G.R. No. L-47921, L-47922, L-47923. April 30, 1941.
Case Title: EL BANCO NACIONAL FILIPINO, plaintiff-appellant, vs. ENCARNACION ESCUDERO, defendant-appellee. (L-47921) / vs. DOMINGO RAMOS, defendant-appellee. (L-47922) / 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, 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 the 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, absolving the defendants. The Bank appealed.
The undisputed facts are: The lands in question originally belonged to Felix Silo. On September 5, 1919, Silo mortgaged these lands (among others) to the Bank. The mortgage deed (Exhibit A) was registered in the Sorsogon property registry on April 19, 1920. Prior to September 5, 1919, none of these lands were registered under the Torrens system ( Act No. 496 ).
Subsequently, Felix Silo sold the lands to third parties:
1. On October 16, 1919 (before the mortgage registration), he sold the land (parcel 1) to Ciriaco Borilla, who later sold it to Encarnacion Escudero on September 14, 1923. Neither deed was registered.
2. On March 11, 1920 (before the mortgage registration), he sold another land (parcel 4) to Domingo Ramos. This deed was not registered.
3. On November 18, 1920 (after the mortgage registration), he sold another land (parcel 7) to Juan Borilla, whose widow later sold it to Pacifico Lacsa on January 9, 1930. These deeds were also not registered.
After the judgment in its favor became final, the Bank obtained a writ of execution. The Sheriff sold Silo’s lands at auction on March 28, 1932. The Bank was the highest bidder. After the legal redemption period lapsed, the Sheriff issued a final certificate of sale (Exhibit E) on May 27, 1933, which was registered on June 21, 1933. The Bank later conditionally sold the lands to Sergio M. Silo on April 10, 1935, but cancelled the contract on May 14, 1938 due to default. When the Bank sought to take possession, it found the defendants occupying the lands, leading to these suits.

ISSUE

The main issue is whether the Bank, as the mortgagee who subsequently purchased the lands at an execution sale and registered its certificate of sale, has a superior right to the lands over the defendants, who purchased the same lands from the mortgagor (Felix Silo) but did not register their deeds of sale.

RULING

The Supreme Court reversed the decision of the trial court and declared the Bank the owner of the disputed lands.
1. Validity of the Mortgage and Effect of Registration: The Court held that the mortgage (Exhibit A) was valid. Applying Article 194 of the Revised Administrative Code (as amended by Act No. 2837 ), a mortgage on unregistered land is valid between the parties even if unregistered. If registered in the special registry provided, it is valid against the whole world except a third party with a better right. This provision modified the Civil Code’s requirement for registration under the Spanish Mortgage Law. The Bank registered its mortgage on April 19, 1920.
2. Rights of the Defendants (Subsequent Purchasers): The defendants did not have a better right than the Bank because the deeds of sale on which they based their claims were never registered in the special registry prescribed by Article 194. For the Bank to be bound by the subsequent transfers to the defendants, those transfers should have been annotated in the registry. Since they were not, the Bank’s registered rights prevailed.
3. Application of Article 1473 of the Civil Code: The rule on 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. Here, the Bank registered its final certificate of sale (Exhibit E) on June 21, 1933. The defendants never registered their deeds. Therefore, under this article, ownership belongs to the Bank as the first registrant.
4. Defense of Prescription: The Court noted that prescription, as a defense, must be expressly alleged in the answer, which the defendants failed to do. Procedurally, it was error for the trial court to allow evidence on an unpleaded special defense. On the merits, the defendants’ possession, derived from a mortgagor, gave them only the right to redeem the mortgage. Not having redeemed it and allowing the legal redemption period after the Sheriff’s sale to lapse, their possession could not ripen into ownership against the Bank’s claim.
5. Other Assigned Errors: The other errors assigned by the Bank were considered consequences of the main issues and required no separate discussion.
DISPOSITIVE PORTION:
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.