as any other bidder. 20 It bears stressing that the rule holds true only where the

amount of the bid represents the total amount of the mortgage debt. In case of a surplus in the purchase price, however, there is jurisprudence to the effect that while the mortgagee ordinarily is liable only for such surplus as actually comes into his hands, but he sells on credit instead of for cash, he must still account for the proceeds as if the price were paid in cash, and in an action against the mortgagee to recover the surplus, the latter cannot raise the defense that no actual cash was received. 21 We cannot simply ignore the importance of surplus proceeds because by their very nature, surplus money arising from a sale of land under a decree of foreclosure stands in the place of the land itself with respect to liens thereon or vested rights therein. They are constructively, at least, real property and belong to the mortgagor or his assigns. 22 Inevitably, the right of a mortgagor to the surplus proceeds is a substantial right which must prevail over rules of technicality. Surplus money, in case of a foreclosure sale, gains much significance where there are junior encumbrancers on the mortgaged property. Jurisprudence has it that when there are several liens upon the premises, the surplus money must be applied to their discharge in the order of their priority. 23 A junior mortgagee may have his rights protected by an appropriate decree as to the application of the surplus, if there be any, after satisfying the prior mortgage. His lien on the land is transferred to the surplus fund. 24 And a senior mortgagee, realizing more than the amount of his debt on a foreclosure sale, is regarded as a trustee for the benefit of junior encumbrancers. 25 Upon the strength of the foregoing considerations, we cannot countenance the apparent paltriness that petitioner persistently accords the right of private respondent over the surplus proceeds. It must be emphasized that petitioner failed to present the receipts or any other proof of the alleged costs or expenses incurred by him in the foreclosure sale. Even the trial court failed or refused to

resolve this issue, notwithstanding the fact that this was one of the grounds raised in the motion filed by private respondent before it to set aside the sale. Since it has never been denied that the bid price greatly exceeded the mortgage debt, petitioner cannot be allowed to unjustly enrich himself at the expense of private respondent. As regards the issue concerning the alleged defect in the publication of the notice of the sale, suffice it to state for purposes of this discussion that a question of non-compliance with the notice and publication requirements of an extrajudicial foreclosure sale is a factual issue and the resolution thereof by the lower courts is binding and conclusive upon this Court, 26 absent any showing of grave abuse of discretion. In the case at bar, both the trial court and respondent Court of Appeals have found that the sale was conducted in accordance with law. No compelling reason exists in this case to justify a rejection of their findings or a reversal of their conclusions. There is likewise no merit in the argument that if private respondent had wanted to question the validity of the sale, she should have filed a petition to set the same aside and to cancel the writ of possession. These, it is argued, should have been disposed of in accordance with the summary procedure laid down in Section 112 of the Land Registration Act, provided the petition is filed not later than thirty days after the purchaser was given possession of the land. Considering, however, that private respondent has filed a motion to set aside the sale and to defer the issuance of a writ of possession before the court where the ex parte petition for issuance of such writ was then pending, we deem the same to be substantial compliance with the statutory prescription. We, however, take exception to and reject the last paragraph in the dispositive portion at the questioned decision of respondent court, which we repeat: "In the event that private respondent fails or refuses to pay such excess or balance, then the auction sale of 28 September 1993 is

deemed CANCELLED and private respondent ( petitioner herein) may foreclose the mortgage anew either in a judicial or extrajudicial proceeding as stipulated in the mortgage contract." for lack of statutory and jurisprudential bases. The quoted phrase "as stipulated in the mortgage contract" does not, of course, envision such contingency or warrant the suggested alternative procedure. Section 4 of Rule 64, hereinbefore quoted, merely provides that where there is a balance or residue after payment of the mortgage, the same shall be paid to the mortgagor. While the expedient course desired by respondent court is commendable, there is nothing in the cited provision from which it can be inferred that a violation thereof will have the effect of nullifying the sale. The better rule is that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus. 27 This is likewise in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made. 28 In the early case of Caparas vs. Yatco, etc., et al., 29 it was also held that where the mortgagee has been ordered by the court to return the surplus to the mortgagor or the person entitled thereto, and the former fails to do so and flagrantly disobeys the order, the court can cite the mortgagee for contempt and mete out the corresponding penalty under Section 3(b) of the former Rule 64 (now Rule 71) of the Rules of Court. WHEREFORE, the questioned decision of the Court of Appeals is MODIFIED by deleting. the last paragraph of its fallo, but its disposition of this case in all other respects is hereby AFFIRMED. SO ORDERED. Romero, Puno, Mendoza and Torres, Jr., JJ., concur.

THIRD DIVISION [G.R. No. 79906. June 20, 1988.] RAFAEL BARICAN and ARACELI ALEJO, petitioners, vs. INTERMEDIATE APPELLATE COURT, and DEVELOPMENT BANK OF THE PHILIPPINES, respondents. DECISION GUTIERREZ, JR., J p: This is a petition for review of the decision of the then Intermediate Appellate Court which granted an alias writ of possession in favor of the respondent bank and set aside the order dated March 21, 1986 of the Regional Trial Court of Caloocan City, Branch 128 which denied the private respondent bank's application for the issuance of such-writ pending the resolution of a civil case before the court. Spouses Antonio Regondola and Dominga Zabat obtained a loan from the respondent bank. As security for the payment of the loan, the Regondolas and the respondent bank entered into a contract of real estate mortgage. For failure of the Regondolas to fulfill the terms of the contract, the respondent bank extra-judicially foreclosed the mortgage. Cdpr The mortgaged property covered by TCT No. 57677 (495811, Caloocan Register of Deeds) was then sold at a public auction sale conducted by the Assistant City Sheriff of Caloocan City. The respondent bank was declared the highest bidder and the corresponding certificate of sale was registered on October 7, 1980. The Regondola spouses failed to redeem the property within the one-year period of redemption. Hence, the title to the property was consolidated in the name of the respondent bank. The transfer certificate of title issued in the name of the mortgagor-spouses was later annulled and a new one (TCT No. 117068) was issued in favor of the private respondent. On October 28, 1984, the respondent bank sold the property to Nicanor Reyes.

On October 5, 1985, the bank filed with the lower court a petition for issuance of a writ of possession. On October 7, 1985, the lower court issued an order granting the issuance of a writ of possession over the foreclosed property including the buildings and improvements therein in favor of the respondent bank. However, before the writ of possession could be implemented, petitioner-spouses Rafael Barican and Araceli Alejo filed a petition to stay its implementation. They opposed the writ of possession claiming that they are the real owners and actual possessors of the foreclosed property as evidenced by a deed of sale with assumption of mortgage they executed with spouses Regondolas. The petitioner-spouses disclosed that they had actually filed a complaint for declaration of ownership over the foreclosed property and damages with preliminary injunction against the respondent bank and Nicanor Reyes with the Regional Trial Court of Caloocan City, Branch 128. The case was docketed as Civil Case No. C11232. On October 16, 1985, the lower court issued an order to stay the writ of possession on the ground that the rights of the plaintiffs in the civil case (petitioner-spouses herein) would be prejudiced if the execution proceeds. Likewise, a petition exparte for the issuance of an alias writ of possession filed by the respondent bank was denied by the lower court in its order dated March 21, 1986. cdll Upon appeal the questioned March 21, 1986 order was set aside by the Court of Appeals. The appellate court ordered the lower court to issue the writ of possession in favor of the respondent bank. Their motion for reconsideration of the appellate court's decision having been denied, the petitioners interposed the present petition. In a resolution dated October 1, 1987, we issued a temporary restraining order enjoining the enforcement of the appellate court's decision.

The sole issue raised in this petition is whether or not the pendency of Civil Case No. C-11232 for ownership of the foreclosed property is a bar or legal impediment to the issuance of a writ of possession in favor of respondent bank, the highest bidder in the auction sale of the said foreclosed property. Relying on Sections 7 and 8 of Act No. 3135, Section 4 of P.D. 385, and the cases of De Los Angeles v. Court of Appeals, et al. (60 SCRA 116); De Gracia v. San Jose (94 Phil. 623); Marcelo Steel Corporation v. Court of Appeals (54 SCRA 89); IFC Service Leasing and Acceptance Corporation v. Nera (19 SCRA 181); and Philippine National Bank v. Adil (118 SCRA 110), the appellate court ruled that the lower court was left with no discretion but to issue a writ of possession because the issuance of a writ of possession in favor of a purchaser in a foreclosure sale of a mortgaged property is a ministerial act of the court. More important, the appellate court mentioned Section 4 of Presidential Decree 385 which provides for the rights of government financial institutions as purchasers in extra-judicial foreclosure sales. It states: "Section 4. As a result of foreclosure or any other legal proceedings wherein the properties of the debtor which are foreclosed, attached, or levied upon in satisfaction of a judgment are sold to a government financial institution, the said properties shall be placed in the possession and control of the financial institution concerned, with the assistance of the Armed Forces of the Philippines whenever necessary. The Petition for Writ of Possession shall be acted upon by the court within fifteen (15) days from the date of filing." which was interpreted by this Court in the case of Philippine National Bank v. Adil (supra) in the following manner: "Pursuant to the above provision, it is mandatory for the court to place the government financial institution, which petitioner is, in the possession and control of the property. As stated, the said decree was enacted' in order to effect the early collection of delinquent

loans from government financial institutions and enable them to continue effectively financing the development needs of the country' without being hampered by actions brought to the courts by borrowers." (at pp. 114-115) The petitioners take exception to the application of Section 4, P.D. No. 385 and the cited cases because "there is a peculiar circumstance where the alias writ of possession could not be issued not only because of the present possession of the petitioners but also of the fact that the property in question was already sold to Nicanor Reyes by the respondent Development Bank of the Philippines." In the instant case, the petition for the issuance of an alias writ of possession was set for hearing. During the hearing, the lower court discovered certain facts, among them: In Civil Case No. C-11232, the petitioner-spouses claim ownership of the foreclosed property against the respondent bank and Nicanor Reyes to whom the former sold the property by negotiated sale; the complaint alleged that the DBP knew the assumption of mortgage between the mortgagors and the petitioner-spouses and the latter have paid to the respondent bank certain amounts to update the loan balances of the mortgagors and transfer and restructuring fees which payments are duly receipted; the petitioner-spouses were already in possession of the property since September 28, 1979 and long before the respondent bank sold the same property to respondent Nicanor Reyes on October 28, 1984; and the respondent bank never took physical possession of the property. Under these circumstances, the obligation of a court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage case ceases to be ministerial. The well-settled rule is that the purchaser in a foreclosure sale of a mortgaged property is entitled to a writ of possession and that upon an ex-parte petition of the purchaser, it is ministerial upon the court to issue such writ of possession in favor of the purchaser (Banco Filipino Savings and Mortgage Bank v. Pardo, 151 SCRA

481; Banco Filipino Savings and Mortgage Bank v. Intermediate Appellate Court, 142 SCRA 44; Philippine National Bank v. Adil, supra; De los Angeles v. Court of Appeals, et al., supra; De Gracia v. San Jose, supra; and IFC Service Leasing and Acceptance Corporation v. Nera, supra). However, the rule is not an unqualified one. As we stated in IFC Service Leasing and Acceptance Corporation v. Nera (supra) citing Tan Soo Huat v. Ongwico (63 Phil. 746): cdll "There is no law in this jurisdiction whereby the purchaser at a sheriffs sale of real property is obliged to bring a separate and independent suit for possession after the one-year period for redemption has expired and after he has obtained the sheriff's final certificate of sale. There is neither legal ground nor reason of public policy precluding the court from ordering the sheriff in this case to yield possession of the property purchased at public auction where it appears that the judgment debtor is the one in possession thereof and no rights of third persons are involved." (Emphasis supplied) (See also Banco Filipino Savings and Mortgaged Bank v. Intermediate Appellate Court, supra) Section 4 of P.D. 385 does not apply in the instant case because the respondent bank already divested itself of ownership over the foreclosed property when it sold the same to respondent Nicanor Reyes. As early as 1979, the judgment debtor was no longer in possession. There is a pending civil case involving the rights of third parties. The bank accepted payments on the loan from the petitioners who had assumed the mortgage of the Regondola spouses. We agree with the lower court's observations to the effect that: "There is no question that 'it is ministerial upon the Court to issue a writ of possession in favor of the purchaser in a foreclosure sale of a mortgaged property . . ..' But under the circumstances in the instant case, the Court can not just ignore the claims of the plaintiffs in Civil Case No. 11232 who are in possession that they are the owners of the property in question without first ventilating

this issue in a proper hearing of the case on its merits. Likewise, the mind of the Court can not rest at ease after finding that why did the DBP take five years, after the property mortgaged was foreclosed on October 10, 1980, to file a petition for the issuance of a writ of possession only on August 16, 1985? When Nicanor Reyes bought the property on October 28, 1984, why did the DBP not place Reyes in physical possession of the property? And why did Reyes not take possession of the property? And considering further that the DBP knew that Rafael Barican and his wife are in possession of the property, which is deduced from the argument of counsel for DBP that the Baricans are possessors in bad faith, why then did the DBP not file a complaint of ejectment against them?" (p. 55, Rollo) WHEREFORE, the instant petition is GRANTED. The questioned decision of the Court of Appeals is REVERSED and SET ASIDE. The order dated March 21, 1986 of the Regional Trial Court of Caloocan City, Branch 128 is REINSTATED. The temporary restraining order issued on October 1, 1987 is made permanent. SO ORDERED. Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.