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ROMA FE C. VILLALON v. RURAL BANK OF AGOO

FACTS:

The spouses George and Zenaida Alviar obtained a loan from Rural Bank of Agoo, Inc. (RBAI) in the amount of P145,000.00, secured by a real estate mortgage. The loan was due and payable on February 10, 1999, and was subsequently renewed four times. On July 30, 2000, the spouses borrowed P400,000.00 from Roma Fe C. Villalon (Villalon), using the same property to secure the loan, which was also used as collateral for the loan with RBAI. The spouses also obtained additional loans from RBAI, again using the same property as security.

Both RBAI and Villalon initiated extrajudicial foreclosure proceedings. Villalon conducted a foreclosure sale on June 26, 2002, where she emerged as the highest bidder. RBAI, on the other hand, conducted its foreclosure sale on June 16, 2004, where it was able to secure the highest bid. RBAI paid the necessary fees but was not issued the Certificate of Absolute Deed of Sale. Villalon, however, was issued a Certificate of Absolute Definitive Sale on August 6, 2007.

Upon discovering this, RBAI filed a complaint against Villalon and the spouses for recovery of the sum of money and damages. The Regional Trial Court (RTC) dismissed the complaint against Villalon but ordered the spouses to pay RBAI. RBAI appealed to the Court of Appeals (CA), which reversed the RTC's decision and held that RBAI has a cause of action against Villalon as a superior lienholder.

ISSUES:

A) Whether RBAI's mortgage, despite being registered later than Villalon's foreclosure, should prevail as the first mortgage.

B) Whether Villalon should pay RBAI the bid price, plus interest and assessments or taxes.

C) Whether Villalon's claim of good faith should affect the outcome.

RULING:

A) The Supreme Court held that RBAI's mortgage, constituted and registered earlier than Villalon's, should be preferred. Thus, RBAI's mortgage has a superior lien.

B) Villalon must redeem the property by paying RBAI the bid price of P341,830.94, plus interest of 1% per month, and any taxes or assessments paid by RBAI, with the same interest rate.

C) Villalon cannot claim good faith, as RBAI's lien was already registered when Villalon entered her mortgage. Registration provides constructive notice to the whole world.

PRINCIPLES:

  • Priority of Mortgage Registration A first mortgage created and registered earlier has superior lien over subsequent mortgages, even if the latter were foreclosed earlier.

  • Redemption Rights Subsequent lienholders can only acquire full rights by redeeming the property from the first mortgagee by paying off the bid price, interest, and any assessments or taxes.

  • Constructive Notice Registration of a mortgage or lien serves as notice to the whole world, making subsequent mortgagees aware of prior liens and subject to their precedence.

  • Good Faith in Registration Claiming good faith does not defeat the rights of a prior registered lienholder.