VILLALON vs. RURAL BANK OF AGOO

 

Villalon v. Rural Bank of Agoo

ROMA FE C. VILLALON, petitioner, vs. RURAL BANK OF AGOO, INC., respondent.

G.R. No. 239986 |  July 8, 2019

 

FACTS:

In 1998, the spouses George and Zenaida Alviar (Spouses Alviar) obtained a loan from respondent Rural Bank of Agoo, Inc. (RBAI) in the amount of P145,000.00, secured by a real estate mortgage over a residential lot and house of the spouses located at Barangay I, San Fernando, La Union. On the same date, the mortgage was registered with the Register of Deeds of La Union. The loan became due and payable on 10 February 1999, and was renewed for four (4) times with the following due dates.

Spouses Alviar borrowed P400,000.00 from herein petitioner Roma Fe C. Villalon (Villalon) which was secured by a Real Estate Mortgage executed on 30 July 2000 over the same residential lot and house which the spouses used as collateral with RBAI.  Additionally, Spouses Alviar obtained additional loan from RBAI in the amount of P50,000.00 and P30,000.00, both secured by a real estate mortgage over the same residential lot and house. For their failure to pay their loan, an extrajudicial foreclosure was resorted to by RBAI.

Spouses Alviar, likewise, failed to pay their loan to Villalon. Thus, Villalon applied for the extrajudicial foreclosure of the mortgaged realties. Villalon was declared as the highest bidder, with a bid of P1,050,000.00. A Certificate of Sale of Real Property was issued to Villalon on 27 June 2002, and the same was registered with the Register of Deeds on 5 July 2002.

On 16 June 2004, the foreclosure sale initiated by RBAI finally pushed through. RBAI was the highest bidder with a bid of P341,830.94 and the corresponding Certificate of Sale was issued to it.

On the other hand, a Certificate of Absolute Definitive Sale was issued on 6 August 2007 to Villalon, who had been in physical possession of the property since its foreclosure in 2002. Villalon had it declared for taxation purposes in her business name "Villalon Lending Investor," and had paid realty taxes for the same.

Upon discovering this, RBAI filed a complaint for recovery of sum of money and damages before the Regional Trial Court (RTC) of Agoo, La Union against Villalon and Spouses Alviar, claiming principally from Villalon, and alternatively from the Spouses Alviar, the amount of P750,818.34. RBAI alleged that since the mortgage of the said real properties in its favor is earlier than the mortgage to Villalon, then RBAI is the first mortgagee/superior lien holder, while Villalon is only the second mortgagee/subordinate encumbrancer/subordinate lien holder.

Villalon, on the other hand, countered that RBAI has no cause of action against her since she was not a party to the contract between RBAI and the Spouses Alviar. Thus, she has no obligation to pay the loan granted by RBAI to the spouses. She has been in lawful and absolute ownership of the properties in question since 27 June 2002, and her ownership was confirmed and approved by Judge Carbonell, when the latter issued in her favor the Certificate of Absolute Definitive Sale of Real Property on 6 August 2007.

The RTC dismissed the complaint against Villalon. It ruled that RBAI has no cause of action against Villalon there being no contractual relationship between them. It declared that the foreclosure initiated by Villalon is valid and, therefore, she has a better right over the foreclosed property.

RBAI appealed before the Court of Appeals, which set aside the decision of the RTC.

Petitioner Villalon contends that since the foreclosure she initiated was published several times in the newspaper, which is considered as constructive notice to RBAI, the latter's non-action therefore was tantamount as a waiver to protest the same. Likewise, petitioner Villalon claims that she was in good faith as she was not aware of the mortgage/s entered by and between RBAI and the spouses, and that no protest was received during the foreclosure proceedings she initiated.

ISSUE: Whether or not the CA was correct in setting aside the decision of the RTC and in ordering Villalon to pay RBAI the redemption price, together with the assessments or taxes, if any, plus interest.

 

RULING:

Yes, CA was correct in setting aside the decision of the RTC and in ordering Villalon to pay RBAI the redemption price, together with the assessments or taxes, if any, plus interest.

In Hidalgo v. La Tondeña , We held in the main decision that a mortgage created much ahead in point of time, but registered later than a levy of execution similarly registered, is preferred over the said levy.

In the case at bar, it is clear that RBAI's mortgage was first constituted over the unregistered real properties of the Spouses Alviar on May 18, 1998 and was, likewise, registered with the RD on the same day. On the other hand, Villalon's mortgage over the said properties was executed on July 30, 2000 and registered with the RD on July 6, 2001. Considering that RBAI's mortgage was created and registered much ahead of time than that of Villalon, RBAI's mortgage should be preferred. Thus, as correctly pointed out by the CA, the proper foreclosure of the first mortgage by RBAI gave, not only the first mortgagee, but also subsequent lienholders like Villalon, the right to redeem the property within the statutory period.

A second mortgagee of an unregistered land has to wait until after the debtor's obligation to the first mortgagee has been fully satisfied. Hence, notwithstanding that Villalon was first to foreclose; to have been issued a Certificate of Absolute Definitive Sale of Real Property; and is now in possession of the property as even the tax declaration is already in her name — these circumstances will not defeat the rights of RBAI whose mortgage was created and registered much ahead than that of Villalon. At most, Villalon, being a second mortgagee/junior encumbrancer, has only the right to redeem the property from RBAI, the first mortgagee.

The extrajudicial foreclosure of real estate mortgage, as in this case, is governed by Act No. 3135, as amended by Act No. 4118 and Section 28 of Rule 39 of the 1997 Rules of Civil Procedure.

Thus, in order for Villalon to acquire full rights over the properties subject of the mortgage, she must first redeem them by paying off: (1) the bid price of RBAI in the auction sale, which is P341,830.94; (2) the interest on the bid price, computed at one percent (1%) per month; and (3) the assessments or taxes, if any, paid by the purchaser, with the same interest rate.

Petitioner cannot escape the fact that when she caused the mortgage to be entered in the Registry, RBAI's lien over the property was already registered as early as May 18, 1998. Thus, she cannot claim to have acted in good faith as when she caused its mortgage to be entered in the Registry, it was presumed to have become aware of and taken its mortgage subject to RBAI's lien over the property. This is because registration is the operative act that binds or affects the land insofar as third persons are concerned. It is upon registration that there is notice to the whole world.

 

WHEREFORE, premises considered, 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.