Case Digest: Prudential Bank v. Panis, G.R. No. 50008, Aug 31, 1988

Property | Immovable Property, Building

Facts:  

• In 1971, Spouses Fernando and Teodula Magcale obtained a loan of P70,000 from Prudential Bank, secured with a deed of Real Estate Mortgage over a residential building and land.
• The mortgage included a rider stating that if a Sales Patent was issued for the mortgaged lot, the Register of Deeds could hold registration until the mortgage was canceled or annotate the encumbrance on the title.
• In 1973, The spouses obtained a second loan of P20,000, using the same properties as collateral. A second mortgage deed was executed and registered.
• The Secretary of Agriculture issued Miscellaneous Sales Patent over the mortgaged lot, leading to the issuance of Original Certificate of Title to Fernando Magcale on May 15, 1972.
• Due to non-payment of the loans, the mortgages were foreclosed, and the properties were sold to Prudential Bank in a public auction.
• CFI-Zambales: Declared the deeds of real estate mortgage null and void.

Issue: 

• Whether a valid real estate mortgage can be constituted on the building erected on the land belonging to another. YES

Held:

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision of law can only mean that a building is by itself an immovable property." 

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built. Such a mortgage would be still a real estate mortgage for the building would still be considered immovable property even if dealt with separately and apart from the land. In the same manner, this Court has also established that possessory rights over said properties before title is vested on the grantee, may be validly transferred or conveyed as in a deed of mortgage.

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot where the building was erected, was executed on November 19, 1971 and registered under the provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. 

Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage was executed before the issuance of the final patent and before the government was divested of its title to the land, an event which takes effect only on the issuance of the sales patent and its subsequent registration in the Office of the Register of Deeds. Under the foregoing considerations, it is evident that the mortgage executed by private respondent on his own building which was erected on the land belonging to the government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land Act, or any improvement thereon and therefore have no application to the assailed mortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on the face of private respondent's title has likewise no application in the instant case, despite its reference to encumbrance or alienation before the patent is issued because it refers specifically to encumbrance or alienation on the land itself and does not mention anything regarding the improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties on May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is evident that such mortgage executed after the issuance of the sales patent and of the Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years, voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated, without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120, 122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be invoked to defeat the policy of the State neither may the doctrine of estoppel give a validating effect to a void contract. Indeed, it is generally considered that as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon any new contract between the parties (Ibid), as in the case at bar. It should not preclude new contracts that may be entered into between petitioner bank and private respondents that are in accordance with the requirements of the law. After all, private respondents themselves declare that they are not denying the legitimacy of their debts and appear to be open to new negotiations under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void, without prejudice to any appropriate action the Government may take against private respondents.

SO ORDERED.