G.R. No. L-47669 and L-47744, December 7, 1987
MARINA D. NARTATES, petitioner, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, et al., respondents.

FACTS

Petitioner Marina D. Nartates, as administratrix of her late husband’s estate, obtained a loan from respondent GSIS, secured by a mortgage on a parcel of land (TCT No. 74641) and the building to be constructed thereon, among other properties. The mortgage included the adjoining Lot 109, which was untitled at the time. Upon completing the building, a portion of it encroached onto Lot 109 and another adjacent lot (TCT No. 102922), both later titled in petitioner’s name. Petitioner failed to deliver the title for Lot 109 to GSIS to register the mortgage, prompting GSIS to annotate an adverse claim.
GSIS extrajudicially foreclosed the mortgage. Petitioner filed an action (Civil Case No. 108846) to annul the foreclosure, arguing it was void for including the building portions standing on lots not covered by the mortgage. Separately, GSIS obtained an ex-parte writ of possession from the land registration court. Petitioner sought to annul this writ (LRC Record No. 11546), alleging it was issued while her annulment case was pending and would deprive her of property without due process. Both the trial court in the annulment case and the land registration court ruled against petitioner.

ISSUE

The core issue is whether the foreclosure of the entire building is valid despite portions of it being constructed on land (Lot 109 and the lot under TCT No. 102922) not included in the mortgage contract with GSIS.

RULING

The Supreme Court upheld the validity of the foreclosure. The legal logic is grounded in both law and equity. First, Lot 109 was expressly included in the mortgage contract. Petitioner’s subsequent act of withholding its title to prevent registration was a breach of good faith under Article 19 of the Civil Code. Second, by extending the building onto adjacent lots she owned without GSIS’s knowledge or consent, petitioner cannot now invoke this self-created encroachment to invalidate the foreclosure. To allow her to do so would permit her to profit from her own inequitable conduct.
Consequently, the petitions to annul the foreclosure and the writ of possession were dismissed. However, in the interest of fairness, the Court ordered GSIS to pay petitioner the fair market value of the lots (TCT Nos. 102922 and 104650, which succeeded Lot 109) upon which the foreclosed building encroached, to be determined by the trial court if the parties cannot agree. This balances the validation of the foreclosure with compensation for the land not originally mortgaged.