Prudential Bank vs Panis 153 SCRA 390

Facts:
Spouses Magcale secured a loan from Prudential Bank secured by a Real Estate Mortgage (REM) which is
a residential building with a right of occupancy on the lot. The lot is still under Tax Declaration in the
name of Fernando Magcale. This building is the only improvement on the lot. The loan amount was
P70,000. Prudential Bank was aware that the mortgagors has already filed a Miscellaneous Sales
Application over the lot. The mortgage documents has a stipulation that “in the event the Sales Patent
on the lot is released, the Mortgagors authorized the Register of Deeds to hold the registration until the
mortgage is cancelled, or to annotate the encumbrance on the Title and shall be released in favor of the
mortgage.

On April 24, 1973, the Miscellaneous Sales Patent No. 4776 was issued by the Secretary of Agriculture
over the parcel of land and on May 2, 1973, the plaintiffs secured an additional loan of P20,000, secured
by the same REM. Spouses Magcale failed to pay for the loan and the property was extra-judicially
foreclosed by Prudential Bank and was opened for public auction to the highest bidder. The City Sheriff
still held the auction despite of the written request for the City Sheriff to desist from going with the
scheduled public auction.

Issue:
W/N a real estate mortgage can be instituted on the building of a land that belong to another.

Ruling:
Yes. It is true that a mortgage of land includes all the improvements therein, in the absence of a
stipulation, but for buildings, it can be mortgaged apart from the land on which it was built. It is still
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 it is evident that the mortgage executed
on the building was a valid mortgage. The second mortgage was null and void since it falls under the
prohibition of Sec 121, 122 and 124 of the Public Land Act and Sec 2 of R.A 730