Title
Spouses Vega vs. Social Security System
Case
G.R. No. 181672
Decision Date
Sep 20, 2010
Magdalena Reyes sold her SSS-mortgaged property to the Vegas, who paid amortizations. PDC claimed ownership after a levy, but SC ruled the Vegas' ownership valid, ordering PDC to reconvey or pay damages.
property ownership
legal battle
lack of authority

Case Summary (G.R. No. 181672)

Factual Background

Reyes obtained the SSS housing loan in 1979 and executed a mortgage over the Pilar Village property. Afterward, Reyes sought to migrate and requested that the Vega spouses take over the loan and purchase the property. According to the Vega spouses’ evidence, an SSS employee advised them that although the SSS did not approve of members transferring mortgaged homes, they could undertake a private arrangement with Reyes as long as they paid monthly amortizations on time.

Relying on this guidance, the Vega spouses paid Reyes P20,000.00 and agreed that Reyes would execute in their favor a deed of assignment of real property with assumption of mortgage. The Vega spouses took possession in January 1981. Reyes, however, did not readily execute the deed because she left the country and empowered her sister, Julieta Reyes Ofilada (Ofilada), to convey ownership. Between 1983 and 1984, Ofilada executed the deed promised by Reyes and kept the original while delivering two copies to the Vega spouses. One copy was given to the Home Development Mortgage Fund, and the Vega spouses kept the other. A storm in 1984 destroyed the copy kept by them.

In 1992, the Vega spouses learned Reyes had not updated amortizations because they received a notice from the SSS. The Vega spouses told the SSS that they had already made payments to Reyes, but the SSS remained indifferent. They then, on January 6, 1992, updated the account themselves and paid P115,738.48 to the SSS through Antonio Vega’s personal check. They later negotiated seven additional remittances, and the SSS accepted P8,681.00 more. Reyes and her relatives did not claim the property.

While these events unfolded, PDC filed on April 16, 1993 an action for sum of money against Reyes before the RTC of Manila in Civil Case 93-6551, alleging that Reyes had borrowed P46,500.00 from Apex Mortgage and Loans Corporation (Apex) to buy and construct on the property. Apex later assigned the credit to PDC on December 29, 1992, and PDC sued on the assigned credit. On August 26, 1993, the RTC rendered judgment ordering Reyes to pay P46,398.00 plus interest and penalties from April 11, 1979, attorney’s fees, and costs.

Unable to collect, on January 5, 1994 the RTC issued a writ of execution and the sheriff levied on the property despite the Vega spouses’ possession and claimed ownership. Notices of auction were published on February 24, March 3, and March 10, 1994, and the Vega spouses were served with notice around March 20, 1994. On April 5, 1994, they filed an affidavit of third-party claimant and moved for leave to admit a motion in intervention to quash the levy, but the RTC directed the sheriff to proceed.

In the midst of the execution process, a telegram dated August 29, 1994 informed the Vega spouses that the SSS intended to foreclose to satisfy a housing debt. On October 19, 1994, the Vega spouses wrote the SSS requesting exact computation and assurance that they would be entitled to discharge upon payment. They sent a P37,521.95 manager’s check, which the SSS refused to accept.

On November 8, 1994, the Vega spouses filed in the RTC of Las Pinas a separate action for consignation, damages, and injunction in Civil Case 94-2943 against the SSS, PDC, the sheriff, and the Register of Deeds, and sought a preliminary injunction and temporary restraining order. However, during the pendency of that case, the SSS released the mortgage to PDC on December 27, 1994, and on August 22, 1996 the Register of Deeds issued TCT T-56657 to PDC. A writ of possession subsequently evicted the Vega spouses.

On May 8, 2002, the RTC rendered judgment in Civil Case 94-2943 in favor of the Vega spouses. The court held that the SSS had been barred from rejecting their final payment of P37,521.95 and denying their assumption of Reyes’ debt given the SSS’s prior acceptance of their payments directly. It held that the Vega spouses were subrogated to Reyes’ rights and effectively substituted her in the SSS housing loan and mortgage contract, as supported by receipts showing the Vega spouses had made the relevant amortization payments. It ordered PDC to deliver the certificate of title to the Vega spouses and held the SSS and PDC solidarily liable for moral damages of P300,000.00, exemplary damages of P30,000.00, and attorney’s fees of P50,000.00, plus costs.

The Court of Appeals later reversed this RTC judgment on August 30, 2007 in CA-G.R. CV 77582, principally because the Vega spouses were allegedly unable to produce the deed of assignment and because the assignment was allegedly invalid as to PDC. After denial of reconsideration, the Vega spouses filed a petition for review on certiorari under Rule 45.

Appellate Issues Raised by the Parties

The Supreme Court framed the issues as follows: whether the Vega spouses presented adequate proof of Reyes’ sale of the subject property to them; if so, whether Reyes validly sold her SSS-mortgaged property to them; and, if so, whether the sheriff validly sold the property at public auction to satisfy Reyes’ debt to PDC.

The Vega spouses maintained that, despite the failure to present the original deed, they proved the existence and contents of the deed through secondary evidence and corroborating circumstances, including long possession in the concept of owner and direct payment of SSS amortizations in a manner consistent with their purchase and assumption of the mortgage. They further argued that Reyes’ sale was valid even though the property remained mortgaged to the SSS, and that PDC could not defeat the sale despite the property’s registered title being still in Reyes’ name at the time of execution.

PDC, as the judgment creditor, contended in substance that it could enforce its judgment against property still appearing in Reyes’ name at the time of the sheriff’s execution, and that the Vega spouses’ alleged assignment was not binding on it due to failures of proof and alleged noncompliance with the requirements governing assignments of credits and recordation. PDC also benefited from the presumption that it acquired the property through execution and sheriff’s sale.

Trial Court Findings and their Reversal by the Court of Appeals

The RTC in Civil Case 94-2943 found in favor of the Vega spouses, treating them as subrogees based on their payments and their assumption of Reyes’ obligation under the SSS loan. It ordered PDC to deliver the title covering the property to the Vega spouses and imposed damages and attorney’s fees on both the SSS and PDC solidarily.

On appeal, the Court of Appeals reversed. It ruled that the Vega spouses failed to prove the transfer because they did not present the original deed of assignment, citing their claim of loss. It further ruled that the assignment was not valid as to PDC.

Legal Ruling of the Supreme Court

The Supreme Court granted the petition and reversed the Court of Appeals.

First, the Court held that the rule requiring presentation of the original deed of assignment was not absolute. Although the Court of Appeals found fault in the Vega spouses’ inability to produce the original deed, the Supreme Court ruled that secondary evidence of the contents of the original could be admitted when the original had been lost without bad faith on the party offering such evidence, following Rule 130, Sec. 3. The Court found that the Vega spouses had proven both the loss of the deed and what it contained, supported by strong corroboration: they took possession of the house and lot after the purchase; they lived on and held the property in the concept of owner for 13 years before PDC entered the controversy; they paid amortizations to the SSS with Antonio Vega’s personal check, including amortizations Reyes promised to settle but did not; and they sent a manager’s check to the SSS when it sought foreclosure, corresponding to the loan balance. No one, including Reyes or relatives, came forward to claim the property. The Court thus concluded that the Vega spouses’ evidence sufficiently established the sale.

Second, the Court addressed validity of the transfer notwithstanding the existing SSS mortgage. It recognized that Reyes acquired the property through the SSS loan and executed a mortgage collateral. Although the loan was unpaid, Reyes allegedly assigned the property to the Vega spouses without notice to or consent of the SSS. The Court of Appeals had relied on Article 1237 of the Civil Code, reasoning that persons who pay on behalf of the debtor without the debtor’s knowledge or against the debtor’s will cannot compel the creditor to subrogate them.

The Supreme Court disagreed that Article 1237 governed the case because it proceeded from the premise that Reyes had consented to the transfer and to the assumption of the mortgage by the Vega spouses. The Court acknowledged that paragraph 4 of the mortgage contract required Reyes to secure the SSS’s consent before selling. It held that such stipulation remained valid in the sense that the SSS could not be compelled to recognize the sale while the loan remained unpaid. However, the Court held that the stipulation could not be interpreted as absolutely forbidding the mortgagor-owner from selling the mortgaged property. It reasoned that treating such a clause as an absolute prohibition would contravene public policy because it would impose an undue impediment to the transmission of property.

The Court further invoked the principle that when a mortgagor sells the mortgaged property to a third person, the mortgagee may demand from that third person payment of the principal obligation because the mortgage credit is a real right that follows the property regardless of changes in ownership. It cited Article 2129 of the Civil Code, which gives the creditor the option to claim from a third person in possession the payment of the part of the credit secured by the mortgaged property. The Court also held that the mortgagor’s sale does not affect the right of the registered mortgagee to forecl

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