8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

390 SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Panis

*
No. L-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.

Civil Law; Mortgages; Property; Under Art 415, Civil Code,

the inclusion of a building separate and distinct from the land
means that a building is by itself an immovable property.—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. lya, et al.,
L-10837-38, May 30, 1958).
Same; Same; Same; While a mortgage of land necessarily
includes buildings, a building by itself may be mortgaged apart
from the land on which it has been built; Mortgage is still a real
estate mortgage for the building would still be considered
immovable property even if dealt with separately from the land;
Possessory rights over property before title is vested on the grantee
may be validly transferred as in a deed of mortgage.—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

_______________

* FIRST DIVISION.

391

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 1/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

VOL. 153, AUGUST 31, 1987 391

Prudential Bank vs. Panis

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]).
Same; Same; Same; Same; A mortgage executed by a private
respondent on his own building erected on the land belonging to
the government is a valid mortgage; The original mortgage was
executed before the issuance of the final patent and before the
government was divested of its title to the land.—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 (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; Peña, "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.
Same; Same; Same; Same; Restrictions expressly mentioned
on the face of the respondents' title, are valid, as under the Public
Land Act what are referred to are lands or any improvements
thereon, and have no application to the assailed mortgage which
was executed before such eventuality; Case at bar.—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

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 2/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

executed before such eventuality. Likewise, Section 2 of Republic

Act No. 730, also a restriction

392

392 SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Panis

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.
Same; Same; Same; Same; A mortgage executed after the
issuance of the sales patent and of the original certificate of title
falls squarely under the prohibition of the Public Land Act and
Republic Act 730, and is null and void.—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.
Same; Same; Same; Same; 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.—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: "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

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 3/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

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]).

PETITION for certiorari to review the decision of the Court

of First Instance of Zambales and Olongapo City, Br. III.
Panis, J.

393

VOL. 153, AUGUST 31, 1987 393

Prudential Bank vs. Panis

The facts are stated in the opinion of the Court.

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 of 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:

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 4/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

'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

_____________

** Penned by Judge Domingo D. Panis.

394

394 SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Panis

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 P 20,000.00. To secure
payment of this additional loan, plaintiffs executed in favor of the
said defendant another deed of Real Estate Mortgage over the
www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 5/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

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,

395

VOL. 153, AUGUST 31, 1987 395

Prudential Bank vs. Panis

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

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 6/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

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:

396

396 SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Panis

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. lya, 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
www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 7/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

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
semiconcrete 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 pro-
397

VOL. 153, AUGUST 81. 1987 397

Prudential Bank vs. Panis

visions 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 (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; Peña, "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.
www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 8/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

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.

398

398 SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Panis

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:

"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 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-

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 9/10
8/20/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 153

96). Any new transaction, however, would be subject to

whatever steps the Government may take for the reversion
of the land in its f avor.
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 P 70,000.00 is valid but ruling that the Deed
of Real Estate Mortgage for an additional loan of P
20,000.00 is null and void, without prejudice to any
appropriate action the Government may take against
private respondents.
399

VOL. 153, AUGUST 31, 1987 399

Antipolo Realty Corp. vs. National Housing Authority

SO ORDERED.

     Teehankee (C.J.), Narvasa, Cruz and Gancayco, JJ.,

concur.

Decision modified.

Notes.—As it is an essential requisite for the validity of

a mortgage that the mortgagor be the absolute owner of the
thing mortgaged, and it appearing that the mortgage was
constituted before the issuance of the patent to the
mortgagor, the mortgage in question is void and ineffective.
(Vda. de Bautista vs. Marcos, 3 SCRA 434.)
Where several things are pledged or mortgaged, each
thing for a determinate portion of the debt, the pledges or
mortgages are considered separate from each other. (Dayrit
vs. Court of Appeals, 36 SCRA 548.)

——o0o——

© Copyright 2020 Central Book Supply, Inc. All rights reserved.

www.central.com.ph/sfsreader/session/000001740b2dd8f5fa5062be003600fb002c009e/t/?o=False 10/10