G.R. No. 34581; March 31, 1932
ESTATE OF THE DECEASED LAZARO MOTA, ET AL., plaintiffs-appellants, vs. VENANCIO CONCEPCION, ET AL., defendants. SALVADOR SERRA, intervenor-appellee.

FACTS

Lazaro Mota and Salvador Serra were partners in constructing a sugar cane railway in Negros. In 1920, Serra sold his half-interest to Venancio Concepcion and P.C. Whitaker. Later that year, Mota also sold his half-interest to Concepcion and Whitaker, receiving only partial payment. To secure the unpaid balance, Concepcion and Whitaker mortgaged the entire railway to Mota. After Mota’s death, his estate sued to recover the unpaid balance and foreclose the mortgage. Serra intervened, seeking rescission of his sale and recovery of his half-interest or damages, alleging the sale was merely an assignment. The trial court ruled for the plaintiffs against the principal defendants for the debt but declared the mortgage null and void and denied the claim for damages. It also ruled in favor of the intervenor Serra, awarding him damages instead of rescission. The plaintiffs appealed.

ISSUE

1. Whether the mortgage on the unregistered railway is valid.
2. Whether the plaintiffs are entitled to damages for alleged negligence in maintaining the railway.
3. Whether the intervenor Serra is entitled to rescind his sale of a half-interest in the railway and recover damages.

RULING

1. Yes, the mortgage is valid. The trial court erred in declaring it null and void. While the contract lacked some formalities under the Administrative Code, it was recorded in the registry. Under Section 194 of the Administrative Code, as amended, a mortgage on unregistered real property is valid between the contracting parties, even if recorded imperfectly.
2. No, the plaintiffs are not entitled to damages. The claimed damages were speculative and not sufficiently proven.
3. No, the intervenor Serra is not entitled to rescission or damages. His conveyance to Concepcion and Whitaker was an absolute sale, not a mere assignment. Furthermore, his right to rescind had lapsed. Serra had previously foreclosed a separate mortgage on the Palma plantation (sold together with the railway interest) to secure the unpaid price, which constituted a demand for fulfillment of the contract, thereby extinguishing his right to rescission. He also could not rescind against Mota’s estate, a third party and an innocent creditor for value.

The judgment was modified: The debt of Concepcion and Whitaker to the plaintiffs was affirmed; the mortgage was declared valid and ordered to be foreclosed if the debt was not paid within 90 days; and Serra’s cross-complaint was dismissed.

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