G.R. No. 48009 ; January 15, 1943
Dominador Jison and Remedios Javellana, petitioners, vs. Teofila Conlu Vda. de Hernaez, et al., respondents.

FACTS

Respondents, the heirs of Rosendo Hernaez, filed an action to recover from petitioners the sums of P10,701.61 and P8,383.37, with stipulated interest, as liens annotated on the Torrens certificate of title for Hacienda Panaogao. Petitioners acquired the hacienda through a series of sales, each expressly subject to these liens. The hacienda originally belonged to Rosendo Hernaez. Upon his death, it was adjudicated to his son Jose Hernaez, subject to a mortgage and an indebtedness to the other heirs (the P10,701.61 obligation). Jose Hernaez later assigned the hacienda to his mother-in-law, Eleuteria Chong Veloso, with these obligations annotated. Subsequently, the Pacific Commercial Company, a creditor of Jose Hernaez, levied attachment and execution on his interest, ultimately purchasing it at a sheriff’s sale. In the interim, another creditor, Emilio Gaston, successfully sued to annul the transfer from Hernaez to Veloso as fraudulent. After this annulment was affirmed by the Supreme Court, the Pacific Commercial Company obtained title, subject to all encumbrances previously annotated on Veloso’s title. Among these encumbrances were: (1) the obligation to pay 10% interest on P10,701.61 from February 21, 1930, and (2) the obligation to pay P8,383.37 with 9% interest from the same date, which was a bonus from the Talisay-Silay Milling Company credited to the mortgage for the benefit of the Hernaez heirs. These obligations were formalized by Veloso in a document (Exhibit D) executed and annotated on her title on October 19, 1931. Petitioners admit liability for the principal P10,701.61 but contest the interest on it and the entire P8,383.37 obligation with its interest.

ISSUE

Whether the petitioners are liable for the interest on the P10,701.61 debt and for the P8,383.37 debt with its interest, as constituted by Eleuteria Chong Veloso through Exhibit D and annotated on the title.

RULING

The Supreme Court affirmed the decisions of the lower courts, holding petitioners liable for both contested amounts with interest. The Court’s reasoning was based on four main points:
1. Authority of Veloso and Conclusiveness of Prior Findings: The Court held that its prior finding in Jison vs. Hernaez (G.R. No. 44522) regarding the dates of annotation of certain notices and deeds was conclusive. Since that prior case upheld Veloso’s authority to encumber the hacienda with a lease on the same date (October 19, 1931) that Exhibit D was executed and registered, her authority to encumber it via Exhibit D for the payment of interest must likewise be upheld.
2. Effect of Annulment and Protection of Innocent Third Parties: The annulment of the transfer from Hernaez to Veloso in Gaston vs. Hernaez and Veloso did not render the transfer void from the beginning (ab initio). Furthermore, just as a lessee in the prior case was protected as an innocent third party under the Land Registration Act ( Act No. 496 ), the respondent heirs must also be considered innocent third parties with respect to the registration of Exhibit D, and their rights were unaffected by later annotations.
3. Voluntary Recognition and Equitable Considerations: The Pacific Commercial Company, petitioners’ predecessor-in-interest, voluntarily recognized the validity of Veloso’s encumbrances. This recognition was just and equitable, given the company acquired the property for a relatively low amount and sold it for a significant profit. All successive purchasers, including petitioners, bought the hacienda with knowledge of these liens and accounted for them in the purchase price. The Court found no moral or equitable basis for petitioners to repudiate these voluntarily assumed obligations.
4. Nature of the P8,383.37 Debt: The Court agreed with the Court of Appeals that the P8,383.37 was rightfully due to the respondent heirs as a bonus from the milling company in compensation for Rosendo Hernaez’s past liberality, and not to the owner of the hacienda as a civil fruit, citing Bachrach Motor Company vs. Talisay-Silay Milling Company.