G.R. No.
109946 February 9, 1996
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, MYLO O. QUINTO and JESUSA CHRISTINE S.
CHUPUICO, respondents.
Facts:
Petitioner granted a loan of P94,000.00 to the spouses Santiago Olidiana and Oliva
Olidiana. To secure the loan the Olidiana spouses executed a real estate mortgage
on several properties among which was Lot 2029 (Pls-61) , situated in Bo. Bago
Capalaran, Molave, Zamboanga del Sur. At the time of the mortgage the property
was still the subject of a Free Patent application filed by the Olidianas with the
Bureau of Lands but registered under their name in the Office of the Municipal
Assessor of Molave for taxation purposes.
The Olidiana spouses filed with the Bureau of Lands a Request for Amendment of
their Free Patent applications over several parcels of land including Lot No. 2029
(Pls-61). In this request they renounced, relinquished and waived all their rights and
interests over Lot No. 2029 (Pls-61) in favor of Jesusa Christine Chupuico and Mylo
O. Quinto, respondents herein. Free Patents were accordingly granted respectively
to respondents Jesusa Christine Chupuico and Mylo O. Quinto by the Bureau of
Lands District Land Office No. IX-5, Pagadian City. Jesusa Christine Chupuico later
obtained Original Certificate of Title No. P-27,361 covering aforementioned property
while Mylo O. Quinto was also issued Original Certificate of Title No. P-27,362 in
view of the previous free patent.
Additional loan of P62,000.00 was extended by petitioner to the Olidiana spouses.
Thus, the Olidianas executed an additional mortgage on the same parcels of land
already covered by the first mortgage. This second mortgage also included Lot No.
2029 (Pls-61) as security for the Olidiana spouses' financial obligation with petitioner.
Thereafter, for failure of Santiago and Oliva Olidiana to comply with the terms and
conditions of their promissory notes and mortgage contracts, petitioner extrajudicially
foreclosed all their mortgaged properties. Consequently, these properties were sold
at public auction for P88,650.00 and awarded to petitioner as the highest bidder. A
Certificate of Sale was thereafter executed in favor of petitioner and an Affidavit of
Consolidation of Ownership registered in its name. However, when petitioner tried to
register the sale and the affidavit of consolidation and to have the tax declaration
transferred in its name it was discovered that Lot No. 2029 (Pls-61) had already been
divided into two (2) parcels, one-half (l/2) now known as Lot 2029-A and covered by
OCT No. P-27,361 in the name of Jesusa Christine Chupuico, while the other half
known as Lot 2029-B was covered by the same OCT No. P-27,361 in the name of
Mylo O. Quinto.
In view of the discovery, petitioner filed an action for Quieting of Title and
Cancellation or Annulment of Certificate of Title against respondents. After trial the
Regional Trial Court rendered judgment against petitioner.
Resultantly, the trial court declared the following as null and void insofar as they
related to Lot No. 2029 (Pls-61) being a public land: the real estate mortgage dated 4
April 1978, the second mortgage dated 23 April 1979, the foreclosure sale on 14 April
1983, the certificate of sale registered with the Register of Deeds of Zamboanga del
Sur on 1 September 1983, and the affidavit of consolidation of ownership registered
with the Register of Deeds on 2 August 1985.
Petitioner then appealed to the Court of Appeals which likewise ruled in favor of
respondents, hence the instant petition.
Issue:
Whether the Court of Appeals erred in holding that the mortgages in favor of the bank
were void and ineffectual because when constituted the mortgagors, who were
merely applicants for free patent of the property mortgaged, were not the owners
thereof in fee simple and therefore could not validly encumber the same.
Held:
The Court hold that petitioner bank did not acquire valid title over the land in dispute
because it was public land when mortgaged to the bank.
With regard to the validity of the mortgage contracts entered into by the parties, Art.
2085, par. 2, of the New Civil Code specifically requires that the pledgor or mortgagor
be the absolute owner of the thing pledged or mortgaged. Thus, since the disputed
property was not owned by the Olidiana spouses when they mortgaged it to petitioner
the contracts of mortgage and all their subsequent legal consequences as regards
Lot No. 2029 (Pls-61) are null and void. In a much earlier case we held that it was an
essential requisite for the validity of a mortgage that the mortgagor be the absolute
owner of the property mortgaged, and it appearing that the mortgage was constituted
before the issuance of the patent to the mortgagor, the mortgage in question must of
necessity be void and ineffective. For, the law explicitly requires as imperative for the
validity of a mortgage that the mortgagor be the absolute owner of what is
mortgaged.
