LITONJUA VS L&R

Parties:

Sps REYNALDO and ERLINDA LITONJUA Petitioner

L & R Corporation Respondent
Philippine White House Auto Supply, Inc. (PWHAS) 3rd party

Transaction:

Loan of 400,000 by petitioner to respondent

200,000 obtained
200,000.00

August 6, 1974
March 27, 1978

Mortgage property 2 parcels of land together with its improvement

area of 599 and 1,436 square meters
located in Cubao, Quezon City
FACTS:
Sps Litonjua loaned from L & R Corporation in the aggregate sum of P400,000.00.
To secure the loan, Sps mortgage their parcel of land together its improvements.
Sps 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.
The sale to PWHAS was annotated at the back of the title
Sps Litonjua having defaulted in the payment of their loans, the property was foreclosed and was sold to L&R
through public auction.
When L&R are about to register the sale, they learned the sale of the property to PWHAS
L&R request Register of Deeds to cancel the annotation in the COT.
L&R invoked the mortgage contract with Sps Litonia claiming that Sps need L&Rs consent as mortgagee in
alienating the property.
Several months, PWHAS for the acct of Sps Litonjua, made a tendered payment of the full redemption price to L
& R Corporation in the form of China Bank Managers Check worth 238,468.04.
L&R refused to accept the payment, PWHAS redeem the mortgaged properties through the Ex-Oficio Sheriff in
the amt of 240,798.94
Cert. of Redemption was issued to Sps Litonjua
Litonjua presented for registration the Certificate of Redemption and informed L&R to claim the payment and
surrender the duplicate copy of the title.
Litonjua asked the RD to annotate their Cert. of Redemption that L&R refused to surrender the duplicate copy
RD refused the request of Sps Litonjua
Sps filed a Petition against L&R for the surrender of the duplicate copy of COT at Court of First Instance of
Quezon City
While the petition of Sps was pending, L & R Corporation executed an Affidavit of Consolidation of Ownership and
new COT was issued a Transfer Cert of Title to L&R
Sps Litonjua learned that the prior sale of the properties in favor of PWHAS was not annotated on the transfer
titles issued to L & R.
ACTIONS TAKEN:
Sps and PWHAS filed a complaint for Quieting of Title, Annulment of Title and Damages with
preliminary injunction against L&R
Dismissing the Complaint of petitioners : Sale between the Litonjua and PWHAS was null and void and
Redemption made was also null and void.
Appeal to CA: Rule in favor of Sps Litonjua and PWHAS
ISSUE:
WON the sale of the mortgaged properties by the spouses Litonjua to PWHAS, without knowledge and consent of
L & R is valid.
HELD:
YES
Art 2130 of the Civil Code, which states that a stipulation prohibiting the owner of the mortgaged property from
alienation without the consent of the mortgagee is void. is not applicable in the case at bar.

PARAGRAPH IN THE Deed of Real Estate Mortgage

"8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other manner encumber the real
property/properties subject of this mortgage without the prior written consent of the MORTGAGEE;

Such paragraph 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.

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.

9. That should the MORTGAGORS decide to sell the real property/properties subject of this mortgage, the MORTGAGEE
shall be duly notified thereof by the MORTGAGORS, and should the MORTGAGEE be interested to purchase the same,
the latter shall be given priority over all the other prospective buyers;

Said paragraph 9 grants upon L & R Corporation the right of first refusal over the
mortgaged property in the event the mortgagor decides to sell the same.
The consideration for the loan-mortgage includes the consideration for the right of first
refusal.
L & R Corporation is in effect stating that it consents to lend out money to the spouses
Litonjua provided that in case they decide to sell the property mortgaged to it, then L & R
Corporation shall be given the right to match the offered purchase price and to buy the
property at that price.
Thus, while the spouses Litonjua had every right to sell their mortgaged property to
PWHAS without securing the prior written consent of L & R Corporation, it had the
obligation under paragraph 9, which is a perfectly valid provision, to notify the latter of
their intention to sell the property and give it priority over other buyers.
It is only upon failure of L & R Corporation to exercise its right of first refusal could the
spouses Litonjua validly sell the subject properties to others, under the same terms and
conditions offered to L & R Corporation.
While it is true that the Contract of Sale between Sps Litonjua and PWHAS is valid, the
respondent court correctly held that the Contract of Sale was rescissible.
Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the
Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority under the Contract of Lease.