Pablo Garcia v Yolanda Valdez Villar

Date: June 27 2012

Ponente: J Leonardo – De Castro

Facts:
 Lourdes Galas was the owner of the subject property located at Malindang St. QC
covered with TCT
 July 6 1993 – Galas with her daughter Ophelia Pingol as co-maker mortgaged the
subject property to Villar as security for a loan in the amount of 2.2M pesos
 Oct 10 1994 – Galas with Pingol again mortgaged the subject property to Pablo
Garcia to secure her loan of 1.8M pesos
 Both mortgages were annotated at the back of TCT
 Nov 21 96 – Galas sold the subject property to Villar for 1.5M and declared Deed of
Sale that such property was free and clear of all liens and encumbrances of any
kind
 Dec 3 96 – Deed of sale was registered and the old TCT was cancelled and a new
one was issued in the name of Villar
 Both mortgages by Garcia and Villar were carried over in the new TCT
 Garcia now files a petition for mandamus with Damages against Villar in RTC QC
and subsequently amended to a complaint for foreclosure of Real Estate
Mortgages with Damages
o Alleged that bad faith of Villar in purchasing the subject property knowingly
and willfully disregarded the provisions on laws on judicial and extrajudicial
foreclosure of mortaged property
o Because of the merged character of contractual obligation of Villar, Garcia
is now subrogated to the original status as first mortgagee
o Garcia further demanded payment from Villar whose refusal compelled him
to incur expenses in filing an action in court
 Villar’s answer
o No cause of action
o Villar only discovered the second mortgage when she had the Deed of Sale
registered
o Villar blames Garcia for having a second mortgage without consent of Villar
o No subrogation as the assignment of credit was neither her knowledge nor
prior consent
o Garcia should seek recourse against Galas and Pingol, whom he had privity
insofar as the second mortgagte of property is concerned
 Pretrial order issued
 Garcia filed a motion for summary judgment with affidavit of merit on the grounds
that there was no genuine issue as to any of the material facts of the case and that
he was entitled to a judgment as a matter of law
o Garcia alleging that his equity of redemption had not yet been claimed
since Villar did not foreclose the mortgaged property to satisfy her claim
 RTC decision
o The sale of the subject property to Villar, the first mortgagee, could not
operate to deprive Garcia of his right as a second mortgagee
o Upon failure of Galas to pay, Villar should have foreclosed the property to
provide junior mortgagees like Garcia the opportunity to satisfy their claimes
if there is residue
 o Declared that Villar as the new registered owner of the subject property with
subsisting mortgage was liable for it
 CA Decision Reversed
o Villar was free to mortgage the subject property even without Villars consent

Issue:
WON Second mortgage was valid (YES)
WON sale to Villar Valid (YES)
WON sale of the subject property to Villar was pactum commissorium (NO)
WON foreclosure of mortgage on the subject property can prosper (no not yet)

Held:
 Valid second mortgage and valid SALE
o Even if the annotation on first mortgage on TCT contained a restriction on
further encumbrances without the mortgagees prior consent, it was nowhere
to be found in the Deed of Real Estate Mortgage
o Furthermore, the Deed of Real Estate Mortgage only provided options for
Villar in case of Galas’ failure to pay their loan. Nowehre it was stated that
Galas could not opt to sell the subject property to Villar. It would have been
void anyway as such restriction is not allowed in Art 2130 oc CC
 Art 2130 A stipulation forbidding the owner from alienationg the
immovable mortgaged shall be void
 No Pactum commissorium
o Art 2088 The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and
void
 Elements:
 There should be a property mortgaged by way of security for the
payment of the principal obligation
 There should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period
o There was a stipulation on the power of ATTY given to the mortgagee t to
take possession, sell, collect rents, lease etc and it did not provide that the
ownership would automatically pass to Villar
o The appointment as ATTY in Fact was the authority to sell or otherwise dispose
of the subject property and to apply the proceeds to the payment of the
loan
o The provision is customary in mortgage contracts and conformity with Art
2087
o Art 2087: It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists
may be alienated for the payment of the creditor
o Galas decision to eventually sell it to Villar was valid by virtue of another and
separate contract
 Propriety of Garcia’s action for foreclosure of mortgage (No cause of action YET)
o Art 2126: The mortgage directly and immediately subjects the property upon
which it is imposed whoever the possessor may be, to the fulfillment of the
obligation for whose security it was constituted
o The registered mortgage lien is considered inseparable from the property
inasmuch as it is a right in rem
o Art 2129: The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the
property which said third person possesses, in terms and with the formalities
which the law establishes
o Thus, the purchaser has to acknowledge and respect the encumbrance
o However, what Villar only undertook for the property to be sold in case of
failure of the mortgage creditor to obtain payment from the principal debtor
once the debt matures. Not to replace the debtor for the principal obligation
o Thus, the obligation to pay remains with GALAS