G.R. No.

130722
SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE HOUSE
AUTO SUPPLY, INC.,petitioners, 
vs.
L & R CORPORATION, VICENTE M. COLOYAN in his capacity as Acting Registrar of the
Register of Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA, respondents.

Facts:  Spouses Litonjua obtained loans rom L & R Corporation in the aggregate sum of
P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining
P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by
the spouses upon their two parcels of land and the improvements thereon located in Cubao,
Quezon City covered by Transfer Certificates of Title No. 197232 and 197233, with an area of
599 and 1,436 square meters, respectively. The mortgage was duly registered with the Register
of Deeds of Quezon City.
On July 14, 1979, the spouses 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 was annotated at the back of the respective certificates of title of the
properties. 
The spouses Litonjua defaulted in the payment of their loans, L & R Corporation initiated
extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. the mortgaged
properties were sold at public auction to L & R Corporation as the only bidder for the amount of
P221,624.58.
When L & R Corporation presented its corresponding Certificate of Sale issued by
Deputy Sheriff Roberto B. Garcia, to the Quezon City Register of Deeds for registration on
August 15, 1980, it learned for the first time of the prior sale of the properties made by the
spouses Litonjua to PWHAS upon seeing the inscription at the back of the certificates of title.
Thus, on August 20, 1980, it wrote a letter to the Register of Deeds of Quezon City requesting
for the cancellation of the annotation regarding the sale to PWHAS. L & R Corporation invoked
a provision in its mortgage contract with the spouses Litonjua stating that the mortgagee's prior
written consent was necessary in case of subsequent encumbrance or alienation of the subject
properties. it argued that since the sale to PWHAS was made without its prior written consent,
the same should not have been registered and/or annotated.
Seven months after the foreclosure sale, PWHAS, for the account of the spouses
Litonjua, tendered payment of the full redemption price to L & R Corporation in the amount of
P238,468.04. L & R Corporation refused to accept the payment. Hence, PWHAS was compelled
to redeem the mortgaged properties through the Ex-Oficio Sheriff of Quezon City. Accordingly,
the Deputy Sheriff issued a Certificate of Redemption in favor of the spouses Litonjua.
The spouses Litonjua asked the Register of Deeds to annotate their Certificate of
Redemption as an adverse claim on the titles of the subject properties on account of the refusal of
L & R Corporation to surrender the owner's duplicate copies of the titles to the subject
properties. With the refusal of the Register of Deeds to annotate their Certificate of Redemption,
the Litonjua spouses filed a Petition against L & R Corporation for the surrender of the owner's
duplicate of Transfer Certificates of Title No. 197232 and 197233.
 While the said case was pending, L & R Corporation executed an Affidavit of
Consolidation of Ownership. The 2 TCT was cancelled and L & R was issued TCT No. 280054
and 28055. L & R Corporation advised the tenants of the apartments situated in the subject
parcels of land that being the new owner, the rental payments should be made to them, and that
new lease contracts will be executed with interested tenants before the end of August, 1981.
Upon learning of this incident from their tenants, the spouses Litonjua filed an adverse
claim and a notice of lis pendens with the Register of Deeds. A complaint for Quieting of Title,
Annulment of Title and Damages with preliminary injunction was filed by the spouses Litonjua
and PWHAS against herein respondents. RTC dismissed the complaint upon its finding that the
sale between the spouses Litonjua and PWHAS was null and void and unenforceable against L &
R Corporation and that the redemption made was also null and void.
On appeal, the decision of the trial court was set aside by the Court of Appeals on the
ground that the sale made to PWHAS as well as the redemption effected by the spouses Litonjua
were valid. However, the same was subsequently reconsidered and set aside in an Amended
Decision dated September 11, 1997. Hence, this petition.

Issues: 1. whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and
enforceable;
2. whether or not the sale of the mortgaged properties by the spouses Litonjua to
PWHAS, without the knowledge and consent of L & R Corporation, is valid and enforceable.
3. whether or not PWHAS had the right to redeem the foreclosed properties on the
account of the spouses Litonjua.
4. whether or not there was a valid redemption.

Held:
1 and 2. Paragraphs 8 and 9 of the subject Deed of Real Estate Mortgage read as follows —
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;
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; 

We are fully in accord with the pronouncement therein that such a stipulation violates
Article 2130 of the New Civil Code. the provision does not absolutely prohibit the mortgagor
from selling his mortgaged property; but what it does not outrightly prohibit, it nevertheless
achieves. 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. In other words, stipulations like those covered by
paragraph 8 of the subject Deed of Real Estate Mortgage circumvent the law,
specifically, Article 2130 of the New Civil Code. Stipulations "forbidding the owner from
alienating the immovable mortgaged" are expressly declared void by law (Art. 2130, Civil
Code). (Tambunting vs. Rehabilitation Finance Corp.)
 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, they 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.
We agree with the Amended Decision of the Court of Appeals that the sale made to
PWHAS is rescissible. PWHAS is presumed to have been notified thereof by registration, which
equates to notice to the whole world.
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 the spouses Litonjua to PWHAS,
notwithstanding the lack of prior written consent of L & R Corporation, is valid.

3  The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid.
Therefore, PWHAS stepped into the shoes of the spouses Litonjua on account of such sale and
was in effect, their successor-in-interest.
The right of PWHAS to redeem the subject properties 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 such a
successor-in-interest of the spouses Litonjua.

4. It is clear from the records that PWHAS offered to redeem the subject properties seven
(7) months after the date of registration of the foreclosure sale, well within the one year period of
redemption.

To recapitulate: the sale between the spouses 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 spouses Litonjua, within the one-year period should have been
accepted as valid by the 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.
The Decision appealed from is hereby AFFIRMED with the following
MODIFICATIONS:
(a) Ordering the rescission of the sale of the mortgaged properties
between  petitionersspouses Reynaldo and Erlinda Litonjua and Philippine White House Auto
Supply, Inc. and ordering said spouses to return to Philippine White House Auto Supply, Inc. the
purchase price of P430,000.00;
(c) Disallowing, due to the rescission of the sale made in its favor, the redemption made
by Philippine White House Auto Supply, Inc. and ordering Quezon City Sheriff Roberto Garcia
to return to it the "redemption" check of P240,798.94;
(d) Allowing respondent L & R Corporation to retain its consolidated titles to the
foreclosed properties but ordering it to pay to the Litonjua spouses the additional sum of
P189,201.96 representing the difference from the purchase price of P430,000.00 in the rescinded
sale;