GR 109946; (February, 1996) (Digest)
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 Development Bank of the Philippines (DBP) granted loans to spouses Santiago and Oliva Olidiana, secured by real estate mortgages on several properties, including Lot 2029. At the time of the mortgages in 1978 and 1979, the lot was still the subject of the spouses’ free patent application with the Bureau of Lands, though it was registered in their names for tax purposes. Subsequently, the Olidiana spouses filed a request with the Bureau of Lands, renouncing their rights to Lot 2029 in favor of respondents Mylo O. Quinto and Jesusa Christine Chupuico. Free patents were then issued to the respondents, who obtained original certificates of title.
Upon the Olidianas’ loan default, DBP extrajudicially foreclosed the mortgaged properties, including Lot 2029, and purchased it at auction. When DBP attempted to consolidate title, it discovered the property was already registered in the respondents’ names. DBP then filed an action for quieting of title and cancellation of the respondents’ certificates of title.
ISSUE
Whether the real estate mortgages constituted over Lot 2029 were valid, given that the mortgagor-spouses were merely free patent applicants and not yet absolute owners of the land at the time of the mortgage.
RULING
The Supreme Court denied DBP’s petition and affirmed the Court of Appeals. The mortgages were declared null and void. The legal logic is anchored on the nature of public land and the essential requisites of a valid mortgage. While the property was under a free patent application, it remained part of the public domain. The government retained ownership until the patent was issued and the corresponding certificate of title was registered. The Olidiana spouses, as mere applicants, did not possess the requisite absolute or fee simple ownership at the time they executed the mortgages.
Article 2085(2) of the Civil Code explicitly requires that the mortgagor must be the absolute owner of the property mortgaged. Since this essential condition was absent, the contracts of mortgage were void from inception. Consequently, all subsequent acts stemming from these void contracts, including the foreclosure sale and the certificate of sale, were also invalid and produced no legal effect. The Court rejected DBP’s argument that the spouses’ long possession converted the land to private property, reiterating that only the issuance of the patent and title effects such conversion. Furthermore, the Court upheld the findings of the lower courts that there was no evidence of fraud on the part of the respondents in securing the patents.