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CASE DIGEST

CASE No. 1 SORIANO V. BAUTISTA 6 SCRA 946 (1962)


FACTS: Spouses Bautista are the absolute and registered owners of a parcel of land. In May
30, 1956, the said spouses entered into an agreement entitled Kasulatan ng Sanglaan
(mortgage) in favor of spouses Soriano for the amount of P1,800. Simultaneously with the
signing of the deed, the spouses Bautista transferred the possession of the subject property
to spouses Soriano. The spouses Soriano have, since that date, been in possession of the
property and are still enjoying the produce thereof to the exclusion of all other persons
Sometime after May 1956, the spouses Bautista received from spouses Soriano the sum of
P450 pursuant to the conditions agreed upon in the document. However, no receipt was
issued. The said amount was returned by the spouses Bautista
In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the spouses Soriano
have decided to purchase the subject property pursuant to par. 5 of the document which
states that the mortgagees may purchase the said land absolutely within the 2-year term
of the mortgage for P3,900.
Despite the receipt of the letter, the spouses Bautista refused to comply with Sorianos
demand
As such, spouses Soriano filed a case, praying that they be allowed to consign or deposit with
the Clerk of Court the sum of P1,650 as the balance of the purchase price of the land in
question
The trial court held in favor of Soriano and ordered Bautista to execute a deed of absolute
sale over the said property in favor of Soriano.
Subsequently spouses Bautista filed a case against Soriano, asking the court to order Soriano
to accept the payment of the principal obligation and release the mortgage and to make an
accounting the harvest for the 2 harvest seasons (1956-1957).
CFI held in Sorianos favor and ordered the execution of the deed of sale in their favor
Bautista argued that as mortgagors, they cannot be deprived of the right to redeem the
mortgaged property, as such right is inherent in and inseparable from a mortgage.

ISSUE: WON spouses Bautista are entitled to redemption of subject property


HELD: No. While the transaction is undoubtedly a mortgage and contains the customary
stipulation concerning redemption, it carries the added special provision which renders the
mortgagors right to redeem defeasible at the election of the mortgagees. There is nothing
illegal or immoral in this as this is allowed under Art 1479 NCC which states: A promise to
buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise supported by a consideration apart from the price.
In the case at bar, the mortgagors promise is supported by the same consideration as that of
the mortgage itself, which is distinct from the consideration in sale should the option be
exercised. The mortgagors promise was in the nature of a continuing offer, non-withdrawable
during a period of 2 years, which upon acceptance by the mortgagees gave rise to a
perfected contract of sale.

TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY OTHER PARTY HAS


BEEN EXERCISED
The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the
purpose intended. Such tender must have been made after the option to purchase had been
exercised by spouses Soriano. Bautistas offer to redeem could be defeated by Sorianos
preemptive right to purchase within the period of 2 years from May 30, 1956. Such right was
availed of and spouses Bautista were accordingly notified by Soriano. Offer and acceptance
converged and gave rise to a perfected and binding contract of purchase and sale.

CASE No. 2 Santiago v Dionisio


FACTS:
In 1935, Roman San Diego sold a land to Apolonia Santiago, and the sale was recorded in
the Register of Deeds of Bulacan, in accordance with Revised Administrative Code. However,
prior to the sale, Roman had already mortgaged the land to Eulalia Resurreccion. Since the
mortgage was also registered pursuant to the Administrative Code, the mortgage to Eulalia had
precedence over the sale. Roman defaulted in his debt, so Eulalia foreclosed the mortgage and
the land was sold at public auction to Angela Dionisio as the highest bidder.
Upon discovery of the sale of the same land to Dionisio, Santiago brought an action to
annul the sale to Dionisio, and Santiago also intervened for the confirmation of the sale and filed
her opposition thereto. The lower court confirmed the sale to Dionisio without prejudice to the
rights of Santiago.
Judge Roldan, in Santiagos action for annulment, ruled that the sale of the land in favor of
Dionisio was null and void, since Santiago was not included as a party to the foreclosure
proceedings, but the ownership of Santiago over the land is subject to the mortgage in favor of
Eulalia.
In 1936, Santiago filed an application for registration of the land under her name, and
among the oppositors was Dionisio, who claimed title to the land as purchaser in a foreclosure.
Judge Potenciano Pecson ruled that the foreclosure sale did not affect the rights of the applicant
Santiago, who had not been made a party to the proceedings, and decreed the registration of the
land in her favor. So, Dionisio filed the present appeal.
ISSUES:
1. Whether or not the sale of land to Dionisio was valid, despite Santiago not being impleaded to
the foreclosure proceedings.
2. Whether or not the land should be registered in the name of Santiago.
HELD: 1. YES, insofar as to the parties to the suit, but not to Santiago. Dionisio argued that
Santiago intervened in the foreclosure suit, thus she is bound by its results. But, the Court found
that Santiagos intervention consisted merely in opposing the confirmation of the sale. This is
not the same as being a party to the suit to the extent of being bound by the judgment. That
judgment had already been rendered and was already in the process of execution when
Santiago intervened. Though the sale was confirmed, the court said that the confirmation was to
be without prejudice to the rights of Santiago. Judge Roldan did not declare the foreclosure sale
entirely void, but only "with regards to the rights of Apolonia Santiago". This means that the
foreclosure was ineffective as against Santiago, although it may be valid as between the parties
to the suit (Eulalia and Dionisio). Also, the sale is subject to Santiago's unforeclosed equity of
redemption.
While it is true that Santiagos interest in the land was subordinate to that of the
mortgagee, Eulalia, the rule of procedure in force at the time the foreclosure was section 255 of
Act 190, which required that in an action for foreclosure "all persons having or claiming an
interest in the premises subordinate in right to that of the holder of the mortgage . . .be made
defendants in the action." This rule applied not only to a subordinate lienholder, but also to a
purchaser of real property already mortgaged to another. Failure to implead a subordinate
lienholder or subsequent purchaser renders the foreclosure ineffective as against them.
Therefore, there remains in their favor the "unforeclosed equity of redemption." But the
foreclosure is valid as between the parties to the suit.
2. NO.Santiagos application for registration of the land under her name should be denied.
The unforeclosed equity of Santiago still exists and must be recognized in either of the following
ways: 1) to register the land in the name of Santiago but subject to the mortgage in favor of
Eulalia; 2) to register the land in the name of the oppositor Dionisio subject to redemption by
Apolonia Santiago.
The Courts preference is the second method, which was already ruled in the case of De la
Paz, et al. vs. McCondray & Co., Inc., supra, where the Court granted the registration applied for
but subject to the prior purchasers' equitable right of redemption.
It is the previous purchaser, Santiago, who has applied for the registration of the land.
However, both by statute and by jurisprudence, registration may be decreed in favor of an
oppositor (Dionisio in this case) whose ownership has been established. More so, in the present
case, the record shows that the opposition of Dionisio prays for the registration of the land in her
favor by asking that she be substituted in place of Apolonia Santiago in the application for
registration.
Registration of the land in the name of Dionisio, the herein oppositor, is proper, subject to
Apolonia Santiago's equitable right of redemption.
Registration of the land in the name of Santiago, who does not become its owner until she
has exercised her right to redeem, would be subject to the objection that it is premature, if not
altogether anomalous. But, Santiagos equity of redemption is registerable, but only as an
encumbrance on a registered title of ownership.
The judgment appealed from is revoked and another one entered, decreeing the
registration of the land in the name of Angela Dionisio, but subject to Apolonia Santiago's
equitable right of redemption, which right should be exercised by her within three months from
the date this decision becomes final.

CASE No. 3 RCBC v CA

FACTS
GOYU was granted credit facilities and accommodations by the RCBC initially in the
amount of P 30 million. Upon GOYUs application, the credit was increased to P50 Million, then
P90 Million, then P117 Million. As security, GOYU executed 2 REM and 2 CM in favor of RCBC,
which were registered with the RD. Under the 4 contracts, GOYU committed itself to insure the
mortgaged properties with an insurance company approved by RCBC, and subsequently endorse
and deliver the insurance policies to RCBC. GOYU then obtained 10 policies from MICO. GOYUs
buildings were gutted by fire and it claimed indemnity from MICO but the latter denied the claim
on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the proceeds were also claimed by
other creditors of GOYU. GOYU, alleging better rights to the proceeds, filed for specific
performance and damges before the RTC of Manila Br 3. The trial court ruled in favor of GOYU for
the fire loss claims but ordered it to pay RCBC its loan obligations. On appeal to the CA, it
affirmed the ruling with regard to the liabilities of MICO and RCBC. The trial court and appellate
courts both held that, since the endorsements do not bear the signature of any officer of GOYU,
they concluded that the endorsements are defective. The CA then ordered GOYU to pay its
obligation to RCBC without any interest, surcharges and penalties.
ISSUE
Whether or not the ruling of the appellate court is correct.
HELD
The Court held in the negative. The essence or rationale for the payment of interest or cost of
money is separate and distinct from that of surcharges and penalties. The charging of interest for
loans forms a very essential and fundamental element of the banking business.
CASE No. 4 VEGA v SSS
Topic: Article 1237 Whoever pays on behalf of the debtor without the knowledge or against the
will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising
from a mortgage, guaranty, or penalty.
Facts:
Magdalena Reyes owned a piece of titled land in Pilar Village, Las Pias CIty. On August 17,
1979, she got a housing loan from SSS for which she mortgaged her land. Late 1979, Reyes
asked the Sps Vega to assume the loan and buy her house and lot since she was to emigrate.
An employee at SSS said, however, that SSS did not approve of members transferring their
mortgaged homes. But the Sps Vega (Vegas) could make a private arrangement with Reyes
provided that they pay the monthly amortizations on time. Vegas agreed for Reyes to execute in
their favor a deed of assignment of real property with assumption of mortgage and paid Reyes
P20,000 after she undertook to update the amortizations before leaving the country. The Vegas
took possession of the house in January 1981.
Reyes did not execute the deed of assignment. She left the country and left her sister
(Julieta Ofilada) a special power of attorney to convey ownership of property. Sometime between
1983 and 1984, Ofilada executed the deed of assignment in favor of the Vegas, kept the original
and gave the Vegas two copies, one to be given to the Home Development Mortgage Fund and
kept the other. A storm in 1984 resulted in flood and destroyed their personal copy.
In 1992, the Vegas learned that Reyes did not update the amortizations because they
received a notice to Reyes from the SSS. They told the SSS that they already gave the payment
to Reyes but, since it appeared indifferent, on January 6, 1992, the Vegas updated the
amortization and paid P115,738.48 to the SSS. They negotiated seven additional remittances and
the SSS accepted P8,681 more from the Vegas.
On April 16, 1993, PDC filed an action for sum of money against Reyes before the RTC of
Manila, claiming that Reyes borrowed from Apex Mortgage and Loans Corporation (Apex)
P46,500 to buy the lot and construct a house on it. Apex assigned Reyes' credit to PDC on
December 29, 1992. RTC: Reyes must pay the PDC the loan of P46,398 plus interest and
penalties beginning April 11, 1979 as well as attorney's fees and costs. Unable to pay, RTC issued
a writ of execution against Reyes and its Sheriff levied on the property in Pilar Village.
On Feb 16, 1994, the Vegas requested the SSS to acknowledge their status as subrogees
and to give them an update of the account so they could settle it in full. SSS did not reply. RTC
sheriff published a notice for the auction sale of the property on Feb 24, March 3 and 10, 1994.
He also gave notice to the Vegas on March 20. The Vegas filed an affidavit of third party claimant
and a motion to quash the levy on the property. However, RTC directed the sheriff to proceed
with the execution.
The Vegas got a telegram informing them that the SSS intended to foreclose on the
property to satisfy the unpaid debt of P38,789.58. The Vegas requested from the SSS in writing
for the exact amount of the indebtedness and for assurance that they would be entitled to the
discharge of the mortgage and delivery of the proper subrogation documents upon payment.
They also sent a P37,521.95 manager's check that SSS refused to accept.
The Vegas filed an action for consignation, damages, and injunction with application for
preliminary injunction and TRO against SSS, PDC, the RTC sheriff and the Register of Deeds
before the RTC in Las Pias. While the case was pending, SSS released the mortgage to PDC. A
writ of possession evicted the Vegas from the property.
RTC decided in favor of the Vegas. CA reversed.

Issues:
Whether Reyes validly sold her SSS-mortgaged property to the Vegas given a provision in the
mortgage agreement that she could not do so without the written consent of SSS.

Held:
Yes. SC reversed CA decision.
- The Vegas were able to present adequate proof of Reye's sale of the property to them. The
Vegas proved the loss of the deed of assignment in their favor and what it contained, they
offered strong corroboration of the fact of Reyes' sale of the property to them. They took
possession of the house and lot after they bought it. They also paid for the amortizations to the
SSS. And when SSS wanted to foreclose the property, the Vegas sent a manager's check for the
balance of the loan.
- Article 1237 of the Civil Code cannot apply in this case since the debtor (Reyes)
consented to the transfer of ownership of the mortgaged property to the Vegas. Although
Paragraph 4 of the mortgage agreement which states that Reyes must secure the consent of SSS
before selling the property, is valid and binding in the sense that SSS cannot be compelled to
recognize the sale before the loan is completely paid, it does not absolutely forbid her, as
owner, from selling the property while the loan remained unpaid. Such stipulation is
against public policy, being an undue impediment or interference on the transmission of
property.
- Article 2129 of the Civil Code gives SSS the option of collecting from the third person in
possession of the mortgaged property.

***There are other issues but I focused on that which involved Art. 1237
CASE No. 5 DBP V MIRANG

CASE No. 6 Rural Bank of Caloocan v CA


G.R. No. L-32116 April 2l, 1981

FACTS:

Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply
for a loan. Valencia arranged everything about the loan with the bank. He supplied to the latter
the personal data required for Castro's loan application. After the bank approved the loan for the
amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a promissory note
corresponding to her loan in favor of the bank. On the same day, the Valencia spouses obtained
from the bank an equal amount of loan for P3,000.00. They signed another promissory note
(Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her
signature as co-maker.

Both loans were secured by a real-estate mortgage on Castro's house and lot. Later, the sheriff of
Manila sent a notice to Castro, saying that her property would be sold at public auction to satisfy
the obligation covering the two promissory notes plus interest and attorney's fees. Upon request
by Castro and the Valencias and with conformity of the bank, the auction sale was postponed,
but was nevertheless auctioned at a later date.

Castro claimed that she is a 70-year old widow who cannot read and write in English. According
to her, she has only finished second grade. She needed money in the amount of P3,000.00 to
invest in the business of the defendant spouses Valencia, who accompanied her to the bank to
secure a loan of P3,000.00. While at the bank, an employee handed to her several forms already
prepared which she was asked to sign, with no one explaining to her the nature and contents of
the documents. She also alleged that it was only when she received the letter from the sheriff
that she learned that the mortgage contract which was an encumbrance on her property was for
P6.000.00 and not for P3,000.00 and that she was made to sign as co-maker of the promissory
note without her being informed.

Castro filed a suit against petitioners contending that thru mistake on her part or fraud on the
part of Valencias she was induced to sign as co-maker of a promissory note and to constitute a
mortgage on her house and lot to secure the questioned note. At the time of filing her complaint,
respondent Castro deposited the amount of P3,383.00 with the court a quo in full payment of her
personal loan plus interest.

Castro prayed for:

(1) the annulment as far as she is concerned of the promissory note (Exhibit "2") and
mortgage (Exhibit "6") insofar as it exceeds P3,000.00; and

(2) for the discharge of her personal obligation with the bank by reason of a deposit of
P3,383.00 with the court a quo upon the filing of her complaint.
ISSUE:

Whether or not respondent court correctly affirmed the lower court in declaring the promissory
note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the
mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only.

HELD:

Yes.

RATIO:

While the Valencias defrauded Castro by making her sign the promissory note and the mortgage
contract, they also misrepresented to the bank Castro's personal qualifications in order to secure
its consent to the loan. Thus, as a result of the fraud upon Castro and the
misrepresentation to the bank inflicted by the Valencias both Castro and the bank
committed mistake in giving their consents to the contracts. In other words, substantial
mistake vitiated their consents given. For if Castro had been aware of what she signed and the
bank of the true qualifications of the loan applicants, it is evident that they would not have given
their consents to the contracts.

Article 1342 of the Civil Code which provides:

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.

We cannot declare the promissory note valid between the bank and Castro and the
mortgage contract binding on Castro beyond the amount of P3,000.00, for while the
contracts may not be invalidated insofar as they affect the bank and Castro on the
ground of fraud because the bank was not a participant thereto, such may however be
invalidated on the ground of substantial mistake mutually committed by them as a
consequence of the fraud and misrepresentation inflicted by the Valencias.

Thus, in the case of Hill vs. Veloso, this Court declared that a contract may be annulled on the
ground of vitiated consent if deceit by a third person, even without connivance or complicity with
one of the contracting parties, resulted in mutual error on the part of the parties to the contract.

The fraud particularly averred in the complaint, having been proven, is deemed sufficient basis
for the declaration of the promissory note invalid insofar as it affects Castro vis-a-vis the bank,
and the mortgage contract valid only up to the amount of P3,000.00.

CASE No. 7 Tan Chat v CN-Hodges


CASE No. 8 Lim v CA
G.R. No. L-40095 July 29, 1985

FACTS:

It is a Petition for Review on Certiorari filed by spouses LIM assailing the Decision of the Appellate
Court in CA-G.R. No. 35006-R. Based on records, Amparo LIM one of the petitioner, acquired a
twenty one (21) hectares property, comprising of two parcel, at Brgy. Luna, Claveria, Misamis
Oriental from Catalino ALEMAN on January 19, 1959, through a foreclosure for nonpayment of
mortgage. The first and second parcel comprising of 11 hectares and 10 hectares, was mortgage
to LIM by ALEMAN on February 1, 1957 and March 3, 1960, respectively. Because of nonpayment,
LIM prompted to initiate a foreclosure proceeding against ALEMAN before the Court of First
Instance of Misamis Oriental.

On January 19, 1959, the court rendered judgment, foreclosing the property in favor of LIM.
However, on February 29, 1959, the disputed property was levied and sold at a public auction by
the Provincial Sheriff of Misamis Oriental on order of the MTC, Cagayan de Oro. Eugenio
LAMBERANG, being the highest bidder, won and took possession of the property. Thereafter, a
corresponding certificate of sale was issued in his favor. On February 27, 1960, LIM through the
sheriff, offered redemption but LAMBERANG objected. Thus, on March 14, 1960 and April 11,
1960 respectively, the court finally issued a certificate of conveyance and writ of possession to
LAMBERANG.

On October 31, 1960, the petitioners (spouses LIM) seek final judicial remedy, by filing a case
against the Sheriff for the annulment of execution of sale. It was alleged, that the disputed
property cannot be made the subject of any levy and execution since it was still a public
agricultural land at the time of the sale. Ultimately, the court ruled in favor of petitioner,
declaring that the Disputed Property, having been a public land, could not be subjected to a levy
and sale at the public auction. As intervenor, LAMBERANG brought the case on appeal to the CA,
which reversed the judgment.

ISSUE: Whether or not the auction sale of the Disputed Property was valid?

RULING:

The court gave weight and credence to the petition of spouses LIM. Two important dates were
given full attention by the Court; firstly, the mortgage date which would have otherwise appear
as January 19,1959 instead of January 17, 1957 and secondly, the public auction initiated by the
Deputy Sheriff of Misamis Oriental on February 28, 1959, levying and selling the two parcels of
land in question. The court declared that when the Disputed Property was sold at public auction
on February 28, 1959, ALEMAN, as judgment debtor, was no longer the owner of the Disputed
Property, the ownership having been acquired by LIM on January 19, 1959 trough a foreclosure.
Therefore, the sale to LAMBERANG could not have been valid as a result. At the very least, LIM
having acquired substantial rights over the Disputed Property by virtue of the foreclosure, should
have been allowed to redeem within the one year period. Indisputably, LIM offered to do it on
February 27, 1960 counting from the one year starting February 28, 1959 during the auction
sale. Also, the mortgage in favor of LIM was executed on February 1, 1957, while the judgment
against ALEMAN was rendered on June 18, 1956. The mortgage was then subsequent to the
judgment. In this wise, the court declared that it is not necessary to rule on whether or not the
Disputed Property had already become private property on the date of the public auction. What
is important is the "rights" acquired over the Disputed Property, irrespective of whether the
physical property was or was not a private property. Petitioners motion was upheld and Court of
First Instance Order was reinstated, setting aside the decision of C.A. in CA-G.R. No. 35006-R.

CASE No. 9 Malayan Bank v Lagrama


CASE No. 10 Dizon v Gamorro
CASE No. 11 Belgian v Magallanes
CASE No. 12 Baretto v Villanueva
Rosario Cruzado obtained a loan from Rehabilitation Finance Corporation (RFC).
To secure payment, she mortgaged the land owned by her and her deceased husband.
As she failed to pay certain installments on the loan, the mortgage was foreclosed and the RFC
acquired the property.
Later on, the land was sold back to her conditionally for the amount of P14 ,269.03, payable in
seven years.
Cruzado, with the consent of RFC, sold to respondent Pura L. Villanueva for P19 ,000.00 "all
their rights, interest,' title and dominion and over the land.
Respondent paid P5,500 in advance and executed a promissory note for the balance.
She was, subsequently, able to secure in her name TCT covering the property and she
mortgaged it to petitioner Magdalena C. Barretto as security for a loan the amount of
P30,000.00.
Having failed to pay the remaining installments on the promissory note, a Vendors lien
(unregistered) was constituted upon the property in favor of the Cruzados said lien being
annotated at the back of TCT.
She likewise failed to pay her indebtedness of P30 ,000.00 to petitioner, the latter, instituted
against the Villanueva spouses an action for foreclosure of mortgage.
The lower court the vendor's lien of Cruzado and the mortgage credit of petitioner Barretto
should be paid pro rata from the proceeds.
Barettos sought reconsideration of the order of the court giving due course to the said vendor's
lien arguing that:
The vendor's lien, under the New Civil Code of the Philippines, can only become
effective in the event of insolvency of the vendee which has not been proved to exist in
the instant case.

WON vendors lien can only become effective in the event of insolvency of vendee.

YES. (See 1962 Ruling)

1961 CASE (in case Sir will ask)


NO.
Nothing in the law shows that the articles of the Civil Code on concurrence and preference of
credits, particularly 2242 and 2249, are applicable only to the insolvent debtor.
If they are intended only for insolvency cases, then other creditor-debtor relationships where
there are concurrence of credits would be left without any rules to govern them, and it would
render purposeless the special laws on insolvency.
Article 2242 of the new Civil Code enumerates the claims, mortgage and liens that constitute
an encumbrance on specific immovable property, and among them are:
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property.
Article 2249 of the same Code provides that "if there are two or more credits with respect to
the same specific real property or real rights, they shall be satisfied pro-rata after the payment
of the taxes and assessment upon the immovable property or real rights.
Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with
the appellants the proceeds of the foreclosure sale.

1962 CASE (Important. This is the new ruling.)


YES. The SC set aside its original decision (1961 case).
The question as to whether the Civil Code and the insolvency Law can be harmonized is settled
by Article 2243.
Article 2243 of the new Civil Code that
The claims or credits enumerated in the two preceding articles (2242, 2249 concurrence
and preference of credits) shall be considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions governing insolvency.
The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in
accordance with the Insolvency Law.
There being no insolvency or liquidation, the claim of the Cruzado, as unpaid vendor,
did not require the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the latter.

*NOTE: Cruzado is no longer the owner of the property. RFC is the owner.

CASE No. 13 State investment house v CA


CASE No. 14 Central bank v Morfe
CASE No. 15 PSB v Lantin
[G.R. No. L-33929. September 2, 1983.]

Facts:
Involved in this case is a duplex-apartment house on a lot situated at San Diego Street,
Sampaloc, Manila, and owned by the spouses Filomeno and Socorro Tabligan.
The duplex-apartment house was built for the spouses by private respondent Candido Ramos, a
duly licensed architect and building contractor, at a total cost of P32,927.00. The spouses paid
private respondent the sum of P7,139.00 only. Hence, the latter used his own money, P25,788.50
in all, to finish the construction of the duplex-apartment. Later on, the spouses got a loan from
Philippine Savings Bank (PSB) and they mortgaged the said apartment. At the time the
mortgages were registered in 1967, the titles were clean from any encumbrance. The spouses
failed to pay. In 1969, the bank foreclosed the property. However, prior to that, year 1968, the
architect filed a collection suit against the spouses. A judgment was rendered in favor of the
architect. In 1970, the bank consolidated ownership.
As the spouses did not have any properties to satisfy the judgment in Civil Case No. 69228, the
private respondent addressed a letter to the petitioner for the delivery to him (private
respondent) of his pro-rata share in the value of the duplex-apartment in accordance with Article
2242 of the Civil Code. The petitioner refused to pay the pro-rata value prompting the private
respondent to file the instant action. As earlier stated, a decision was rendered in favor of the
private respondent.
The parties are agreed that the only issue is whether or not the private respondent is entitled to
claim a pro-rata share in the value of the property in question.
The bank states that the proceeding before the court could not apply Article 2242 because in
order to do so, there must first be foreclosure proceedings or other insolvency proceedings.
Consequently, it is argued that private respondent's unpaid contractor's claim did not acquire the
character of a statutory lien equal to the petitioner's registered mortgage.
Upon the other hand, private respondent Ramos maintains that the proceedings had before the
court below can qualify as a general liquidation of the estate of the spouses Tabligan because the
only existing property of said spouses is the property subject matter of this litigation.

I: WON a collection suit, with only 2 creditors, can be qualified as a settlement of a decedents
estate thereby allowing the application of Art 2242?

H:
The proceedings in the court below do not partake of the nature of the insolvency
proceedings or settlement of a decedent's estate. The action filed by Ramos was only to collect
the unpaid cost of the construction of the duplex apartment. It is far from being a general
liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem
which are binding against the whole world. All persons having interest in the subject matter
involved, whether they were notified or not, are equally bound. Consequently, a liquidation of
similar import or "other equivalent general liquidation' must also necessarily be a proceeding in
rem so that all interested persons whether known to the parties or not may be bound by such
proceeding.
In the case at bar, although the lower court found that "there were no known creditors other than
the plaintiff and the defendant herein", this can not be conclusive. It will not bar other creditors
in the event they show up and present their claims against the petitioner bank, claiming that
they also have preferred liens against the property involved. Consequently, Transfer Certificate of
Title No. 101864 issued in favor of the bank which is supposed to be indefeasible would remain
constantly unstable and questionable. Such could not have been the intention of Article 2243 of
the Civil Code although it considers claims and credits under Article 2242 as statutory liens.
Respondent Ramos admitted in the partial stipulation of facts submitted by both parties
that at the time of the loans to the spouses, the petitioner's bank had no actual or constructive
knowledge of any lien against the property in question. The duplex apartment house was built for
P32,927.00. The spouses Tabligan borrowed P35,000.00 for the construction of the apartment
house. The bank could not have known of any contractor's lien because, as far as it was
concerned, it financed the entire construction even if the stated purpose of the loans was only to
"complete" the construction.
Since the action filed by the private respondent is not one which can be considered as
"equivalent general liquidation" having the same import as an insolvency or settlement of the
decedent's estate proceeding, the well established principle must be applied that a purchaser in
good faith and for value takes registered land free from liens and encumbrances other than
statutory liens and those recorded in the Certificate of Title. It is an admitted fact that at the time
the deeds of real estate mortgage in favor of the petitioner bank were constituted, the transfer
certificate of title of the spouses Tabligan was free from any recorded lien and encumbrances, so
that the only registered liens in the title were deeds in favor of the petitioner.