El Banco Nacional Filipino v. Escudero
REITERATIONFacts
The Antecedents: El Banco Nacional Filipino (the Bank) sought to recover possession of three parcels of land from Encarnacion Escudero, Domingo Ramos, and Pacifico Lacsa. The Bank claimed ownership by virtue of purchasing these lands at a judicial public auction on March 28, 1932, to satisfy a judgment against the estate of the deceased Felix Silo, whose administrator was Andres Silo. The Bank obtained a final certificate of sale on May 27, 1933, which was registered on June 21, 1933. The Bank later conditionally sold the lands to Sergio M. Silo on April 10, 1935, but canceled the sale on May 14, 1938, due to breach of contract. Upon attempting to take possession, the Bank found the lands occupied by the defendants. Procedural History: The Court of First Instance of Sorsogon ruled against the Bank, absolving the defendants. The Bank appealed, assigning several errors to the trial court's decision. The Petition: The Bank appealed the decision of the Court of First Instance, arguing that the mortgage deed (Exhibit A) executed by Felix Silo in favor of the Bank was valid and binding on the defendants, that registration was not necessary for the transfer of property to affect third parties, and that the trial court erred in admitting evidence of prescription without it being pleaded and in denying a motion for new trial.
Issue(s)
Whether the mortgage deed executed by Felix Silo in favor of the Bank is valid and binding on the defendants. Whether registration is necessary for the transfer of property to affect third parties. Whether the trial court erred in admitting evidence of prescription when it was not pleaded. Whether the defendants acquired ownership through prescription or adverse possession.
Ruling
The Supreme Court reversed the decision of the Court of First Instance, declaring the Bank as the owner of the litigated properties in all three cases. The defendants were ordered to pay the costs proportionally.
Ratio Decidendi
On the validity and binding effect of the mortgage deed and the necessity of registration: The Court held that Article 194 of the Revised Administrative Code, as amended by Act No. 2837, was in full force and effect at the time the mortgage deed (Exhibit A) was executed and registered. This article provided that no document concerning unregistered real property would be valid, except between the parties, until it was registered. Interpreting this provision, the Court reiterated its ruling in Testamentaria de Mota v. Concepcion, stating that a mortgage on unregistered property is valid between the parties whether registered or not, but if registered in the special registry, it is valid against everyone except a third party with a better right. The defendants' claims were based on unregistered deeds of sale, which were not inscribed in the special registry. Therefore, they did not have a better right than the Bank, whose mortgage was registered and whose final certificate of sale was also registered in conformity with Article 194. The Court emphasized that for the Bank to be affected by transfers made to the defendants after the mortgage and certificate of sale were granted, those transfers should have been annotated in the special registry. On the rule governing the sale of the same property to different persons: The Court invoked Article 1473 of the Civil Code, which states that if the same immovable property is sold to different buyers, ownership belongs to the one who first inscribed it in the registry. If there is no inscription, it belongs to the one who first took possession in good faith; and in the absence of possession, to the one with the oldest title, provided there is good faith. In this case, the Bank's rights were established through a registered mortgage and a registered certificate of sale stemming from a judicial auction, which predated the defendants' unregistered claims. On the admission of evidence of prescription: The Court agreed that it was an error to allow proof of prescription as a special defense when it was not pleaded in the answer, and an objection was timely interposed. Citing previous cases like Pelaez v. Abreu, the Court reiterated that prescription must be expressly alleged in the pleadings. However, setting aside this procedural issue, the Court found that the defendants' possession was not sufficient to confer ownership. This was because the properties were mortgaged to the Bank, and the mortgage was registered. When Felix Silo sold the lands to the defendants, he only gave them the right to redeem the mortgage. Since they did not redeem it and allowed the legal period for repurchase to lapse after the Sheriff's public auction, their adverse possession against the Bank's claim was insufficient to grant them title as owners. On the defendants' purported rights of ownership and possession by prescription: The Court found that the possession of the defendants was not adverse in the legal sense that would ripen into ownership. The properties were encumbered by a registered mortgage in favor of the Bank. The subsequent sales to the defendants, not being registered, did not divest the Bank of its superior registered right. Furthermore, the Bank's acquisition of the property through a judicial sale and the subsequent registration of the certificate of sale solidified its claim. The defendants' failure to redeem the property after the judicial sale meant their possession could not be considered adverse to the Bank's registered title.
Main Doctrine
A certificate of sale, even if final, must be registered to affect third parties. Unregistered transfers of property, even if prior in time, do not prevail over registered rights, especially when the latter are acquired through a judicial sale and duly annotated.