Law on Sales

G.R. No. 167140 : November 23, 2011

COL. FRANCISCO DELA MERCED, substituted by his heirs namely, LUIS CESAR DELA
MERCED, BLANQUITA DELA MERCED nee MACATANGAY, and MARIA OLIVIA M. PAREDES,
Petitioners, v. GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) and Spouses VICTOR and
MILAGROS MANLONGAT, Respondents.

DEL CASTILLO, J.:

FACTS:

This case involves five registered parcels of land located within the Antonio Subdivision, Pasig City
Lots 6, 7, 8, and 10 of Block 2 and Lot 8 of Block 8 (subject properties). These lots were originally
owned by, and titled in the name of, Jose C. Zulueta (Zulueta), as evidenced by Transfer Certificate of
Title (TCT) No. 26105 which contains several lots other than the subject properties within the Antonio
Subdivision.

Later, the Zulueta spouses mortgaged several lots contained in TCT No. 26105 to the GSIS, which
eventually foreclosed on the mortgaged properties, including the subject properties. Upon consolidation
of GSISs ownership, TCT No. 26105 in Zuluetas name was cancelled, and TCT No. 23554 was issued
in GSISs name.

Upon learning of the foreclosure, petitioners predecessor, Francisco Dela Merced (Dela Merced), later
on substituted by his heirs, filed a complaint praying for the nullity of the GSIS foreclosure on the
subject properties (Lots 6, 7, 8, and 10 of Block 2 and Lot 8 of Block 8) on the ground that he, not the
Zuluetas, was the owner of these lots at the time of the foreclosure. Dela Merced also impleaded Victor
and Milagros Manlongat, who were claiming Lot 6, Block 2 by virtue of a sale executed by the GSIS in
their daughters (Elizabeth Manlongat) favor. Dela Merced argued that, due to the nullity of GSISs
foreclosure over the subject properties, it had no ownership right that could be transferred to Elizabeth
Manlongat.

ISSUES:

Whether or not the foreclosure proceeding conducted by GSIS is null and void, including the
consolidation of ownership thereof by the GSIS, and the sale of the lots to defendant Manlongat
spouses

HELD:

Petitioners Merced aver that when the Zuluetas mortgaged their properties to GSIS on October 15,
1957, they were no longer the owners of the lots subject of this litigation, the same having been sold to
Francisco dela Merced by virtue of the contract to sell executed on September 3, 1957. Hence, the
mortgage was void from its inception and GSIS, as mortgagee, acquired no better right notwithstanding
the registration of the mortgage. Petitioners also argued that GSIS was a mortgagee in bad faith as it
had been negligent in ascertaining and investigating the condition of the subject lots mortgaged to it as
well as the rights of petitioners who were already in possession thereof at the time of
mortgage. Furthermore, petitioners cite the judicial admission of respondent GSIS in its answer before
the trial court, wherein it recognized the rights of ownership of Francisco dela Merced over Lot 8, Block
8 and of Eva Mendoza dela Merced over Lot 10, Block 2 of TCT 26105.

The foreclosure sale of Lot Nos. 6, 7, 8 and 10 of Block 2 and Lot 8 of Block 8 of the property originally
covered by TCT 26105, and the subsequent certificates of titles issued to GSIS as well as TCT No. PT-
94007 in the name of Elizabeth Manlongat, are declared NULL AND VOID.

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