Fernandez v. Mercader
REITERATIONFacts
The Antecedents: Cenon Fernandez (plaintiff-appellant) filed an action for partition of three parcels of land (parcels a, b, and c) and carabaos, alleging co-ownership with Cesar Mercader and Isabel Noel (defendants-appellants) based on an agreement with Juan Melgar, the predecessor-in-interest of Mercader and Noel. Broadwell Hagans, administrator of Juan Melgar's estate, was also a defendant. Procedural History: The trial court ruled that parcel (a) was the exclusive property of Mercader and Noel, the carabaos were jointly owned, and parcels (b) and (c) were jointly owned by the plaintiff and Mercader and Noel. The plaintiff was ordered to pay rent for parcel (a) and his share of the carabaos, and to render an accounting for parcels (b) and (c). All parties appealed, but only the plaintiff's appeal concerning parcel (a) and rent awards remained. The Petition: The plaintiff appealed the trial court's decision regarding parcel (a) and the award of rent for parcel (a) and the carabaos.
Issue(s)
Whether the spouses Cesar Mercader and Isabel Noel are 'third persons' under Article 34 of the Mortgage Law whose registered title takes precedence over the unrecorded interest of Cenon Fernandez. Whether Cenon Fernandez is entitled to a partition of Parcel (a) and a reduction in the rent awarded by the trial court.
Ruling
The Supreme Court modified the judgment, ordering the partition of parcel (a) between Cenon Fernandez and the spouses Cesar Mercader and Isabel Noel, assigning one-half to each. The rent payable by Fernandez for parcel (a) was reduced from P500 to P250. The inscription of parcel (a) in the names of Mercader and Noel was ordered cancelled. In all other respects, the judgment was affirmed.
Ratio Decidendi
On Issue 1: The Court ruled that the spouses are not 'third persons' within the meaning of Article 34 of the Mortgage Law. Following the rulings of the Supreme Court of Spain, the Court emphasized that the protection of the Mortgage Law presupposes that the causes of annulment of a right were unknown to the obligee at the time of contracting. If a party has full knowledge of a prior contract or claim, the legal fiction of the 'third person' status is destroyed. In this case, Mercader was the grandson of Melgar and maintained an intimate relationship with him, and the interest of Fernandez in the Basak property was generally known. Furthermore, Mercader had even agreed in writing to continue a partnership with Fernandez shortly after the donation but before it was recorded, proving he had actual notice of the claim. Therefore, the registration of the deed of gift did not improve the spouses' position; they merely stood in the shoes of Melgar. On Issue 2: Because the spouses were not third persons, they could only receive what Melgar legally owned at the time of the donation. Under the 1904 agreement, Fernandez had already acquired the ownership of an undivided one-half of the property as between him and Melgar. Melgar, therefore, was the owner of only an undivided one-half of the land and could not legally convey the entire parcel to the donees. Consequently, Fernandez is entitled to the partition of the property as a co-owner of an undivided half-interest. As Fernandez is a co-owner, the rent awarded to the defendants for the use of the land must be reduced by one-half to reflect his own ownership interest in the property during the period in question.
Main Doctrine
A party who has full knowledge of a prior claim or encumbrance cannot be considered a 'third person' under Article 34 of the Mortgage Law, and the registration of their title does not improve their position, as they merely step into the shoes of their predecessor in interest.