Title Prudential Bank vs.

Panis, 153 SCRA 390, 31 August 1987

Ponente PARAS, J.

Doctrine
Facts Spouses Magcale secured a loan from Prudential Bank. To secure payment, they executed
a real estate mortgage over a residential building. The mortgage also included the right to
occupy the lot and the information about the sales patent applied for by the spouses for
the lot to which the building stood. After securing the first loan, the spouses secured
another from the same bank. To secure payment, another real estate mortgage was
executed over the same properties.

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land which
was later\on mortgaged to the bank.

The spouses then failed to pay for the loan and the REM was extrajudicially foreclosed and
sold in public auction despite opposition from the spouses. The respondent court held that
the REM was null and void.

Contentions Petitioner Respondent

Lower Court Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real
Estate Mortgage as null and void.
Issue W/N real estate mortgage can be instituted on the building of a land belonging to another

SC Ruling YES.

A real estate mortgage can be constituted on the building erected on the land belonging
to another.

The inclusion of building distinct and separate from the land in the Civil Code can
only mean that the building itself is an immovable property.While it is true that a mortgage
of land necessarily includes in the absence of stipulation of the improvements thereon,
buildings, still a building in itself may be mortgaged by itself apart from the land on
which it is built. Such a mortgage would still be considered as a REM for the building
would still be considered as immovable property even if dealt with separately and apart
from the land.

The original mortgage on the building and right to occupancy of the land was executed
before the issuance of the sales patent and before the government was divested
of title to the land. Under the foregoing, it is evident that the mortgage executed
by private respondent on his own building was a valid mortgage.

As to the second mortgage, it was done after the sales patent was issued and thus
prohibits pertinent provisions of the Public Land Act.

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.