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, 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 generally denied the Bank’s claims.
The lands were originally owned by Felix Silo. On September 5, 1919, Silo mortgaged these lands (among others) to the Bank. The mortgage deed (Exhibit A) was inscribed in the property registry of Sorsogon on April 19, 1920. Prior to the mortgage, 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 inscription), Silo 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 (after the mortgage execution but before its inscription), Silo sold another land (parcel 4) to Domingo Ramos. This deed was not registered.
3. On November 18, 1920 (after the mortgage inscription), Silo 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 the lands at auction on March 28, 1932, with the Bank as 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 inscribed in the registry on June 21, 1933. The Bank later found the defendants in possession of the lands and filed the reivindicatory actions.
The trial court ruled in favor of the defendants, absolving them from the complaints. The Bank appealed, assigning several errors.

ISSUE

The main issue is whether the Bank, as the mortgagee who purchased the lands at a judicial foreclosure sale and had its certificate of sale duly registered, has a superior right to the lands over the defendants, who purchased the same lands from the mortgagor but failed to register their deeds of sale.

RULING

The Supreme Court reversed the trial court’s decision 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 against a third party with a better right. The Bank’s mortgage was duly inscribed. The defendants did not have a better right because the deeds of sale on which they based their claims were never inscribed in the registry as required by Article 194.
2. Priority of Rights under Article 1473 of the Civil Code: The rule for double sales under Article 1473 governs. For immovable property, ownership belongs to the person who first registers the acquisition in good faith. Since the Bank registered its final certificate of sale (Exhibit E) and the defendants never registered their deeds, the Bank acquired superior ownership.
3. Defense of Prescription: The Court noted that prescription, as a defense, must be expressly alleged in the answer, which was not done. Procedurally, it was error to allow evidence on an unpleaded special defense. On the merits, the defendants’ possession could not ripen into ownership because when Felix Silo sold the lands to them, they only acquired the right to redeem the mortgage. Not having redeemed it and allowing the legal redemption period after the foreclosure sale to lapse, their possession was insufficient to confer title.
4. Other Assigned Errors: The other errors assigned were considered consequences of the main issues 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.