Philippine Industrial Co. v. El Hogar Filipino
REITERATIONFacts
The Antecedents: Salvador Vallejo executed a mortgage in favor of El Hogar Filipino (first mortgagee) on his real estate, registered under the Torrens system. The mortgage contract contained a stipulation prohibiting the mortgagor from creating any legal right upon the realty in favor of a third person, or entering into a lease agreement for more than one month's rent paid in advance, without the written consent of El Hogar Filipino. It also authorized the manager of El Hogar Filipino to proceed with the extrajudicial sale of the mortgaged property in case of default. Procedural History: After the first mortgage was registered, the debtor executed a second mortgage in favor of the Philippine Industrial Co. (plaintiff-appellee). The Register of Deeds refused to register the second mortgage due to the absence of consent from the first mortgagee, as stipulated in the first mortgage. An administrative proceeding led to a ruling that the validity of the prohibiting clause must be litigated in an ordinary action. Subsequently, El Hogar Filipino advertised the property for extrajudicial sale due to the first mortgage falling due. The Philippine Industrial Co. filed an action seeking to declare the prohibiting clause void and to enjoin the sale. The Petition: The trial court declared the prohibiting clause void, ordered the registration of the second mortgage, and made the preliminary injunction against the sale permanent. El Hogar Filipino appealed, assigning errors related to the declaration of nullity of the prohibiting clause, the finding of property value, the issuance of a final injunction preventing foreclosure, and the failure to dismiss the complaint.
Issue(s)
Whether the prohibiting clause in the first mortgage contract, which prevents the mortgagor from creating any subsequent real right or mortgage without the first mortgagee's consent, is valid and binding. Whether Article 107, No. 4 of the Mortgage Law, which permits the registration of a second mortgage on property already mortgaged even with a stipulation against it, applies to properties registered under the Torrens system (Act No. 496). Whether the trial court erred in declaring the preliminary injunction final, thereby preventing the foreclosure of the first mortgage.
Ruling
The judgment of the trial court is reversed. The complaint is dismissed, and the preliminary injunction is dissolved. The prohibiting clause in the first mortgage is declared valid and binding.
Ratio Decidendi
On the validity of the prohibiting clause: The Court held that the stipulation in the mortgage contract prohibiting the mortgagor from creating any subsequent real right or mortgage without the written consent of the first mortgagee is valid and binding between the parties. This is based on Article 1255 of the Civil Code, which grants parties absolute liberty to make such stipulations as they deem fit, provided they are not contrary to law, morals, and public order. The Court found no law prohibiting such a stipulation, nor was it immoral or contrary to public order. Therefore, the debtor is bound to comply with all the conditions of the contract, including the prohibition against a second mortgage without consent. On the applicability of the Mortgage Law: The Court clarified that Article 107, No. 4 of the Mortgage Law, which permits the registration of a second mortgage even if there is a stipulation prohibiting it, is not applicable to properties registered under the Torrens system, as prescribed by Act No. 496. Section 124 of Act No. 496 states that the registration system established by existing laws shall continue to apply to properties not registered under this law, with modifications. The Court reasoned that the Mortgage Law's provisions, including Article 107, are subject to the Torrens system when it comes to properties registered thereunder. Thus, the specific provisions of the Mortgage Law that might permit a second mortgage registration despite a prohibitory clause do not override the principles governing Torrens-registered properties. On the injunction preventing foreclosure: The Court found that the trial court erred in making the preliminary injunction permanent, as it prevented the foreclosure of the first mortgage despite the debt having fallen due. The validity of the prohibiting clause meant that the second mortgage could not be registered without consent, and the first mortgagee retained the right to foreclose upon default as per the terms of their contract. The injunction unduly interfered with the contractual rights of the first mortgagee.
Main Doctrine
A stipulation in a mortgage contract prohibiting the mortgagor from creating a subsequent real right or mortgage on the property without the mortgagee's written consent is valid and binding between the parties, provided it is not contrary to law, morals, or public order. The Mortgage Law, specifically Article 107, No. 4, which permits the registration of a second mortgage even with such a stipulation, is not applicable to properties registered under the Torrens system (Act No. 496).