Case Digest: Philippine National Bank v. Mallorca, GR No. L-22538, October 31, 1967

Commercial Law | Right in Rem

Facts: 

• In 1950, Ruperta Lavilles mortgaged a 48,965 square meter parcel of land in Passi, Iloilo to Philippine National Bank as a security for a loan of P1,800.
• The mortgage was duly recorded.
• On January 12, 1958, Lavilles sold 20,000 square meters of the mortgaged land to Primitiva Mallorca without PNB’s knowledge or consent.
• Mallorca moved the Iloilo cadastral court to annotate the sale on the title.
• The court ordered PNB to surrender the title to the Register of Deeds with a warning that:
• "the mortgage in favor of the Philippine National Bank is duly registered in the Office of the Register of Deeds and to whomsoever the land is sold the vendee will assume the responsibility of complying with the provisions of the mortgage."
• The Register of Deeds cancelled the original title and issued a new one, making two co-owner’s copies of the title — one each for Ruperta Lavilles and for Primitiva Mallorca.
• PNB’s mortgage lien was annotated on both copies.
• Ruperta Lavilles failed to pay her mortgage debt. 
• On April 16, 1958, PNB foreclosed the mortgage extrajudicially. 
• On May 12, 1958, a certificate of sale was issued to PNB as the highest bidder in the foreclosure sale. 
• This certificate of sale was registered with the Register of Deeds of Iloilo.
• In March 1959, Mallorca sued PNB to enforce her right of redemption, with damages.
• Mallorca’s appeal was denied due to being filed out of time.
• In 1962, PNB sought consolidation of title in its name.
• The Register of Deeds refused to register without Mallorca's co-owner’s copy of the title.
• The court ordered Mallorca to surrender her copy of the title.
• Mallorca appealed to the Court of Appeals.
• CA: Certified the case to the Supreme Court due to legal issues involved.

Issue: 

• Whether Mallorca’s undivided interest consisting of 20,000 square meters of the mortgaged lot, remained unaffected by the foreclosure and subsequent sale to PNB. NO

Held:

Appellant’s stand is that her undivided interest consisting of 20,000 square meters of the mortgaged lot, remained unaffected by the foreclosure and subsequent sale to PNB. Because, so she argues, she was not a party to the real estate mortgage in favor of PNB, and she "neither secured nor contracted a loan" with said bank. What PNB foreclosed, she maintains, "was that portion belonging to Ruperta Lavilles only", not the part belonging to her.

Appellant’s position clashes with precepts well-entrenched in law. By Article 2126 of the Civil Code, a "mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted."

Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily bound to acknowledge and respect the encumbrance to which is subjected the purchased thing and which is at the disposal of the creditor "in order that he, under the terms of the contract, may recover the amount of his credit therefrom."

For, a recorded real estate mortgage is a right in rem, a lien on the property whoever its owner may be. Because the personality of the owner is disregarded; the mortgage subsists notwithstanding changes of ownership; the last transferee is just as much of a debtor as the first one; and this, independent of whether the transferee knows or not the person of the mortgagee. So it is, that a mortgage lien is inseparable from the property mortgaged. All subsequent purchasers thereof must respect the mortgage, whether the transfer to them be with or without the consent of the mortgagee. For, the mortgage, until discharged, follows the property.  

And then, militating against appellant’s cause is one other special feature of a real mortgage — its indivisibility. This Court has understood mortgage indivisibility in the sense that each and every parcel under mortgage answers for the totality of the debt. 13

It does not really matter that the mortgagee, as in this case, did not oppose the subsequent sale. Naturally, because the sale was without PNB’s knowledge. Even if such knowledge is chargeable to PNB, its failure to object to the sale could not have any impairing effect upon its rights as mortgagee. After all, a real mortgage is merely an encumbrance; it does not extinguish the title of the debtor, whose right to dispose — a principal attribute of ownership — is not thereby lost.  And, on the assumption that PNB recognized the efficaciousness of the sale by Ruperta Lavilles of a portion of the mortgaged land to Primitiva Mallorca, which Lavilles "had the right to make" and which anyway PNB "cannot oppose", PNB cannot be prejudiced thereby, for, at all events, "such sale could not affect the mortgage, as the latter follows the property whoever the possessor may be." 

On Primitiva Mallorca’s part, she cannot rightfully deny the mortgage lien on the portion of the land she purchased. 

1. Registration of the mortgage in the Register of Deeds is notice to all persons of the existence thereof. 
2. By express provision of Section 39 of the Land Registration Act, "every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all encumbrance except those noted on said certificate."  Clear implication exists that if an encumbrance is so noted, that purchaser is bound thereby. 
3. Mallorca herself petitioned the court to order PNB to deliver the owner’s copy of TCT 27070 to the Register of Deeds for annotation of Mallorca’s interest, as heretofore adverted to. And the court, in giving its stamp of approval to the petition, expressly directed that "to whomsoever the land is sold the vendee will assume the responsibility of complying with the provisions of the mortgage." 
4. Mallorca’s own co-owner’s copy of the title issued to her carried PNB’s mortgage lien. 
5. The fact that Mallorca failed to exercise her right of redemption, which she sought to enforce in a judicial court, ends her interest to the land she claims, and, doubtless, estops her from denying PNB’s mortgage lien thereon.

We, accordingly, rule that PNB has the right to consolidate its title on the entire lot mortgaged by Ruperta Lavilles in its favor, including the P20,000 square meter-undivided interest of Primitiva Mallorca. And this, by virtue of the foreclosure sale and the expiry of Mallorca’s right of redemption.

In a final effort to overturn the order under review, appellant espouses the thesis that the lower court, acting as a cadastral court, is without jurisdiction in the premises. Her syllogism is this: she is questioning the right of PNB to declare TCT 24256 as null and void insofar as the 20,000 square meter-undivided portion is concerned; the issue is thus raised to the level of "contentious litigation" ; and, going by jurisprudence,  a cadastral court is devoid of power to act thereon.

The precedents appellant depends on cannot serve as authority in her case. For, those cases involved unresolved issues. Here, the question she presents — whether her undivided share in the lot is encumbered or unencumbered — has been definitely passed upon in the redemption case she brought against PNB (Civil Case 5149, Court of First Instance of Iloilo). Mallorca herself acknowledged the validity of that encumbrance when she commenced said civil case. Given the facts, PNB’s petition to consolidate title falls under the rule that a cadastral court has jurisdiction to entertain a petition for the cancellation of an outstanding certificate of title where the registered owner has been lawfully divested of his title thereof.  For, the truth is that this case presents no substantial controversy. As held in the case of Castillo v. Ramos, supra, pp. 814-815 —

"where a petition concerning the cancellation of any encumbrance noted on a Torrens certificate of title is filed within the record of the land registration case in which the basic decree was entered and there is no substantial controversy in regard thereto between the petitioner and any other interested party, such petition may be considered as a mere incidental matter in such land registration case and may therein be acted upon by the proper court." 

Upon the record as it stands, the lower court order of August 18, 1962 is, as it is hereby, affirmed.

Costs against oppositor-appellant. So ordered.