G.R. No. 211232 . April 11, 2018
Coca-Cola Bottlers Phils., Inc., Petitioner, v. Spouses Efren and Lolita Soriano, Respondents.

FACTS

Respondents, engaged in selling Coca-Cola products, were informed in 1999 that security was required to continue their business. Petitioner’s agent, Cipriano, convinced them to hand over two certificates of title and sign a document, assuring them it was a mere formality and would not be notarized. When respondents later decided to retire and demanded the return of their titles, they discovered their property had been mortgaged to petitioner and subsequently foreclosed. They filed a complaint for annulment, alleging they never signed a mortgage document, were never notified of the foreclosure, and had no monetary obligations, as they always paid in cash. They claimed they signed only in Tuguegarao and never appeared before the notary public in Ilagan, Isabela, as indicated on the deed.
Petitioner contended respondents were indebted to them and that the respondents’ admission of signing the real estate mortgage (REM) document in Tuguegarao indicated due execution. Petitioner argued that the failure to appear before the notary public did not render the document null and void. The Regional Trial Court (RTC) nullified the REM and foreclosure proceedings, a decision affirmed by the Court of Appeals (CA). The CA ruled the REM deed substantially failed to comply with formal requirements under Section 112 of P.D. No. 1529, as the spouses did not acknowledge it before the notary public and only one witness signed.

ISSUE

Whether the Real Estate Mortgage and the subsequent foreclosure sale are valid despite defects in the notarization and formal execution of the mortgage deed.

RULING

The Supreme Court granted the petition, reversing the lower courts. The legal logic is anchored on the distinction between the validity of a contract and its registrability. The essential requisites for a valid mortgage under Article 2085 of the Civil Code are: (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the mortgagor be the absolute owner of the thing mortgaged; and (3) that the persons constituting the mortgage have the free disposal of their property. Registration under the Land Registration Act (P.D. No. 1529) is not a requirement for validity but for efficacy against third parties; it is a mere incident of the mortgage.
The Court found the REM valid between the parties. Respondents admitted signing the deed and surrendering their titles, which established due execution. Their claim of fraud was unsupported by preponderant evidence. The defects in notarization—lack of personal acknowledgment and insufficient witnesses—affected only the document’s registrability and public faith, not its binding effect on the parties who consented to it. Since the mortgage secured a valid obligation, it was enforceable. Consequently, the extrajudicial foreclosure under Act No. 3135 was also valid, as the required posting and publication of notice were presumably complied with, and personal notice to the mortgagor is not mandatory. The complaint was dismissed for lack of merit.