G.R. No. L-49940 September 25, 1986
Gemma R. Hechanova, et al. vs. Hon. Midpantao L. Adil, et al.

FACTS

The case originated from a complaint filed by respondent Pio Servando against his cousin, Jose Y. Servando, and petitioners Gemma Hechanova and Priscilla Masa. Pio sought the annulment of a deed of sale covering three parcels of land executed by Jose in favor of the petitioners. Pio claimed the properties were mortgaged to him in 1970 via a private document to secure a P20,000 loan. He alleged the sale was fraudulent and prayed for its nullity or, alternatively, for payment of the loan. The petitioners moved to dismiss, arguing the complaint stated no cause of action as the alleged unregistered private mortgage was invalid and, as a mere mortgagee, Pio lacked standing to annul the sale. The respondent judge denied the motion, characterizing the action as one for collection.
After Jose Servando died, the petitioners moved to dismiss the case, contending the money claim was extinguished by his death under the rules. The court denied this, ruling the main action was for annulment and damages. Subsequently, the court declared the defendants in default and, despite the petitioners having filed their Answer on the same day the default order was issued, rendered a judgment by default annulling the sale and ordering the cancellation of the petitioners’ titles. The petitioners’ attempts to perfect an appeal were thwarted by the trial court’s disapproval of their record on appeal.

ISSUE

Whether the respondent judge committed grave abuse of discretion in denying the motions to dismiss and in proceeding to render a default judgment against the petitioners.

RULING

Yes. The Supreme Court granted the petition, annulled the challenged orders, and dismissed the complaint. The legal logic is clear: the plaintiff had no valid cause of action against the petitioners. First, the alleged mortgage was constituted by a mere private document and was not registered, failing to comply with the formalities required for a real estate mortgage. More critically, the document contained a pacto comisorio—a stipulation automatically vesting ownership in the mortgagee upon failure to redeem—expressly prohibited and void under Article 2088 of the Civil Code. Consequently, no valid mortgage was created.
Second, even assuming a valid mortgage existed, the plaintiff-mortgagee’s remedy was not an action for annulment of a subsequent sale. A mortgagee is not a party to the sale and generally lacks the legal standing to impugn its validity. His recourse is to foreclose the mortgage, as his interest is merely in the enforcement of the security for the loan. The trial court’s characterization of the action as one for collection or for annulment was erroneous, as the foundational mortgage contract was itself void. Therefore, the respondent judge gravely abused his discretion in denying the motions to dismiss and in proceeding with the case, as the complaint on its face failed to state a cause of action.