G.R. No. 29027 , October 25, 1928
SUN LIFE ASSURANCE COMPANY OF CANADA, plaintiff-appellee, vs. FLORENCIO GONZALEZ DIEZ, defendant-appellant.

FACTS

1. Joaquin Serna mortgaged a property twice on May 17, 1920:
* First, to Shanghai Life Insurance Company, Ltd. (later assigned to Sun Life Assurance Company of Canada, the plaintiff) to secure a P20,000 note.
* Second, to Florencio Gonzalez Diez (the defendant) to secure a P6,000 debt.
2. Serna later sold the property to Paulino Francisco.
3. Upon default on the first mortgage, Sun Life (as assignee) filed a foreclosure case (Civil Case No. 28009) against Serna and Francisco only. The second mortgagee, Gonzalez Diez, was not made a party to this suit.
4. The foreclosure proceeded, the property was sold at auction, and Sun Life purchased it.
5. Sun Life then initiated the present supplemental/independent proceeding against Gonzalez Diez to foreclose his rights as a second mortgagee. The trial court ordered Gonzalez Diez to pay the entire first mortgage debt to redeem the property within three months, or be forever barred from his rights under the second mortgage.

ISSUE

May the first mortgagee, after having foreclosed the mortgage and purchased the property at the foreclosure sale (without impleading the second mortgagee in the original suit), maintain a separate action to foreclose the equity of redemption of the second mortgagee?

RULING

YES. The Supreme Court affirmed the trial court’s decision.
1. A second mortgagee’s lien attaches only to the mortgagor’s equity of redemption and is subordinate to the first mortgage.
2. While a second mortgagee is a proper and necessary party to a foreclosure suit by the first mortgagee (so that all interests may be settled in one proceeding), he is not an indispensable party. The first mortgagee can obtain full relief against the primary obligors (the mortgagor and his transferee) without the second mortgagee’s presence.
3. Consequently, a foreclosure decree in a suit where the second mortgagee is not a party does not extinguish his equity of redemption. His right to redeem from the first mortgage remains unaffected.
4. Therefore, a separate action by the first mortgagee (or the purchaser at the foreclosure sale, who steps into the shoes of the first mortgagee) against the second mortgagee is proper and necessary to foreclose this remaining equity of redemption. The purpose is not to obtain a second decree for the same debt but to cut off the junior lienholder’s subordinate right.
5. The court correctly gave the second mortgagee a period (three months) to redeem by paying the amount due on the first mortgage, failing which his rights would be barred.