G.R. No. L-17072. October 31, 1961.
Cristina Marcelo Vda. de Bautista, plaintiff-appellee, vs. Brigida Marcos, et al., defendants-appellants.

FACTS

On May 17, 1954, defendant Brigida Marcos obtained a P2,000 loan from plaintiff Cristina Marcelo Vda. de Bautista. To secure the loan, Marcos executed a deed of mortgage over a two-hectare portion of an unregistered land in Sta. Ignacia, Tarlac. The deed stipulated a three-year term, transferred possession and usufruct to the mortgagee (Bautista) without obligation to apply harvests to the debt, and required repayment of the principal without interest.
Subsequently, in July 1956, Marcos, representing herself and her sisters as heirs, applied for a free patent over the land, which was granted and registered under Original Certificate of Title No. P-888 on February 22, 1957. The debt remained unpaid by 1959, prompting Bautista to file an action for payment or foreclosure. The defendants moved to dismiss, invoking Section 118 of the Public Land Act (Commonwealth Act No. 141), which prohibits the alienation or encumbrance of homestead or free patent land within five years from patent issuance. The lower court denied the motion, ruling the law inapplicable as the mortgage preceded the patent, and later ordered payment or foreclosure of Marcos’s pro-indiviso share.

ISSUE

The primary issue is whether a mortgage executed on land while it was still part of the public domain, prior to the issuance of a free patent, is valid and can be foreclosed within the five-year prohibitory period under the Public Land Act.

RULING

The Supreme Court reversed the foreclosure order, declaring the mortgage void and unenforceable. The legal logic proceeds from two fundamental principles. First, under Article 2085 of the Civil Code, a essential requisite for a valid mortgage is that the mortgagor must be the absolute owner of the property. At the time the mortgage was constituted in 1954, the land was still public domain; Marcos was not yet the owner and therefore had no capacity to encumber it with a real right like a mortgage. The subsequent acquisition of title via free patent in 1957 could not retroactively validate the void mortgage.
Second, the Court harmonized this with the policy of the Public Land Act. Upon issuance of the patent, the land fell under the regime of Section 118, which prohibits any alienation or encumbrance within five years to preserve the grant for the patentee’s family. This prohibition necessarily encompasses debts contracted before the patent’s issuance to fully effectuate the law’s protective purpose. Therefore, even assuming arguendo some validity, foreclosure within the five-year period is expressly barred.
However, the Court affirmed the order for payment of the P2,000 debt. The deed’s collateral agreement transferring possession and usufruct was separable and valid. Marcos had possessory rights before the patent, which she could transfer. Bautista, as a possessor in good faith, was entitled to all fruits received and was not obligated to account for them or deduct their value from the debt. Consequently, the loan obligation remained enforceable in personam, though the real security (the mortgage) was void. Costs were taxed against the appellants.