GR 111935; (September, 1997) (Digest)
G.R. No. 111935 September 5, 1997
HILARIO T. DE LOS SANTOS, petitioner, vs. COURT OF APPEALS, EMILIO MILLER, SR., ROSEMARIE OLAZO, and MANUEL SERRANA, JR., respondents.
FACTS
Petitioner Hilario T. de los Santos filed a complaint for “Removal of Cloud and Delivery of Title” against respondents. He alleged that he and respondent Emilio Miller, Sr., his business partner, obtained a loan from Manphil Investment Corporation secured by a mortgage on his property. Out of partnership profits, Miller, Sr. allegedly paid the loan in full but refused to return his title. Petitioner prayed for the surrender of his title and the execution of a deed of mortgage cancellation.
The Regional Trial Court dismissed the complaint, a decision affirmed by the Court of Appeals. The appellate court found the loan was a personal obligation of the partners, not of the partnership. It ruled that the payment came from Miller, Sr.’s wife, not partnership funds, as the partnership’s assets were insufficient. Since Miller, Sr. paid the loan, he was subrogated to the rights of the original creditor, Manphil, and could retain the title until petitioner reimbursed his share.
ISSUE
Whether respondent Emilio Miller, Sr. can lawfully retain the owner’s duplicate certificate of title of petitioner’s property after fully paying the loan secured by its mortgage.
RULING
No. The Supreme Court reversed the Court of Appeals and ordered Miller, Sr. to return the title to petitioner. The Court clarified that the appellate court correctly applied the principle of legal subrogation under Article 1303 of the Civil Code. By paying the loan, Miller, Sr. was indeed subrogated to Manphil’s rights as a creditor, acquiring all rights pertaining to the credit, including the mortgage. However, this subrogation did not automatically transfer ownership of the mortgaged property to Miller, Sr.; it merely transferred the security interest.
Crucially, the Court found that the mortgage annotated on the title had already been cancelled in 1983 upon full payment of the loan. With the mortgage extinguished and cancelled, there was no longer any legal or factual basis for Miller, Sr. to withhold the owner’s duplicate certificate of title from the registered owner, petitioner de los Santos. His right to retain the title as a form of security for petitioner’s alleged debt to him is not recognized by law. The proper remedy for Miller, Sr. is to file a separate action to collect any unpaid obligation from petitioner, not to withhold the property’s title. The delivery of the title is without prejudice to such separate action.