GR 158891; (June, 2012) (Digest)
G.R. No. 158891; June 27, 2012
PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.
FACTS
Lourdes V. Galas owned a property in Quezon City. On July 6, 1993, she mortgaged it to Yolanda Valdez Villar to secure a loan of ₱2.2 million. On October 10, 1994, Galas mortgaged the same property a second time to Pablo P. Garcia to secure another loan of ₱1.8 million. Both mortgages were annotated on the title. On November 21, 1996, Galas sold the property to Villar. The deed of sale stated the property was free from liens, but upon registration, Villar’s new title carried over the annotations of both mortgages.
Garcia filed a complaint for foreclosure against Villar. He argued that by purchasing the property, Villar, the first mortgagee, merged the characters of creditor and debtor in her person. Consequently, Garcia, as the second mortgagee, claimed he was subrogated to Villar’s original position as first mortgagee, acquiring the right to foreclose. Villar countered that the complaint stated no cause of action, as Garcia’s recourse should be against the original mortgagor, Galas, with whom he had privity of contract.
ISSUE
Whether petitioner Pablo P. Garcia, as second mortgagee, can judicially foreclose the mortgaged property against respondent Yolanda Valdez Villar, the first mortgagee who later purchased the property from the original mortgagor.
RULING
No. The Supreme Court affirmed the Court of Appeals’ decision dismissing Garcia’s complaint. The legal logic is anchored on the nature of a real estate mortgage as an accessory contract and the principle of privity of contract. A mortgage is merely a security for a principal obligation; the right to foreclose arises only upon the debtor’s default on that principal obligation. Garcia’s cause of action for foreclosure is against his debtors, Galas and her co-maker, who are the principals of the loan secured by the second mortgage. There is no privity of contract between Garcia and Villar concerning the second mortgage.
The Court rejected Garcia’s theory of subrogation. Subrogation requires a clear assignment of credit. Villar’s purchase of the property did not constitute an assumption of Galas’s debt to Garcia, nor did it operate as an assignment of Villar’s rights as first mortgagee to Garcia. The purchase merely made Villar the new owner of the encumbered property. Garcia’s remedy is to demand payment from his own debtors, Galas and Pingol, and upon their default, to foreclose on the mortgage, subject to the prior lien of the first mortgagee, Villar. Since Garcia failed to allege or prove that he made a demand on his debtors and that they defaulted, he had no cause of action for foreclosure against Villar.