ESTATE OF THE DECEASED LAZARO MOTA ET AL., PLAINTIFFS AND APPELLANTS, VS. VENANCIO CONCEPCION ET AL., DEFENDANTS. SALVADOR SERRA, INTERVENOR AND APPELLEE.

In the amended complaint in the present case, the plaintiffs seek to recover
of the defendants Venancio Concepcion and P. C. Whitaker the amount of
P283,786.59 with interest from October, 1927, being the unpaid balance of the
selling price of a railway for transporting sugar cane from certain plantations
situated in the municipalities of Ylog and Kabankalan in the Province of
Occidental Negros, and in default of the payment thereof, to foreclose the
mortgage upon said railway, and also to collect the sum of P808,375.02 by way of
damages arising from the alleged negligence of the defendants in maintaining
said railway in a proper condition for the transportation service for which it
was intended.

With permission of the court, Salvador Serra intervened as a third-party
claimant against the plaintiffs and the defendants, praying: (1) That his
conveyance of a half interest in said railway to the defendants be rescinded,
and that the railway or his interest therein be returned to him, or damages paid
him in lieu thereof; and (2) that plaintiffs and defendants be required to
render an accounting of one-half of the returns from the management of the
railway line after May 15, 1920.

The principal defendants did not appear to defend themselves and the court
rendered judgment against them and for the plaintiffs in the sum of P245,804.65
with legal interest from October 31, 1925, at the same time declaring that the
mortgage upon the railway in favor of the plaintiffs is null and void, and that
the claim of damages against the defendants had not been proved.

As to the complaint of the intervenor, the court held that the conveyance of
a half interest in the railroad made by Serra to Concepcion and Whitaker was
rescinded, and rendered judgment in favor of Serra against the plaintiffs for
the sum of P150,000 instead of the railway, but denied his petition for an
accounting, with costs in favor of said intervenor.

From this judgment the plaintiffs appealed.

At the beginning of the year 1919, Lazaro Mota, now deceased, and Salvador
Serra entered into a partnership to construct several kilometers of railroad in
the municipalities of Ylog and Kabankalan, Occidental Negros, in order to
facilitate the transportation of sugar cane to two sugar centrals named San
Isidro and Palma of which they were the respective owners. In
January 1920 Serra transferred his half interest to the defendants Concepcion
and Whitaker in connection with the sale of the Palma central. In December 1920,
Mota also sold his half interest in the railroad to the same purchasers,
Concepcion and Whitaker. At this last sale, only part of the price was paid
down, and in order to secure the payment of the remainder, Concepcion and
Whitaker mortgaged to Mota the entire railroad. The present action was brought
by the plaintiffs to recover the unpaid balance and to foreclose the mortgage.
As the mortgage included not only the railroad, which is real property, but also
the rolling stock, which is movable, and therefore personal property, Mota had
the contract recorded in the registry, not only as a mortgage upon unregistered
real property, according to Act No. 3344, but also as a mortgage of personal
property. However, we are here concerned only with the contract as a mortgage
upon unregistered real property.

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. (Standard Oil Co.
vs. Castro, 54 Phil., 716.)

On the other hand, we agree with the trial court that the plaintiffs are not
entitled to recover damages of the defendants, as claimed in the second cause of
action. Such damages, in addition to being speculative in nature, have not been
proved.

Taking up once more the matter of the intervention, we hold that the court
below did not err in permitting it. Supposing that Serra’s contention were
well-founded upon its merits, his interest in the litigated property would be a
sufficient justification for the court to grant him permission to intervene and
litigate with plaintiffs and defendants upon said interest. But the intervenor’s
contention is, we find, wholly untenable upon the merits. His right to
rescission, which he could once have exercised against Concepcion and Whitaker,
has lapsed. With regard to this, it is to be noticed that the transfer of
Serra’s one-half interest in the railway to Concepcion and Whitaker is evidenced
by a document whereby he sold to them the Palma central. It is clear that this
conveyance of Serra’s half interest in the railroad to them was an actual sale,
and not a mere assignment, as Serra now pretends. In the case of Estate of Mota
vs. Serra (47 Phil., 464), which refers to another aspect of the controversy
between the parties here litigant, this court held that all of the railway
together with the Palma plantation was the property of Whitaker and
Concepcion in consequence of the contract here in question. We see no reason for
arriving at a different conclusion now. In paragraph VI of said contract the
railway is mentioned, and Concepeion and Whitaker are said to be subrogated to
all the rights and obligations arising from said contract, binding themselves
likewise to comply with all the contracts entered into between the vendor and
the partners, tenants on shares, and employees. The words “were subrogated” used
in said contract evidently mean “succeeded”, and one who succeeds to the rights
and obligations created by a contract becomes, to all intents and purposes, the
owner of the property which is the subject of such rights and obligations.

Now then, when the Palma plantation was sold with Serra’s half
interest in the railroad, as stated above, Serra was given a mortgage upon said
plantation, though not upon the railway, to secure the payment of some hundred
thousand pesos, having received only the sum of P945,861.90 cash. The balance of
the price was never paid, with the result that Serra foreclosed the mortgage
upon the Palma plantation, and upon execution, he bought it with the
improvements made thereon by the vendees, for the sum of P500,000. It is evident
that having foreclosed the mortgage given him to secure the unpaid portion of
the selling price of plantation and railway, Serra cannot now maintain another
action to rescind the sale of his half interest in the railway. Having demanded
the fulfillment of the contract in another action for the foreclosure of the
mortgage, his right to rescission has been extinguished. Furthermore, even
supposing that Serra could have exercised the right of rescission against his
vendees, he could not do so against the Estate of Mota, because the latter was a
third party in the contract between Serra and the vendees, and is, moreover, an
innocent creditor for value.

In view of the conclusion that Serra’s alleged right to rescind that contract
does not exist, his claim for damages, instead of the return of the railway,
becomes of necessity unfounded, and the judgment of the court granting Serra the
sum of P150,000 erroneous.

For the foregoing considerations, the judgment appealed from must be affirmed
so far as it holds that defendants Concepcion and Whitaker are indebted to the
plaintiffs in the amount of P245,804.69 with legal interest from October 31,
1925 until fully paid, and reversed with regard to the rest of it; wherefore,
plaintiffs and defendants are absolved from Serra’s cross-complaint, and let the
cause be remanded to the court of origin with instructions that unless the debt
of Concepcion and Whitaker is paid within ninety days from notice hereof, the
railway shall be sold for the payment of said debt and the incidental expenses
in the foreclosure of the mortgage. Without special award of costs. So
ordered.

Avanceña, C. J., Johnson, Street, Malcolm, Romualdez, Villa-Real,
and Imperial, JJ., concur.