Case Summary (G.R. No. 205741)
Petitioner
Pablo P. Garcia, as second mortgagee of the subject property, seeking judicial foreclosure and damages against Yolanda Valdez Villar.
Respondent
Yolanda Valdez Villar, as first mortgagee and later registered owner of the subject property, resisting Garcia’s foreclosure action.
Key Dates
• July 6, 1993 – First real-estate mortgage executed by Galas (with Pingol) in favor of Villar for ₱2,200,000.
• October 10, 1994 – Second real-estate mortgage executed by Galas (with Pingol) in favor of Garcia for ₱1,800,000.
• November 21, 1996 – Deed of Sale by Galas to Villar for ₱1,500,000, declaring the property “free and clear of all liens.”
• December 3, 1996 – Registration of sale; new Transfer Certificate of Title issued in Villar’s name with both mortgages annotated.
• October 27, 1999 – Garcia files Petition for Mandamus (later amended to Complaint for Foreclosure).
• May 27, 2002 – RTC Decision in favor of Garcia ordering payment of ₱1,800,000 and, upon non-payment, judicial foreclosure.
• February 27, 2003 – Court of Appeals reverses and dismisses Garcia’s complaint.
• July 2, 2003 – CA Resolution denying Garcia’s motion for reconsideration.
• June 27, 2012 – Decision of the Supreme Court affirming the CA.
Applicable Law
• 1987 Philippine Constitution (decision post-1990)
• Civil Code of the Philippines (Articles 2087, 2088, 2126, 2129, 2130, 1293)
• Act No. 3135, as amended (judicial and extrajudicial foreclosure procedures)
• 1997 Rules of Civil Procedure (Rule 45 – certiorari)
Factual Background
Galas mortgaged her Quezon City property twice: first to Villar (₱2.2 M) in 1993; then to Garcia (₱1.8 M) in 1994. Both mortgages were duly annotated on the title. In 1996, Galas sold the property to Villar, declaring it free of liens. Upon registration, both mortgage annotations were carried over to Villar’s new title. In 1999, Garcia sought mandamus and then foreclosure against Villar, alleging she acted in bad faith by purchasing instead of foreclosing. The RTC granted foreclosure; the CA reversed, holding Garcia had no cause of action against Villar. Garcia invoked this Court’s certiorari jurisdiction.
Issues
- Validity of the second mortgage to Garcia
- Validity of the sale to Villar
- Compliance with the prohibition on pactum commissorium
- Propriety of Garcia’s foreclosure action against Villar
Validity of Second Mortgage and Sale
The Court of Appeals correctly found both the second mortgage and the subsequent sale valid. Although the stamped annotation on the first mortgage mentioned “mortgagee’s consent necessary in case of subsequent encumbrance or alienation,” that restriction did not appear in the deed itself. Under Civil Code Article 2130, any clause forbidding alienation is void when omitted from the deed. The deed likewise imposed no prohibition on sale to Villar or any other purchaser.
Prohibition on Pactum Commissorium
Article 2088 of the Civil Code bars automatic appropriation of mortgaged property by the creditor. Villar’s power-of-attorney provision merely authorized her to sell the property upon default and apply the proceeds to the debt. This is consistent with Article 2087—which contemplates sale of the security to satisfy the obligation—and does not vest automatic ownership in the mortgagee. Hence, no pactum commissorium occurred.
Real Nature of Mortgages and Transferee’s Liability
Under Articles 2126 and 2129, a registered mortgage is a real right that follows the property, binding subsequent transferees who must either pay the secured debt or submit to foreclosure. However, by purchasing with notice of the mortgage, Villar assumed only the obligations incide
...continue readingCase Syllabus (G.R. No. 205741)
Facts of the Case
- Lourdes V. Galas was the registered owner of a parcel at Malindang St., Quezon City (TCT No. RT-67970(253279)).
- On July 6, 1993, Galas, with her daughter Ophelia G. Pingol as co-maker, executed a first real estate mortgage in favor of Yolanda Valdez Villar securing a P2,200,000 loan.
- On October 10, 1994, the same property was encumbered by a second real estate mortgage in favor of Pablo P. Garcia, also with Pingol as co-maker, securing a P1,800,000 loan.
- Both mortgages were duly annotated on the back of the original TCT.
- On November 21, 1996, Galas sold the mortgaged property to Villar for P1,500,000, declaring it “free and clear of all liens and encumbrances.”
- Registration of the sale cancelled the original TCT and issued a new one (TCT No. N-168361) in Villar’s name, carrying over both mortgage annotations.
Procedural History
- October 27, 1999: Garcia filed a Petition for Mandamus with Damages, later amended to a Complaint for Foreclosure of Real Estate Mortgage with Damages, against Villar in RTC Quezon City, Branch 92.
- Villar answered, contesting Garcia’s cause of action and asserting bad faith and lack of consent to the second mortgage.
- May 23, 2000: RTC issued a pre-trial order; parties stipulated issues and facts, including Villar’s status as first mortgagee and acknowledgement of the second mortgage annotation.
- June 8, 2000: RTC ordered simultaneous filing of memoranda; Garcia moved for summary judgment, which Villar opposed; her motion for extension was denied.
- May 27, 2002: RTC rendered judgment in favor of Garcia, ordering Villar to pay P1,800,000 plus interest and costs, and, upon nonpayment, that the property be sold at auction.
- Villar appealed to the Court of Appeals.
- February 27, 2003: Court of Appeals reversed and dismissed Garcia’s complaint for foreclosure, ruling both the second mortgage and sale to Villar valid,