EL HOGAR FILIPINO, MUTUAL BUILDING AND LOAN ASSOCIATION, PETITIONER AND APPELLANT, VS. THE PHILIPPINE NATIONAL BANK, OPPOSITOR AND APPELLEE.

On November 5, 1919, Serafin Novella, Mercedes
Novella, Cecilia Magalona and Robustiano Magalona constituted a first
mortgage on lots Nos. 194, 158 and 14 of the cadastre of Victorias,
Occidental Negros, and on lots Nos. 700, 817 and 706 of the cadastre of
Saravia, Occidental Negros, to secure the payment of the sum of
P28,000, with interest thereon at 9 per cent per annum, representing
their indebtedness to El Hogar Filipino, Mutual Building and Loan
Association. This mortgage was duly registered and noted in the
corresponding certificates of title. The deed of mortgage contains the
following clause:

“TENTH. The borrowers hereby give and confer
upon the eventual manager of the Association sufficient and irrevocable
power so that, in case the debt hereby acknowledged should become due
by reason of the nonfulfillment by the borrower of any of the
obligations stated in the second, fourth, fifth, eleventh, twelfth,
thirteenth, sixteenth, seventeenth, and twenty-first clauses of this
instrument, upon resolution of the board of directors declaring that
the Association has chosen to make use of its right to consider the
borrower’s debt due, and upon publication of notices in a newspaper of
general circulation in this city once a week for three (3) consecutive
weeks, he may proceed with the extrajudicial sale at public auction of
the mortgaged property, before the notary or auctioneer designated by
the board of directors, the eventual manager of the Association being
likewise vested with irrevocable power, as agent of the borrower, to
execute the corresponding deed of sale in favor of the highest bidder
at the auction. Provided, however, That said instrument of
sale shall not be executed until after the expiration of thirty (30)
days from the date of the auction sale. And provided, further, That
if within said period of thirty (30) days from the date of the auction
sale, the borrower should pay to the Association the full amount of his
indebtedness on that date, plus the accrued interest thereon and the
expenses occasioned by the auction sale, minus the withdrawal value of
his shares, the auction sale shall be of no effect and the
representative of the Association shall execute the corresponding
instrument of cancellation of the mortgage constituted hereby, the
expenses for the execution of said instrument of cancellation being for
the account of the borrower.”

Subsequently,
on June 6,1930, Serafin Novella constituted a second mortgage on his
3/4 share of said lots in favor of the Philippine National Bank. El
Hogar Filipino consented to the constitution of the second mortgage in
favor of the Philippine National Bank on condition that it be
considered subordinate to the first mortgage constituted in favor of
the former.

The Novellas and Magalonas having violated the
contract, El Hogar Filipino declared the debt due, as to them, and
proceeded with the auction sale of the mortgaged lots strictly in
accordance with the conditions set forth in the above-quoted tenth
clause of the mortgage deed. El Hogar Filipino having been the highest
bidder at said sale, the lots sold were adjudicated to it for the
amount of its credit of P39,063.71.

Before the auction sale of the lots in question was carried out,
the Philippine National Bank was notified thereof. After the sale had
been made, it was likewise notified for the purposes of its right of
repurchase. The Philippine National Bank, however, never made use of
its said right of repurchase to this date.

Thirty days after the auction sale had been made, the corresponding
deed of sale was issued in favor of El Hogar Filipino. When said
document was presented to the office of the register of deeds for the
cancellation of the titles to said lots and the issuance of new
certificates in favor of El Hogar Filipino, the Philippine National
Bank opposed, alleging that, under the law, it had one year within
which to redeem the lots. Notwithstanding said opposition, the document
was registered with a notation of the mortgage in favor of the
Philippine National Bank, which notation was agreed to by El Hogar
Filipino provided it was made to appear that it was merely taken from
the original certificate of title.

El Hogar Filipino brought these two actions in the Court of First
Instance of Occidental Negros to have the court declare the mortgage
lien in favor of the Philippine National Bank extinguished and order
the register of deeds to cancel the annotation of said mortgage in
favor of the Philippine National Bank on the transfer certificates of
title issued in favor of El Hogar Filipino.

The court, after due trial, rendered judgment denying the petition
of El Hogar Filipino and from said judgment an appeal was taken to this
court.

By virtue of the mortgage constituted in favor of El Hogar
Filipino, and the credit thereof having become demandable, said
mortgagee was entitled to have the mortgaged lots sold in order to
apply the proceeds to the payment of its credit. Such is the legal
effect of the mortgage. The Philippine National Bank, by reason of the
second mortgage constituted in its favor which was accepted by it as
subordinate to the first mortgage in favor of El Hogar Filipino, cannot
oppose such effect. The above-quoted tenth clause of the contract being
valid (El Hogar Filipino vs. Paredes, 45 Phil., 178), the validity of
the sale made’strictly in accordance therewith cannot be questioned.
The sale in question excluded the mortgaged lots from the estate of the
debtors and said lots should thereafter be considered extinguished in
so far as they secured the payment of the credit of the Philippine
National Bank. Therefore, the security in favor of said bank, as second
creditor, was in fact extinguished thereby. Aside from the right of
repurchase, the Philippine National Bank’s only right under the
mortgage constituted in its favor would be to apply to the payment of
its credit the excess of the proceeds of the sale after the payment of
that of El Hogar Filipino, such being the effect of the subordination
of its mortgage to that of the latter. However, inasmuch as the credit
of El Hogar Filipino has absorbed’ the entire proceeds of the sale, the
mortgage in favor of the bank was in fact extinguished with it because
it cannot be enforced by said bank beyond the total value of the
mortgaged lots. Consequently, the lots passed to the purchaser free
from the mortgage in favor of the bank. The bank’s claim that the
second mortgage in its favor stands to the prejudice of the purchaser
is untenable, particularly because, as the purchaser in this case is
the first mortgagee itself, the result, inverting the legal effects of
the two mortgages, would practically be to convert the second mortgage,
constituted in favor of the Philippine National Bank, into a first
mortgage, and the first mortgage, constituted in favor of El Hogar
Filipino, into a second mortgage. The fact that El Hogar tolerated the
annotation of the bank’s second mortgage on the transfer certificates
of title in its name is of no avail, it being clear that El Hogar’s
consent to this effect was not an admission of the existence of the
bank’s second mortgage but merely a compromise with the bank’s claim
that it was still timely for the latter to redeem the lots sold, as
shown by the fact that El Hogar consented thereto provided it was made
to appear that the annotation was merely taken from the debtors’
certificates of title.

In this instance, Serafin Novella filed a petition to intervene on
April 6, 1937, after the case had already been submitted. As said
petition was not filed on time, it should be denied (Felismino vs. Gloria, 47 Phil., 967; De Borja vs. Jugo, p. 464, ante).

For the foregoing considerations, the appealed judgment is
reversed, and the second mortgage constituted on the lots in question
in favor of the Philippine National Bank is ordered cancelled, without
special pronouncement as to costs. So ordered.

Villa-Real, Abad Santos, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.