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Equitable Mortgage: Possession Rights

This case involved a dispute over title to a 250 square meter portion of land. The respondent obtained loans from a bank and executed a deed of sale for the portion of land to the petitioner for P5,000. However, the Court of Appeals found this was actually an equitable mortgage, not a true sale. The Supreme Court affirmed, holding that as a mortgagee, the petitioner did not have a right to possession of the property until the debt was paid in full, and that the property could still be sold to satisfy the debt regardless of who possessed it. The petitioner's argument that requiring him to give up possession would cancel the mortgage was rejected.

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399 views2 pages

Equitable Mortgage: Possession Rights

This case involved a dispute over title to a 250 square meter portion of land. The respondent obtained loans from a bank and executed a deed of sale for the portion of land to the petitioner for P5,000. However, the Court of Appeals found this was actually an equitable mortgage, not a true sale. The Supreme Court affirmed, holding that as a mortgagee, the petitioner did not have a right to possession of the property until the debt was paid in full, and that the property could still be sold to satisfy the debt regardless of who possessed it. The petitioner's argument that requiring him to give up possession would cancel the mortgage was rejected.

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Jamie
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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6. CORNELIO M. ISAGUIRRE V.

FELICITAS DE LARA
G.R. No. 138053
May 31, 2000

FACTS

Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales


Application over a parcel of land with an area of 2,324 square meters. Upon death, he was
succeeded by his wife (respondent) as claimant. By a decision rendered by the Secretary
of Agriculture and Natural Resources, the lot was reduced to 1,000 square meters. On this
lot stands a two-story residential-commercial apartment named to respondent’s sons.

Respondent obtained several loans from Philippine National Bank. She then
executed a Deed of Sale and Special Cession of Rights and Interests on a 250 square meter
portion of the lot, together with the two-story commercial and residential structure for a
sum of P5,000 in favor of petitioner.

Petitioner then filed a sales application over the subject property based on the deed
of sale and acquired an OCT in his name. Meanwhile, sales application by respondent for
the entire 1000 meter was granted an OCT in the name of the respondent.

Petitioner then filed an action for quieting of title and damages. The trial court
ruled in favor of petitioner. The Court of Appeals reversed the decision, holding that the
transaction entered into by the parties was an equitable mortgage, not a sale, thereby
declaring petitioner’s title null and void.

ISSUE

Whether or not the mortgagee in an equitable mortgage has the right to retain
possession of the property pending actual payment to him of the amount of indebtedness
by the mortgagor.

HELD

No. A mortgage is a contract entered into in order to secure the fulfillment of a


principal obligation. It is constituted by recording the document in which it appears with
the proper Registry of Property, although, even if it is not recorded, the mortgage is
nevertheless binding between the parties. Thus, the only right granted by law in favor of
the mortgagee is to demand the execution and the recording of the document in which
the mortgage is formalized.
As a general rule, the mortgagor retains possession of the mortgaged property
since a mortgage is merely a lien and title to the property does not pass to the mortgagee.
However, even though a mortgagee does not have possession of the property, there is no
impairment of his security since the mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may be, to the fulfillment of
the obligation for whose security it was constituted. If the debtor is unable to pay his debt,
the mortgage creditor may institute an action to foreclose the mortgage, whether
judicially or extrajudicially, whereby the mortgaged property will then be sold at a public
auction and the proceeds therefrom given to the creditor to the extent necessary to
discharge the mortgage loan. Apparently, petitioner’s contention that "[t]o require [him]
to deliver possession of the Property to respondent prior to the full payment of the latter’s
mortgage loan would be equivalent to the cancellation of the mortgage" is without basis.
Regardless of its possessor, the mortgaged property may still be sold, with the prescribed
formalities, in the event of the debtor’s default in the payment of his loan obligation.

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