Name: SARACHO, NICOLE R.

Topic: Real Estate Mortgage

Law or Provision Cited: Art. 2127 of the Civil Code: The mortgage extends to the
natural accessions, to the improvements, growing fruits, and the rents or income not
yet received when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or
in virtue of expropriation for public use, with the declarations, amplifications and
limitations established by law, whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.

Title: PHILIPPINE NATIONAL BANK vs SPOUSES BERNARD and CRESENCIA

MARANON

Source, Date: G.R. No. 189316; 01 July 2013

Facts:

Spouses Rodolfo and Emilie Montealegre (Spouses Montealegre) mortgaged a

152 square meter land (subject lot) to PNB as a security for a loan. The property was
under the name of Emilie Montealegre under TCT 15612. The subject lot was
erected with a building leased to various tenants. Subsequently, Spouses
Montealegre failed to pay the loan and PNC initiated a foreclosure proceedings on
the mortgaged properties including the subject lot. In the auction sale, PNB emerged
as the highest bidder and a corresponding Certificate of Sale was issued to them.
Before the expiration of the redemption period, Spouses Maranon filed before
the RTC a complaint for the Annulment of Title, Reconveyance and Damages against
Spouses Montealegre, PNB and the Provincial Sheriff. Spouses Maranon alleged that
they are the true registered owners of by subject lot by virtue of TCT No. T-129577
which was illegally cancelled by TCT 156512 under the name of Emilie who used a
falsified Deed of Sale bearing the forged signatures of Spouses Maranon to effect the
transfer of title to the property in her name. In its answer PNB contend that they are
mortgagee in good faith and that its mortgage lien on the property was registered
thus valid and binding against the whole world.
While the trial proceedings were ongoing Paterio Tolete, one of the tenants of
the building erected in the subject lot deposited his rental payments with the Clerk
of Court.
RTC decided in favor of Spouses Maranon after finding that the signatures of
the Spouses Maranon in the Deed of Sale presented by Spouses Montealegre to cause
the cancellation of the formers title were forged. RTC concluded the sale null and
void and PNC was adjudged to be mortgagee in good faith whose lien on the subject
lot must be respected. Neither parties sought any reconsideration nor appeal.
Thereafter, Spouses Maranon filed subsequent motions for the release of the
rental payments deposited with the Clerk of Court and paid to PNB by Tolete for
having been adjudged as the real owner of the subject lot. RTC granted the motions
on the ground that as they were the true registered owners of the lot, they are
entitled to its fruits.
PNB moved for reconsideration of RTCs ruling contending that its mortgage
lien should be carried over to the new title reconveying the lot to Spouses Maranon.
They further argued that since the redemption period already expired, the PNB is
now the rightful owner of the lots and its fruits. PNC denied its motion for
reconsideration.
PNB then brought the case to CA. CA affirmed RTCs decision. CA held that
since Spouses Maranon is not a party to the mortgage transaction between PNB and
Spouses Montealegre, Spouses Maranon cannot be deprived of the fruits of the
subject lot as the same will amount to deprivation of property without due process
of law. It further held that PNB is not a mortgagee in good faith because as a financial
institution, it should have looked beyond the certificate titles and conducted an
inspection on the circumstances surrounding the transfer of title.
Hence, this petition.

Issue: Whether or not PNB has the right to the fruits of the mortgaged lot.

Held: Petition denied.

Ruling: No. PNB is not entitled to the fruits of the mortgaged lot. The protection
afforded to PNB as a mortgagee in good faith refers to the right to have its mortgage
lien carried over and annotated to the new certificate title issued to the Spouses
Maranon. Thereafter, to enforce such lien thru foreclosure proceedings in case of
non-payment of debt. However, this rule does not govern real estate mortgages and
foreclosures attend by fraudulent transfers to the mortgagor. Rent as an accessory
follows the principal. According to Article 2127 of the Civil Code, when the principal
property is mortgaged, the mortgage shall include all natural or civil fruits and
improvements found thereon when the secured obligation becomes due. Hence, on
case of non-payment of the secured debt the foreclosure proceedings shall cover not
only the property but all its accessions and accessories as well. However, the rule is
not without qualifications. In Castro v CA, the Court explained that Article 2127 is
predicated on the presumption that the ownership of accessions and accessories
also belongs to the mortgagor as owner of the principal. All improvements
subsequently introduced or owned by the mortgagor on the encumbered property
are deemed to form part of the mortgage. That the improvements are to be
considered so incorporated only if so owned by the mortgagor. Corollary, any
evidence sufficiently overthrowing the presumption that the mortgagor owns the
mortgaged property precludes the application of Article 2127. Otherwise stated, the
provision is irrelevant and inapplicable to mortgages and their resultant
foreclosures if the mortgagor is later on found or declared to be not the true owner
of the property, as in the instant case.

Since PNBs mortgagors, are not owners of the subject lot much less of the
building which produced the disputed rent, the foreclosure proceedings could not
have included the building found in the subject lot and the rent it yields. PNBs lien
as a mortgagee in good faith pertains on the subject lot alone because the rule that
improvements shall follow the principal in a mortgage under Article 2127 does not
apply in this case. The building was not foreclosed and it remained as a property of
Spouses Maranon and is not effected by non-redemption and is excluded from any
consolidation of title made by PNB over the subject lot. There is technically no
juridical tie created by a valid mortgage contract that binds PNB to the subject lot
because its mortgagor was not the true owner. But by virtue of the mortgagee in
good faith principle, the law allows PNB to enforce its lien. Hence, PNB has no basis
in claiming the rent paid.