G.R. No. 108294 September 15, 1997
ANDRES RAMOS, SPOUSES FELIPE BELMONTE, and AMALIA BELMONTE, petitioners, vs. THE HONORABLE COURT OF APPEALS, GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), EDUARDO YUSECO, and DIONISIO PALLA, respondents.

FACTS

Eduardo Yuseco obtained a loan from GSIS, secured by a mortgage on his property. The mortgage contract prohibited its sale without GSIS’s prior written consent. Yuseco later executed a “Contract to Sell” and subsequently a “Deed of Absolute Sale with Assumption of Mortgage” in favor of petitioners Felipe Belmonte, Amalia Belmonte, and Andres Ramos, whereby they agreed to assume Yuseco’s loan obligation. The GSIS Board approved this sale with assumption of mortgage, subject to specific conditions including the vendees’ execution of a promissory note and payment of assumption fees. Petitioners made amortization payments to GSIS but stopped in 1981. Due to arrearages, GSIS extrajudicially foreclosed the mortgage in 1982 and purchased the property at auction.
Petitioners registered an adverse claim on the title. After the foreclosure, Yuseco, with petitioners still in possession, negotiated to sell the foreclosed property to respondent Dionisio Palla. Palla was aware of the adverse claim but, upon legal advice, purchased the property from Yuseco. Palla then advanced the redemption money to Yuseco, who redeemed the property from GSIS within the legal period. A new title was issued in Palla’s name, and he subsequently filed an ejectment case against petitioners.

ISSUE

The core issue is whether the “Deed of Absolute Sale with Assumption of Mortgage” executed by Yuseco in favor of petitioners vested in them a right superior to that of Palla, such that the subsequent redemption by Yuseco and sale to Palla should be annulled.

RULING

The Supreme Court ruled against the petitioners and affirmed the Court of Appeals’ decision. The legal logic centers on the nature and effect of the “Deed of Absolute Sale with Assumption of Mortgage.” The Court held that a sale with assumption of mortgage is a conditional contract. The approval by the mortgagee (GSIS) is a suspensive condition for the perfection of the sale. While GSIS granted conditional approval, the petitioners failed to comply with the stipulated conditions, particularly the execution of a promissory note in favor of GSIS and the payment of the required assumption fees. Consequently, the sale was never perfected and did not become effective.
Since the sale was ineffectual, Yuseco remained the legal owner of the property and the debtor-mortgagor vis-à-vis GSIS. His title (TCT No. 123161) was never cancelled in favor of the petitioners. As the registered owner and mortgagor, Yuseco retained the legal right to redeem the property after the foreclosure. His redemption within the one-year period under Act No. 3135 was therefore valid. Having lawfully redeemed the property, Yuseco regained full ownership and the concomitant right to dispose of it. The subsequent sale to Palla, despite the annotated adverse claim, was valid because the adverse claim was based on an unperfected and ineffectual sale. Palla’s knowledge of the claim did not constitute bad faith as the foreclosure provided a valid justification to disregard it. Petitioners’ remedy, if any, lies in a separate action for recovery of sums paid against Yuseco’s estate.