Mobil Oil Philippines, Inc. v. Diocares
REITERATIONFacts
The Antecedents: Plaintiff-appellant Mobil Oil Philippines, Inc. (Mobil) extended a loan of P45,000.00 to defendants-appellees Ruth R. Diocares and Lope T. Diocares. As security, the defendants executed a real estate mortgage on two parcels of land. The loan agreement also stipulated that the defendants would purchase their petroleum requirements from Mobil at a minimum of 50,000 liters per month, with repayment of the loan in monthly installments of P950.88 for five years. The agreement further stipulated that failure to pay installments or meet the petroleum purchase requirement would entitle Mobil to foreclose the mortgage or recover the entire obligation. Procedural History: The defendants paid only P1,901.76, leaving a balance of P43,098.24, and also failed to meet their petroleum purchase obligations. Mobil filed a complaint for the recovery of the unpaid amount and foreclosure of the mortgage. The defendants admitted their indebtedness but claimed they sought an extension for payment. The lower court granted Mobil's motion for a judgment on the pleadings regarding the debt but denied the foreclosure, opining that the mortgage, not being registered, only created a personal obligation and did not establish a real estate mortgage. The Appeal: Plaintiff-appellant Mobil appealed the lower court's decision, assigning as errors the holding that no real estate mortgage was established and the consequent refusal to order foreclosure. Mobil argued that the mortgage, though unregistered, was binding between the parties and thus subject to foreclosure.
Issue(s)
Whether an unregistered real estate mortgage is binding between the parties and can be foreclosed. Whether the lower court erred in denying the foreclosure of the mortgaged properties solely on the ground of non-registration.
Ruling
The Supreme Court reversed the lower court's decision, holding that the unregistered real estate mortgage is binding between the parties and ordered the foreclosure of the mortgaged properties in default of payment.
Ratio Decidendi
On Issue 1: The Court held that Article 2125 of the Civil Code clearly states that if the instrument of mortgage is not recorded, the mortgage is nevertheless binding between the parties. The lower court erred in ignoring the second sentence of Article 2125, which explicitly preserves the binding effect of the mortgage between the contracting parties even without registration. To deny foreclosure based solely on non-registration would render this provision nugatory and frustrate the legislative intent to give effect to the agreement between the parties. The Court emphasized that the law must be applied as written, and in this case, the undisputed facts clearly called for the application of the provision that the mortgage is binding between the parties. On Issue 2: The Court found that the lower court's refusal to order foreclosure was predicated on an incomplete reading of Article 2125 of the Civil Code. While registration is indispensable for a mortgage to be validly constituted as a real right against third parties, the same article provides that the mortgage remains binding between the parties. The Court reasoned that to hold otherwise would be to disregard the clear mandate of the law and the legislative objective behind it. The Court further noted that equity and justice demand that the binding effect of a promise, as embodied in the mortgage contract, be upheld between the parties, even if it means dispensing with the formality of registration for purposes of foreclosure between them. The Court concluded that the lower court should have ordered the foreclosure of the mortgaged properties.
Main Doctrine
The Supreme Court held that while Article 2125 of the Civil Code makes registration indispensable for the constitution of a mortgage as a real right valid against third parties, the same article explicitly states that if the instrument is not recorded, the mortgage is nevertheless binding between the parties. Therefore, the failure to register the real estate mortgage does not prevent the mortgagee from foreclosing the mortgaged property as against the mortgagor.