237 Phil.

380

FIRST DIVISION
[ G.R. No. 50008. August 31, 1987 ]
PRUDENTIAL BANK, PETITIONER, VS. HONORABLE DOMINGO D. PANIS,
PRESIDING JUDGE OF BRANCH III, COURT OF FIRST INSTANCE OF
ZAMBALES AND OLONGAPO CITY; FERNANDO MAGCALE & TEODULA
BALUYUT-MAGCALE, RESPONDENTS.
DECISION

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision* of the then Court of First
Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale
and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of
real estate mortgage executed by respondent spouses in favor of petitioner bank are null and void.

The undisputed facts of this case by stipulation of the parties are as follows:

"x x x on November 19, 1971, plain­tiffs-spouses Fernando A. Magcale and Teodula Baluyut
Magcale secured a loan in the sum of P70,000.00 from the defend­ant Prudential Bank. To
secure payment of this loan, plaintiffs executed in favor of 'defendant on the aforesaid date a
deed of Real Estate Mortgage over the following described properties:

'1. A 2-STOREY, SEMI-CONCRETE, residential building with ware­house spaces containing a total
floor area of 263 sq. meters, more or less, generally constructed of mixed hard wood and concrete materials,
under a roofing of cor. g. i. sheets; declared and assessed in the name of FERNANDO MAGCALE under
Tax Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed value of P35,290.00.
This building is the only improvement on the lot.

'2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the
lot where the above property is erected, and more parti­cularly described and bounded, as follows:

'A first class residential land identified as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin
Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m., more or less; declared and
assessed in the name of FERNANDO MAGCALE under Tax Declaration No. 19595 issued by the Assessor
of Olong­apo City with an assessed value of P1,860.00; bounded on the

NORTH : By No. 6, Ardoin Street

SOUTH : By No. 2, Ardoin Street

EAST : By 37 Canda Street and

WEST : By Ardoin Street.'

All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as visible limits.'
(Exhibit "A", also Exhibit "1" for defendant).
 Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there
appears a rider typed at the bottom of the reverse side of the document under the lists of the
proper­ties mortgaged which reads, as follows:

'AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the Mortgagors
as herein stated is released or issued by the Bureau of Lands, the Mortgagors hereby authorize the Register
of Deeds to hold the Registration of same until this Mortgage is cancelled, or to anno­tate this encumbrance
on the Title upon authority from the Secretary of Agriculture and Natural Resources, which title with
annotation, shall be released in favor of the herein Mortgage.'

From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank)
was at the outset aware of the fact that the mortgagors (plain­tiffs) have already filed a
Miscellaneous Sales Application over the lot, possessory rights over which, were mortgaged to
it.

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the
Registry of Deeds of Zambales on November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from defendant Pruden­tial Bank in the
Sum of P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of
the said defendant another deed of Real Estate Mortgage over the same properties pre­viously
mortgaged in Exhibit "A". (Exhibit "B"; also Exhibit "2" for defendant). This second deed of
real Estate Mortgage was likewise registered with the Registry of Deeds, this time in Olongapo
City, on May 2, 1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over
the parcel of land, possessory rights over which were mortgaged to defendant Prudential Bank,
in favor of plaintiffs. On the basis of the aforesaid Patent, and upon its transcrip­tion in the
Registration Book of the Province of Zambales, Original Certificate of Title No. P-2554 was
issued in the name of Plaintiff Fernando Magcale, by the Ex­-Oficio Register of Deeds of
Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were
extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties therein
mortgaged to defend­ant as the highest bidder in a public auction sale conducted by the defendant
City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plain­tiffs through counsel, dated March 29, 1978, for the defendant City Sheriff to
desist from going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case
No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage as
null and void (Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by private
respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979 (Ibid., p. 63), the
Motion for Reconsideration was denied for lack of merit. Hence, the instant petition (Ibid., pp. 5-28).

The First Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents to
comment (Ibid., p. 65), which order was complied with the Resolution dated May 18, 1979, (Ibid., p. 100),
petitioner filed its Reply on June 2, 1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties were
required to submit simultaneously their respect­ive memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its Memoran­dum (Ibid., pp. 116-144), while private respondents filed
their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., p. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE

RESPONDENTS OF MIS­CELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972
UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-
2554 ON MAY 15, 1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL
ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.

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". (Lopez vs. Orosa, Jr., et al., L-
10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30, 1958).

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 (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644). 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 (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).

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, 1872, 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 regis­‐
tration in the Office of the Register of Deeds (Visa­yan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands
vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena, "Law on Natural
Resources, p. 49). 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 mortgage 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:

"x x x 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 seeks to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino,
supra). x x x." (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon an 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.

Teehankee, C.J., Narvasa, Cruz, and Gancayco, JJ., concur.

* Penned by Judge Domingo D. Panis.

Source: Supreme Court E-Library | Date created: November 14, 2014

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