Arancillo v. Rehabilitation Finance Corporation
REITERATIONFacts
The Antecedents: On February 19, 1947, Carmen Ubalde executed a deed of donation inter vivos in favor of Asuncion Arancillo (predecessor-in-interest of movants-appellants Josefa Peñaflorida Vda. de Arancillo and Vicente Arancillo) over Lot No. 7669, covered by Original Certificate of Title No. 41448. Prior to the donation, the lot was mortgaged to the Agricultural and Industrial Bank, predecessor-in-interest of the appellee, Rehabilitation Finance Corporation (RFC). Asuncion Arancillo died on June 18, 1948, succeeded by the movants-appellants. On July 29, 1948, Carmen Ubalde, the registered owner, liquidated her mortgage indebtedness and executed a new mortgage in favor of the RFC. The owner's copy of the Torrens Title was in the possession of the mortgagee (RFC). Procedural History: On October 13, 1948, movants-appellants requested the RFC to lend them the owner's copy of the title to register the deed of donation. The RFC refused. Consequently, on November 19, 1948, appellants filed a motion praying that the RFC be compelled to deliver the title to the Register of Deeds for registration. The motion was opposed by the RFC and was denied by the Court of First Instance of Iloilo on November 29, 1948. A motion for reconsideration was also denied on December 20, 1948. The Petition: Movants-appellants appealed the denial of their motion, arguing that the RFC's refusal to surrender the title was equivalent to questioning the validity of the donation, which could only be done in an ordinary action, and that the prohibition in the mortgage contract should be interpreted in light of other stipulations and relevant Civil Code and Rules of Court provisions.
Issue(s)
Whether the Rehabilitation Finance Corporation (RFC) may be legally compelled to surrender the owner's duplicate certificate of title to allow the registration of a deed of donation despite a valid contractual stipulation prohibiting the alienation of the mortgaged property without the mortgagee's written consent.
Ruling
The Supreme Court affirmed the order of the Court of First Instance of Iloilo, denying the motion to compel the Rehabilitation Finance Corporation to deliver the owner's copy of the Torrens title. The Court held that the RFC cannot be compelled to give its consent to the registration of the donation because the mortgage contract contained a valid prohibition against encumbering the property without the mortgagee's written consent.
Ratio Decidendi
On Issue 1: The Supreme Court held that the RFC cannot be compelled to surrender the title. The Court reiterated the doctrine from Philippine Industrial Co. vs. El Hogar Filipino and Vallejo (45 Phil. 336), which established that a prohibition in a mortgage contract against the sale or disposal of the mortgaged property is not contrary to law, morals, or public interest under Article 1255 of the Civil Code. Because this prohibition is valid and legally binding, the court cannot force the mortgagee to provide the means for its violation. Under the Torrens system (Act No. 496), ownership is not considered transferred as to third parties until the deed is registered. If the mortgagee were forced to deliver the certificate of title for registration, the mortgagor would be allowed to circumvent the very prohibition they agreed to in the contract. The Court distinguished the case of Bank of the Philippine Islands vs. Ty Camco Sobrino (57 Phil. 803), noting that in that case, the second mortgage had already been registered before the motion to cancel was filed, whereas here, the registration is being sought over the mortgagee's objection. Finally, the Court emphasized that as a government institution, the RFC has policy-driven reasons for such clauses that the courts should not unnecessarily interfere with.
Main Doctrine
A mortgagee cannot be compelled to surrender the owner's copy of the Torrens title to the Register of Deeds for the registration of a deed of donation, if the mortgage contract contains a valid stipulation prohibiting the mortgagor from selling, disposing of, or encumbering the mortgaged property without the written consent of the mortgagee. Such prohibition is not contrary to law, morals, or public interest.