GREGORIO DE LA PAZ AND GUADALUPE SANTIESTEBAN, APPLICANTS AND APPELLANTS, VS. MACONDRAY & CO., INC., OPPOSITOR AND APPELLEE.

The
applicants appealed from the judgment of the Court of First Instance of
Rizal which decreed the registration of lots Nos. 1 to 8 of plan S. W.
O. 13145, as amended by plan S. W. O. 13414, in favor of the oppositor,
and in their favor that of lots Nos. 1 and 2 of plan Psu-58906 and the
other parcel of land described in the plan S. W. O. 12153, without
special pronouncement as to the costs.

In registration case
No. 1123 of said court, G. L. R. O. Record No. 48399, the appellants
applied, under Act No. 496, for the registration in their favor of
eleven parcels of land situated in the municipality of Pasig, Province
of Rizal. The registration of some portions was opposed by the Province
of Rizal and by the Manila Railroad Company, but as the appellants
abided by the oppositions and as the portions claimed by the oppositors
were segregated from the plans, the latter eventually abandoned their
intervention. As there was no longer any controversy, the court, after
going over the evidence adduced by the appellants, ordered the
registration of the lands in their favor. Before the decision thus
rendered became final, the appellee appeared and asked for the setting
aside thereof, for permission to file its written opposition, and for
the reopening of the case. As grounds therefor it alleged that the
eleven lots adjudicated to the appellants originally belonged to the
spouses Baltazar Raymundo and Agapita San Juan; that the latter
mortgaged the same to the appellee to secure the loan of five thousand
pesos and the interest thereon at 12 per cent per annum which the
appellee granted to them; that the mortgage deed executed for that
purpose was registered in the register of deeds; that for failure of
the debtors to pay their indebtedness after its maturity, the appellee
brought foreclosure suit against them in the Court of First Instance of
Rizal; that the latter were ordered to pay their indebtedness with
interest, amounting to P5,389.51 plus interest and penalty at 20 per
cent; that these amounts were thereafter reduced to P2,389.65 because
of the partial execution of the judgment; that under a writ of
execution subsequently issued, the sheriff sold the mortgaged
properties at public auction, adjudicating the same to the appellee, as
the highest bidder, for P1,100; and, finally, the court ordered the
approval of the said sale. After hearing the parties, the court granted
the petition, reversed its decision and allowed the appellee to file
its opposition. After such filing, trial was held anew at which the
parties presented the following stipulation of facts:

“1.
That the spouses Baltazar Raymundo and Agapita San Juan were the
exclusive owners of the lands described in the plans SWO-13145 and
SWO-13414 (Exhibits A and A-1) the technical descriptions of which
appear in the documents marked Exhibits A-2 and A-3, respectively.

“2.
That on June 20, 1924, to secure the payment of the sum of P5,000 and
any other sums plus interest at 12 per cent per annum and a penalty
equivalent to 20 per cent of said sum, the said spouses Baltazar
Raymundo and Agapita San Juan executed a deed of mortgage over the
aforesaid lands in favor of Macondray & Co., Inc., a domestic
corporation with its principal office in the City of Manila, which deed
was acknowledged by Jose Agbulos, notary public, copy of which is
attached to the record and marked Exhibit 1-Macondray, which deed was
registered in the office of the register of deeds for Rizal on July 22,
1934.

“3. That on March 26, 1928, the spouses Baltazar
Raymundo and Agapita San Juan executed a deed of sale of the same lands
described in the plans SWO-13145 and SWO-13414 in favor of the spouses
Ambrosio Santiesteban and Benita Lambengco for P5,200, which deed was
acknowledged by Miguel Hernandez, notary public, and likewise
registered in the office of the register of deeds for Rizal on May 18,
1928, Exhibit A-4.

“4. That from the said date, March 26,
1928, the execution of the deed of sale in favor of said spouses
Ambrosio Santiesteban and Benita Lambengco, the latter entered upon the
possession of said lands, reaping the fruits thereof from said date
until November 28, 1932.

“5. That on August 20, 1930,
Macondray & Co., Inc., filed the corresponding complaint to recover
its mortgage credit against the spouses Baltazar Raymundo and Agapita
San Juan, which complaint was docketed in the Court of First Instance
of this province as civil case No. 4575, entitled, Macondray & Co.,
Inc., plaintiff, vs. Baltazar Raymundo and Agapita San Juan,
defendants, copy of which complaint is attached to the record and
marked as Exhibit 2-Macondray.

“6. That on January 30,
1931, and by a deed signed on January 23, 1931, by the spouses Baltazar
Raymundo and Agapita San Juan in said civil case No. 4575, a decision
was rendered therein ordering the aforesaid spouses Baltazar Raymundo
and Agapita San Juan to pay to Macondray & Co., Inc., said mortgage
credit, copy of which decision is attached hereto as Exhibit
3-Macondray.

“7. That as a result of the death of Benita
Lambengco, wife of Ambrosio Santiesteban, on January 28, 1932, in the
municipality of Pasig, Province of Rizal, there was instituted on
February 4, 1932, the intestate of the deceased Benita Lambengco (civil
No. 5041), wherein the widower Ambrosio Santiesteban was named
administrator in May, 1932.

“8. That on January 29, 1932,
after Macondray & Co., Inc., had asked, on June 11, 1931, for an
order of execution of the said decision, said Macondray & Co.,
Inc., through its attorney, Jose Agbulos, filed a motion asking for the
sale of the said lands described in the plans SWO-13145 and SWO-13414
to make good the sum of P2,389.65 plus interest thereon at 12 per cent
from October 31, 1931, which motion was granted on February 16, 1932,
and on February 23, 1932, there was issued an alias writ of execution
whereby the deputy sheriff of Rizal, Valentin Teck, after the
publication of the notices required by law, sold the said lands at
public auction on April 16, 1932, adjudicating the same to the said
plaintiff and judgment creditor Macon- dray & Co., Inc., which was
the highest bidder for the sum of P1,100, as evidenced by the sale
certificate issued by the said deputy sheriff, Valentin Teck, dated
September 22, 1933, attached to the record and marked as Exhibit
4-Macondray, which sale was approved by the Court of First Instance of
this province on October 9, 1933.

“9. That the aforesaid
lands described in the plans above-mentioned formed a part of the
inventoried properties in the intestate case of the deceased Benita
Lambengco, civil No. 5041, and under the deed of partition duly
approved by the court executed by the widower and the heirs of the said
deceased, copy of which is hereto attached as Exhibit A-5, they were
adjudicated to the surviving spouse, Ambrosio Santiesteban.

“10.
That on November 29, 1932, Ambrosio Santiesteban executed a deed of
sale of the same lands in favor of the spouses Gregorio de la Paz and
Guadalupe Santiesteban, which deed was ratified before the justice of
the peace and notary public of Pasig, Rizal, Hon. Simeon Garcia. and
registered in the office of the register of deeds of Rizal on December
1, 1932, Exhibit A-6.

“11. That from this date, November
29, 1932, to the present, the spouses Gregorio de la Paz and Guadalupe
Santiesteban have been in possession of the said lands, and they
received and continue to receive the products thereof.

“12.
That the possession of the applicants of the said lands, added to that
of the spouses Ambrosio Santiesteban and Benita Lambengco and to that
of the spouses Baltazar Raymundo and Agapita San Juan and their
predecessor in interest, dates back to the Spanish regime, that is,
over forty years back.”

On February 27, 1935, the court, after the case was submitted, rendered the decision mentioned at the beginning.

1. The appellants contend in their first assigned error that the
   foreclosure suit brought by the appellee against the spouses Baltazar
   Raymundo and Agapita San Juan, the mortgage debtors, as well ad the
   decision rendered therein, neither affect nor prejudice them because
   Ambrosio Santiesteban and Benita Lambengco, who were the owners of the
   lands and who were their predecessors in interest at the time the suit
   was brought, were not included as defendants in the said case; and
   conclude with the statement that, as to them, the foreclosure suit was
   without effect and the court should have decreed the registration of
   all the lands in their favor, subject only to the mortgage lien in
   favor of the appellee.

   The appellants rest their
   contention on the provisions of section 255 of the Code of Civil
   Procedure, the English text of which reads:

   “SEC. 255. The complaint in an action for foreclosure of a, real estate mortgage.—In
   an action for foreclosure of a real estate mortgage, or other
   incumbrance upon real estate, the complaint shall set forth the date
   and due execution of the mortgage, its assignments, if any, the names
   and residences of the mortgagor and mortgagee, a description of the
   mortgaged premises, a statement of the date of the note or other
   obligation secured by the mortgage, and the amount claimed to be unpaid
   thereon, and the names and residences of all persons having or claiming
   an interest in the premises subordinate in right to that of the holder
   of the mortgage, all of whom shall be made defendants in the action.”

   This and other sections regarding the foreclosure of a real estate
   mortgage do not state the legal effect resulting from the failure to
   include as defendants all those having an interest in the mortgaged
   premises subordinate to the mortgage sought to be foreclosed; on the
   other hand, it is clear from the language of section 255 that the
   purchaser of property previously mortgaged should be included as
   defendant because he has an interest subordinate to the mortgage lien,
   which is a real right subjecting the property wherever it may be found.

   In the case of Sun Life Assurance Company of Canada vs. Gonzalez Diez (52 Phil., 271, 274 et seq.),
   this court held that a second mortgagee, while not an indispensable
   party in a foreclosure suit instituted by the first mortgagee, is,
   nevertheless, a necessary party and should be included in the case. In
   said case it was said:

   “In the present appeal question is made as to the right of the first
   mortgage creditor to maintain this action. We are of the opinion,
   however, that the criticism directed against the appealed decision on
   this point is not well founded. A second
   mortgagee acquires only a mortgage lien upon what is called the equity
   of redemption vested in the mortgagor, and his rights are strictly
   subordinate to the superior lien of the first mortgagee. Having
   acquired this right the second mortgagee is a proper and in a sense
   even a necessary party to a foreclosure proceeding brought by the first
   mortgagee; for, in the closing words of section 255 of our Code of
   Civil Procedure, it is expressly provided that all persons having or
   claiming an interest in the mortgaged premises subordinate in right to
   that of the holder of the foreclosing mortgage creditor shall be made
   defendants in the foreclosure proceeding. Accordingly, if in the
   original foreclosure proceeding the attention of the court had been
   directed to the fact that a second mortgage had been executed in favor
   of Gonzalez Diez, it would have been peremptorily required that the
   second mortgagee should be made a party.

   “But the second mortgagee was not an indispensable party to the
   proceeding to foreclose the first mortgage, because appropriate relief
   could be granted by the court to the first mortgagee, in the original
   foreclosure proceeding, without affecting the rights of the second
   mortgagee. But the failure on the part of the first mortgagee to make
   the second mortgagee a defendant was that the decree entered in the
   original foreclosure proceeding did not have the effect of depriving
   the second mortgagee of his right of redemption. It is well recognized
   doctrine that a decree of foreclosure in a suit to which the holders of
   a second lien are not parties leaves the equity of redemption in favor
   of such lien holders unforeclosed and unaffected. (Sioux City etc. R.
   Co. vs. Trust Co., 82 Fed., 124; 173 U. S., 99; 43 Law. ed., 628.)”

   And in the case of Government of the Philippine Islands vs. De las Cajigas (55 Phil., 667, 670 et seq.),
   this court reiterated the same doctrine and further held that the
   failure to make a subordinate lienholder a party defendant in a
   mortgage foreclosure does not nullify the proceeding as among the
   actual parties thereto, but at most leaves the right of redemption
   unforeclosed as against such lienholder. In said case the court
   expressed itself thus:

   “The first assignment of error raises the question whether the
   foreclosure proceeding was conducted against all of the indispensable
   parties, and particularly it is insisted that the heirs of Dolores G.
   Azaola de Cajigas should have been impleaded. It will be noted,
   however, that the property in question is covered by a Torrens title,
   and the mortgage was executed by the administrator, with the approval
   of the court, after the death of Dolores G. Azaola de Cajigas, the
   original owner. Under section 89 of the Land Registration Act (No. 496)
   real estate registered under the Torrens system passes upon the death
   of the owner to the executor or administrator of the deceased, whether
   such owner dies testate or intestate. There can be, therefore, no
   question as to the validity of the mortgage, and inasmuch as the legal
   title was vested in the administrator when the mortgage was executed,
   such administrator was the only indispensable party defendant in the
   foreclosure proceeding. The interest of the heirs of the original owner
   was derivative and contingent, and for the purposes of foreclosure they
   were represented by the administrator who was the true party in
   interest; and even supposing that the heirs might have been proper
   parties in interest within the meaning of section 255 of the Code of
   Civil Procedure, a valid foreclosure could be effected although they
   were not impleaded. As was pointed out in Sun Life Assurance Co. of
   Canada vs.
   Gonzalez Diez (52 Phil., 271), the effect of the failure to make a
   subordinate lien holder a party to a foreclosure proceeding is, not
   that the foreclosure is void as between the parties to the proceeding,
   but that the foreclosure is ineffective as against such subordinate
   lienholder, with the consequence that there remains in him an
   unforeclosed equity of redemption. The same reasoning holds with
   respect to Jose de las Cajigas in his character as transferee of the
   subordinate lien originally vested in Encarnacion Serra. The failure to
   implead him formally as a party, in lieu of the administrator of
   Encarnacion Serra, when the transfer was made known to the court, did
   not invalidate the foreclosure, but at most might have left in him a
   right of redemption, upon the existence of which right it is not
   necessary here to pass an opinion. While the subordinate lienholder is
   a proper party defendant in order to make a decree of foreclosure
   completely binding on all interests, he is not an absolutely
   indispensable party in the foreclosure proceeding.”

   The only difference between the decided cases and the one at bar
   consists in that the former had to do with a second mortgagee, while in
   the case under consideration the one affected is a purchaser of the
   mortgaged real estate. We see no weighty reason for not applying the
   same principles to the case of a purchaser of real estate previously
   mortgaged. The fundamental reason behind the doctrines laid down has
   application to the case of a purchaser of real estate previously
   mortgaged. In the latter’s case there exists the same fundamental
   reason that he has an interest in the mortgaged properties subordinate
   to the preferential right of the mortgagee. We, therefore, conclude
   that the failure to join the predecessors of the appellants as
   defendants in the foreclosure suit instituted by the appellee did not
   have the effect of nullifying the foreclosure proceeding, but kept
   alive the equitable right of redemption which the appellants had as
   purchasers of the mortgaged lands from their predecessors.

2. The appellee relies upon the stipulation in the mortgage deed executed
   in its favor by the spouses Raymundo which prohibits the latter from
   alienating or encumbering the mortgaged lands without its written
   consent, and contends that the sales made in favor of the spouses
   Ambrosio Santiesteban and Benita Lambengco and the appellants are null
   and void because its written consent had not been previously obtained,
   thus violating the said stipulation. The said stipulation reads: “The
   mortgagor, during the life of the mortgage, may not sell or in any way
   alienate the mortgaged properties, or encumber the same by a subsequent
   mortgage or lease them for more than one year without the written
   consent of the mortgagee.”

   This stipulation, styled pact de non alienando,
   sometimes found in mortgages executed in Louisiana and derived from the
   Spanish law, binds the mortgagor neither to sell nor encumber the
   mortgaged property to the prejudice of the mortgagee; does not nullify
   the sale in favor of a third person, but gives the mortgagee the right
   to proceed directly against the property, found in the purchaser’s
   possession, in a proceeding against the mortgagor alone and without
   notice to the purchaser (41 C. JM sec. 741, p. 708).

   In the case of Avegno vs. Schmidt (28 Law. ed., 976-978), the Supreme Court of the United States construed a like stipulation as follows:

   “The effect of the stipulation in a mortgage called the pact de non alienando,
   by which the mortgagor agrees not to alienate or incumber the mortgaged
   premises to the prejudice of the mortgage, is well settled in
   Louisiana. In Nathan vs. Lee (2 Mart. [N. S.], 32), the effect
   was decided to be, that the mortgagee is not bound to pursue a third
   possessor, but may have the hypothecated property seized in via executina as if no change had taken place in its possessors, because any alienation or transfer made in violation of the pact de non alienando is ipso jure void as it relates to the creditor, and that this effect of the pact
   is not annulled by the provisions of the Civil Code in relation to
   mortgages, and the rules laid down for pursuing the action of mortgage.’

   “In Stanbrough vs. McCall (4 La. Ann., 324), the court reviewed the cases on this subject, and held that where a mortgage contained the pact de non alienando,
   one who subsequently purchases the property from the mortgagor cannot
   claim to be in any better condition than his vendor, nor can he plead
   any exception which the latter could not, and that any alienation in
   violation of the pact is null as to the creditor.

   “These cases, and those cited in the note, establish the rule that where a mortgage contains the pact de non alienando
   the mortgagee may enforce his mortgage by proceeding against the
   mortgagor alone notwithstanding the alienation of the property, and
   that all those claiming under the mortgagor, whether directly or
   remotely, will be bound, although not made parties.”

   In the case of New Orleans National Banking Association vs. Le Breton (30 Law. ed., 821-824), the same Supreme Court of the United States said the following of a like clause:

   “The illegalities alleged are: first, that the complainants and other
   mortgage creditors were not made parties to the proceeding and were not
   notified of the sale; * * *.

   “Neither of these objections seems to be well founded. A holder of a first mortgage, duly executed before a notary, with pact de non alienando, is not bound to give notice to any person but the debtor in possession.

   “These sections do not, it is true, speak of the pact de non alienando
   and its peculiar effect. This pact and its consequences were derived
   from the Spanish law and were not affected by the Code, and have been
   firmly established in the jurisprudence of Louisiana. (Nathan vs. Lee, 2 Mart. [La.], N. S., 32; Donaldson vs. Maurin, 1 La., 39, and other cases cited in Hennen’s Dig. arts. Executory Process, III [6]; Mortgage, VI [c], 6; Louque’s Dig. ib.) This rule not only applies to subsequent purchasers from the mortgagor, but to subsequent incumbrancers. (Guesnard vs.
   Soulie, 8 La. Ann., 53.) The mortgage of Kennedy & Co., contained
   all the requisites required for this process. It was a first mortgage
   by agreement of all the parties, and contained the pact in question.
   The fact that the complainants and other creditors had a junior
   mortgage by virtue of the same instrument makes no difference. They
   agreed to stand on the plane of second mortgagees, and must be bound by
   the conditions attaching to such a position. It has even been held by
   the Supreme Court of Louisiana that where two separate notes; drawn in
   favor of different individuals, were secured by the same mortgage,
   either mortgagee may sue to enforce his rights without a joinder of the
   other. (Utz vs. Utz, 34 La. Ann., 752.) Ana, in another case,
   it was held that where there are concurrent mortgagees, one of them may
   proceed by executory process to foreclose the mortgage without giving
   special notice to the others. (Soniat vs. Miles, 32 La. Ann.,
   164.) In such cases the other interested parties are entitled to their
   proper shares of the common proceeds. (Carite vs. Trotot, 105 U. S., 751, 755 [26: 1223, 1224].)”

   In the case of Citizens’ Bank of Louisiana vs. Miller (10 So. Rep., 779-782), the Supreme Court of Louisiana, construing the scope of said stipulation, said:

   “The bank claims that a purchaser of property subject to a mortgage containing the pact de non alienando
   stands in the shoes of the original mortgage debtor, and cannot, any
   more than that debtor himself, claim reimbursement on account of
   improvements made on the property; in other words, that he is not, in
   the eye of the law, a third possessor, and is not, therefore, entitled
   to the protection of article 3407, Rev. Civil Code, which is the basis
   of interveners’ claim, and which reads as follows: ‘The deteriorations
   which proceed from the deed or neglect of the third possessor to the
   prejudice of the creditors who have a privilege or mortgage give rise
   against the former to an action of indemnification; but he can claim
   for his expenses or improvements only to the amount of the in- creased
   value which is the result of the improvements made.’ The question
   raised is an interesting one, and we have considered it very closely.
   To the student of our Codes the effect given to the pact de non alienando
   is an anomaly, only explained by reference to its derivation in our law
   from the Spanish system. The pact is nothing else than the expression
   in the act of mortgage of a principle which, by the very terms of
   article 3397 of the Code, is, without any expression, implied in every
   mortgage, viz.: ‘That the debtor cannot sell, engage, or mortgage the
   same property to other persons, to the prejudice of the mortgage which
   is already made to another creditor.’ It is difficult to understand why
   the fact that this principle is expressed in the act should confer any
   different rights than would result from its conclusive implication,
   ‘mere is no express provision in either our Civil Code or Code of
   Practice on the subject; and in the French Law, from which our system
   of mortgages is derived, this pact de non alienando is not
   recognized as conferring any particular right. Under the Spanish law,
   however, which long prevailed in this state, the holder of a mortgage
   containing this pact was allowed to disregard subsequent alienations,
   and to proceed directly against the original mortgagor, and have the
   property seized and sold without notice to actual third possessors,
   which was required in other cases. After the adoption of our Code of
   1803 the question arose as to whether this effect of the pact was not
   destroyed; but the court held that ‘the mode of proceeding under orders
   of seizure and sale is still regulated in a great measure by the
   Spanish laws which remain in force in this country,’ and that the
   mortgagee’s right under the pact de non alienando was not repealed. (Nathan vs. Lee, 2 Mart. [N. S.], 32.)

   “After the Act of 1828, which repealed the Spanish laws and rules of
   proceeding, the question again arose, and it was contended ‘that there
   is now no express law in Force to support any exception to the rules of
   proceeding established by the Code of Practice for hypothecary
   actions.’ But the court said: ‘Admitting this to be true, it is a
   universal principle, founded in reason and law, that effect must be
   given to all the parts of a written contract or agreement, and meaning
   to all its stipulations and phrases, unless such a construction leads
   to absurdity. It is also a general rule that owners of property must be
   presumed to know the titles and incumbrances under which they hold it.
   In applying these rules to the case under consideration, it is evident
   that the mortgagee intended some advantage to himself by the
   introduction of the clause “de non alienando“,
   consented to on the part of the mortgagor, beyond what he would have
   had without such a pact or agreement, and that the only manner in which
   it can have the effect intended by the parties is to construe it into
   an authority to seize the property in the hands of the third
   possessors, without preliminary proceedings, as in case of an ordinary
   hypothecation.’ (Donaldson vs. Maurin, 1 La., 39.) This
   decision is the fountain head of our whole subsequent jurisprudence on
   this subject. We consider that it conclusively negatives the contention
   so ably urged by counsel of appellants. It distinctly holds that, after
   the repeal of the Spanish law formerly prevailing in this state, there
   remained in force no law giving any exceptional effect to the pact de non alienando,
   and that whatever effect it had was derived from that law which the
   parties made unto themselves by their contract. It interpreted the
   meaning and effect of that contract, and declared that its only effect
   was to authorize a direct seizure in the hands of third possessors,
   ‘without preliminary proceedings, as in case of an ordinary
   hypothecation.’ There are not wanting very clear reiterations of this
   principle in later cases. On this point the court in the case of Watson
   vs. Bondurant (30 La. Ann., 10) said: ‘We understand the effect of the pact de non alienando
   to be this: Where a mortgage contains this stipulation, the sale by the
   mortgagor does not prevent the mortgagee from proceeding by executory
   process, and he need give no notice to the purchaser. * * * A little
   reflection will show that the pact de non alienando contains nothing that the law does not imply in every mortgage.’ Again, in Ducros vs. Fortin (8 Rob. [La.], 167), the court said: ‘We do not consider the clause ‘de non alienando‘
   as producing the effects supposed by the counsel. It does not
   absolutely prevent a sale of the property by the mortgagor. The latter
   may transfer the property subject to the right which such a clause
   gives the mortgagee of proceeding summarily against it, as if it still
   belonged to the mortgagor. The purchaser acquires a valid title which
   he can, in like manner transfer to others.’ In Linn vs. Dee (31
   La. Ann., 218), the right of the purchaser of property subject to a
   mortgage containing the pact, to recover for improvements, was
   expressly recognized. (See also Ducros vs. Fortin, 8 Rob. [La.], 165; Jamison vs.
   Barelli, 20 La. Ann., 453.) The correctness of this is conspicuously
   illustrated by the particular form given to the pact in the very
   mortgage on which the bank proceeds, and which is derived from section
   24 of the charter, as follows: ‘That all property mortgaged to said
   corporation for any purposes may be seized and sold at any time,
   according to law, in whosesoever hands or possession the same may be,
   notwithstanding any alienation thereof, or change of possession, by
   succession or descent to heirs or legatees, by last will and testament
   or otherwise, in the same manner as if the same was in the possession
   of the original mortgagor.’ This is the only pact of nonalienation
   contained in the charter or mortgage, and it has been held by this
   court to be the exact equivalent of the common pact de non alienando. (Gillaspie vs. Bank, 30 La. Ann., 1321; Bank vs.
   Freitag, 37 La. Ann., 271.) Now, this section simply expresses in plain
   language the precise sense and meaning which the jurisprudence above
   referred to had held to be implied in the pact de non alienando,
   conferring no exceptional right beyond that therein stated of
   proceeding directly against the property without notice to third
   possessors. The learned lawyers who framed this charter in 1835 were
   obviously doubtful whether, under the changed law, the interpretation
   given to the ordinary pact would be maintained, and preferred to give a
   clearer expression to their contracts. They have done so, and can claim
   nothing beyond what their contract gives them. This they have been
   allowed, and have actually proceeded, in this case, by executory
   process against the original mortgage, without notice to third
   possessors, in the very manner stipulated by their contract.”

   Our Civil Code, in its Title XV of Book IV which deals with pledge,
   mortgage and antichresis, contains no provision referring to an
   agreement not to alienate or encumber mortgaged real property without
   the consent of the mortgagee. In connection with mortgages constituted
   under the existing Mortgage Law, section 107, No. 4, thereof, expressly
   provides that the mortgaged property may be encumbered by a subsequent
   mortgage notwithstanding any prohibition which may have been stipulated
   in the first mortgage. The controversies on the validity of the
   agreement not to alienate a mortgaged property without the written
   consent of the mortgagee were governed generally by the rules of the
   Civil Code regarding contracts and particularly by article 1255 to the
   effect that the contracting parties may establish agreements, clauses,
   and conditions which they may deem advisable, provided they are not
   contrary to law, morals, or public order. Of this tenor was the
   decision of the Direccion del Registro
   of all the cases submitted to it, until by resolution of June 9, 1914,
   it held that the agreement whereby the debtor binds himself not to
   enter into any contract with respect to a part of the mortgaged
   property which is registerable in the registry of deeds, while the
   creditor has not been fully paid, goes against the principle of freedom
   of contract underlying the civil legislation, and particularly against
   the provision of section 107, No. 4 of the Mortgage Law, which
   authorizes in all cases the execution of second or subsequent
   mortgages. Morell, in his commentaries on the Mortgage Law (volume 3,
   pp. 648-650, Biblioteca Juridica XXI), expounds the process of interpretation given to this agreement as follows:

   “Agreement not to alienate the mortgaged property.—Other Agreements.—Law 67, title 5, Partida
   5, expressly declared the validity of the agreement not to alienate the
   mortgaged property, and based thereon, the resolution of May 3, 1884,
   before the Code, held that there being no provisions in the Mortgage
   Law expressly repealing said law of the Partida, the said
   agreement could not be deemed to be null and void although it may seem
   contrary to the spirit and tendency of the Mortgage Law.

   “Upon the publication of the Civil Code, the provision of the Partidas
   disappeared, leaving only, on the one hand, its article 1255
   aforecited, and, on the other, that spirit and tendency of the Mortgage
   Law and No. 4 of article 107.

   “On November 29, 1907, the Direccion laid down the following doctrine:

   “It is a juridical doctrine, provided in article 1255 of the Civil
   Code, that the contracting parties may establish agreements, clauses,
   and conditions which they may deem advisable, provided they are not
   contrary to law, morals, or public order. Valid and legal, therefore,
   is the agreement that the debtor may not enter into any contract of
   lease of the mortgaged property which is registerable in character, or
   where there is an advance delivery of more than the amount of an
   annuity, because, this purely temporary limitation is not prohibited by
   any law and it is not contrary to any public order or to morals, and it
   does not have the extent and scope characteristic of an agreement not
   to alienate, wherefore, even supposing that this were actually
   prohibited, it could not be compared to an agreement not to lease for a
   determinate period, which is the one in question.

   “In this resolution, the Direccion neither affirms nor
   denies. The resolution of August 27, 1912, holds valid the agreement
   limiting the power to alienate, whereby the debtor is authorized to
   make the alienation, but only in the case where the amount thereof is
   to be applied to a part of the principal, notifying the creditor
   thereof and the latter receiving the price at the time of the sale.

   “In another resolution of June 30, 1913, it is held that a certain
   agreement that the debtor may not sell or lease, mentioned in the
   registration of the mortgage, and where there is no question of the
   validity or nullity of such prohibitions, should be understood as
   without consequence with respect to third persons, being limited to its
   literal sense and to the language used, either, because the condition
   should not be extended to cases and things not expressly stipulated, or
   because the property should be deemed free in principle. Here likewise
   there is no denial or affirmance of the validity or nullity of these
   agreements with respect to a third person.

   “The resolution of November 12 of the same year 1913, applies No. 4 of
   article 107, to the agreement whereby if subsequent to the first
   mortgage there should be constituted other mortgages or real liens upon
   the same property, the creditors should be subject to the result of the
   extra judicial sale and the said subsequent mortgages and liens should
   be extinguished if the price for the payment thereof is not readied.
   The Direccion
   is of the opinion that the same reasons underlying article 107 are
   applicable to agreements which, without directly prohibiting subsequent
   mortgages, pervert the scope of those which might be constituted on the
   same property, by reducing or making illusory the rights of second or
   subsequent mortgagees.

   “Finally, in the resolution of June 9, 1914, it is held that while
   article 1255 of the Civil Code authorizes the contracting parties to
   establish agreements, clauses and conditions which they may deem
   advisable, provided that they are not contrary to the general
   provisions of law, the agreement whereby the debtor binds himself not
   to enter into any contract regarding a part of the mortgaged property
   which is registerable in the registry of deeds while the creditor has
   not been fully paid, runs counter to the principle of freedom of
   contract underlying the civil legislation, particularly the. provision
   of article 107, No. 4 of the Mortgage Law, which authorizes in all
   cases the execution of second and subsequent mortgages, it being,
   therefore, unregisterable.

   “The Direccion has at last decided to hold the illegality
   of the agreement of nonalienation of the mortgaged property by the
   debtor. We applaud its doctrine for the reason that the question is
   doubtful.”

   We have not found any decision of the Supreme Court of Spain in support or in affirmance ot the last resolution of the Direccion del Registro
   holding that the agreement not to enter into any contract covering the
   mortgaged property which is registerable in the registry of deeds,
   while the mortgagee has not been fully paid, is contrary to the freedom
   of contract. Neither have we found any decision of the same Supreme
   Court holding the nullity of a stipulation which prohibits the
   mortgagor from selling the mortgaged property without the creditor’s
   consent, because the same is contrary to the freedom of contract, to
   morals or to the public interest. However, we do not hesitate to accept
   the view above set forth to the effect that an agreement of such
   nature, while it does not nullify the subsequent sale made by the
   mortgagor, nevertheless operates to authorize the mortgagee to bring
   the foreclosure suit against the mortgagor without the necessity of
   either notifying the purchaser or including him as defendant. And this
   holding is in harmony with the doctrine enunciated by this court in the
   cases of Sun Life Assurance Company of Canada vs. Gonzalez Diez and Government of the Philippine Islands vs. De las Cajigas supra, to the effect that in such case the purchaser of the mortgaged property does not lose his equitable right of redemption.

   Applying this view which we have adopted to the case under
   consideration, it results that the eight lots which are the subject
   matter of this appeal may be registered in the name of the appellee,
   subject, however, to the appellants’ equitable right of redemption,
   which right should be exercised within the period of three months from
   the date this decision becomes final.

3. After the appealed decision was rendered, the
   appellants filed a motion for new trial alleging that they have
   discovered new evidence which would result in the reversal of the
   decision rendered against them. The new evidence is made to consist in
   a sworn statement of Baltazar Raymundo wherein he asserted that he had
   already fully paid his indebtedness to the appellee, with the exception
   of about P600; that the payments were made through Jose Perez; that as
   a result of the payments the appellee returned to him the documents
   which he had delivered, and that the balance remaining of his
   indebtedness was secured by the mortgage of other properties which had
   been pledged to El Hogar Filipino. The motion was denied by the court.
   In their second assignment of error the appellants contend that the
   court erred in denying their motion for new trial. We hold that the
   error assigned was not committed because even admitting the offered
   evidence and considering it as newly discovered, which is not the case,
   it would not have influenced the result of the case in view of clear
   and convincing evidence that the indebtedness of the spouses Raymundo,
   as fixed by the court, has not been paid, hence, the mortgage continues
   to be valid and binding.

4. In the
   third and last assignment of error the appellants argue that the court
   should not have reopened the case nor set aside the decision rendered
   on December 11, 1933, nor should it have permitted the appellee to file
   its written opposition. What is stated in the first and second
   paragraphs of this decision shows that this assignment of error is
   without merit. Considering the facts stipulated by the parties, which
   form the bases of the appealed decision and of our holdings, the
   reopening of the case was inevitable and justice required that the
   appellee be given an opportunity to file its opposition and to be heard.

For
all the foregoing considerations, we modify the appealed decision in
the sense that lots Nos. 1 to 8 of plan SWO-13145, amended by the plan
SWO-13414, be registered in favor of the appellee, but subject to the
equitable right of redemption of the applicants-appellants, which right
should be exercised by them within three months from the date this
decision becomes final, paying to the appellee the sum of P2,389.65
plus interest thereon at 12 per cent per annum from October 31,1931.
Upon the payment of this sum the appellee shall execute a deed of
conveyance of all the eight lots in favor of the appellants and the
registrar of deeds of the Province of Rizal shall proceed to the
registration thereof and to the other steps required by the Land
Registration Law, without special pronouncement as to the costs in this
instance. So ordered.

Avanceña, C. J., Villa-Real, Abad Santos, Diaz, Laurel, and Concepcion, JJ., concur.