Spouses Litonjua v. L & R Corporation
REITERATIONFacts
The Antecedents: Spouses Litonjua obtained loans from L & R Corporation, secured by a mortgage on two parcels of land. The mortgage contract contained provisions prohibiting the sale of the mortgaged property without the mortgagee's prior written consent (Paragraph 8) and granting the mortgagee a right of first refusal (Paragraph 9). Subsequently, the spouses Litonjua sold the mortgaged properties to Philippine White House Auto Supply, Inc. (PWHAS) without the prior written consent of L & R Corporation. L & R Corporation initiated extrajudicial foreclosure proceedings due to default, and the properties were sold at public auction to L & R Corporation. L & R Corporation discovered the sale to PWHAS upon attempting to register the Certificate of Sale. PWHAS, on behalf of the spouses Litonjua, tendered the redemption price, which L & R Corporation refused. PWHAS then redeemed the property through the Sheriff. L & R Corporation questioned the validity of the sale to PWHAS and the redemption by PWHAS, citing the violation of the mortgage provisions. Subsequently, L & R Corporation consolidated ownership and obtained new titles. Spouses Litonjua and PWHAS filed a complaint for quieting of title, annulment of title, and damages. Procedural History: The Regional Trial Court (RTC) dismissed the complaint, finding the sale to PWHAS and the redemption by PWHAS null and void. The Court of Appeals (CA) initially set aside the RTC decision, upholding the validity of the sale and redemption. However, in an Amended Decision, the CA reconsidered and set aside its prior ruling. The Petition: The case reached the Supreme Court on issues concerning the validity of the prohibition against selling the mortgaged property without consent, the validity of the sale to PWHAS, the right of PWHAS to redeem, and the validity of the redemption.
Issue(s)
Whether paragraphs 8 and 9 of the Deed of Real Estate Mortgage are valid and enforceable. Whether the sale of the mortgaged properties by the spouses Litonjua to PWHAS, without the knowledge and consent of L & R Corporation, is valid and enforceable. Whether PWHAS had the right to redeem the foreclosed properties on behalf of the spouses Litonjua. Whether there was a valid redemption, considering L & R Corporation's right of first refusal, and the final disposition of rights.
Ruling
The Supreme Court affirmed the Court of Appeals' Amended Decision with modifications. The sale between the spouses Litonjua and PWHAS was declared valid but rescissible due to the violation of L & R Corporation's right of first refusal. The redemption by PWHAS was disallowed due to the rescission of the sale in its favor. L & R Corporation was allowed to retain consolidated titles but ordered to pay the spouses Litonjua the difference between the sale price and the redemption price.
Ratio Decidendi
On the validity of the prohibition against subsequent sale without mortgagee's consent (Paragraph 8): The Court held that paragraph 8 of the Deed of Real Estate Mortgage, which prohibits the mortgagor from selling the mortgaged property without the mortgagee's prior written consent, violates Article 2130 of the Civil Code. Article 2130 explicitly declares void any stipulation forbidding the owner from alienating the immovable mortgaged. While the stipulation did not outrightly prohibit alienation, it effectively gave the mortgagee the sole prerogative to prevent any sale by withholding consent, thus amounting to a virtual prohibition and circumventing the law. Therefore, this provision is void and not binding. On the validity and enforceability of the sale to PWHAS: Since paragraph 8 of the mortgage contract is void, the sale made by the spouses Litonjua to PWHAS, notwithstanding the lack of prior written consent from L & R Corporation, is considered valid. The Court reiterated that a mortgagor retains the right to dispose of his mortgaged property, a principal attribute of ownership, which the mortgagee cannot oppose. The ruling in Tambunting v. Rehabilitation Finance Corporation was cited as controlling, emphasizing that stipulations forbidding alienation are void under Article 2130. On the validity of the redemption effected by PWHAS: As the sale to PWHAS was deemed valid, PWHAS stepped into the shoes of the spouses Litonjua as their successor-in-interest. Consequently, PWHAS possessed the right to redeem the foreclosed properties. Section 6 of Act 3135 grants the right of redemption not only to the mortgagor-debtor but also to their successors-in-interest. PWHAS, as the vendee of the properties, qualified as such a successor. The redemption was also timely, occurring within the one-year period of redemption. On the validity and enforceability of the right of first refusal (Paragraph 9) and the final disposition and relative rights: The Court found paragraph 9 of the mortgage contract, granting L & R Corporation the right of first refusal, to be valid and enforceable. This provision is recognized in Philippine jurisprudence, with the consideration for the loan-mortgage encompassing the consideration for this right. While the sale to PWHAS was valid, it was rescissible because it ignored L & R Corporation's contractual right of first refusal. The registration of the mortgage contract served as notice to PWHAS of this right. The Court noted that L & R Corporation was willing to purchase the property at the same price offered by PWHAS, but it was not notified by the spouses Litonjua of their intention to sell, which prevented it from exercising its right at the opportune time. The Court concluded that the sale to PWHAS was valid but rescissible due to the violation of the right of first refusal. The redemption by PWHAS was disallowed due to the rescission. L & R Corporation was allowed to retain ownership of the foreclosed properties but was ordered to pay the spouses Litonjua the difference between the sale price of P430,000.00 and the redemption price, to uphold equity and prevent unjust enrichment.
Main Doctrine
A stipulation in a real estate mortgage prohibiting the mortgagor from selling the mortgaged property without the mortgagee's prior written consent violates Article 2130 of the Civil Code and is therefore void. However, a stipulation granting the mortgagee a right of first refusal is valid, and a sale made in violation of this right is rescissible.