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Spouses Litonjua and PWHASI vs L & R Corporation
G.R. No. 130722
December 9, 1999
Facts:
Spouses Litonjua mortgaged two parcels of land to L & R as security for a loan. Consequently, they sold
the same parcels of land to Philippines White House Auto Supply, Inc. without the prior written consent
of the mortgagee. Since Spouses Litonjua has defaulted from the payment of the loan, L & R has
commenced foreclosure extrajudicially and only then did it learn that the parcels of land were sold
without their prior written consent. L & R then contended that the sale is invalid as it is contrary to
paragraph 8 and 9 of the contract which prohibits the mortgagor from selling the property without their
prior written consent and should the mortgagor sell the property, they should be given the right of first
refusal.
Issue:
Is the sale between Spouses Litonjua and PWHASI valid?
Was there breach of contract between the mortgagee and mortgagor with respect to paragraph 9 of the
contact?
Ruling:
The sale is valid since the prohibition in paragraph 8 of the contract is contrary to law. Although the
property is mortgaged, it does not extinguish the ownership of the debtor. The right to dispose the
property being a basic right of an owner, should still be exercised by the mortgagor.
There is breach of contract since the mortgagee, L & R, was not afforded the right of first refusal.
Paragraph 9 of the contract is valid as it provides for the doctrine of the right of first refusal.