THIRD DIVISION

[G.R. No. 146997. April 26, 2005]

SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, vs. COURT OF APPEALS & WILLIAM ONGGENATO, respondents.

D E C I S I O N

CORONA, J.:

Before us is a petition for review under Rule 45 of the Rules of Court,seeking to set aside the October 6, 2000 decision[1] of the Court of Appealsin CA-G.R. CV No. 56035.

The facts as outlined by the trial court[2] follow.

This is an action to declare null and void the mortgage executed by defendant Oakland Development Resources Corp. xxx in favor of defendant William Ong Genato over the house and lot plaintiffs spouses Godofredo and Dominica Flancia purchased from defendant corporation.

In the complaint, plaintiffs allege that they purchased from defendant corporation a parcel of land known as Lot 12, Blk. 3, Phase III-A containingan area of 128.75 square meters situated in Prater Village Subd. II located at Brgy. Old Balara, Quezon City; that by virtue of the contract of sale, defendant corporation authorized plaintiffs to transport all their personal belongings to their house at the aforesaid lot; that on December 24, 1992, plaintiffs received a copy of the execution foreclosing [the] mortgage issued by the RTC, Branch 98 ordering defendant Sheriff Sula to sell at public auction several lots formerly owned by defendant corporation including subject lot of plaintiffs; that the alleged mortgage of subject lot is null and void as it is not authorized by plaintiffs pursuant to Art. 2085 of the Civil Code which requires that the mortgagor must be the absolute owner of the mortgaged property; that as a consequence of the nullity of said mortgage, the execution foreclosing [the] mortgage is likewise null and void; that plaintiffs advised defendants to exclude subject lot from the auction sale but the latter refused. Plaintiffs likewise prayed for damages in the sum of P50,000.00.

Defendant William Ong Genato filed a motion to dismiss the complaint which was opposed by the plaintiffs and denied by the Court in its Order dated February 16, 1993.

Defendant Genato, then filed his answer averring that on May 19, 1989 co-defendant Oakland Development Resources Corporation mortgaged to Genato two (2) parcels of land covered by TCT Nos. 356315 and 366380 as security and guaranty for the payment of a loan in the sum of P2,000,000.00; that it appears in the complaint that the subject parcel of land is an unsubdivided portion of the aforesaid TCT No. 366380 which covers an area of 4,334 squaremeters more or less; that said real estate mortgage has been duly annotated at the back of TCT No. 366380 on May 22, 1989; that for non-payment of the loan of P2,000,000.00 defendant Genato filed an action for foreclosure of real estate mortgage against co-defendant corporation; that after [trial], adecision was rendered by the Regional Trial Court of Quezon City, Branch 98 against defendant corporation which decision was affirmed by the Honorable Court of Appeals; that the decision of the Court of Appeals has long become final and thus, the Regional Trial Court, Brach 98 of Quezon City issued an Order dated December 7, 1992 ordering defendant Sheriff Ernesto Sula to cause the sale at public auction of the properties covered by TCT No. 366380for failure of defendant corporation to deposit in Court the money judgment within ninety (90) days from receipt of the decision of the Court of Appeals; that plaintiffs have no cause of action against defendant Genato; that the alleged plaintiffs Contract to Sell does not appear to have been registered with the Register of Deeds of Quezon City to affect defendant Genato and the latter is thus not bound by the plaintiffs Contract to Sell; that the registered mortgage is superior to plaintiffs alleged Contract to Sell and it is sufficient for defendant Genato as mortgagee to know that thesubject TCT No. 366380 was clean at the time of the execution of the mortgage contract with defendant corporation and defendant Genato is not bound to go beyond the title to look for flaws in the mortgagors title; thatplaintiffs alleged Contract to Sell is neither a mutual promise to buy and sell nor a Contract of Sale. Ownership is retained by the seller, regardlessof delivery and is not to pass until full payment of the price; that defendant Genato has not received any advice from plaintiffs to exclude the subject lot from the auction sale, and by way of counterclaim, defendant Genato prays forP150,000.00 moral damages and P20,000.00 for attorneys fees.

On the other hand, defendant Oakland Development Resources Corporation likewise filed its answer and alleged that the complaint states no cause of action; xxx Defendant corporation also prays for attorneys fees of P20,000.00 in its counterclaim.[3]

After trial, the assisting judge[4] of the trial court rendered a decisiondated August 16, 1996, the decretal portion of which provided:

Wherefore, premises considered, judgment is hereby rendered.

1) Ordering defendant Oakland Devt. Resources Corporation to pay plaintiffs:

a) the amount of P10,000.00 representing payment for the option to purchaselot;

b) the amount of P140,000.00 representing the first downpayment of the contractprice;

c) the amount of P20,520.80 representing five monthly amortizations forFebruary, March, April, May and June 1990;

d) the amount of P3,000.00 representing amortization for November 1990; allplus legal interest from the constitution of the mortgage up to the time theinstant case was filed.

2) Ordering said defendant corporation to pay further to plaintiffs the sumof P30,000.00 for moral damages, P10,000.00 for exemplary damagesand P20,000.00 for and as reasonable attorneys fees plus cost;

3) Dismissing defendant corporations counterclaim;4) Dismissing defendant Genatos counterclaim.[5]

On motion for reconsideration, the regular presiding judge set aside thejudgment of the assisting judge and rendered a new one on November 27, 1996,the decretal portion of which read:

WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The decision dated August 16, 1996 is hereby set aside and a new one entered in favor of the plaintiffs, declaring the subject mortgage and the foreclosure proceedings held thereunder as null and void insofar as theyaffect the superior right of the plaintiffs over the subject lot, and ordering as follows:

1. Defendant Oakland Development Resources to pay to plaintiffs the amountof P20,000.00 for litigation-related expenses;

2. Ordering defendant Sheriff Ernesto L. Sula to desist from conducting furtherproceedings in the extra-judicial foreclosure insofar as they affect theplaintiffs, or, in the event that title has been consolidated in the name ofdefendant William O. Genato, ordering said defendant to reconvey toplaintiffs the title corresponding to Lot 12, Blk. 3, Phase III-A of PraterVillage [Subd. II], located in Old Balara, Quezon City, containing an areaof 128.75 square meters; and

3. Dismissing the counterclaims of defendants Oakland and Genato and with costsagainst them.[6]

On appeal, the Court of Appeals issued the assailed order:

Wherefore, foregoing premises considered, the appeal having merit in fact and in law is hereby GRANTED and the decision of the Trial Court dated 27 November 1996 hereby SET ASIDE and REVERSED, and its judgment dated August 16, 1996 REINSTATED and AFFIRMED IN TOTO. No Costs.

SO ORDERED.[7]

Hence, this petition.For resolution before us now are the following issues:

(1) whether or not the registered mortgage constituted over the property wasvalid;

(2) whether or not the registered mortgage was superior to the contract tosell; and

(3) whether or not the mortgagee was in good faith.Under the Art. 2085 of the Civil Code, the essential requisites of a

contract of mortgage are: (a) that it be constituted to secure thefulfillment of a principal obligation; (b) that the mortgagor be theabsolute owner of the thing mortgaged; and (c) that the persons constitutingthe mortgage have the free disposal of their property, and in the absencethereof, that they be legally authorized for the purpose.

All these requirements are present in this case.

FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?

As to the first essential requisite of a mortgage, it is undisputed thatthe mortgage was executed on May 15, 1989 as security for a loan obtained byOakland from Genato.

As to the second and third requisites, we need to discuss the differencebetween a contract of sale and a contract to sell.

In a contract of sale, title to the property passes to the vendee uponthe delivery of the thing sold; in a contract to sell, ownership is, byagreement, reserved by the vendor and is not to pass to the vendee untilfull payment of the purchase price.

Otherwise stated, in a contract of sale, the vendor loses ownership overthe property and cannot recover it unless and until the contract is resolvedor rescinded; in a contract to sell, title is retained by the vendor untilfull payment of the price.[8]

In the contract between petitioners and Oakland, aside from the fact thatit was denominated as a contract to sell, the intention of Oakland not to transferownership to petitioners until full payment of the purchase price was veryclear. Acts of ownership over the property were expressly withheld byOakland from petitioner. All that was granted to them by the occupancypermit was the right to possess it.

Specifically, the contract between Oakland and petitioners stated:

xxx xxx xxx

7. That the BUYER/S may be allowed to enter into and take possession of theproperty upon issuance of Occupancy Permit by the OWNER/DEVELOPERexclusively, although title has not yet passed to the BUYER/S, in which casehis possession shall be that of a possessor by mere tolerance Lessee,subject to certain restrictions contained in this deed.

xxx xxx xxx

13. That the BUYER/S cannot sell, mortgage, cede, transfer, assign or in anymanner alienate or dispose of, in whole or in part, the rights acquired byand the obligations imposed on the BUYER/S by virtue of this contract,without the express written consent of the OWNER/DEVELOPER.

xxx xxx xxx

24. That this Contract to Sell shall not in any way [authorize] the BUYER/S tooccupy the assigned house and lot to them.[9]

xxx xxx xxx

Clearly, when the property was mortgaged to Genato in May 1989, what wasin effect between Oakland and petitioners was a contract to sell, not acontract of sale. Oakland retained absolute ownership over the property.

Ownership is the independent and general power of a person over a thingfor purposes recognized by law and within the limits established thereby.[10] According to Art. 428 of the Civil Code, this means that:

The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law.

xxx xxx xxx

Aside from the jus utendi and the jus abutendi [11] inherent in the right to enjoythe thing, the right to dispose, or the jus disponendi, is the power of theowner to alienate, encumber, transform and even destroy the thing owned.[12]

Because Oakland retained all the foregoing rights as owner of theproperty, it was entitled absolutely to mortgage it to Genato. Hence, themortgage was valid.

SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE CONTRACT TO SELL?

In their memorandum, petitioners cite our ruling in State

Investment House, Inc. v. Court of Appeals [13] to the effect that an unregisteredsale is preferred over a registered mortgage over the same property. Thecitation is misplaced.

This Court in that case explained the rationale behind the rule:

The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner xxx had parted with his ownership of the thing sold then he no longer had ownership and free disposal of that thing as to be able to mortgage it again.

State Investment House is completely inapplicable to the case at bar. Acontract of sale and a contract to sell are worlds apart. State InvestmentHouse clearly pertained to a contract of sale, not to a contract to sellwhich was what Oakland and petitioners had. In State Investment House, ownershiphad passed completely to the buyers and therefore, the former owner nolonger had any legal right to mortgage the property, notwithstanding thefact that the new owner-buyers had not registered the sale. In the casebefore us, Oakland retained absolute ownership over the property under thecontract to sell and therefore had every right to mortgage it.

In sum, we rule that Genatos registered mortgage was superior topetitioners contract to sell, subject to any liabilities Oakland may haveincurred in favor of petitioners by irresponsibly mortgaging the property toGenato despite its commitments to petitioners under their contract to sell.

THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?

The third issue involves a factual matter which should not be raised inthis petition. Only questions of law may be raised in a Rule 45 petition.This Court is not a trier of facts. The resolution of factual issues is thefunction of the lower courts. We therefore adopt the factual findings of theCourt of Appeals and uphold the good faith of the mortgagee Genato.

RELIANCE ON WHAT APPEARS IN THE TITLE

Just as an innocent purchaser for value may rightfully rely on whatappears in the certificate of title, a mortgagee has the right to rely onwhat appears in the title presented to him. In the absence of anything toarouse suspicion, he is under no obligation to look beyond the certificateand investigate the title of the mortgagor appearing on the face of the saidcertificate. [14]

We agree with the findings and conclusions of the trial court regardingthe liabilities of Oakland in its August 16, 1996 decision, as affirmed bythe Court of Appeals:

Anent [plaintiffs] prayer for damages, the Court finds that defendant corporation is liable to return to plaintiffs all the installments/payments made by plaintiffs consisting of the amount ofP10,000.00 representing payment for the option to purchase lot; the amount of P140,000.00 which was the first downpayment; the sum of P20,520.80 representing five monthly amortizations for February, March, April, May and June 1990 and the amount of P3,000.00 representing amortization for November 1990 plus legal interestfrom the time of the mortgage up to the time this instant case was filed. Further, considering that defendant corporation wantonly and fraudulently mortgaged the subject property without regard to [plaintiffs] rights over the same, said defendant should pay plaintiffs moral damages in the reasonable amount of P30,000.00. xxx Furthermore, since defendant [corporations] acts have compelled the plaintiffs to litigate and incur expenses to protect their interest, it should likewise be adjudged to pay plaintiffs attorneys fees of P20,000.00 under Article 2208 paragraph two (2)of the Civil Code.[15]

WHEREFORE, the petition for review is hereby DENIED. The decision of theCourt of Appeals reinstating the August 16, 1996 decision of the trial courtis hereby AFFIRMED.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Carpio-Morales and Garcia, JJ., concur.

FIRST DIVISION

[G.R. No. 120961. October 2, 1997]

DISTILLERIA WASHINGTON, INC. or WASHINGTON DISTILLERY, INC., petitioner vs LATONDEA DISTILLERS, INC. and THE HONORABLE COURT OF APPEALS, respondents.

R E S O L U T I O N

KAPUNAN, J.:

On October 17, 1996, this court rendered a decision in the above-entitled case, the dispositive portion of which reads, as follows:

WHEREFORE, the decision of the appellate court is MODIFIED by ordering LTDIto pay petitioner just compensation for the seized bottles. Instead, however, of remanding the case to the Court of Appeals to receive evidence on, and thereafter resolve, the assessment thereof, this Court accepts and accordingly adopts the quantification of P18,157.00 made the the trial court.No costs.

With the deanial of the Motion for Reconsideration ,petitioner sought asecond reconsideration with leave of court of our decision raising newissues, to wit:

1.01.d. The Supreme Court, in its Decision of October 17, 1996, modified the decision of the Court of Appeals. It held that ownership of the bottleshas passed to the consumer, ultimately, to Washington Distillery, Inc., thereby upholding the finding of the Regional Trial Court and reversing theruling or the Court of Appeals; nonetheless, while ruling that the ownership over the bottles had passed to Washington Distillery, Inc.,it held that Washington Distillery, Inc. may not use the bottles because of the trademark protection to the registrant (La Tondea Distillers, Inc.). Instead of directing the return to the bottles to Washington Distillery, Inc., the Court ordered La Tondea Distillers, Inc. to pay Washington Distillery, Inc. the amount ofP18,157.00.

2.00. The decision of the Supreme Court itself therefore raises new issues. As owner of the bottles, should not Washington Distillery, Inc. be given possession of the bottles? Would its use of the bottles violate the trademark protection of the registrant, La Tondea Distillers, Inc. affordedby R.A. 623, as amended?

3.00. The Motion for Reconsideration of the petitioner Washington Distillery, Inc. is addressed to these new issues. They had not been previously addressed by the parties. They could not have been previously passed upon. It could hardly be said that no substantial argument, not previously raised, is made in the Motion for Reconsideration to warrant a modification of the Courts decision.

On May 21, 1997, the Court resolved to set for hearing the motion forreconsideration on May 28, 1997 for its judicious disposition. Thereafter,the parties as required by the Court filed their simultaneous memoranda toexpound and lay particular emphasis on the provision of Section 5 of R.A.623 which proscribes the filing of an action against any person to whomregistered manufacturer, bottler or seller has transferred by way of sale,any to the containers. The parties complied.

A reexamination of the arguments raised by petitioner in its SecondMotion for Reconsideration filed on February 13, 1997, in the hearing onMay 28, 1997 and in the subsequent memorandum filed thereafter, convincesus the merits of its position.

To recall, La Tondea Distillers, Inc. (La Tondea, for short) filedbefore the Regional Trial Court for the recovery, under its claim ofownership, of possession or replevin against Distilleria Washington, Inc.or Washington Distillery, Inc. (Distilleria Washington) of 18,157 empty 350c.c. white flint bottles bearing the blown-in marks of La Tondea Inc. andGinebra San Miguel, averring that Distilleria Washington was using thebottles for its own Gin Seven products without the consent of DistilleriaWashington in violation of Republic Act 623.

The trial court in its decision dismissed the complaint, upholdingDistilleria Washingtons contention that a purchaser of liquor pays only asingle price for the liquor and the bottle and is not required to returnthe bottle at any time.

The Court of Appeals reversed the trial courts decision, ruling thatunder Republic Act 623, the use of marked bottles by any person other thanthe manufacturer, bottler or seller, without the latters written consent,is unlawful. It emphasized that the marks of La Tondea s ownership stampedor blown-in to the bottles are sufficient notice to the public that thebottles are La Tondeas property; hence, Distilleria Washington cannot beconsidered a purchaser on good faith.

While our decision of October 17, 1996 affirmed with modification theCourt of Appeals decision, we at least implicitly acknowledge that therewas a valid transfer of the bottles to Distilleria Washington, except thatits possession of the bottles without the written consent of La Tondeagives rise to a prima facie presumption of illegal use under R.A. 623.

In seeking reconsideration of the decision of this Court, petitioneradvances, among others, the following arguments:

(1) If, as the Court found in its decision of October 17, 1996, DistilleriaWashington had acquired ownership of the bottles, La Tondeas suit for replevin, where the sole issue is possession, should be denied.

(2) Since the right of ownership over the bottles gives rise, accordiing tothe Courts own language, to its own elements of jus posidendi, jus utendi ,  jus fruendi, jus disponendi, and jus abutendi, along with the applicable jus lex, to allow La Tondea to keep the bottles is to deny Distilleria Washington, the very attributes or elements of its ownership.

(3) There is no showing--and it cannot be assumed--that if Distilleria Washington would have possession of the bottles, it will exercise the otherattributes of ownership, along with the applicable jus lex, over the marks of ownership stamped or marked on the bottles.

(4) The provision in Sec. 3 of Republic Act 623 to the effect that the use by any person other than the registered manufacturer, bottler or seller without the written permission of the latter of any such bottle, etc. shallgive rise to a prima facie presumption that such use or possession is unlawful, does not arise in the instant case because the Court has itself found Section 5 of the same law applicable.

Additionally, petitioner argues with persuasion the following points in itsmemorandum:

(5) It is absurd to hold the buyer such as Distilleria Washington, liable for the possession and use of its own bottles without the written consent of La Tondea who is no longer the owner thereof and for which it has received payment in full.

(6) To hold the buyer liable under Sections 2 and 3 would grant La Tondea the extraordinary right not only of possession and use of the bottles whichit has sold and no longer owns, but also to sell said bottles ad infinitum, thus enriching itself unjustly.

(7) It is manifestly unjust and unconscionable that millions of buyers of Ginebra San Miguel, who pay not only for gin but also for the bottles containing it should run the risk of criminal prosecution by the mere fact of possession of the empty bottles after consuming the liquor.

Distilleria Washingtons motion raises the novel issue that if, as weruled in our decision of October 17, 1996, petitioner became the owner overthe bottles seized from it by replevin, then it has the right to theirpossession and use as attributes of ownership, unless their use violates

the trademark or incorporeal rights accorded private respondent by R.A 623which has not really been established in this case.

As pointed out in our decision,

Parenthetically, petitioner is not here being charged with violation of Sec. 2 of R.A. 623 or the Trademark Law. The instant case is one for replevin (manual delivery) where the claimant must be able to show convincingly that he is either the owner or clearly entitled to the possession of the object sought to be recovered. Replevin is a possessory action. The gist of which focuses on the right of possession that in turn, is dependent on a legal basis that, not infrequently, looks to the ownership of the object sought to be replevied.

Since replevin as a possessory action is dependent upon ownership, it isrelevant to ask: Did La Tondea Distillers, Inc. transfer ownership of itsmarked bottles or containers when it sold its products in the market? Werethe marked bottles or containers part of the products sold to the public?

In our decision sought to be reconsidered, we categorically answered thequestion in the affirmative in this wise:

R.A. No. 623 does not disallow the sale or transfer of ownership of the marked bottles or containers. In fact, the contrary is implicit in the law thus:

SEC. 5. x x x.

SEC. 6. x x x

Scarcely disputed are certain and specific industry practices in the sale of gin. The manufacturer sells the product in marked containers, through dealers, to the public in supermarkets, grocery shops, retail stores and other sales outlets. The buyer takes the item; he is neither required to return the bottle nor required to make a deposit to assure its return to the seller. He could return the bottle and get a refund. A number of bottles at times find their way to commercial users. It cannot be gainsaid that ownership of the containers does pass on the consumer albeit subject to the statutory limitations on the use of the registered containers and tothe trademark rights of the registrant. The statement in Section 5 of R.A. 623 to the effect that the sale of beverage contained the said containers shall not include the sale of the containers unless specifically so provided is not a rule of proscription. It is a rule of construction that, in keeping with the spirit and intent of the law, establishes at best a presumption (of non-conveyance of the container) and which by no means can be taken to be either interdictive or conclusive in character. Upon the other hand, LTDIs sales invoice, stipulating that the sale does not include

the bottles with the blown-in marks of ownership of La Tondea Distillers, cannot affect those who are not privies thereto.

In plain terms, therefore, La Tondea not only sold its gin products butalso the marked bottles or containers, as well. And when these productswere transferred by way of sale, then ownership over the bottles and allits attributes (jus utendi, jus abutendi, just fruendi, jus disponendi) passed to thebuyer. It necessarily follows that the transferee has the right topossession of the bottles unless he uses them in violation of the originalowners registered or incorporeal rights.

After practically saying that La Tondea has surrendered ownership andconsequently, possession of the marked bottles or container, it isincongrous and, certainly, it does not seem fair and just to still allow LaTondea, citing the prima facie presumption of illegal use under Sec. 3 of R.A.623., to retain possession of the seized bottles by simply requiringpayment of just compensation to petitioner.

The pertinent provisions of R.A. 623 are as follows:

SEC. 2. It shall be unlawful for any person, without the written consent ofthe manufacturer, bottler, or seller (underscoring supplied) who has successfully registered the marks of ownership in accordance with the provisions of the next preceding section, to fill such bottles, boxes, kegs, barrels, steel cylinders, tanks, flasks, accumulators, or other similar containers so marked or stamped, for the purpose of sale, or to sell, dispose of, buy or traffic in, or wantonly destroy the same, whether filled or not to use the same for drinking vessels or glasses or drain pipes, foundation pipers, for any other purpose than that registered by themanufacturer, bottler or seller. Any violation of this section shall be punished by a fine of not more than one thousand pesos or imprisonment of not more than one year or both.

SEC. 3. The use by any person other than the registered manufacturer, bottler or seller, without written permission of the latter (underscoring supplied) of any such bottle, cask, barrel, keg, box, steel cylinders, tanks, flask, accumulators, or other similar containers, or the possession thereof without written permission of the manufacturer, by any junk dealer or dealer in casks, barrels, keg, boxes, steel cylinders, tanks, flask, accumulators or other similar containers, the same being duly marked or stamped and registered as herein provided, shall give rise to aprima facie presumption that such use or possession is unlawful.

x x x

SEC. 5. No action shall be brought under this Act   (underscoring supplied) against any person to whom the registered manufacturer, bottler or seller, has transferred by way of sale,(underscoring supplied) any of the

containers herein referred to, but the sale of the beverage contained in the said containers shall not include the sale of the containers unless specifically so provided.

In resolving that petitioner is the owner of the bottles, this Courtapplied Section 5 of R.A. 623; and in withholding possession of the bottlesfrom the petitioner and in concluding that use or possession thereofwithout the written permission of the registered owner wouldconstitute prima facie presumption of illegal use, this Court invoked Sections2 and 3 of the same law.

A careful reading of Sections 2, 3 and 5 of R.A. 623 would lead to theconclusion that they contemplate situations separate and distinct from eachother. Section 2 prohibits any person from using, selling or otherwisedisposing of registered containers without the written consent of theregistrant. Such rights belong exclusively to the registrant. Under Section3, mere possession of such registered containers without the writtenconsent of the registrant is prima facie presumed unlawful.

It appears - and this is the critical point - that Sections 2 and 3apply only when the filling up of the bottle or the use of the bottle iswithout the written permission of the registered manufacturer, bottler, orseller, who has registered the marks of ownership of the bottles. It isthus implicit that Sections 2 and 3 apply only when the registeredmanufacturer, bottler, or seller retain ownership of the bottles.

Upon the other hand, when the bottles have been transferred by way ofsale, Section 5 applies, thereby precluding the institution of any actionunder this Act, meaning to say, including any action under Sections 2 and3.

The general rule on ownership, therefore, must apply and petitioner beallowed to enjoy all the rights of an owner in regard the bottles inquestion, to wit: the jus utendior the right to receive from the thing what itproduces; the jus abutendi or the right to consume the thing by its use;the jus disponendi or the power of the owner to alienate, encumber, transformand even destroy the thing owned; and the jus vindicandi or the right toexclude from the possession of the thing owned any other person to whom theowner has not transmitted such thing. What is proscribed is the use of thebottles in infringement of anothers trademark or incorporeal rights.

Since the Court has found that the bottles have been transferred by wayof sale then, La Tondea has relinquished all its proprietary rights overthe bottles in favor of Distilleria Washington who has obtained them in duecourse. Now as owner, it can exercise all attributes of ownership over thebottles. This is the import of the decision that La Tondea had transferredownership over its marked bottles or containers when it sold its ginproducts to the public. While others may argue that Section 5 is applicableonly to the immediate transferee of the marked bottles or container, this

matter is best discussed where the applicability of Sec. 5, R.A. 623 issquarely raised. It must be recalled, however, that this is a case ofreplevin, not a violation of the "trademark protection of the registrant"under R.A. 623 or of the Trademark Law.

A query may be posed: Would use of the bottles constitute a violation ofthe incorporeal rights of La Tondea Distillers, Inc. over its marks ofownership embossed on the bottles? While apparently relevant, it would beimproper and premature for this Court to rule on the point because:

First, because violation of the marks of ownership of La TondeaDistillers, Inc, on the bottles has not been put in issue, the parties didnot have the opportunity to ventilate their respective positions on thematter. Thus, a ruling would be violative of due process.

Second, the question calls for a factual investigation which this Courthas generally not taken upon itself to undertake because it is not a trierof facts; and

Third, disregarding the above, the facts before this Court do notprovide a sufficient basis for a fair and intelligent resolution of thequestion.

Moreover, our decision added that the Court sees no other insistence tokeep the bottles, except for such continued use. This, to our mind, israther speculative at this point; something which was never touched upon inthe proceedings below.

We cannot also be oblivious of the fact that if La Tondeas thesisthat every possession of the bottles without the requisite written consentis illegal, thousands upon thousands of buyers of Ginebra San Miguel wouldbe exposed to criminal prosecution by the mere fact of possession of theempty bottles after consuming the content.

One last point. It may not be amiss to state that La Tondea is a big andestablished distillery which already has captured a big share of the ginmarket, estimated to be 90%. Distilleria Washington, on the other hand,together with other small distillers - around 40 in number; admittedlyconcedes that it cannot fight this giant but only asks a share of themarket. It cannot afford to manufacture its own bottles and just have torely on recycled bottles to sell its products. To disallow the use of theserecycled products would necessarily deprive it a share of the market whichLa Tondea seeks to monopolize.

We recognize the role of large industry in the growth of our nascenteconomy. However, small industries likewise play a vital role in economicgrowth, playing a significant part in the success of such tiger economiesas Korea, Taiwan and Thailand. Industries, big and small, should adoptsymbiotic relationship, not the animosity of Goliath and David. Our holdingtoday merely recognizes that in the countrys march toward economic

development and independence, it is essential that a balance protectingsmall industries and large scale businesses be maintained.

IN VIEW OF THE FOREGOING, the Court RESOLVED to RECONSIDER its Decisionpromulgated on October 17, 1996 and render another judgment REVERSING intoto the Decision of the Court of Appeals promulgated on January 11, 1995and its Resolution of June 23, 1995. The decision of the Regional TrialCourt of December 3, 1991 is REINSTATED.

SO ORDERED.

SECOND DIVISION

[G.R. No. 129609. November 29, 2001]

RODIL ENTERPRISES, INC., petitioner, vs. COURT OF APPEALS, CARMEN BONDOC, TERESITABONDOC-ESTO, DIVISORIA FOOTWEAR and CHUA HUAY SOON, respondents.

[G.R. No. 135537. November 29, 2001]

RODIL ENTERPRISES, INC., petitioner, vs. IDES O'RACCA BUILDING TENANTS ASSOCIATION,INC., respondent.

D E C I S I O N

BELLOSILLO, J.:

These twin petitions filed under Rule 45 seek to set aside the Decisionsof the Court of Appeals in CA-G.R. Nos. 39919, 36381 and 37243.

Petitioner Rodil Enterprises Inc. (RODIL) is the lessee of the IdesO'Racca Building (O'RACCA) since 1959.[1] It was a "former alien property"over which the Republic of the Philippines acquired ownership by virtue ofRA 477, as amended.[2]

Sometime in 1980 RODIL entered into a sublease contract with respondentsCarmen Bondoc, Teresita Bondoc-Esto, Divisoria Footwear and Chua Huay Soon,[3] members of the Ides O'Racca Building Tenants Association Inc.(ASSOCIATION).

On 4 September 1972 the lease contract between RODIL and the REPUBLIC wasrenewed for another fifteen (15) years.[4] At that time the O'RACCA was underthe administration of the Building Services and Real Property Management Office (BSRPMO)then headed by Director Jesus R. Factora.[5]

On 12 September 1982 BP 233[6] was enacted. It authorized the sale of"former alien properties" classified as commercial and industrial, and theO'RACCA building was classified as commercial property.[7]

On 8 January 1987 RODIL offered to purchase the subject propertyconformably with BP 233 and the REPUBLIC responded that its offer topurchase would be acted upon once the Committee on Appraisal shall havedetermined the market value of the property.[8]

On 22 July 1997 the ASSOCIATION also offerred to lease the same buildingthrough the Department of General Services and Real Estate Property Management (DGSREPM).[9]

Pending action on the offer of RODIL to purchase the property, DirectorFactora of the BSRPMO granted RODILs request for another renewal of thelease contract on 23 September 1987 for another five (5) years from 1September 1987.[10] The renewal contract was forwarded to then Secretary Josede Jesus of DGSREPM for approval.

On 25 September 1987 Undersecretary of DGSREPM Rufino B. Banasrecommended to Secrectary De Jesus the suspension of the approval of therenewal contract because the offer of the ASSOCIATION was more beneficial tothe REPUBLIC.

Resultantly, on 30 September 1987 Secretary De Jesus issued anothermemorandum to Director Factora disapproving the renewal contract in favor ofRODIL, at the same time recalling all papers signed by him regarding thesubject. Secretary De Jesus likewise directed RODIL to pay its realty taxdelinquency and ordered the issuance of a temporary occupancy permit to theASSOCIATION.[11]

On 6 October 1987 RODIL filed an action for specific performance, damagesand injunction with prayer for temporary restraining order before theRegional Trial Court of Manila against the REPUBLIC, De Jesus, Banas,Factora and the ASSOCIATION.[12] RODIL prayed that a restraining order beissued enjoining the ASSOCIATION or any person acting under it from

collecting rentals from the occupants or sub-lessees of O'RACCA. On 26October 1987 the trial court granted the writ of preliminary injunction.[13] On appeal, the Court of Appeals upheld the issuance of the writ ofpreliminary injunction and ordered the deposit of the monthly rentals withthe lower court pendente lite.

On 20 November 1987 the REPUBLIC, De Jesus, Banas and Factora filed theirAnswer with Counterclaim for damages. On 21 December 1987 the ASSOCIATIONalso filed its Answer with Counterclaim for damages.

De Jesus, Banas and Factora were later substituted by Secretary FulgencioFactoran of the Department of Environment and Natural Resources (DENR) inthe action for specific performance. On 31 May 1988 Factoran issued OrderNo. 1 designating the Land Management Bureau represented by DirectorAbelardo Palad, Jr. as custodian of all "former alien properties" owned bythe REPUBLIC.

On 18 May 1992 RODIL signed a renewal contract with Director Palad whichwas approved by Secretary Factoran.[14] The renewal contract would extend thelease for ten (10) years from 1 September 1987. A supplement to the renewalcontract was subsequently entered into on 25 May 1992 where rentals on theprevious lease contract were increased.[15]

On 14 August 1972 the action for specific performance was dismissed bythe trial court upon joint motion to dismiss by RODIL and the SolicitorGeneral. The order of dismissal however was appealed by the ASSOCIATION tothe Court of Appeals.[16]

On 25 September 1992 the spouses Saturnino Alvarez and Epifania Alvarez,sublessees of RODIL, filed with the Office of the President a letter-appealassailing the authority of Factoran to enter into the renewal contract of 18May 1992 with RODIL, and claiming the right to purchase the subjectproperty.[17]

While the appeal of the ASSOCIATION from the order of dismissal and theletter-appeal of the spouses Alvarez were pending, the ASSOCIATIONinstituted Civil Case No. 92-63833 with the Regional Trial Court ofManila[18] praying for the setting aside of the renewal contract of 18 May1992 as well as the supplementary contract of 25 May 1992, and furtherpraying for the issuance of a writ of preliminary injunction. On 3 May 1993the trial court denied the prayer for preliminary injunction.

On 30 July 1993 RODIL filed an action for unlawful detainer againstDivisoria Footwear,[19] and on 4 August 1993, a similar action against ChuaHuay Soon.[20]

On 10 September 1993 the trial court dismissed the action for declarationof nullity of the lease contract filed by the ASSOCIATION on the groundof litis pendentia.[21] The Order stated that the action for declaration of nullityand the action for specific performance filed by RODIL were practically

between the same parties and for the same causes of action.[22] This Order wasappealed by the ASSOCIATION to the Court of Appeals.[23]

On 19 January 1994 RODIL filed an action for unlawful detainer againstrespondent Teresita Bondoc-Esto,[24] and on 1 February 1994 filed anotheraction against respondent Carmen Bondoc,[25] both with the Metropolitan TrialCourt of Manila.

On 8 February 1994 the Office of the President through ExecutiveSecretary Teofisto Guingona Jr. denied the letter-appeal of the spousesAlvarez, but nullified the renewal contract of 18 May 1992 and thesupplementary contract of 25 May 1992.[26]

Meanwhile, the Metropolitan Trial Court of Manila upheld RODIL's right toeject respondents Bondoc, Bondoc-Esto, Divisoria Footwear and Chua HuaySoon,[27] as promulgated in separate decisions the dispositive portions ofwhich read -

IN CIVIL CASE NO. 143301 -

WHEREFORE, IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor ofthe plaintiff [RODIL ENTERPRISES, INC.] and against the defendant [CARMEN BONDOC], to wit: 1. Ordering the defendant and all those claiming title under her to vacate the subleased portion of the ORacca Building, corner Folgueras and M. de los Santos Streets, Binondo, Manila; 2. Ordering the defendant to pay plaintiff the back rentals from October 1987 to August 1992at the rate of P2,665.00 per month and from September 1992 at the rate of P2,665.00 per month plus a yearly increase of 20% per month up to the time that she vacates the premises; 3. Ordering the defendant to pay the amount of P10,000.00 as attorneys fees and to pay the cost of suit.

IN CIVIL CASE NO. 143216 -

WHEREFORE, judgment is hereby rendered in favor of the plaintiff [RODIL ENTERPRISES, INC.] as against the defendant [TERESITA BONDOC ESTO] ordering the defendant and all persons claiming rights under her to vacate the premises at ORacca Building located at corner Folgueras and M. de los SantosStreets, Binondo, Manila, and turn over the possession thereof to plaintiff;ordering the defendant to pay plaintiff the amount of P29,700.00 as rental in arrears for the period from September 1992 plus legal rate of interest less whatever amount deposited with the Court; ordering defendant to pay thesum of P3,000.00 as reasonable compensation for the use and occupancy of thepremises from January 1994 until defendant shall have finally vacated the premises minus whatever amount deposited with the Court as rental; ordering defendant to pay reasonable attorneys fees in the amount of P2,000.00 and the costs of suit.

IN CIVIL CASE NO. 142258 -

WHEREFORE, judgment is hereby rendered in favor of plaintiff [RODIL ENTERPRISES, INC.], ordering defendant [DIVISORIA FOOTWEAR], its representatives, agents, employees and/or assigns to vacate the leased premises or portion of the Ides ORacca Building presently occupied by said defendant and to pay plaintiff the following: a) Rentals in arrears from October 1987 to June 1993 in the amount of P521,000.00; b) Rentals in the amount of P9,000.00 a month from July, 1993 until defendant will have vacated the premises; c) Attorneys fees in the amount of P15,000.00; d) Costs of suit.

IN CIVIL CASE NO. 142282-CV -

IN VIEW THEREOF, judgment is hereby rendered ordering: 1. defendant CHUA HUAY SOON and all persons claiming rights through him, to vacate the premises occupied by him at ORACCA Building, located at the corner of Folgueras and M. delos Santos Street, Binondo, Manila, and turn over possession thereof to plaintiff RODIL ENTERPRISES, INC.; 2. defendant to payrentals in arrears from October 1987 up to June 1993 at the rate of P6,175.00 a month, representing the rentals in arrears; 3. defendant to pay P6,175.00 per month from July 1993 until he vacates the premises, as reasonable compensation for the use of the premises; 4. defendant to pay thesum of P20,000.00 as attorneys fees; 5. defendant to pay interests on the amounts mentioned in Nos. 2 and 3 above at ten (10%) percent per annum from the date of the filing of the complaint until said amounts are fully paid; and, 6. defendant to pay the costs.

The Regional Trial Court affirmed the Metropolitan Trial Court[28] in allthe four (4) decisions above quoted. Thus, respondents Bondoc, Bondoc-Estoand Divisoria Footwear subsequently filed a Petition for Review with theCourt of Appeals,[29] followed by respondent Chua Huay Soon.[30]

While the consolidated appeals from the unlawful detainer cases werepending, the Second Division of the Court of Appeals promulgated itsdecision on 12 April 1996 with regard to CA-G.R. No. 39919 declaring therenewal contract between RODIL and the REPUBLIC null and void.[31] RODIL movedfor reconsideration but its motion was denied.[32] Hence, this petition forreview on certiorari under Rule 45.[33]

On 29 November 1996 the Special Fourth Division of the Court of Appealspromulgated its Decision in CA-G.R. No. 36381 and CA-G.R. No. 37243 settingaside the decisions of the Regional Trial Court, which sustained theMetropolitan Trial Court, and dismissing the action for unlawful detainerfiled by RODIL against its lessees.[34] RODIL moved for reconsideration butthe motion was denied.[35] Hence, this petition for review on certiorari.[36]

On respondents' motion, G.R. Nos. 129609 and 135537 were consolidated.RODIL now contends that the Court of Appeals erred in annulling its

renewal contract with the REPUBLIC and in dismissing its actions for

unlawful detainer against respondents Bondoc, Bondoc-Esto, DivisoriaFootwear and Chua. RODIL claims that the assailed contracts are neither voidnor voidable as the facts show they do not fall within the enumerationsunder Arts. 1305 and 1409, and an implied new lease still exists by virtueof Art. 1670. As a result, the right to eject respondents properly belongsto it.[37]

With regard to CA-G.R. No. 39919, RODIL argues that the REPUBLIC, theonly defendant who is a real party in interest, signified its assent tohaving the action dismissed. Assumingarguendo that the ASSOCIATION was a realparty in interest, its counterclaim was nonetheless unmeritorious.[38]

On the other hand, respondents Bondoc, Bondoc-Esto, Divisoria Footwearand Chua contend that the lease contract which the lease contract of 18 May1992 was to renew, never came into existence. Therefore, since there was nocontract to "renew," the renewal contract had no leg to stand on, hence, isalso void.[39] Respondents then conclude that since there was no leasecontract to speak of, RODIL had no right to relief in its action forunlawful detainer. The ASSOCIATION, for its part, argues that thecounterclaim it filed against RODIL cannot be dismissed because the trialcourt has not passed upon it.[40]

We rule for RODIL. The owner has the right to enjoy and dispose of athing, without other limitations than those established by law.[41] Everyowner has the freedom of disposition over his property. It is an attributeof ownership, and this rule has no exception. The REPUBLIC being the ownerof the disputed property enjoys the prerogative to enter into a leasecontract with RODIL in the exercise of its jus disponendi. Hence, as lessor, theREPUBLIC has the right to eject usurpers of the leased property where thefactual elements required for relief in an action for unlawful detainer arepresent.

Private respondents claim that the agreements of 23 September 1987, 18May 1992 and 25 May 1992 did not give rise to valid contracts.[42] This istrue only of the Contract of Leaseentered into on 23 September 1987 which theREPUBLIC did not approve. RODIL neither alleged nor proved that suchapproval was made known to it. The so-called approval of the lease contractwas merely stated in an internal memorandum of Secretary De Jesus addressedto Director Factora.[43] This is evident from the fact that Secretary DeJesus, in his letter, asked Factora to duly execute a lease contract andforward it to his office for approval.[44] The consequences of this fact areclear. The Civil Code provides that no contract shall arise unlessacceptance of the contract is communicated to the offeror.[45] Until thatmoment, there is no real meeting of the minds, no concurrence of offer andacceptance, hence, no contract.[46]

However, the same is not true of the contracts of 18 May 1992 and 25 May1992. As argued by RODIL, these contracts are not proscribed by law; neitheris there a law prohibiting the execution of a contract with provisions that

are retroactive. Where there is nothing in a contract that is contrary tolaw, morals, good customs, public policy or public order, the validity ofthe contract must be sustained.[47]

The Court of Appeals invalidated the contracts because they weresupposedly executed in violation of a temporary restraining order issued bythe Regional Trial Court.[48] The appellate court however failed to note thatthe order restrains the REPUBLIC from awarding the lease contract only asregards respondent ASSOCIATION but not petitioner RODIL. While a temporaryrestraining order was indeed issued against RODIL, it was issued only on 25May 1992 or after the assailed contracts were entered into. As correctlystated by petitioner, one cannot enjoin an act already fait accompli.[49]

Private respondents argue that the "renewal contract" cannot "renew" avoid contract. However, they could cite no legal basis for thisassertion. It would seem that respondents consider the renewal contract tobe a novation of the earlier lease contract of 23 September 1987. However,novation is never presumed.[50] Also, the title of a contract does notdetermine its nature.On the contrary, it is the specific provisions of thecontract which dictate its nature.[51] Furthermore, where a contract issusceptible of two (2) interpretations, one that would make it valid andanother that would make it invalid, the latter interpretation is to beadopted.[52] The assailed agreement of 18 May 1992, "Renewal of Contract ofLease," merely states that the term of the contract would be for ten (10)years starting 1 September 1987. This is hardly conclusive of the existenceof an intention by the parties to novate the contract of 23 September1987. Nor can it be argued that there is an implied novation for therequisite incompatibility between the original contract and the subsequentone is not present.[53] Based on this factual milieu, the presumption ofvalidity of contract cannot be said to have been overturned.

Respondent ASSOCIATION claims that the Decision of the Office of thePresident declaring null and void the lease contracts of 18 May 1992 and 25May 1992 should be counted in its favor.

We do not agree. The contention does not hold water. It is well-settledthat a court's judgment in a case shall not adversely affect persons whowere not parties thereto.

Respondent ASSOCIATION finally argues that the 18 May 1992 and 25 May1992 contracts can be considered rescissible because they concern propertyunder litigation and were entered into without the knowledge and approval ofthe litigants or of competent judicial authority.[54] Civil Case No. 87-42323involved an action for specific performance and damages filed by RODILagainst the REPUBLIC and the ASSOCIATION. The right to file the action forrescission arises in favor of the plaintiff when the defendant enters into acontract over the thing under litigation without the knowledge and approvalof the plaintiff or the court. The right of action therefore arose in favorof petitioner RODIL and not respondent ASSOCIATION.

Having preliminarily dealt with the validity of the lease contracts, wenow proceed to resolve the issue raised by respondent ASSOCIATION withregard to its counterclaim.

The ASSOCIATION argues that its counterclaim should not have beendismissed. On this point, we agree. The requisites for the application ofRule 17 of the Rules of Civil Procedureare clearly present.[55] The counterclaim isnecessarily connected with the transaction that is the subject matter of theclaim. In malicious prosecution, there must be proof that the prosecutionwas prompted by a sinister design to vex and humiliate a person, and that itwas initiated deliberately by the defendant knowing that his charge wasfalse and groundless.[56] A determination of whether the charge is groundlesswould necessarily involve an analysis of whether the action instituted byRODIL is meritorious. The counterclaim did not require the presence of thirdparties over which the court could not acquire jurisdiction, and that thecourt had jurisdiction over the subject matter of the counterclaim since theamount of damages claimed by the ASSOCIATION in its counterclaim amountedto P3,500,000.00, clearly within the jurisdictional amount for the RegionalTrial Court under BP 129.

However, in the interest of making a final adjudication on an issue whichhas been pending for fourteen (14) years, we will rule on the issues raisedby the ASSOCIATION in its counterclaim, and accordingly deny the same,dispensing with any discussion regarding the merits of RODIL's cause ofaction which is clearly neither "false" nor "groundless." Therefore, theelements of malicious prosecution are absent.

As regards the action for unlawful detainer, respondents Bondoc, Bondoc-Esto, Divisoria Footwear and Chua argue that this should not prosper becauseRODIL is not in actual possession of the property and because they are notits sublessees.[57] Their arguments do not convince.

In an action for unlawful detainer the plaintiff need not have been inprior physical possession. Respondents have admitted that they have notentered into any lease contract with the REPUBLIC and that their continuedoccupation of the subject property was merely by virtue of acquiescence.[58] The records clearly show this to be the case. The REPUBLIC merely issueda "temporary occupancy permit" which was not even in the name of therespondents Bondoc, Bondoc-Esto, Divisoria Footwear or Chua but ofrespondent ASSOCIATION. Since the occupation of respondents was merelytolerated by the REPUBLIC, the right of possession of the latter remaineduninterrupted. It could therefore alienate the same to anyone itchose.Unfortunately for respondents, the REPUBLIC chose to alienate thesubject premises to RODIL by virtue of a contract of lease entered into on18 May 1992. Resultantly, petitioner had the right to file the action forunlawful detainer against respondents as one from whom possession ofproperty has been unlawfully withheld.

Respondents finally argue that petitioner failed to comply with themandatory provisions of Rule 45 so that its petition must be dismissed. Theyallege that petitioner failed to state in its petition that a motion forreconsideration was filed, the date of filing, when the motion was denied,and the date when the resolution denying the motion was received.

A cursory review of RODIL's petition belies respondents' assertion. Alldates required under Rule 45, Sec. 4, are properly indicated except when themotion for reconsideration was filed. Procedural rules are required to befollowed as a general rule, but they may be relaxed to relieve a litigant ofan injustice not commensurate with the degree of his noncompliance with theprocedure required. Dismissal of appeals purely on technical grounds isfrowned upon and the rules of procedure ought not to be applied in a veryrigid, technical sense, for they are adopted to help secure, not override,substantial justice, and thereby defeat their very aims. The rules have beendrafted with the primary objective of enhancing fair trials and expeditingthe proper dispensation of justice. As a corollary, if their application andoperation tend to subvert and defeat, instead of promote and enhance itsobjective, suspension of the rules is justified.[59] Petitioner did not repeatits error in its later petition filed under G.R. No. 135537. The oversightmust be fashioned with leniency.

WHEREFORE, the consolidated petitions are GRANTED. The assailed Decisionsof the Court of Appeals in CA-G.R. Nos. 36381, 37243 and 39919 are REVERSEDand SET ASIDE. Accordingly, the Decisions of the Regional Trial Court, Br.39, in Civil Cases Nos. 94-70776, 94-71122 and 94-71123 as well as theDecision of the Regional Trial Court, Br. 23, in Civil Case No. 94-72209affirming in toto the Decisions of the MeTC - Br. 28 in Civil Case No. 143301,MeTC - Br. 15 in Civil Case No. 143216, MeTC - Br. 7 in Civil Case No.142258, and MeTC - Br. 24 in Civil Case No. 142282-CV, as herein quoted, andthe Orders dated 14 August 1992 and 6 November 1992 of the Regional TrialCourt, Br. 8 in Civil Case No. 87-42323, recognizing the validity andlegality of the Renewal of the Lease Contract dated 18 May 1992 and theSupplemental Contract dated 25 May 1992, are REINSTATED, AFFIRMED andADOPTED. Costs against private respondents in both cases.

SO ORDERED.

Republic of the PhilippinesSupreme Court

Manila 

SECOND DIVISION 

EMMANUEL C. VILLANUEVA,Petitioner,

  

- versus -    CHERDAN LENDING INVESTORS CORPORATION,

Respondent. 

G.R. No. 177881 Present: VELASCO, JR., J.,*

NACHURA,Acting Chairperson,**

LEONARDO-DE CASTRO,***

BRION,**** andMENDOZA, JJ. Promulgated: October 13, 2010

x------------------------------------------------------------------------------------x 

DECISION 

NACHURA, J.:This is a Petition for Review on Certiorari under Rule 45 of the Rules ofCourt, seeking to reverse and set aside the Court of Appeals (CA)Decision[1] dated October 31, 2006 and Resolution[2] dated May 10, 2007in CA-G.R. SP No. 89910. The facts of the case are as follows: Spouses Fortunato and Rachel Pearedondo (spouses Pearedondo) obtainedfrom respondent Cherdan Lending Investors Corporation a loan amountingto P2.2 million, secured by a real estate mortgage over a parcel ofland covered by Transfer Certificate of Title (TCT) No. T-129690.Despite demand, spouses Pearedondo failed to pay the obligation.Hence, respondent extrajudicially foreclosed the mortgage. At theauction sale, respondent was declared as the highest bidder. ACertificate of Sale was issued and was later registered. Upon theexpiration of the redemption period, the title to the property wasconsolidated and a new title, TCT No. 143284, issued in respondentsname.[3]

 On September 28, 2001, respondent filed before the Regional TrialCourt (RTC) of Paraaque City, Branch 258, an Ex-Parte Petition forIssuance of Writ of Possession for Real Property Covered by TransferCertificate of Title No. 143284 of the Registry of Deedsfor Paraaque City.[4]

 In an Order[5] dated January 7, 2002, the RTC granted the petition, thedispositive portion of which reads: 

WHEREFORE, viewed in the light of the foregoing, let Writ ofPossession issue in favor of the petitioner and againstSpouses Fortunato Pearedondo and Rachel Pearedondo and alloccupant(s), tenant(s), and/or persons claiming rights underthem to immediately vacate the premises formerly covered byTransfer Certificate of Title No. 129690 and now covered by

Transfer Certificate of Title No. 143284 registered in thename of the petitioner, issued by the Registry of Deeds ofParaaque City and to serve the purpose, the Sheriff of thisCourt is hereby ordered to put the petitioner in possessionthereof or thru its duly authorized representative, with theassistance of the barangay officials or local police, ifneed be. SO ORDERED.[6]

  

Accordingly, a writ of possession was issued. Upon service of acopy of the court order, petitioner Emmanuel C. Villanueva moved forthe reconsideration of the order and the setting aside of the writ ofpossession on the ground that he is the owner and is in actualpossession of the subject property. He notified the court that he hadfiled criminal and civil cases relative to the fraudulent transfer ofownership of the subject property from him to the spouses Pearedondo.[7] For their part, spouses Pearedondo also filed a separate Motion toQuash the Writ of Possession[8] on two grounds: 1) that there was apending civil case for the declaration of nullity of mortgage; and 2)that a third party is in adverse possession of the property. On September 30, 2002, the RTC issued an Order[9] in favor ofpetitioner, disposing, as follows: 

WHEREFORE, premises considered, the Motion forReconsideration as well as Motion to Set Aside Writ ofPossession are GRANTED and the movant is allowed to be inpossession of the subject property until after the pendingcase/s has/have been resolved with finality and the Writ ofPossession dated February 11, 2002 is hereby recalled andset aside. As to The Motion to Quash filed by therespondents/mortgagors, the same is hereby DENIED. SO ORDERED.[10]

  On August 27, 2004, the RTC of Paraaque City, Branch 257,

dismissed Civil Case No. 98-0378 for Declaration of Nullity of RealEstate Mortgage filed by Fortunato Pearedondo against respondent.

[11] Respondent thereafter filed a Motion for Alias Writ of Possession,[12] which was denied[13] on December 20, 2004. On March 8, 2005,respondents motion for reconsideration was denied for lack of merit.[14]

 Aggrieved, respondent instituted a special civil action

for certiorari before the CA, praying that the RTC Order denying itsmotion for alias writ of possession be reversed and set aside, andthat the RTC be directed to issue a writ of possession in favor ofrespondent against petitioner.[15]

 In the assailed Decision dated October 31, 2006, the CA granted

respondents petition, the pertinent portion of which reads: 

WHEREFORE, the petition is GRANTED. Theassailed Orders dated December 20, 2004 and March 8, 2005,both of the Regional Trial Court, Branch258,Paraaque City are hereby ANNULLED and SET ASIDE. Thetrial court is hereby directed to issue an alias writ ofpossession against all those who claim adverse title andrights against petitioner, which should be placed in actualpossession of the subject property but without prejudice tothe eventual outcome of the cases anent the validity oftitle thereto.

 SO ORDERED.[16]

 Citing PNB v. Sanao Marketing Corporation[17] and Ancheta v. Metropolitan Bank

and Trust Company, Inc.,[18] the CA held that the pendency of the case forannulment of the foreclosure proceedings was not a bar to the issuanceof the writ of possession. The CA refused to apply Section 33, Rule 39of the Rules of Court, which authorizes the giving of possession ofthe property to the purchaser or last redemptioner unless a thirdparty is actually holding the property adverse to the judgmentobligor, ratiocinating that the provision applies only to executionsales and not to extrajudicial foreclosures of real estate mortgageunder Act 3135.[19]

 Hence, the present petition raising the following issues:

 

(1) Can the Honorable Court of Appeals requireVillanueva to comment on a petition for certiorari whereinhe is not even pleaded as a party?

 (2) Is the petition of Cherdan barred by Court order

dated 30 September 2002? (3) Is Cherdans petition for certiorari filed in the

Court of Appeals proper? (4) Is there a legal obstacle/impediment to place

Cherdan in possession of the property? And (5) Is the decision (Annex A) and resolution (Annex

B) of the Honorable Court of Appeals in accord with thedecisions of the Supreme Court in Capital Credit Dimension, Inc. v.Chua, 428 SCRA 259, 263 (Apr. 28, 2004); Penson v. Maranan, 491 SCRA 396, 405-406 (June 20, 2006); and Dayot v. Shell Chemical Co. (Phils.), Inc., 525 SCRA 535,548 (June 26, 2007)?[20]

 The petition is meritorious. The core issue for resolution is the propriety of the issuance of

the writ of possession over the property subject of the foreclosure ofthe real estate mortgage.

    A writ of possession is an order of the court commanding the

sheriff to place a person in possession of a real or personalproperty.[21] It may be issued in an extrajudicial foreclosure of a realestate mortgage under Section 7 of Act 3135, as amended by Act 4118,either 1) within the one-year redemption period, upon the filing of abond, or 2) after the lapse of the redemption period, without need ofa bond or of a separate and independent action.[22]

 It is settled that the buyer in a foreclosure sale becomes the

absolute owner of the property purchased if it is not redeemed withinone year after the registration of the sale. As such, he is entitledto the possession of the property and can demand that he be placed inpossession at any time following the consolidation of ownership in his

name and the issuance to him of a new TCT.[23] Time and again, we haveheld that it is ministerial upon the court to issue a writ ofpossession after the foreclosure sale and during the period ofredemption. Upon the filing of an ex parte motion and the approval ofthe corresponding bond, the court issues the order for a writ ofpossession. The writ of possession issues as a matter of course evenwithout the filing and approval of a bond after consolidation ofownership and the issuance of a new TCT in the name of the purchaser.[24]

 This rule, however, is not without exception. Under Section 33,

Rule 39 of the Rules of Court, which is made to apply suppletorily tothe extrajudicial foreclosure of real estate mortgages by Section 6,Act 3135, as amended, the possession of the mortgaged property may beawarded to a purchaser in the extrajudicial foreclosure unless a thirdparty is actually holding the property adversely to the judgmentdebtor.[25] Section 33 provides:

 Sec. 33. Deed and possession to be given at expiration of redemption

period; by whom executed or given. If no redemption be made within one (1) year from the

date of the registration of the certificate of sale, thepurchaser is entitled to a conveyance and possession of theproperty; or, if so redeemed whenever sixty (60) days haveelapsed and no other redemption has been made, and noticethereof given, and the time for redemption has expired, thelast redemptioner is entitled to the conveyance andpossession; but in all cases the judgment obligor shall havethe entire period of one (1) year from the date of theregistration of the sale to redeem the property. The deedshall be executed by the officer making the sale or by hissuccessor in office, and in the latter case shall have thesame validity as though the officer making the sale hadcontinued in office and executed it.

 Upon the expiration of the right of redemption, the

purchaser or redemptioner shall be substituted to andacquire all the rights, title, interest and claim of thejudgment obligor to the property as of the time of thelevy. The possession of the property shall be given to thepurchaser or last redemptioner by the same officer unless a

third party is actually holding the property adversely tothe judgment obligor.

  The same issue had been raised in Bank of the Philippine Islands v. Icot,

[26] Development Bank of the Philippines v. Prime Neighborhood Association,[27]Dayot v. ShellChemical Company (Phils.), Inc.,[28] and Philippine National Bank v. Court of Appeals,[29] andwe uniformly held that the obligation of the court to issue an exparte writ of possession in favor of the purchaser in an extrajudicialforeclosure sale ceases to be ministerial once it appears that thereis a third party in possession of the property who is claiming a rightadverse to that of the debtor/mortgagor.

  The purchasers right of possession is recognized only as against

the judgment debtor and his successor-in-interest but not againstpersons whose right of possession is adverse to the latter.[30] In thiscase, petitioner opposed the issuance of the writ of possession on theground that he is in actual possession of the mortgaged property undera claim of ownership. He explained that his title to the property wascancelled by virtue of a falsified deed of donation executed in favorof spouses Pearedondo. Because of this falsification, he filed civiland criminal cases against spouses Pearedondo to nullify the deed ofdonation and to punish the party responsible for the falsifieddocument. Petitioners claim that he is in actual possession of theproperty is not challenged, and he has come to court asserting anownership right adverse to that of the mortgagors, the spousesPearedondo.

The third partys possession of the property is legally presumedto be based on a just title, a presumption which may be overcome bythe purchaser in a judicial proceeding for recovery of theproperty. Through such a judicial proceeding, the nature of theadverse possession by the third party may be determined, after suchthird party is accorded due process and the opportunity to be heard.The third party may be ejected from the property only after he hasbeen given an opportunity to be heard, conformably with the time-honored principle of due process.[31] The Civil Code protects the actualpossessor of a property, as Article 433 thereof provides:

 

Art. 433. Actual possession under claim of ownershipraises disputable presumption of ownership. The true ownermust resort to judicial process for the recovery of theproperty.

    

One who claims to be the owner of a property possessed by another mustbring the appropriate judicial action for its physical recovery. Thejudicial process could mean no less than an ejectment suit or areivindicatory action, in which the ownership claims of the contendingparties may be properly heard and adjudicated.[32]

 The ex parte petition for the issuance of a writ of possession filed byrespondent, strictly speaking, is not the kind of judicial processcontemplated in Article 433 of the Civil Code. Even if the same may beconsidered a judicial proceeding for the enforcement of ones right ofpossession as purchaser in a foreclosure sale, it is not an ordinarysuit filed in court, by which one party sues another for theenforcement or protection of a right, or the prevention or redress ofa wrong.[33]

 Unlike a judicial foreclosure of real estate mortgage under Rule

68 of the Rules of Court where an action for foreclosure is filedbefore the RTC where the mortgaged property or any part thereof issituated, any property brought within the ambit of Act 3135 isforeclosed by the filing of a petition, not with any court of justice,but with the office of the sheriff of the province where the sale isto be made. As such, a third person in possession of anextrajudicially foreclosed property, who claims a right superior tothat of the original mortgagor, is given no opportunity to be heard onhis claim. It stands to reason, therefore, that such third person maynot be dispossessed on the strength of a mere ex parte possessory writ,since to do so would be tantamount to his summary ejectment, inviolation of the basic tenets of due process.[34]

  The Court cannot sanction a procedural shortcut. To enforce the

writ against petitioner, an unwitting third party possessor who took

no part in the foreclosure proceedings, would amount to the taking ofreal property without the benefit of proper judicial intervention.[35] Hence, it was not a ministerial duty of the trial court under Act3135 to issue a writ of possession for the ouster of petitioner fromthe lot subject of this instant case, particularly in light of thelatters opposition, claim of ownership and rightful possession of thedisputed properties.[36]

 In granting respondents petition, the appellate court

cited Ancheta v. Metropolitan Bank and Trust Company, Inc.[37] and PNB v. SanaoMarketing Corporation.[38]

 The invocation of these cases is misplaced. These cases involved the propriety of the issuance of a writ of

possession pending the determination of the validity of the mortgageor foreclosure proceedings filed by the mortgagor or by at least oneof the mortgagors who was a party to the foreclosure proceedings. Weheld then that the pendency of such determination is not a bar to theissuance of the possessory writ as no discretion is left to theissuing judge.

The above-cited cases have different factual milieu which makesthem inapplicable to the present case. In Ancheta and PNB, theoppositors were parties to the mortgage and the foreclosureproceedings; in the present case, the oppositor was a third party whowas a stranger to the mortgage and who did not participate in theforeclosure proceedings. Moreover, in Ancheta and PNB, the oppositorsobjected to the issuance of the writ because of the pendency of a casefor the annulment of the real estate mortgage and the foreclosureproceedings; while petitioner herein objected because he is in actualpossession of the foreclosed property and he is claiming the right ofownership adverse to that of the mortgagor, the spouses Pearedondo. These factual circumstances in the instant case call for theapplication not of Ancheta and PNB but of the other set of casesthoroughly discussed above declaring that the issuance of thepossessory writ is not a ministerial duty of the RTC judge.

WHEREFORE, premises considered, the petition is hereby GRANTED.The Court of Appeals Decision dated October 31, 2006 and Resolution

dated May 10, 2007 in CA-G.R. SP No. 89910 are REVERSED and SET ASIDE.The Orders dated December 20, 2004 and March 8, 2005 of the RegionalTrial Court, Paraaque City, Branch 258 in LRC Case No. 01-0123,are REINSTATED.

SO ORDERED.