Dañas, Maria Mengee D.

2018002501
LAW1301 Sec 11

CASE DIGEST #3:

SPS. LITONJUA v. L & R CORP.

FACTS:
Spouses Litonjua obtained loans from L&R Corporation in the aggregate sum of
P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining
P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted
by the spouses upon their two parcels of land and the improvements thereon. The mortgage
was duly registered with the Register of Deeds.
Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels
of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00.
Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R
Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon
City. The mortgaged properties were sold at public auction to L & R Corporation as the only
bidder for the amount of P221,624.58.
The Deputy Sheriff informed L & R Corporation of the payment by PWHAS of the full
redemption price and advised it that it can claim the payment upon surrender of its owner’s
duplicate certificates of title. The spouses Litonjua presented for registration the Certificate of
Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate also
informed L & R Corporation of the fact of redemption and directed the latter to surrender the
owner’s duplicate certificates of title within five days.
On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the
Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without
its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and
(2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed
properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal
personality or capacity to redeem the same.
On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their
Certificate of Redemption as an adverse claim on the titles of the subject properties on account
of the refusal of L & R Corporation to surrender the owner’s duplicate copies of the titles to the
subject properties. With the refusal of the Register of Deeds to annotate their Certificate of
Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for
the surrender of the owner’s duplicate of Transfer Certificates of Title No. 197232 and 197233
before the then CFI.
While the said case was pending, L & R Corporation executed an Affidavit of
Consolidation of Ownership. The Register of Deeds cancelled Transfer Certificates of Title No.
197232 and 197233 and in lieu thereof, issued Transfer Certificates of Title No. 280054 and
28055 in favor of L & R Corporation, free of any lien or encumbrance. A complaint for Quieting
of Title, Annulment of Title and Damages with preliminary injunction was filed by the spouses
Litonjua and PWHAS against herein respondents before the then CFI.
ISSUE:
1. Whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and enforceable;
2. Whether or not the sale of the mortgaged properties by the spouses Litonjua to PWHAS,
without the knowledge and consent of L & R Corporation, is valid and enforceable;

RULINGS:
1. No. Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is
not binding upon the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS,
notwithstanding the lack of prior written consent of L & R Corporation, is valid.
The stipulation in the real estate mortgage which prohibits the mortgagor from selling the
mortgaged property without the written consent of the mortgagee contravenes the law. Article
2130 of the New Civil Code holds that a stipulation forbidding the owner from alienating the
immovable mortgaged shall be void. The phrase “without (the) written consent of the
mortgagee,” added by the parties in their contract is of no real comfort to the mortgagee and did
nothing but to stress, indeed, the restriction against what should otherwise be an unimpeded
right of the mortgagor to alienate the property. The clear intention of the law is to outlaw a
stipulation that would effectively prevent the mortgagor from freely conveying the property
during the life of the mortgage. Needless to state, the injunction of the law may not be
circumvented, whether directly or indirectly, by the parties.
In Tambunting v. Rehabilitation Finance Corporation, the validity of a similar provision
was specifically raised and discussed and found as invalid. It was there ratiocinated that –
“To be sure, the deed of second mortgage executed by the Escuetas in favor of
Aurora Tambunting, married to Antonio L. Tambunting, does contain a provision that „the
property mortgaged shall not be x x x the subject of any new or subsequent contracts of
agreements, saving and excepting those having connection with the first mortgage with
the RFC, without first securing the written permission and consent of the
MORTGAGEE‟. But the provision can only be construed as directed against subsequent
mortgages or encumbrances, not to an alienation of the immovable itself. For while
covenants prohibiting the owner from constituting a later mortgage over property
registered under the Torrens Act have been held to be legally permissible (Phil.
Industrial Co. v. El Hogar Filipino, et al., 45 Phil. 336, 341-342; Bank of the Philippines v.
Ty Camco Sobrino, 57 Phil. 801), stipulations „forbidding the owner from alienating the
immovable mortgaged‟ are expressly declared void by law (Art. 2130, Civil Code). It is
clear that the stipulation against „subsequent agreements‟ above mentioned had not
been breached by the assignment by the Escuetas (to the Hernandezes) of their right of
redemption in connection with the mortgage constituted in favor of the R.F.C. The
assignment was not a subsequent mortgage or encumbrance, licitly comprehended by
the prohibitory stipulation, but was actually a sale or conveyance of all their rights in the
 encumbered real property – in truth, an alienation of the immovable – which could not
lawfully be forbidden.
Insofar as the validity of the questioned stipulation prohibiting the mortgagor from selling
his mortgaged property without the consent of the mortgagee is concerned, therefore, the ruling
in the Tambunting case is still the controlling law. Indeed, we are fully in accord with the
pronouncement therein that such a stipulation violates Article 2130 of the New Civil Code. Both
the lower court and the Court of Appeals in its Amended Decision rationalize that since
paragraph 8 of the subject Deed of Real Estate Mortgage contains no absolute prohibition
against the sale of the property mortgaged but only requires the mortgagor to obtain the prior
written consent of the mortgagee before any such sale, Article 2130 is not violated thereby. This
observation takes a narrow and technical view of the stipulation in question without taking into
consideration the end result of requiring such prior written consent. True, the provision does not
absolutely prohibit the mortgagor from selling his mortgaged property; but what it does not
outrightly prohibit, it nevertheless achieves. For all intents and purposes, the stipulation
practically gives the mortgagee the sole prerogative to prevent any sale of the mortgaged
property to a third party. The mortgagee can simply withhold its consent and thereby, prevent
the mortgagor from selling the property. This creates an unconscionable advantage for the
mortgagee and amounts to a virtual prohibition on the owner to sell his mortgaged property. In
other words, stipulations like those covered by paragraph 8 of the subject Deed of Real Estate
Mortgage circumvent the law, specifically, Article 2130 of the New Civil Code.

2. Yes. In the case at bar, PWHAS cannot claim ignorance of the right of first refusal
granted to L & R Corporation over the subject properties since the Deed of Real Estate
Mortgage containing such a provision was duly registered with the Register of Deeds. As such,
PWHAS is presumed to have been notified thereof by registration, which equates to notice to
the whole world.
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation’s prior written consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of
the spouses Litonjua, within the one-year period should have been accepted as valid by L & R
Corporation. However, while the sale is, indeed, valid, the same is rescissible because it
ignored L & R Corporation’s right of first refusal.

WHEREFORE, the Decision appealed from is hereby AFFIRMED with the following
MODIFICATIONS:
(a) Ordering the rescission of the sale of the mortgaged properties between petitioners
spouses Reynaldo and Erlinda Litonjua and Philippine White House Auto Supply, Inc.
and ordering said spouses to return to Philippine White House Auto Supply, Inc. the
purchase price of P430,000.00;
(b) Disallowing, due to the rescission of the sale made in its favor, the redemption made
by Philippine White House Auto Supply, Inc. and ordering Quezon City Sheriff Roberto
Garcia to return to it the “redemption” check of P240,798.94;
(c) Allowing respondent L & R Corporation to retain its consolidated titles to the
foreclosed properties but ordering it to pay to the Litonjua spouses the additional sum of
P189,201.96 representing the difference from the purchase price of P430,000.00 in the
rescinded sale;