G.R. No. L-10173; February 1, 1916
MARIANO VELASCO & CO., plaintiff-appellee, vs. GOCHUICO & CO., ASUNCION MITCHEL as administratrix of the intestate estate of the deceased Pedro Sy Quia, ET AL., defendants. MANUEL GOCHUICO, FRANCISCO GOCHUICO and THE ALHAMBRA CIGAR AND CIGARETTE MANUFACTURING CO., appellants.

FACTS:
1. The plaintiff, Mariano Velasco & Co., sought to foreclose a mortgage executed by Gochuico & Co. on February 28, 1913, to secure a loan of P125,000.
2. The mortgaged property originally belonged to Buenaventura Gochuico. Upon his death, his estate was settled in probate court. His minor heirs, Manuel and Francisco Gochuico, were represented by a court-appointed guardian.
3. As part of the estate settlement, the heirs formed the mercantile association “Gochuico & Co.,” with the subject property as its principal capital. The property was registered under the Torrens system on September 27, 1912, in the name of Gochuico & Co., subject to two existing encumbrances:
– A mortgage dated July 1, 1912, in favor of Mariano Velasco & Co. for P110,000.
– A lease contract dated August 14, 1912, in favor of The Alhambra Cigar and Cigarette Manufacturing Co., which contained a clause guaranteeing the lessee’s undisturbed use even if ownership of the property was transferred.
4. The mortgage being foreclosed (dated February 28, 1913) was registered on March 1, 1913, and did not reference the earlier mortgage of July 1, 1912. The plaintiff was aware of the lease contract’s terms when it accepted the mortgage.
5. The appellants Manuel and Francisco Gochuico contended that their interests in the property were improperly included in the mortgage, while Alhambra argued that its leasehold rights should be respected in any foreclosure sale.

ISSUE:
1. Whether the leasehold rights of Alhambra Cigar and Cigarette Manufacturing Co. must be honored in the foreclosure sale of the mortgaged property.
2. Whether the minor heirs, Manuel and Francisco Gochuico, retain a right to the property despite its registration in the name of Gochuico & Co. under the Torrens system.

RULING:

2. Regarding the claims of the minor heirs: The Court ruled that Manuel and Francisco Gochuico lost their right to claim an interest in the property. Through their guardian and with court approval, they consented to the property becoming part of Gochuico & Co.’s capital. The subsequent Torrens registration in the company’s name, relied upon by third parties, precludes their belated claim. However, this does not bar a possible action for damages against their co-heirs if grounds exist.
3. The judgment of the lower court was modified to affirm the foreclosure and sale of the property, but subject to the leasehold rights of Alhambra as stipulated in its contract. The lower court’s decision against Manuel and Francisco Gochuico was affirmed.

Separate Opinions:
– Justice Moreland concurred in the result.
– Chief Justice Arellano dissented.