G.R. No. L-26371 September 30, 1969
MOBIL OIL PHILIPPINES, INC., plaintiff-appellant, vs. RUTH R. DIOCARES, ET AL., defendants-appellees.

FACTS

Plaintiff-appellant Mobil Oil Philippines, Inc. extended a loan of P45,000.00 to defendants-appellees Ruth R. Diocares and Lope T. Diocares. To secure the loan, the defendants executed a real estate mortgage on two parcels of land. The loan agreement provided for repayment in monthly installments and required the defendants to purchase a minimum amount of petroleum products monthly from the plaintiff. The defendants defaulted on their payments and failed to meet the minimum purchase requirement. Plaintiff filed a complaint seeking payment of the unpaid balance and foreclosure of the mortgage. The defendants admitted the material allegations in the complaint. The lower court granted plaintiff’s motion for judgment on the pleadings and ordered the defendants to pay the debt. However, the lower court refused to order the foreclosure of the mortgaged properties because the mortgage contract, although binding between the parties, was not registered in the Registry of Property. The lower court held that the unregistered document created only a personal obligation and did not establish a valid real estate mortgage under Article 2125 of the Civil Code.

ISSUE

Whether an unregistered real estate mortgage is valid and enforceable between the parties, such that foreclosure may be ordered.

RULING

Yes. The Supreme Court reversed the lower court’s decision. Article 2125 of the New Civil Code explicitly states: “In order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.” The law is clear and unambiguous. While registration is indispensable for the mortgage to be validly constituted as against third parties, the mortgage remains binding and enforceable between the contracting parties even without such registration. The lower court erred in holding that the unregistered mortgage created only a personal obligation and not a real estate mortgage. To deny foreclosure between the parties for lack of registration would render the second sentence of Article 2125 nugatory and frustrate legislative intent. Equity and justice demand that the promise embodied in the contract be upheld. Therefore, the mortgage subsists between the parties, and foreclosure is proper. The Supreme Court modified the lower court’s order to include the foreclosure of the mortgaged properties in case of default in payment.