GEMMA R. HECHANOVA, ACCOMPANIED BY HER HUSBAND, NICANOR HECHANOVA, JR., AND PRESCILLA R. MASA, ACCOMPANIED BY HER HUSBAND, FRANCISCO MASA, PETITIONERS, VS. HON. MIDPANTAO L. ADI…

Hechanova versus Adi

The Case

This is a petition filed with the Supreme Court by Gemma Hechanova, joined by her husband Nicanor Hechanova Junior, and Priscilla Masa, joined by her husband Francisco Masa, against Judge Midpantao Adi, the presiding judge of a branch of the Court of First Instance of Iloilo. The petitioners ask the Supreme Court to annul the orders of the respondent judge in a civil case for the annulment of a deed of sale, and to set aside the judgment by default rendered against them. The case matters because it teaches the doctrine of lack of cause of action and lack of real party in interest, and it shows how a defective mortgage, one that is a mere private document, unregistered, and carrying a void stipulation, cannot support a suit to annul a subsequent sale.

Procedural History

The plaintiff, Pio Servando, filed a complaint in the Court of First Instance of Iloilo against Jose Servando and the petitioners, seeking the annulment of a deed of sale and damages. The defendants moved to dismiss on the ground that the complaint stated no cause of action and that the plaintiff was not the real party in interest. The respondent judge denied the motion, saying the action was actually one for collection. After Jose Servando died, the defendants moved to dismiss under the rule on the substitution of parties, but the motion was again denied. The plaintiff then moved to declare the defendants in default, and the respondent judge granted the motion and later rendered a judgment by default, annulling the deed of sale and ordering the cancellation of the titles issued to the petitioners.

The defendants tried to appeal to the Court of Appeals, filing a notice of appeal, an appeal bond, and a record on appeal. The trial court disapproved the record on appeal because the defendants failed to comply with its order to eliminate the answer filed on August second, and it dismissed the appeal. The trial court then issued an order granting execution. The petitioners went to the Supreme Court by petition, and the Supreme Court issued a temporary restraining order staying execution. The Supreme Court gave due course to the petition and decided it on the merits.

Facts

On August twentieth, nineteen hundred seventy, Jose Yusay Servando executed a private document stating that he had mortgaged three parcels of land in Iloilo City to his cousin, Pio Servando, to secure a loan of twenty thousand pesos, redeemable within ten years, with interest of ten percent per annum. The document also stated that if Jose failed to redeem the properties within the period, Pio would become the sole owner. This document was not registered.

On March eleventh, nineteen hundred seventy-eight, Jose sold the same three parcels of land to the petitioners, Gemma Hechanova and Priscilla Masa. Pio then filed a complaint impugning the sale as fraudulent, asking that it be declared null and void and that the transfer certificates of title issued to the vendees be cancelled. In the alternative, he asked that Jose be ordered to pay the twenty thousand pesos with interest, and that the defendants pay damages.

The defendants moved to dismiss, arguing that the alleged mortgage was invalid and unenforceable because it was a mere private document and was not recorded, and that the plaintiff, as a mere mortgagee, had no standing to question the sale. The motions were denied. Jose died on June twenty-third, nineteen hundred seventy-eight. The trial court declared the defendants in default and rendered judgment by default against them. The defendants' appeal was dismissed when the trial court disapproved their record on appeal, and execution was ordered.

Issues

• Whether or not the plaintiff has a cause of action to annul the deed of sale executed by Jose Servando in favor of the petitioners.
• Whether or not the plaintiff, as an alleged mortgagee under a private and unregistered document, is the real party in interest to question the validity of the sale.
• Whether or not the alleged mortgage is valid, considering that it is a mere private document, unregistered, and contains a stipulation that the mortgagee becomes the owner upon failure to redeem.

Applicable Provisions

Article 2088 of the Civil Code provides:

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.

This provision bears on the case because the private document contained a stipulation that the mortgagee would become the sole owner upon failure to redeem, which is the pacto comisorio that the Court declared null and void.

Ruling

On the first issue, the Court held that the plaintiff has no cause of action. The Court said that the plaintiff has no standing to question the validity of the deed of sale executed by the deceased defendant Jose Servando in favor of his co-defendants Hechanova and Masa. The Court found that no valid mortgage had been constituted in the plaintiff's favor.

On the second issue, the Court held that the plaintiff, as a mere mortgagee under an invalid mortgage, is not the real party in interest to impugn the sale. Even assuming that the property was validly mortgaged to the plaintiff, the Court said, his recourse was to foreclose the mortgage, not to seek annulment of the sale.

On the third issue, the Court held that the alleged deed of mortgage is a mere private document and was not registered, so no valid mortgage was constituted. Moreover, the Court said, the document contains a stipulation, the pacto comisorio, which is null and void under Article 2088 of the Civil Code. The Court quoted the provision that any stipulation allowing the creditor to appropriate the thing mortgaged is null and void.

Doctrine

A complaint that fails to show that the plaintiff has a valid and enforceable right against the defendant states no cause of action. A mere mortgagee under a private, unregistered document containing a void pacto comisorio has no standing to question a subsequent sale of the mortgaged property by the mortgagor. The real party in interest is the party who stands to be benefited or injured by the judgment, and a person with no valid mortgage has no such interest. Even a valid mortgagee's remedy is to foreclose the mortgage, not to seek annulment of the sale. Under Article 2088 of the Civil Code, any stipulation allowing the creditor to appropriate the thing given by way of mortgage is null and void.

Disposition

The Supreme Court granted the petition, set aside the judgment by default and the order of execution, and dismissed the complaint of the plaintiff.

Remember This

The single line worth memorizing is that a mere mortgagee under a private, unregistered, and defective mortgage has no cause of action and no standing to annul a sale of the mortgaged property. Examiners like to use this case to test the concepts of real party in interest, cause of action, and the void pacto comisorio under Article 2088 of the Civil Code.