Welbilt Corp. vs. De Casto, G.R. No.

210286, July 23, 2018

Factual Antecedents

Petitioners Welbit Construction Corporation and Wack Wack Condominium

Corporation are the developer and management body of Wack Wack Apartments
Building (condominium), respectively,[4] while Spouses Eugenio Juan and Matilde
Gonzalez are the owners thereof.[5]

The late Cresenciano C. De Castro (De Castro) is the registered owner of Unit 802 of of
the condominium, covered by Condominium Certificate of Title (CCT) No. 2826[6]
(subject property). For failure to pay assessment dues amounting to P79,905.41 as of
July 31, 1986 despite demand, Welbit Construction Corp., Wack Wack Condominium
Corp., and Spouses Eugenio Juan Gonzalez and Matilde Gonzalez (petitioners) caused
the annotation of a lien for unpaid assessments and other dues at the back of De Castro's
title on August 14, 1986 pursuant to Section 4 of the Master Deed with Declaration of
Restrictions of Wack Wack Condominium (Master Deed).[7]

As the said dues remained unsettled, petitioners filed a petition for the extra-judicial
foreclosure of the subject property with the Office of the Ex-Officio Sheriff of Pasig City
on October 27, 1986. The requirements of publication and posting of the notice were
then complied with and the public auction was set on February 10, 1987. A copy of such
notice was received by De Castro on January 29, 1987.[8]

Petitioners emerged as the highest bidder for P88,809.94. Accordingly, a certificate of

sale was issued in their favor on February 10, 1987. On April 2, 1987, the sale was
registered with the Register of Deeds of Pasig City and annotated at the back of De
Castro's title. De Castro failed to redeem the property.[9]

When requested to surrender his owner's duplicate copy of CCT No. 2826, De Castro
filed a petition for annulment of foreclosure proceedings before the Securities and
Exchange Commission (SEC) which then had the jurisdiction over intra-corporate
disputes. In the said petition, De Castro argued that petitioners have no legal personality
to invoke the Condominium Act and should have availed of other remedies in law; the
annotation of assessment dues and certificate of sale, and the extra-judicial proceedings
were highly irregular and devoid of factual and legal basis; that the assessments
imposed were excessive, oppressive, unconscionable, and arbitrary; and that the
petitioners have no special power of attorney or authority was granted to them nor was
there any agreement between the parties to that effect.[10]

For their part, petitioners countered that the foreclosure was lawful pursuant to the
Master Deed to which De Castro was bound as a unit owner. Petitioners further averred
that the assessment was fair and reasonable as the rate in computing the same was the
same applied to all condominium unit owners. As for the foreclosure proceedings, De
Castro was notified thereof but never made any opposition nor did he attend the
foreclosure sale.[11]

Sometime in February 1992, during the pendency of the case, De Castro passed
away[12] and substituted by Heirs of Cresenciano C. De Castro (respondents).

Ruling of the Regional Trial Court

In its March 31, 2009 Decision,[13] the Regional Trial Court (RTC) of Mandaluyong
City, Branch 211, ruled for the validity of the extra-judicial foreclosure proceedings
instituted by the petitioners. The RTC thoroughly discussed that the evidence on record
clearly show that De Castro was aware of his unsettled dues and penalties. The RTC also
held that De Castro cannot deny that he is bound by the Master Deed, which gave
authority to the petitioners to issue assessments against him for his unpaid dues and
penalties. The RTC also cited the By-Laws of the condominium corporation that gives
authority to the Board of Directors to enforce collection of unpaid assessments duly
levied in by any of the remedies provided by the Republic Act No. 4726[14] or the
Condominium Act and other pertinent laws, such as foreclosure. The RTC, disposed,
thus:
WHEREFORE, judgement is hereby rendered as follows:

(a) Dismissing as it is hereby DISMISSED the instant petition for lack of merit; and,

(b) Dismissing as it is hereby DISMISSED the counterclaims of the [petitioners].

SO ORDERED.[15]

Ruling of the CA

In its September 30, 2013 Decision,[16] the CA reversed and set aside the RTC Decision,
on the sole ground that the petitioners have no sufficient authority to extra-judicially
foreclose the subject property. The CA cited the case of First Marbella Condominium
Association, Inc. v. Gatmaytan,[17] wherein the Court ruled that it is mandatory that a
petition for extra-judicial foreclosure be supported by evidence that petitioner holds a
special power or authority to foreclose pursuant to Circular No. 7-2002,[18]
implementing Supreme Court (SC) Administrative Matter (A.M.) No. 99-10-05-0.[19]
According to the CA, herein condominium corporation's By-Laws or the Master Deed
does not vest the petitioners with sufficient authority to extra-judicially foreclose the
property. Neither does Section 20 of the Condominium Act gives authority to the
petitioners to enforce the liens on the condominium unit through extra-judicial
foreclosure as the said provision merely prescribes the procedure therefor, i.e., it should
be done in the same manner provided for by law for the judicial or extra-judicial
foreclosure of mortgage of real property.[20] The CA disposes, thus:
WHEREFORE, the appeal is GRANTED. The assailed RTC Decision dated March 31,
2009 is REVERSED and SET ASIDE. Accordingly, the petition in SEC Case No. MC-01-
002 is GRANTED. The extra-judicial foreclosure of Condominium Unit No. 802 is SET
ASIDE for being null and void. With costs.

SO ORDERED.[21]
Hence, this petition.

Issue

Whether or not the CA erred in declaring the extra-judicial foreclosure proceeding null
and void.

Ruling of the Court

We find merit in the instant petition.

As can be gleaned from the CA's assailed Decision, its conclusion that the extra-judicial
foreclosure proceeding instituted by the petitioners is null and void for the latter's lack
of proof of authority is heavily anchored upon the case of First Marbella[22] above-
cited. A careful perusal of the said case, however, would show that the same is not
applicable in the case at bar.

Section 20 of the Condominium Act merely provides that the assessments, upon any
condominium made in accordance with a duly registered declaration of restrictions,
shall be a lien upon the said condominium, and also prescribes the procedure by which
such liens may be enforced, viz.:
Sec. 20. The assessment upon any condominium made in accordance with a duly
registered declaration of restrictions shall be an obligation of the owner thereof at the
time the assessment is made. The amount of any such assessment plus any other
charges thereon, such as interest, costs (including attorney's fees) and penalties, as such
may be provided for in the declaration of restrictions, shall be and become a lien upon
the condominium to be registered with the Register of Deeds of the city or province
where such condominium project is located. The notice shall state the amount of such
assessment and such other charges thereon as may be authorized by the declaration of
restrictions, a description of condominium unit against which same has been assessed,
and the name of the registered owner thereof. Such notice shall be signed by an
authorized representative of the management body or as otherwise provided in the
declaration of restrictions. Upon payment of said assessment and charges or other
satisfaction thereof, the management body shall cause to be registered a release of the
lien.

Such lien shall be superior to all other liens registered subsequent to the registration of
said notice of assessment except real property tax liens and except that the declaration
of restrictions may provide for the subordination thereof to any other liens and
encumbrances, such liens may be enforced in the same manner provided for by law for
the judicial or extra-judicial foreclosure of mortgage or real property. Unless otherwise
provided for in the declaration of the restrictions, the management body shall have
power to bid at foreclosure sale. The condominium owner shall have the right of
redemption as in cases of judicial or extra-judicial foreclosure of mortgages.[23]
(Emphasis in the original)

Indeed, it does not grant the petitioners the authority to foreclose. The aforecited
provision clearly provides that the rules on extra-judicial foreclosure of
mortgage or real property should be followed. Accordingly, Section 1[24] of Act
No. 3135,[25] which prescribes for the procedure for the extra-judicial foreclosure of
real properties subject to real estate mortgage, in relation to Circular No. 7-2002 and SC
A.M. No. 99-10-05-0 requires that the petition for extra-judicial foreclosure be
supported by evidence that petitioners hold a special power or authority to foreclose,
thus:

Sec. 1. All applications for extra-judicial foreclosure of mortgage, whether

under the direction of the Sheriff or a notary public pursuant to Art. No.
3135, as amended, and Act 1508, as amended, shall be filed with the
Executive Judge, through the Clerk of Court, who is also the Ex-Officio
Sheriff (A.M. No. 99-10-05-0, as amended, March 1, 2001).

Sec. 2. Upon receipt of the application, the Clerk of Court shall:

a. Examine the same to ensure that the special power of attorney

authorizing the extra-judicial foreclosure of the real property is
either inserted into or attached to the deed of real estate
mortgage (Act No. 3135, Sec. 1, as amended) x x x.[26]

In First Marbella, the Court held that "[w]ithout proof of petitioner's special authority to
foreclose, the Clerk of Court as Ex-Officio Sheriff is precluded from acting on the
application for extra-judicial foreclosure."[27]

Unlike in First Marbella, however, the CA erred in ruling that herein petitioners have no
such special authority to foreclose. In the said case, the Court found that the only basis
of therein petitioners for causing the extra judicial foreclosure of therein respondent's
condominium unit was a mere notice of assessment annotated on the latter's CCT. Thus,
the Court ruled that neither annotation nor law vests therein petitioner with sufficient
authority to foreclose on the property.[28]
In the case at bar, the foreclosure was not merely based on the the notice of
assessment annotated on CCT No. 2826 nor solely upon the Condominium
Act but also on the Master Deed[29] and the condominium corporation's
By-Laws.[30] As correctly found by the RTC:

Thus, Section 1 of the Article V of the By-laws of the Condominium

Corporation authorizes the board to assess the unit owner penalties and
expenses for maintenance and repairs necessary to protect the common
areas or any portion of the building or safeguard the value and
attractiveness of the condominium. Under Section 5 of Article [V] of the
By-Laws, in the event a member defaults in the payment of any
assessment duly levied in accordance with the Master Deed and the By-
Laws, the Board of Directors may enforce collection thereof by any of the
remedies provided by the Condominium Act and other pertinent laws,
such as foreclosure. x x x.

xxxx

The Master Deed with Declaration of Restrictions of the Condominium

Project is annotated on the Condominium Certificate of title 2826. The
Master Deed and By-Laws constitute as the contract between the unit
owner and the condominium corporation. As a unit owner, [De Castro] is
bound by the rules and restrictions embodied in the said Master Deed and
by-Laws pursuant to the provisions of the Condominium Act. Under the
Condominium Act (Section 20 of RA 4726) and the by-laws (Section 5 of
Article [V]) of the Wack Wack, the assessments upon a condominium
constitute a lien on such condominium and may be enforced by judicial or
extra-judicial foreclosure.[31] (Emphasis ours)

Clearly, petitioners were authorized to institute the foreclosure proceeding to enforce

the lien upon the condominium unit. Moreover, this conclusion finds support in the
1984 condominium corporation's Board Resolution No. 84-007,[32] also signed by De
Castro as a member of the Board of Directors at that time, stating that:

RESOLVED to, as we do hereby authorize our President, Arch. Eugenio

Juan Gonzalez and/or the law offices of Siguion Reyna, Montecillo and
Ongsiako and/or whomsoever Arch. Gonzalez may appoint or designate, to
effect foreclosure of Condominium Apartment Units at Wack Wack
Apartment Building Condominium Project, Mandaluyong, Metro Manila
with unpaid or delinquent accounts to satisfy the unit's obligation to Wack
Wack Condominium Corporation;

RESOLVED FURTHER TO, as we do hereby designate and appoint Arch.

Eugenio Juan Gonzalez as the Wack Wack Condominium Corporation's
attorney-in-fact for the purpose of foreclosure;

RESOLVED FINALLY TO, as we do hereby authorize the abovenamed

Architect Eugenio Juan Gonzalez to execute, sign, and deliver documents
and whatever papers necessary, and in general, to do and perform all such
acts and things that are or may be necessary to give effect to the foregoing
authority.

Furthermore, in the similar case of Wack Wack Condominium Corp. v. Court of Appeals,
[33] involving petitioners and another unit owner, wherein the petitioners likewise
extra-judicially foreclosed a condominium unit to enforce assessments albeit the issue
therein was the jurisdiction of the SEC, this Court had already ruled that the
Condominium Act and the By-Laws of the condominium corporation recognize and
authorize assessments upon a condominium unit to constitute a lien on such unit which
may be enforced by judicial or extra-judicial foreclosure. Clearly, petitioners' authority
to foreclose a condominium unit to enforce assessments, pursuant to the Condominium
Act and the condominium corporation's Master Deed and By-Laws, had long been
established.