SIMEON HIDALGO, PLAINTIFF AND APPELLEE, VS. LA TONDEÑA, INC., ET AL., DEFENDANTS, LA TONDEÑA, INC., DEFENDANT AND APPELLANT.

The property herein involved originally belonged
pro-indiviso
to Manuel Valenciano and Purita Valenciano who, on December 12, 1952,
mortgaged it, together with another property, to La Tondefla, Inc. to
secure the payment of a debt contracted by Manuel Valenciano. The deed
of mortgage was registered on August 14, 1954 with the Register of
Deeds of Naga City under Act No. 3344.

On the other hand, one Celedonio Benipayo obtained a judgment in his
favor in a civil case pending before the Court of First Instance of
Manila to enforce which he caused to be levied in execution the
interest of Manuel Valenciano in the property in question which levy
was registered with the same register of deeds under the same Act on
July 23, 1954. Pursuant to said levy in execution the sheriff sold at
public auction the interest of Manuel Valenciano to the highest bidder
thereat who happened to be the same creditor Celedonio Benipayo, the
deed of sale having been registered on August 20, 1954. Before the
expiration of the year prescribed by law for the redemption of the
property Benipayo sold his interest in the land to one Simeon Hidalgo
in whose favor was later executed a definite deed of sale in view of
the owner’s failure to redeem the property within the period
abovementioned. The definite deed of sale was likewise registered in
the office of the register of deeds.

On December 13, 1954, La Tondeña, Inc. started
foreclosure proceedings against the mortgagors because
of their failure to pay their obligation as agreed upon,
wherein the court rendered on October 27, 1955 a judgment
in its favor for the payment of the obligation. And said
judgment having become final the sheriff sold at public
auction the mortgaged property to the highest bidder who, in this case, was the creditor itself, or the La Tondeña,
Inc. The sale was confirmed by the court, and the definite deed of sale was registered in accordance with Act
No. 3344 on December 6, 1956.

La Tondeña, Inc. took possession of the property
bought by it in the foreclosure sale, including the property in question, and has been in possession thereof ever
since paying the taxes thereon and receiving the rentals
that had accrued from the different tenants of the property.

Whereupon, claiming to be the owner of the property
in question originally belonging to Manuel Valenciano
and Purita Valenciano, Simeon Hidalgo commenced the present action on July 30, 1959 to recover not only said
property but the sum of P70.00 a month from July, 1956
until its possession is actually delivered to him, and,
incidentally, to have said property divided between him
and defendant share and share alike, and in the event that
defendant La Tondeña, Inc. be declared the owner of the
disputed property that the vendors be held answerable to
him for eviction in accordance with law.

On the strength of the stipulation of facts submitted by the parties, the court a quo rendered decision
ordering the partition of the land in question share and
share alike between Simeon Hidalgo and La Tondeña, Inc.,
as well as ordering the latter to pay the former the
sum of P892.50, minus the sum of P112.44, plus the costs
of action.

Defendant La Tondeña, Inc. interposed the present
appeal.

Inasmuch as the land in dispute is not registered
under Act 496 nor under the Spanish Mortgage Law, the
statutory provision governing the issue herein involved
is Section 194 of the Revised Administrative Code which
in part provides:

“No instrument or deed establishing,
transmitting, acknowledging, modifying or
extinguishing rights with respect to real
estate not registered under the provisions
of Act Numbered Four hundred and ninety-six,
entitled ‘The Land Registration Act,’ and its
amendments, or under the Spanish Mortgage Law,
shall be valid, except as between the parties
thereto, until such instrument or deed has
been registered, in the manner hereinafter
prescribed, in the Office of the Register of
Deeds for the province or city where the
real estate lies.

“Any registration made under this section shall be understood to be without prejudice to a third party with a better right.”

It cannot be disputed that pursuant to the above-quoted provision the mortgage executed on December 12,
1952 on the controversial land in favor of La Tondeña,
Inc., though not registered, was valid between the parties. This is true not only in view of the abovequoted
provision but also of the several rulings of our Supreme
Court. Thus, in Estate of Mota vs. Concepcion, 56 Phil.,
713, 715, this Court said:

“The trial court erred in holding that
the mortgage was null and void. It is true
that the contract does not contain some of
the data mentioned in section 194 of the
Administrative Code, but the mortgage was
actually recorded in the registry of deeds
by the registrar, and we are of the opinion
that it is valid between the contracting
parties, as it would be even if it had not
been recorded. From among the decisions of
this court cases may be cited wherein it is
held that a mortgage upon unregistered real
property is void under the Spanish Mortgage
Law, but the rule upon this point has been
modified by section 194 of the Administrative
Code, as amended, which clearly recognizes
the validity of such a contract between the
contracting parties.”

In Guintu, et al. vs. Ortiz, et al., G. R. No.
L-9332, November 28, 1956, this Court likewise held that
a deed of mortgage executed on an unregistered land, al
though not registered, is valid and effective between
the parties. And to the same effect is the provision
of Article 2125 of the Civil Code.

Bearing in mind that the mortgage executed in favor of La Tondeña,
Inc. by Manuel Valenciano and Purita Valenciano on December 12, 1952 is
valid between the parties even though not registered under the
Registration Law nor under the Spanish Mortgage Law, but was only
recorded under Act 3344, what is the effect of said mortgage upon the
levy in execution issued in favor of plaintiff’s
predecessor-in-interest, as well as the sale made in his favor at
public auction of the same property on August 16, 1954?

The answer must be that the mortgage of La Tondeña, Inc. is
preferred over the interest acquired by plaintiff for the simple reason
that said mortgage was created much ahead in point of time than the
interest of plaintiff’s predecessor-in-interest. The very section 194
of the Revised Administrative Code which applies to this case provides
that “Any registration made under this section shall be understood to
be without prejudice to a third party with a better right,” while under
the ruling in Fabian, et al. vs. Smith, Bell & Co., 8 Phil., 496, the
levy of an execution against a judgment debtor does not
take precedence over an unrecorded deed of the same property made by the judgment debtor prior to the levy.^[1]

Even assuming that plaintiff’s predecessor-in-interest had no
notice of any lien when he bought the property in question at the
public auction sale conducted by the sheriff, still he is in duty bound
by the prior interest created in favor of La Tondeña, Inc. under the
principle of caveat emptor, as may be gleaned from the
following ruling of this Court:

“Being a purchaser in good faith does
not give the applicant-appellee a better
right either, because having made the purchase at a public auction in an ordinary
execution, not only is he not a third party,
but he acquires no more than the rights of
the judgment debtor to the property sold at
the time of the sale, and it was his duty
to ascertain what those rights were, in order to safeguard his own interests. Upon
this point, the court has repeatedly held
that the doctrine of caveat emptor applies
to judicial sales. (Pabico vs. Ong Pauco,
43 Phil., 572; 23 Corpus Juris, 746; Lim
Liin Uan vs. Laag and Laag, 51 Phil., 930.)” (Lacsamana vs. Carlos, 57 Phil., 722, 732-733)

Wherefore, the decision appealed from is reversed,
Plaintiff’s complaint is dismissed, without pronouncement as to costs.

Regala, Dizon, Makalintal, Bengzon, J.P., Zaldivar, and Sanchez, JJ., concur.

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^[1] See Mediante vs. Garcia, 73 Phil., 694; Standard Oil Co. vs. Castro, 54 Phil., 716.