1. MORTGAGE, ACTION TO FORECLOSE; PRIOR LIENS. — In an action to foreclose a mortgage, and in a sale of the property covered by said mortgage, the sale of the property mortgaged must be made subject to the prior liens existing thereon.

2. REGISTRATION OF LAND; EFFECT UPON RIGHTS OF MINORS. — By virtue of section 38 of Act No. 496, the registration of land under the Torrens system will defeat even the rights of minors, after the expiration of one year.

The purpose of the present action is to foreclose a certain mortgage executed by the said Gochuico & Company on the 28th of February, 1913, in favor of the plaintiff, for the sum of P125,000, attorneys’ fees, and the costs of the action.

From an examination of the record, the following facts appear to be undisputed:chanrob1es virtual 1aw library

First. That the land in question formerly belonged to Buenaventura Gochuico; that Buenaventura Gochuico died, the date of his death not appearing of record; that his estate was duly administered in the probate court of the city of Manila; that said probate proceedings were finally closed, as is clearly shown by record No. 2770 of the probate court of the city of Manila; that Manuel Gochuico and Francisco Gochuico were the minor children of the said Buenaventura Gochuico, and were still minors at the time said probate proceedings, the said minors were represented by Melecio Saludes, their guardian, who had been duly appointed by said court; that during the pendency of said probate proceedings, in the settlement of the estate of Buenaventura Gochuico, by virtue of an agreement between all of the heirs of Buenaventura Gochuico, which agreement was duly approved by the court, a mercantile association was duly organized and registered under the name and style of "Gochuico & Company;" that said mercantile company was organized for the purpose of effecting a division of the estate of the said Buenaventura Gochuico among his heirs; that the land in question constituted the principal capital of said mercantile association; that later, on the 27th of September, 1912, the said land was duly registered in the Court of Land Registration, in the name of said mercantile association, "Gochuico & Company;" that said registration was made subject to certain incumbrances then existing against said land, including —

(a) A mortgage for the sum of P110,000, in favor of Mariano Velasco & Co. and against Gochuico & Co.; and

(b) A leasehold interest in favor of the Alhambra Cigar and Cigarette Manufacturing Company.

Said mortgage for the sum of P110,000 was dated the 1st of July, 1912. The said contract of lease in favor of the Alhambra Cigar and Cigarette Manufacturing Company was executed and delivered on the 14th of August, 1912.

Second. That the mortgage upon which the present action is based was executed and delivered by Gochuico & Co. in favor of Mariano Velasco & Co., on the 28th of February, 1913, and became effective upon the 1st day of March, 1913; that said mortgage was due and payable on the 1st of March, 1917. Said mortgage contained a provision to the effect that if there should be a default in any of the monthly payments of interest, then and in that case, the whole amount of the principal and interest should immediately become due and payable.

Third. That in said mortgage of the 28th of February, 1913, there is no reference to the mortgage of July 1st, 1912 for the sum of P110,000, which mortgage is noted in the certificate of title issued to the defendant, Gochuico & Co., on the 27th of September, 1912. The mortgage of the 28th of February, 1913, was duly indorsed on said certificate issued to the said defendant on the 1st of March, 1913.

Fourth. That the said contract of lease in favor of the defendant, the Alhambra Cigar and Cigarette Manufacturing Company, was dated the 14th of August, 1912.

Fifth. That the contract of lease between the Alhambra Cigar and Cigarette Manufacturing Company and Gochuico & Company contains a provision that:jgc:chanrobles.com.ph

"The lessee expressly obligates itself to maintain the lessor company in the free use and disposition of the property rented, for the term stipulated, guaranteeing this even in case the ownership of the property shall be transferred to another."cralaw virtua1aw library

That contract, with said provision, was duly registered, and the plaintiff had full knowledge of its contents and provisions when it accepted the mortgage of th 28th of February, 1913. The plaintiff having full knowledge of the conditions of said contract of lease at the time it accepted its mortgage, it is, of course, bound thereby. At the time of the argument there was some intimation that the mortgage of the 28th of February, 1913, was a renewal of the mortgage of July 1, 1912. If that fact were true, it would have an important bearing upon the question which we are now discussing, for the reason that the mortgage of July 1, 1912, antedated the contract of lease above, in its date of registration. There is nothing in the record, however, which sustains that intimation. Upon this branch of the case, we are of the opinion, and so hold, inasmuch as the mortgage upon which the present case is based, was executed and delivered subject to the contract of lease, and subject to the conditions therein mentioned, above quoted, that when the property is sold for the purpose of paying said mortgage indebtedness, it must be sold subject to the rights of the Alhambra Cigar and Cigarette Manufacturing Company, as defined in its contract of lease of August 14, 1912.

With reference to the claim of the appellants Manual Gochuico and Francisco Gochuico, the record shows that they gave their consent, through their guardian, with the approval of the probate court, to allow their interest in the property in question to become the capital of the sociedad, Gochuico & Co.; that later, without objection of any kind or character, they permitted the land in question to be registered under the Torrens system, on the 27th of September, 1912. By reason of the lapse of time and by reason of the fact that third persons have acquired an interest in said property, relying upon registration under the Torrens system, we are of the opinion and so hold, that they have now lost their right to claim an interest in the land in question. (Sec. 38, Act No. 496.) This conclusion does not necessarily preclude an action for damaged against the other coheirs, if any basis therefor exists.

We deem it unnecessary to discuss the other questions raised by the appellants Manual and Francisco Gochuico, for the reason that they are fully discussed by the lower court in its very excellent opinion. The judgment of the lower court as to them is therefore hereby affirmed.

Without a further discussion of the questions presented the judgment of the lower court is hereby modified, as herein above indicated, and it is hereby ordered and decreed that the judgment of the lower court ordering the sale of the land in question be affirmed, subject to the condition that said sale shall be made subject to the leasehold interest of the Alhambra Cigar and Cigarette Manufacturing company as indicated in its contract of lease of the 14th of August, 1912, and without any findings as to costs. It is so ordered.

Torres, Carson, and Trent, JJ., concur.



MORELAND, J., concurring:chanrob1es virtual 1aw library

I agree to the result

Arellano, C.J., dissents.