PRUDENTIAL BANK v PANIS NATURE: Petition for review on certiorari of CFI of Zambales and Olongapo City (Panis) declaring

that the deeds of real estate mortgage executed by respondent spouses (Magcale) in favor of petitioner bank are null and void. FACTS: 1. In 1971, plaintiffs-spouses Fernando & Teodula Magcale secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To secure payment, spouses executed in favor of bank a deed of Real Estate Mortgage over the following properties: a. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spacesdeclared and assessed in the name of FERNANDO MAGCALEissued by the Assessor of Olongapo with an assessed value of P35,290.00. This building is the only improvement of the lot. b. 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 (Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajacwith an assessed value of P1,860.00 Apart from the stipulations in the deed, there appears a rider typed at the bottom of the reverse side which reads, as follows: a. In the event the Sales Patent on the lot applied for by the Mortgagors is released or issued by the Bureau of Lands, the Mortgagors 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 stipulation, it is obvious that the mortgagee ( Bank) was aware of the fact that the mortgagors (spouses) already filed a Miscellaneous Sales Application over the lot, possessory rights over which, were mortgaged to it. a. Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of Deeds of Zambales Spouses secured an additional loan from Prudential Bank in the sum of P20,000.00. To secure payment of this additional loan, they executed another deed of Real Estate Mortgage over the same properties previously mortgaged in Exhibit "A." This second deed of Real Estate Mortgage was likewise registered with the Registry of Deeds, this time in Olongapo City. The Secretary of Agriculture issued Miscellaneous Sales Patent 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 was issued in the name of Plaintiff Fernando Magcale, For failure of plaintiffs to pay, 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 for the defendant City Sheriff to desist from going with the scheduled public auction sale (Exhibit "D")." The issue was raised to the CF Zambales and Olongapo City which declared the deeds of Real Estate Mortgage as null and void.

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ISSUE: 1. 2. 3. WON a valid real estate mortgage can be constituted on the building erected on the land belonging to another - YES st nd WON the deeds of real estate mortgage are valid YES as to 1 debt (Held 3) & NO as to 2 (Held 5) WON the supervening issuance in favor of private respondents of miscellaneous sales patent on April 24, 1972 and the covering original certificate of title on May 15,1972 have the effect of invalidating the deeds NO

HELD: 1. Building separate and distinct from the land. In the enumeration under Article 415 of the Civil Code, 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." Building can be mortgaged apart from the land it is built; possessory rights may be validly transferred in a deed of mortgage. 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. A valid real estate mortgage may be constituted on the building erected on the land belonging to another. Case at bar, the records show that the original mortgage deed on the 2-storey residential building was executed on November 19, 1971 and registered with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent on the land was issued on April 24, 1972, on the basis of which OCT was issued in the name of 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. It is evident that the mortgage executed by private respondent on his own building was erected on the land belonging to the government is to all intents and purposes a valid mortgage. As to restrictions expressly mentioned in Magcales OCT: 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 no application because it refers specifically to encumbrance or alienation on the land itself and does not mention anything regarding the improvements existing thereon.

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Mortgage made after issuance of Sales Patent an OCT prohibited; Estoppel does not give validating effect to a void contract But it is a different matter, as regards the 2nd mortgage executed over the same properties for an additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City on the same date. 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. Even if the title was voluntary surrendered to the bank for the mortgage to be annotated without the prior approval of the Ministry of Natural Resources; 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; Arsenal vs. IAC, 143 SCRA 54 [1986]). Such does not, however, preclude new contracts that may be entered into in accordance with the requirements of the law. Any new transaction, however, would be subject to whatever steps the Government may take for the reversion of the land in its favor.

DISPOSITIVE: Decision of the CFI of Zambales & Olongapo City is 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.