G.R. No. L-47921, L-47922, L-47923. April 30, 1941.
EL BANCO NACIONAL FILIPINO, plaintiff-appellant, vs. ENCARNACION ESCUDERO, defendant-appellee. (L-47921)

EL BANCO NACIONAL FILIPINO, plaintiff-appellant, vs. DOMINGO RAMOS, defendant-appellee. (L-47922)
EL BANCO NACIONAL FILIPINO, plaintiff-appellant, vs. PACIFICO LACSA, defendant-appellee. (L-47923)

FACTS

The plaintiff-appellant, El Banco Nacional Filipino (Philippine National Bank), filed three separate complaints in October 1938 to recover possession of three parcels of land from the defendants-appellees (Encarnacion Escudero, Domingo Ramos, and Pacifico Lacsa). The Bank claimed ownership by virtue of having purchased the lands at a public auction on March 26, 1932, to satisfy a judgment in its favor in Civil Case No. 2214 against Andres Silo, as administrator of the estate of the deceased Felix Silo. The defendants, in their answers, generally and specifically denied the Bank’s claims. The Court of First Instance of Sorsogon ruled against the Bank and absolved the defendants. The Bank appealed.
The undisputed facts are: After the judgment in Civil Case No. 2214 became final, the properties of Felix Silo described in Exhibit F were sold at auction on March 28, 1932. The Bank was the highest bidder. No legal redemption having been made, the Sheriff issued a final certificate of sale (Exhibit E) on May 27, 1933, which was registered in the Register of Deeds of Sorsogon on June 21, 1933. The Bank later conditionally sold the properties to Sergio M. Silo on April 10, 1935 (Exhibit F), but cancelled the sale on May 14, 1938, due to default. When the Bank sought to take possession, it found the three specific parcels (parcels 1, 4, and 7 from Exhibit F) occupied by the defendants, prompting these suits.
The three parcels were originally owned by Felix Silo. He mortgaged them, along with others, to the Bank on September 5, 1919. The mortgage deed (Exhibit A) was registered in the Register of Deeds of Sorsogon on April 19, 1920. Prior to September 5, 1919, none of these lands were registered under the Torrens system ( Act No. 496 ).
The subsequent transfers to the defendants were:
1. Parcel 1 (Escudero): Felix Silo sold it to Ciriaco Borilla on October 16, 1919 (6 months and 3 days before the mortgage registration). Borilla sold it to Encarnacion Escudero on September 14, 1923. Neither deed (Exhibits 2 and 1) was registered.
2. Parcel 4 (Ramos): Felix Silo sold it to Domingo Ramos on March 11, 1920 (1 month and 8 days before the mortgage registration). The deed (Exhibit 1-Ramos) was not registered.
3. Parcel 7 (Lacsa): Felix Silo sold it to Juan Borilla on November 18, 1920 (after the mortgage registration). Juan Borilla’s widow sold it to Pacifico Lacsa on January 9, 1930. Neither deed (Exhibits 2-Lacsa and 1-Lacsa) was registered.

ISSUE

The main issue, as framed by the assigned errors, is whether the Bank’s registered mortgage and subsequent certificate of sale prevail over the unregistered sales made by the original owner, Felix Silo, to the defendants, thereby entitling the Bank to recover the properties.

RULING

The Supreme Court reversed the decision of the trial court and declared the Bank the owner of the disputed lands.
1. Validity of Mortgage and Effect of Registration: The Court held that the mortgage (Exhibit A) was valid and binding. At the time of its execution and registration, Article 194 of the Revised Administrative Code, as amended by Act No. 2837 , was in force. This article provided that no document affecting unregistered land is valid against third parties until registered in the office of the Register of Deeds. Interpreting this provision, the Court cited Testamentaria de Mota vs. Concepcion, stating that a mortgage on unregistered land is valid between the parties, and if registered as required by Article 194, it is valid against the whole world except a third party with a better right.
2. Priority of Rights: The defendants did not have a better right than the Bank because the deeds on which they based their claims of purchase were never registered in the special registry prescribed by Article 194. Furthermore, the Bank’s final certificate of sale (Exhibit E) was duly registered. Under Article 194, for the Bank to be affected by subsequent transfers to the defendants, those transfers should have been annotated in the registry.
3. Application of Article 1473, Civil Code: The rule governing double sales under Article 1473 of the Civil Code applies. For immovable property, ownership belongs to the person who first registers the acquisition in good faith. In the absence of registration, it belongs to the first possessor in good faith, and lacking that, to the person with the oldest title in good faith. Here, the Bank registered its mortgage and later its certificate of sale, while the defendants never registered their deeds. Therefore, the Bank’s registered rights prevail.
4. Defense of Prescription: The Court noted that prescription, being a special defense, must be expressly alleged in the pleadings, which was not done. However, even disregarding this procedural point, the defendants’ possession could not ripen into ownership. Since Felix Silo had mortgaged the lands to the Bank and this mortgage was registered, the only right he could transmit to the defendants was the right to redeem the mortgage. Not having redeemed it and having allowed the legal redemption period after the sheriff’s sale to lapse, their adverse possession was insufficient to confer ownership.
5. Other Errors: The other assigned errors were considered consequences of the foregoing and required no separate discussion.
DISPOSITIVE:
The appealed decision was revoked. The plaintiff-appellant, El Banco Nacional Filipino, was declared the owner of the lands in dispute. The defendants-appellees were ordered to pay the costs proportionately in both instances.