G.R. No. L-19519; November 28, 1964
IN RE: Petition for Cancellation of Adverse Claim. ANANIAS ABUSTAN, petitioner-appellee, vs. RUPERTO FERRER and CONSUELO V. GOLEZ (spouses), oppositors-appellants.

FACTS

The spouses Ruperto Ferrer and Consuelo V. Golez (the Ferrers) held an unregistered real estate mortgage (Exhibit E) executed on April 6, 1955, by Vicente C. Gomez over a parcel of land in Makati, Rizal, to secure a loan of P2,500. The mortgage deed contained a stipulation that if Gomez failed to redeem the property within one year, the Ferrers could, at their election, assume Gomez’s prior mortgage obligation to the Meralco Loan and Savings Association, and Gomez would execute a deed of sale in their favor. This document was never registered or annotated on Gomez’s Transfer Certificate of Title (TCT) No. 30520 due to an erroneous reference to a Manila title number.
Subsequent transactions affected the property: On May 9, 1956, the Meralco mortgage was cancelled. That same day, a mortgage in favor of spouses Brigido Campita and Fausta Domingo was registered and later cancelled on June 8, 1957, when a mortgage in favor of the Manila Building and Loan Association (Manila Association) for P6,000 was duly registered. On March 4, 1959, the Ferrers filed Civil Case No. 4820 against Gomez to recover the loan, but it was dismissed for non-appearance of the parties. Instead of seeking reinstatement, they filed Civil Case No. 5726 on August 14, 1959, against Gomez and the Manila Association, seeking specific performance (conveyance of the property) and cancellation of the Manila Association’s mortgage. This second case was dismissed on December 10, 1959, on grounds of res judicata, based on the prior dismissal of Case No. 4820. No appeal was taken, making the dismissal final.
On March 14, 1960, the Ferrers filed an affidavit of adverse claim based on Exhibit E, which was annotated on the title. Subsequently, on May 4, 1960, TCT No. 76141 was issued in the name of Ananias Abustan (who acquired the property from Gomez), carrying annotations of both the Manila Association’s mortgage and the Ferrers’ adverse claim. Abustan filed a petition under Section 112 of Act No. 496 (Land Registration Act) to cancel the adverse claim, arguing it became unenforceable after the final dismissal of Civil Case No. 5726. The lower court granted the petition, leading to this appeal by the Ferrers.

ISSUE

Whether the lower court correctly ordered the cancellation of the annotation of the Ferrers’ adverse claim on the ground that their right or interest under the unregistered mortgage had been extinguished by the final dismissal of their civil cases.

RULING

The Supreme Court affirmed the lower court’s order, holding the cancellation proper. The ratio decidendi is as follows:
1. Extinction of the Principal Obligation and Accessory Mortgage: The dismissal of Civil Case No. 4820 for non-appearance of the parties operated as an adjudication on the merits under Section 3, Rule 17 of the Rules of Court, thereby extinguishing Gomez’s debt to the Ferrers. Since a mortgage is merely an accessory contract under Article 2085 of the Civil Code, it cannot exist independently of the principal obligation. The extinction of the debt necessarily extinguished the mortgage, including any right to demand conveyance under Exhibit E.
2. Res Judicata Effect of the Second Dismissal: The dismissal of Civil Case No. 5726, based on the prior judgment in Case No. 4820 (res judicata), further barred any claim for specific performance or enforcement of Exhibit E. No appeal having been taken, this dismissal became final and executory, conclusively settling the Ferrers’ rights under the document.
3. Improper Registration of Adverse Claim: The adverse claim, based on an unregistered and now unenforceable interest, was improperly annotated. The Court rejected the Ferrers’ argument that the annotation operated as registration of the mortgage deed, noting that even if it did, the underlying obligation had been extinguished. Moreover, the claim was invalid under Article 2088 of the Civil Code, which prohibits pactum commissorium (automatic foreclosure without judicial intervention).
4. Propriety of Summary Cancellation under Section 112: The Court held that the summary proceeding under Section 112 of the Land Registration Act was appropriate because there was no genuine controversy over the material facts—specifically, the dismissals and their finality. The issue was purely legal, turning on the effect of final judgments, unlike in Tangunan v. Republic where disputed facts required an ordinary action.

DOCTRINES

1. Accessory Nature of Mortgage: A mortgage is an accessory contract that cannot exist without a valid principal obligation. Extinction of the debt extinguishes the mortgage (Article 2085, Civil Code).
2. Res Judicata and Dismissal on the Merits: A dismissal for non-appearance of parties under Rule 17, Section 3 of the Rules of Court constitutes an adjudication on the merits unless otherwise stated, barring re-litigation of the same cause of action.
3. Improper Adverse Claims: An adverse claim based on an unregistered and subsequently extinguished interest is improperly registered and subject to cancellation under the Land Registration Act.
4. Pactum Commissorium Prohibition: A stipulation in a mortgage allowing the creditor to automatically appropriate the property upon debtor’s default is void under Article 2088 of the Civil Code.
5. Summary Cancellation under Section 112: A petition for cancellation of an adverse claim is permissible under Section 112 of the Land Registration Act when the issue is uncontroversial and hinges on the legal effect of final judgments, without disputed factual matters requiring a full-blown trial.