RIGHTS OF CREDITORS/ASSIGNEES of CO-OWNERS PHILIPPINE NATIONAL BANK, vs. THE HON.

COURT OF APPEALS (SPECIAL FIRST DIVISION), PEDRO BITANGA, FERNANDO BITANGA, GREGORIO BITANGA, GUILLERMO BITANGA, CLARITA BITANGA together with her husband AGRIPINO L. RABAGO and MELITONA LAGPACAN, assisted by her husband JORGE MALACAS. G.R. No. L-34404. June 25, 1980. Petition for REVIEW of the decision of the CA, which affirmed with certain modifications the judgment of the CFI of Ilocos Norte in favor of the respondents. FACTS: Property in question originally belonged to the conjugal property of Inigo Bitanga and Rosa Ver. The original certificate of title was issued to them and inserted in the register of deeds of Ilocos Norte. However, this issuance was only given on December 15, 1937 which was after Inigo died (September 25, 1935). Still before the issuance of the title, Rosa mortgaged the entire property in favour of PNB on October 20, 1936 for the sum of 500 pesos. However, the mortgaged lien was not annotated in the register of deeds when the original certificate was issued. Nevertheless, the power of attorney in favour of PNB stated that in the event Rosa defaults, it would have the capacity to take possession of, and retain the property mortgaged, to sell or lease the same or any part of it, and to do such other acts as necessary in the performance of the power granted to the mortgagee. This PA was, on the other hand, annotated on the original certificate title. Meanwhile, Rosa Ver defaulted in the fulfilment of her obligation with Manila trading. So, MTC levied upon her share in the lot in question on December 13, 1939 and had the attachment annotated on the title. Rosas interest in the lot in question was sold at a public auction and was sold to MTC as the highest bidder. A deed of sale was executed in favour of MTC and was again annotated on the title. MTC sold its rights over the lot to Santiago Sambrano and, again, had the sale annotated on the title. One-half of the property passed into the hands of MELITONA LAGPACAN, and her husband JORGE MALACAS. Meanwhile, Rosa failed to settle her obligation with PNB. Hence, PNB, pursuant to the PA, sold the WHOLE LOT at a public auction. PNB became the owner since it was the highest bidder. Rosa failed to redeem and PNB consolidated its title over the lot. However, the consolidation was not annotated on the owners duplicate title since Rosa failed to surrender it. On November 25, 1950, PNB filed a petition before the trial court which asked that the original title over the land be declared null and void and prayed that a new title be issued in its name.

Trial court acted favourably on PNBs petition and ordered what was prayed for on October 2, 1951. On May 24, 1954, PNB sold the property to Felizardo Reyes. A new owners duplicate title was issued in Reyess name. On May 17, 1954, the heirs of Heirs of Inigo Bitanga, filed a complaint before the Court of First Instance of Ilocos Norte against the Philippine National Bank, the Register of Deeds of Ilocos Norte and Felizardo Reyes, for reconveyance of real property and damages, with a prayer for the issuance of an ex-parte writ of preliminary injunction restraining and enjoining the PNB and Felizardo Reyes from consummating the sale of the property in question and prohibiting the Register of Deeds from registering the sale in favor of Felizardo Reyes. the writ of preliminary injunction was issued. During the pendency of the case, Melitona Lagpacan and Jorge Malacas, filed a Motion to admit their complaint in intervention, alleging that they had a legal interest in the subject matter of the case, and the same was granted. On November 16, 1960, the CFI ruled in favour of the heirs of Bitanga and the Malacas spouses. It mentioned that the lot in question was conjugal in nature; that half would go to the heirs and half would go to rosa ver. The mortgage to PNB is not an existing lien since it did not have a special mention in the decree of registration and that the acquisition of MTC was valid and legal. Since the MTC acquisition was valid and legal, the sale made to Sambrano is likewise valid and legal, as well as the sale to the Malacas spouses. Felizardo Reyes was deemed not a purchaser in good faith and the trial ordered the cancellation of the duplicate title in Reyes name. PNB and Reyes appealed to the CA. CA affirmed the judgment of the lower court and ordered that new titles be issued in the names of the heirs of Bitanga and spouses Malacas (half to the heirs and half to the Spouses). It also mentioned that the new titles would be free from encumberance regarding the claims of PNB and Reyes. PNB filed an M.R. to the CA but was denied, hence, the current petition. In this petition, respondents filed a motion to dismiss on the ground that the CA decision became final and executory since Reyes failed to join PNB in this recourse. Moreover, it assailed the issues of PNB because they were questions of fact and not of law, hence, they are proper for the review of SC. SC denied petition initially but PNB filed an M.R. stating that it still has interests in the property. S.C. reconsidered. ISSUES: WON Rosa Ver could really mortgage the entire lot to PNB. (NO) WON the sale of PNB and/or the sale of MTC were valid. (PNB:NO ; MTC: YES)

HELD: SC said that lot was conjugal. When Inigo died, a co-ownership was established between the heirs and Rosa Ver. Hence, Rosa cannot validly mortgage the whole lot since it would prejudice the rights of her co-owners, the heirs. One of the essential requisites to the contract of pledge and mortgage is that the pledgor or mortgagor be the absolute owner of the thing. The effect of the mortgage, with respect to the coowners, shall be limited to the portion which may be allotted to him in the division upon the TERMINATION OF THE CO-OWNERSHIP. Thus, Rosa could only mortgage her share and not the whole lot. She cannot give what is not hers. She only had usufrutuary rights over the estate left by the husband. Not being an owner, she cannot alienate or dispose of the objects included in the usufruct. (as per the old civil code which was in force during the time of Inigos death). Though there were tax declarations in the name of Rosa, it does not alter the conjugality of the lot. Tax declarations are not sufficient evidences of title and should not prejudice the rights of the co-owners. As far as the shares are concerned, the respective shares of the co-owners were not included in the mortgage. Thus, mortgage/subsequent sale to PNB and subsequent sale of PNB to Reyes were invalid. On the other hand, there is no showing that the Manila Trading Company (MTC) had any knowledge or notice of the prior mortgage in favor of the PNB, hence, it may be safely presumed that it (MTC) acquired the rights of Rosa Ver and Guillermo Bitanga as an innocent purchaser for value and free from all incumbrances. From the MTC, the aforesaid rights of Rosa and Guillermo passed to Santiago Sambrano, and from the latter, to the Malacas Spouses. There is no question, therefore, as to spouses rights over the property, as against the PNB or its transferee, Felizardo Reyes. The intervenors merely stepped into the shoes of MTC, a prior purchaser in good faith, and thereby became entitled to all the defenses available to said Company, including those arising from the acquisition of the property in good faith and for value. The judgment of the CA was AFFIRMED but was modified with respect to the shares of the Spouses Malacas and the Heirs (since the spouses stepped into the shoes of the MTC, they also acquired the rights and interests of Guillermo Bitanga, hence the heirs now have 2/5 while the spouses have 3/5).