Isaguirre vs. De Lara

The mortgagee in an equitable mortgage is not entitled to retain possession of the mortgaged property pending payment of the indebtedness, as the mortgagor retains possession unless a special provision in the contract states otherwise. Because a mortgage is merely a lien that subjects the property to the fulfillment of the obligation regardless of the possessor, the mortgagee's security is not impaired by surrendering possession; the mortgagee's remedy is to annotate the lien and foreclose upon default. Furthermore, a party who knows that a transaction is a mortgage and not a sale is a possessor in bad faith, entitled only to reimbursement for necessary expenses without the right of retention, and not entitled to reimbursement for useful expenses.

Alejandro de Lara filed a Miscellaneous Sales Application over a parcel of land in 1942. Upon his death, his wife, respondent Felicitas de Lara, succeeded him. After encountering financial difficulties with loans obtained from the Philippine National Bank, respondent sought assistance from petitioner Cornelio M. Isaguirre, who was married to her niece. On February 10, 1960, the parties executed a "Deed of Sale and Special Cession of Rights and Interests" over a 250-square-meter portion of the lot, including the structure thereon, for P5,000. Both parties subsequently secured overlapping Original Certificate of Titles over the property: petitioner obtained OCT No. P-11566 in 1984, and respondent obtained OCT No. P-13038 in 1989.

• The Prior Litigation: Petitioner filed a complaint for quieting of title against respondent due to overlapping titles. The RTC ruled in favor of petitioner, but the CA reversed the decision, holding that the "Deed of Sale and Special Cession of Rights and Interests" was an equitable mortgage due to the inadequacy of consideration and the mode of payment. The CA declared respondent's OCT valid and petitioner's OCT null and void. The Supreme Court affirmed this ruling in G.R. No. 120832.
• Execution Phase: Following the finality of the judgment declaring the transaction an equitable mortgage, respondent filed a motion for execution and a writ of possession with the RTC. The RTC granted the motion and issued the writ of possession, ordering petitioner to vacate the property.
• Petitioner's Resistance: Petitioner opposed the issuance of the writ, asserting a right of retention over the property until respondent fully paid the mortgage loan and the value of improvements he had introduced. Petitioner argued that the prior judgments did not explicitly order his ouster from the property.
• Appellate Proceedings: Petitioner elevated the issue to the CA via certiorari and prohibition. The CA dismissed the petition, holding that a mortgagee has no right to retain possession of the property, as the mortgagee's security is not impaired by the mortgagor's possession. The CA also ruled that petitioner was a possessor in bad faith but was entitled to reimbursement for necessary expenses and payment of the loan with interest from the finality of judgment. The CA remanded the case to the RTC to determine the total indebtedness, necessary expenses, and payment period.

• Petitioner argued that the RTC gravely abused its discretion in issuing the writ of possession because the final and executory judgment in G.R. No. 120832 merely declared the transaction an equitable mortgage and nullified his title, but did not explicitly order the delivery of possession to respondent.
• Petitioner maintained that, as mortgagee, he is entitled to retain possession of the property until the mortgage loan is fully paid. He invoked the principle of indivisibility of mortgage under Article 2089 of the Civil Code and contended that delivery of possession was an integral part of their original agreement.
• Petitioner asserted that he was a builder in good faith entitled to reimbursement for both necessary and useful improvements.
• Petitioner contended that interest on the loan should be computed from the time the loan was made, not from the finality of the judgment declaring the contract an equitable mortgage.

• Respondent countered that, as the declared owner of the property, she has the right to exclude any person from the possession and enjoyment of her property pursuant to Articles 428 and 429 of the Civil Code.
• Respondent argued that a mortgagee has no right to retain possession of the mortgaged property, as a mortgage is merely a lien that does not transfer possession. The mortgagee's security can be protected by annotating the mortgage on the certificate of title and foreclosing upon default.
• Respondent maintained that petitioner was a possessor in bad faith who knew the transaction was a mere mortgage and not a sale, and thus should not be entitled to reimbursement for useful improvements.

• Procedural Issues: Whether the RTC gravely abused its discretion or exceeded its jurisdiction in issuing a writ of possession in favor of respondent when the prior final judgment did not explicitly order petitioner's ouster.
• Substantive Issues: Whether the mortgagee in an equitable mortgage has the right to retain possession of the property pending actual payment of the indebtedness. Whether petitioner can be considered a builder in good faith entitled to reimbursement for useful improvements. Whether interest on the loan should be computed from the time of the loan or from the finality of the judgment declaring the transaction an equitable mortgage.

• Procedural: The Court held that the RTC did not gravely abuse its discretion in issuing the writ of possession. A judgment is not confined to what appears on its face but also includes matters necessarily included therein or necessary thereto. Because the prior final judgment affirmed respondent's title and nullified petitioner's title, the issuance of a writ of possession was a necessary complement to enforce respondent's right of ownership, which inherently includes the right to possess.
• Substantive: The Court ruled that petitioner, as mortgagee, is not entitled to retain possession of the property. A mortgage is merely a lien that does not transfer title or possession to the mortgagee; the mortgagor retains possession absent a special stipulation. The mortgagee's security is not impaired by the mortgagor's possession because the mortgage directly subjects the property to the fulfillment of the obligation regardless of the possessor, and the mortgagee may foreclose upon default. Petitioner failed to present evidence other than his own assertions that possession was an essential part of the agreement. Furthermore, the Court confirmed that petitioner is a possessor in bad faith because he knew the transaction was a mere mortgage and not a sale. Consequently, he is entitled only to reimbursement for necessary expenses without the right of retention, and not to reimbursement for useful expenses. Finally, the Court held that no interest is due on the loan because there was no express stipulation in writing as required by Article 1956 of the Civil Code.

• Possession in Equitable Mortgage — A mortgage is merely a lien that does not transfer possession of the property to the mortgagee. As a general rule, the mortgagor retains possession of the mortgaged property. A simple mortgage does not give the mortgagee a right to the possession of the property unless the mortgage contains a special provision to that effect. The mortgagee's security is not impaired by the mortgagor's possession because the mortgage directly and immediately subjects the property to the fulfillment of the obligation for whose security it was constituted, whoever the possessor may be.
• Possessor in Bad Faith — A possessor who knows that there is a defect or flaw in their mode of acquisition, or that the transaction is merely a mortgage and not a sale, is a possessor in bad faith. Under Article 546 of the Civil Code, a possessor in bad faith is entitled to reimbursement only for necessary expenses, but has no right of retention for such expenses, and is not entitled to reimbursement for useful expenses.
• Incidents of a Judgment — A judgment is not confined to what appears upon the face of the decision, but also those necessarily included therein or necessary thereto. Thus, a judgment affirming ownership and nullifying an opposing title necessarily includes the right to possession, making a writ of possession a necessary complement to enforce such judgment.

• "A simple mortgage does not give the mortgagee a right to the possession of the property unless the mortgage should contain some special provision to that effect."
• "Possession is an essential attribute of ownership; thus, it would be redundant for respondent to go back to court simply to establish her right to possess subject property."
• "A judgment is not confined to what appears upon the face of the decision, but also those necessarily included therein or necessary thereto."

• Alvano v. Batoon, 25 Phil 178 (1913) — Cited as controlling authority for the rule that a simple mortgage does not give the mortgagee a right to the possession of the property unless there is a special provision to that effect.
• Zubiri v. Quijano, 74 Phil 47 — Cited by the Court of Appeals (and affirmed by the Supreme Court) for the principle that when a contract is held to be an equitable mortgage, it is given effect as if it had complied with the formal requisites of a mortgage, and the lien created ought not to be defeated by requiring compliance with such formalities as long as the land remains with the mortgagor and innocent parties are not affected.
• Gonzales v. Court of Appeals, 212 SCRA 595 (1992) — Cited to support the principle that the issuance of a writ of possession was a necessary complement to the Supreme Court's prior decision affirming respondent's title.

• Article 428, Civil Code — Defines the right of the owner to enjoy and dispose of a thing, without other limitations than those established by law, and the right of action against the holder and possessor to recover it. Applied to affirm respondent's right to possess the property as its declared owner.
• Article 429, Civil Code — Defines the right of the owner or lawful possessor to exclude any person from the enjoyment and disposal of the thing. Applied to support respondent's right to exclude petitioner from the property.
• Article 546, Civil Code — Governs the reimbursement of necessary and useful expenses to a possessor. Applied to limit petitioner's reimbursement to only necessary expenses because he is a possessor in bad faith, denying him the right of retention and reimbursement for useful expenses.
• Article 2085, Civil Code — Enumerates the essential requisites of contracts of pledge or mortgage, primarily that they be constituted to secure the fulfillment of a principal obligation. Applied to define the nature of the equitable mortgage.
• Article 2089, Civil Code — Provides the principle of indivisibility of pledge or mortgage. Cited by petitioner to argue against the cancellation of the mortgage by partial delivery, but the Court held it did not grant the mortgagee the right to retain possession.
• Article 2125, Civil Code — States that a mortgage is binding between the parties even if not recorded, and the mortgagee has the right to demand the execution and recording of the document. Applied to show that petitioner's security could be protected by annotating the mortgage.
• Article 2126, Civil Code — Provides that a 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. Applied to demonstrate that the mortgagee's security is not impaired by the mortgagor's possession.
• Article 1956, Civil Code — States that no interest shall be due unless it has been expressly stipulated in writing. Applied to deny the payment of interest on the loan due to the lack of a written stipulation.

Melo, Vitug, and Purisima, JJ.