Spouses Flancia v CA and Genato GR146997 April 26, 2005

Parties: Spouses Flancia (SF) –Petitioners – Buyers of the land

William Genato - Mortgagee of the subject parcel of land
Oakland Development – Had a contract to sell with petitioners. Mortgagor of the land subject of the
contract to sell
Nature: Action to declare null and void the mortgage executed by defendant Oakland Development in
favor of defendant William Ong Genato over the house and lot plaintiff spouses purchased from
Oakland.
Facts: Spouses Flancia purchased a parcel of land from Oakland Dev. (which they were in the
process of purchasing through a contract to sell), sometime after, they received a copy of the execution
foreclosing the mortgage issued by the RTC, ordering the sheriff to sell at public auction several lots
owned by Oakland including the parcel of land of the spouses.
Spouses’ Defense: Art. 2086 NCC Mortgagor must be absolute owner and as consequence the
mortgage is void, SF advised the defendants to exclude the said lot.
Defendant Defense: Genato averred that Oakland mortgaged 2 parcels of land as security for the
payment of a loan of P2m, 1 of those was the land bought by SF. The mortgage was annotated at the
back of the TCT, and that for non-payment of the loan, Genato filed for foreclosure. Plaintiffs contract to
sell did not appear registered to affect Genato therefore the registered mortgage is superior to the
contract to sell.
RTC ruled in favor of the Flancia Spouses, ordering Oakland to pay them and dismissed Genato’s
counterclaim.
Upon MR: Judge additionally ordered the Sheriff to desist from the foreclosure proceedings and
dismissed both Oakland and Genato’s counterclaim.
CA affirmed the MR judgment in toto. Hence this petition.
Issue: WON there was a valid registered mortgage (yes)
WON the registered mort was superior to the contract to sell (yes)
Ratio:
1) Art. 2085 NCC, essential requisites of a contract of mortgage are:
(a) that it be constituted to secure the fulfillment of a principal obligation;
(b) that the mortgagor be the absolute owner of the thing mortgaged; and
(c) that the persons constituting the mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose.
Petitioner entered into a contract to sell with Oakland, the intention of Oakland not to transfer
ownership to petitioners until full payment of the purchase price was very clear. Acts of ownership over
the property were expressly withheld by Oakland from petitioner. All that was granted to them by the
"occupancy permit" was the right to possess it.
Specifically, the contract between Oakland and petitioners stated:
7. That the BUYER/S may be allowed to enter into and take possession of the property upon issuance
of Occupancy Permit by the OWNER/DEVELOPER exclusively, although title has not yet passed to the
BUYER/S, in which case his possession shall be that of a possessor by mere tolerance Lessee,
subject to certain restrictions contained in this deed.
13. That the BUYER/S cannot sell, mortgage, cede, transfer, assign or in any manner alienate or
dispose of, in whole or in part, the rights acquired by and the obligations imposed on the BUYER/S by
virtue of this contract, without the express written consent of the OWNER/DEVELOPER.
24. That this Contract to Sell shall not in any way [authorize] the BUYER/S to occupy the assigned
house and lot to them. 9
Clearly, when the property was mortgaged to Genato in May 1989, what was in effect between
Oakland and petitioners was a contract to sell, not a contract of sale. Oakland retained absolute
ownership over the property. Being the owner, it can encumber the property, therefore the mortgage is
valid.
2) Petitioners cited jurisprudence which was inapplicable to the case at bar, the issue in the case cited
was that WON an unregistered sale was superior to a registered mortgage. As per the contract of
petitioner and Oakland, the contract was not of sale but one of to sell. Oakland retained absolute
ownership over the property under the contract to sell and therefore had every right to
mortgage it. Genato's registered mortgage was superior to petitioner's contract to sell, subject
to any liabilities Oakland may have incurred in favor of petitioners by irresponsibly mortgaging
the property to Genato despite its commitments to petitioners under their contract to sell.
Extra Info regarding a contract of mortgage:
Mortgagee has the right to rely on what appears in the title presented to him. In the absence of
anything to arouse suspicion, he is under no obligation to look beyond the certificate and investigate
the title of the mortgagor appearing on the face of the said certificate.
Held:
Defendant corporation is liable to return to plaintiffs all the installments/payments made. Further,
considering that defendant corporation wantonly and fraudulently mortgaged the subject property
without regard to [plaintiffs'] rights over the same, said defendant should pay plaintiffs moral damages
WHEREFORE, the petition for review is hereby DENIED. The decision of the Court of Appeals
reinstating the August 16, 1996 decision of the trial court is hereby AFFIRMED

TL:DR
The mortgage was valid because when Oakland had mortgaged the land to Genato, he was still the
owner of said land, this is because what Oakland contracted with the Spouses Flancia was a contract
to sell rather than a contract of sale (which immediately transfer ownership).