Villalon v. Rural Bank of Agoo
REITERATIONFacts
The Antecedents: Spouses Alviar obtained a loan from RBAI secured by a real estate mortgage on May 18, 1998, registered the same day. They obtained another loan from Villalon secured by a real estate mortgage on the same property on July 30, 2000, registered on July 6, 2001. Spouses Alviar also obtained additional loans from RBAI secured by the same property. For failure to pay RBAI, an extrajudicial foreclosure was initiated by RBAI. For failure to pay Villalon, Villalon also applied for extrajudicial foreclosure, which was conducted on June 26, 2002, with Villalon as the highest bidder. RBAI's foreclosure sale was conducted on June 16, 2004, with RBAI as the highest bidder. Villalon obtained a Certificate of Absolute Definitive Sale on August 6, 2007, and had been in possession of the property since 2002, declaring it for taxation in her business name and paying realty taxes. Procedural History: RBAI filed a complaint against Villalon and Spouses Alviar for recovery of sum of money and damages, asserting its prior lien and demanding payment from Villalon from the proceeds of her foreclosure sale. The RTC dismissed the complaint against Villalon, ruling that there was no contractual relationship and Villalon had a better right to the foreclosed property. The RTC ordered Spouses Alviar to pay RBAI. RBAI appealed to the CA. The CA reversed the RTC, holding that RBAI has a cause of action against Villalon as the first mortgagee and ordered Villalon to pay RBAI the redemption price. Villalon's motion for reconsideration was denied. The Petition: Villalon filed a petition for review on certiorari, assailing the CA's pronouncement that the first mortgage prevails, the order to pay the bid price, interest, and taxes, and the denial of her claim of good faith.
Issue(s)
Whether the Court of Appeals gravely erred in its pronouncement that the first mortgage with respondent RBAI prevails over the mortgage to the petitioner. Whether the Court of Appeals committed grave error in ordering the petitioner to pay to the respondent RBAI the bid price, interest and assessment or taxes, if any. Whether the Court of Appeals gravely erred in not entertaining the claim of the petitioner of good faith.
Ruling
The petition is DENIED. The Decision and Resolution of the Court of Appeals, dated August 4, 2017 and June 7, 2018, respectively, in CA-G.R. CV No. 106920, are AFFIRMED.
Ratio Decidendi
On the prevailing mortgage: The Court affirmed the CA's ruling that RBAI's mortgage, constituted and registered on May 18, 1998, prevails over Villalon's mortgage, executed on July 30, 2000, and registered on July 6, 2001. This is because registration is the operative act that binds or affects the land concerning third parties, and notice to the whole world is established upon registration. The principle of prior tempore, potior jure (he who is first in time is stronger in right) applies. Therefore, RBAI, as the first mortgagee, has a superior lien. Villalon, as the second mortgagee, cannot claim to be a third party with a better right under Act No. 3344, as amended by P.D. 1529, because her rights are strictly subordinate to the superior lien of the first mortgagee. She has only the right to redeem the property from RBAI. On the redemption price and payment: The Court reiterated that for Villalon to acquire full rights over the properties, she must first redeem them from RBAI. This redemption must be governed by Section 6 of Act No. 3135, as amended by Act No. 4118, and Section 28 of Rule 39 of the 1997 Rules of Civil Procedure. Consequently, Villalon must pay RBAI the amount of RBAI's purchase price in the auction sale (₱341,830.94), plus interest at one percent (1%) per month, and any assessments or taxes paid by RBAI after purchase, with the same rate of interest. This is the amount the CA correctly ordered Villalon to pay. On the claim of good faith: The Court rejected Villalon's claim of good faith. When Villalon caused her mortgage to be entered in the Registry, RBAI's lien was already registered. Therefore, it is presumed that Villalon was aware of and took her mortgage subject to RBAI's prior lien. Registration serves as notice to the whole world, and Villalon cannot claim ignorance of the prior registered mortgage. Her subsequent actions, such as being the first to foreclose and possessing the property, do not defeat RBAI's prior registered right.
Main Doctrine
The prior registration of a mortgage, even on unregistered land, establishes a superior lien. A subsequent mortgagee, even if they foreclose first, must respect the prior lien and has only the right to redeem the property from the first mortgagee.