JESUS GIGANTE, PLAINTIFF-APPELLANT, VS. REPUBLIC SAVINGS BANK AND ROLANDO MALLARI, DEFENDANTS-APPELLEES.

Gigante versus Republic Savings Bank

The Case

This is a case about a house in Caloocan and two men who claimed it through different roads. Jesus Gigante bought the house at a sheriff's auction to satisfy a judgment against Dominador Mallari. Republic Savings Bank claimed the same house because it had taken a registered real estate mortgage from Rolando Mallari, the son, and had bought the property at the foreclosure sale. Gigante sued the Bank and Rolando Mallari to annul what he called a fictitious and fraudulent transfer from father to son, and to recover the house and damages. The case matters because it teaches two enduring rules: a registered mortgage is superior to an unregistered judgment levy and sale, and an action to rescind a transfer cannot proceed without the transferor, who is an indispensable party.

Procedural History

Gigante first obtained a judgment in the Municipal Court of Caloocan in a collection case against Dominador Mallari. He then levied on the house and bought it at public auction, and the Municipal Court granted him a writ of possession. The Bank blocked that writ by asserting ownership. Gigante then filed the present action for annulment of the transfer, recovery of the house, and damages in the Court of First Instance of Rizal, Quezon City Branch. The trial court dismissed the complaint, declared the house and lot to be the Bank's property, and ordered Gigante to pay attorneys' fees to each defendant. Gigante appealed, and the case reached the Supreme Court, which affirmed the judgment under review.

Facts

On May 6, 1958, the Municipal Court of Caloocan rendered judgment ordering Dominador Mallari to pay Jesus Gigante 1,570 pesos with interest and attorneys' fees. Pursuant to a writ of execution, the sheriff levied on May 29, 1961 on a house at Nadurata Street, Grace Park, Caloocan City, valued at 3,040 pesos. On June 23, 1961, the house was sold at public auction to Gigante, and on September 1, 1962, the Municipal Court granted his motion for a writ of possession. The Bank, however, blocked that writ by claiming ownership.

The house was originally declared for taxation in the name of Dominador Mallari under Tax Declaration 34783, but that declaration bore the entry that it was cancelled by Tax Declaration 52622 in the name of Rolando D. Mallari, taken on October 8, 1958. On March 29, 1959, Rolando applied for a loan of 25,000 pesos with the Bank, offering as collateral the house declared in his name and the land covered by Transfer Certificate of Title 59922 in his favor. The Bank granted him 18,000 pesos, secured by a real estate mortgage dated April 23, 1959 over the land together with all buildings and improvements then existing or thereafter constructed, and the mortgage was recorded on April 24, 1959.

Rolando failed to pay. The Bank foreclosed and on June 28, 1960 bought the land together with all buildings and improvements for 23,631.19 pesos. Title was consolidated in the Bank's name, and on July 5, 1961, Transfer Certificate of Title 88233 was issued to the Bank in lieu of Rolando's title. Gigante then sued, alleging that the transfer from Dominador to Rolando was fictitious, fraudulent, and void, and praying for possession and ownership of the house plus actual, exemplary, and nominal damages and attorneys' fees.

Issues

• Whether or not the Bank's registered real estate mortgage is superior to Gigante's judgment, levy, and auction sale, none of which was recorded on the Torrens title.
• Whether or not Gigante's action to rescind the alleged fraudulent transfer from Dominador Mallari to his son Rolando, and his claim for damages against the Bank and Rolando, may prosper without Dominador Mallari being impleaded as a party.

Applicable Provisions

The decision invokes the second paragraph of Article 1385 of the Civil Code on rescission, which provides:

He who sells an immovable property, the ownership of which is rescinded by virtue of the provisions of Article 1291, may demand the rescission of the sale only after he has returned the price paid by the buyer, unless the latter has knowledge of the cause of rescission.

This provision is cited in connection with the rule that rescission cannot be decreed without the presence of the party who made the transfer, since any judgment would affect him.

Ruling

On the first issue, the Court held that Gigante's claim rested on a judgment, levy, and sale that were never recorded on the Torrens title, while the Bank's right rested on a real estate mortgage duly recorded on April 24, 1959. The Court ruled that the Bank's registered mortgage is superior to both the judgment and the levy and sale. By virtue of the foreclosure sale of the land and the improvements thereon, the house passed lawfully into the ownership and possession of the Bank, which had not acted in bad faith, and so the house was beyond the reach of Gigante's action to nullify the transfer from father to son.

On the second issue, the Court held that neither the action for rescission of the alleged fraudulent transfer nor the action for damages against Rolando and the Bank could prosper, because Dominador Mallari, the vendor, was not a party to the suit. He is an indispensable party. The Court explained that any decision on either the rescission or the damages would affect him, that he is entitled to be heard and to defend the validity of the transfer to his son, and that a judgment in the present suit would not bind him and could not be executed against him.

Doctrine

A registered real estate mortgage is superior to a judgment, levy, and auction sale that are not recorded on the Torrens title. Registration is the act that gives the mortgagee a preferred right, and a foreclosure sale of the land together with all buildings and improvements passes the improvements to the purchaser, placing them beyond the reach of a creditor who failed to register his levy.

In an action to rescind or annul a transfer of property as fraudulent, the transferor is an indispensable party. Without him, the action for rescission and the claim for damages cannot be finally determined, because any judgment would affect him and he is entitled to be heard to defend the validity of the transfer. A judgment rendered without an indispensable party does not bind him and cannot be executed against him.

Disposition

The Supreme Court affirmed the judgment under review, dismissing Gigante's complaint, declaring the house and lot to be the property of Republic Savings Bank, and ordering Gigante to pay costs.

Remember This

Memorize this line: a registered mortgage beats an unregistered judgment levy and sale, and the transferor is an indispensable party in an action to rescind a fraudulent transfer. Examiners use this case to test the Torrens system's rule that registration is notice to the whole world, and to test the indispensable party rule in actions for rescission and annulment of transfers.