Litonjua V. L&R Corporation

Litonjua obtained loans from L&R Corporation secured by a mortgage. Without knowledge of L&R, Litonjua sold to PWHAS the parcels of land they had previously mortgaged to L & R Corporation. When Litonjua defaulted in the payment of their loans, L & R Corporation initiated extrajudicial foreclosure proceedings and L & R Corporation was the only bidder. When L & R Corporation presented its corresponding Certificate of Sale for registration, it learned of the prior sale of the properties made by the Litonjua to PWHAS upon seeing the inscription at the back of the certificates of title. 7 months after the foreclosure sale, PWHAS, for the account of Litonjua tendered payment of the full redemption price to L & R. The latter, however, refused to accept the payment, hence, PWHAS was compelled to redeem the mortgaged properties through the Sheriff. A Certificate of Redemption was issued in favor of Litonjua. L & R Corporation challenges the decision of the court.

Issues:

1) W/N a stipulation prohibiting sale of mortgaged property without prior written consent of mortgagee is a valid and enforeceable

2) W/N the redemption of a vendee of the mortgaged property is valid

3) W/n stipulation granting the mortgagee the right of first refusal is valid and enforceable Held:

1)Stipulation Violating Article 2130 of the New Civil Code. Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon the parties. Accordingly, the sale made by Litonjua to PWHAS, notwithstanding the lack of prior written consent of L & R Corporation, is valid. Such a stipulation violates Article 2130; it attempts to circumvates the said provision which states that “a stipulation forbidding the owner from alienating the immovable mortgaged shall be void.”

2) Redemption by Vendee is Valid (Act 3135). The sale by Litonjua of the mortgaged properties to PWHAS is valid. Therefore, PWHAS stepped into the shoes of Litonjua on account of such sale and was in effect, their successor-in-interest. As such, it had the right to redeem the property foreclosed by L & R Corporation. This finds support in Section 6 of Act 3135 itself which gives not only the mortgagor-debtor the right to redeem, but also his successors-in-interest. As vendee of the subject properties, PWHAS qualifies as a successor-in-interest of the Litonjua.

3)Stipulation On Right of First Refusal is Valid. The right of first refusal has long been recognized as valid. 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 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 mortgagor had every right to sell their mortgaged property to a buyer without securing the prior written consent of mortgagee, it had the obligation under paragraph 9(stipulation regarding right of first refusal, 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 the mortgagee to exercise its right of first refusal could the mortgagor validly sell the mortaged properties to others, under the same terms and conditions offered to the mortgagee.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world. That L&R did not duly exercised its right of first refusal at the opportune time cannot be taken against it, precisely because it was not notified by the Litonjua of their intention to sell the subject property and thereby, to give it priority over other buyers.

Effect of Depriving the Mortgagee of Right of First Refusal: Rescission Of the Sale Made to Other Buyers All things considered, what then are the relative rights and obligations of the parties? To recapitulate:, the sale between the Litonjua and PWHAS is valid, notwithstanding the absence of L & R Corporation's prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of the Litonjua, within the one-year period should have been accepted as valid by L & R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L & R Corporation's right of first refusal.