G.R. No. L-12963; May 30, 1960
Magdalena Estate, Inc., petitioner-appellee, vs. Alfonso Yuchengco, etc., oppositor-appellant.

FACTS

On December 16, 1935, K.H. Hemady (President and General Manager of Magdalena Estate, Inc.) and the China Insurance & Surety Co., Inc. jointly and severally signed a promissory note in favor of Oriental Investments Corporation for P8,000. To secure the China Insurance & Surety Co., Inc. against any losses from Hemady’s potential default, Magdalena Estate, Inc. executed a mortgage on a parcel of land (covered by Transfer Certificate of Title No. 21440) in favor of the surety company. This mortgage was registered and annotated on the title on December 17, 1935.
On May 25, 1955, Magdalena Estate, Inc. filed a petition in the Court of First Instance of Quezon City (acting as a land registration court) for the cancellation of the mortgage. It alleged that the promissory note had been paid, but cancellation was not effected because the surety company’s president could not be found and Hemady died in 1952. It also argued the action was barred by prescription, as no foreclosure or collection action had been filed since 1935.
Alfonso Yuchengco, executor of the estate of the surety company’s majority stockholder, opposed the petition. He stated he lacked authority to represent the surety company due to a dispute among heirs and could not verify the alleged payment, as the company’s records were not reconstituted. He argued the petition was premature.
The trial court (Judge Yatco) initially denied the petition on May 23, 1956, holding that as a land registration court, it lacked jurisdiction to decide the issue of prescription or order cancellation without proof of payment. After this order became final, Magdalena Estate, Inc. filed a motion for reconsideration and later a new, identical petition, proposing to post a P8,000 bond in lieu of the mortgage. This was also denied. The case was then transferred to another branch (Judge Caluag).
On October 26, 1956, the court (now Judge Caluag) granted the petition, ordering the register of deeds to cancel the mortgage annotation upon Magdalena Estate, Inc. posting a P10,000 surety bond. The oppositor appealed.

ISSUE

Can a Court of First Instance, acting as a land registration court, order the cancellation of a mortgage annotated on a certificate of title and substitute it with a surety bond, without the mortgagee’s consent?

RULING

No. The order of the lower court is set aside.
The Supreme Court held that the lower court, acting under its limited and special jurisdiction as a land registration court pursuant to Section 112 of Act No. 496 , acted in excess of its power. While Section 112 allows the court to grant relief upon reasonable grounds and may require security, it cannot be applied to novate or alter the contractual agreement between the parties without their consent.
The mortgage was executed as a specific security for the surety company’s undertaking on the promissory note. To order the substitution of this real estate mortgage with a surety bond would effectively novate the original contract. Such novation requires the consent of both parties, which was absent here as the mortgagee (through its representative) opposed the substitution. If a court of general jurisdiction cannot compel such a substitution without consent, a land registration court with its limited jurisdiction certainly cannot do so. Therefore, the appealed order was issued without jurisdiction.