Digest Author: Alyssa Rodriguez

Prudential Bank v Panis (1987)

Petition: Petition for Review on Certiorari
Petitioner: Prudential Bank
Respondent: Judge Domingo Panis, CFI of Zambales and Olongapo City,
AND Fernando Magcale & Teodula Baluyut-Magcale
Ponencia: Paras, J.


DOCTRINE: A building by itself may be mortgaged apart from the land on
which it has been built.

FACTS:

1. The Magcales secured a P70,000 loan from the Prudential Bank. As
security, they executed a Real Estate Mortgage (REM) over a two-
storey, semi-concrete, residential building

2. Along with this, the spouses included the information about the
Miscellaneous Sales Patent (sales patent) applied for by them for the lot
on which the said building stood. This first mortgage was registered
under the Registry of Deeds of Zambales.

*** What is a Miscellaneous Sales Patent?
RA 730 permits the sale of alienable and disposable lands of the public
domain for residential purposes without public auction. This application to
purchase the land is called the Miscellaneous Sales Application and the
corresponding patent is called the Miscellaneous Sales Patent.

3. The sales patent was then issued by the Secretary of Agriculture over
the parcel of land, possessory rights over which were mortgaged to
Prudential Bank, in favor or plaintiffs.

4. The spouses thenafter secured a second loan of P20,000 from the
Prudential Bank and mortgaged the same property. This was registered
in the Registry of Deeds of Olonggapo.

5. For failure to pay, Prudential Bank moved to foreclose the mortgaged
property.

6. The lower court ruled that the deeds of REM were null and void.





ISSUES:
1. W/N a valid REM can be constituted on the building erected on the
land belonging to another.
2. W/N, in connection with the Public Land Act (the law dealing with
sales patents), the first and second mortgages were vaild

PROVISION:
Public Land Act
Sec. 118. Except in favor of the Government or any of its branches,
units or institutions, or legally constituted banking corporations, lands
acquired under free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application
and for a term of five years from and after the date of issuance of the patent
or grant nor shall they become liable to the satisfaction of any debt
contracted prior to the expiration of said period; but the improvements or
crops on the land may be mortgaged or pledged to qualified persons,
associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and
before twenty-five years after issuance of title shall be valid without the
approval of the Secretary of Agriculture and Natural Resources, which
approval shall not be denied except on constitutional and legal grounds.

RULING + RATIO:
1. YES.
While it is true that a mortgage of land necessarily includes, in the absence
of stipulation of the improvements thereon, buildings, still the building by itself
may be mortgaged apart from the land on which it has been built.

It is obvious from Article 415 of the Civil Code that the inclusion of building
separate and distinct from the land can only mean that a building is by itself
an immovable property.

2. As to the first mortgage, YES.
As to the second mortgage, NO.
The first mortgage was executed before the sales patent was granted and
thus the Public Land Act finds no application in this matter. It is valid.

The second mortgage was executed after the issuance of the sales patent
which thus makes it fall under the prohibition stated in the Public Land Act
and Section 2 pf RA 730. It is null and void.

DISPOSITION: Petition granted.
The CFI decision is modified declaring that the Deed of REM for P70,000 is
valid but ruling that the Deed of REM for P20,000 is null and void.