Philippine National Bank vs. Spouses Bernard and Cresencia Maranon

A mortgagee in good faith's lien attaches only to the property actually owned by the mortgagor; where the mortgagor is later declared not to be the true owner, Article 2127 of the Civil Code does not operate to include the improvements and their fruits in the mortgage. The doctrine of immutability of judgments bars any court, including the court that rendered the judgment, from modifying a final and executory judgment, even to correct alleged errors of fact or law.

The case involves a 152-square meter parcel of land located at Cuadra-Smith Streets, Downtown, Bacolod, erected with a building leased to various tenants. Spouses Rodolfo and Emilie Montealegre mortgaged the subject lot to petitioner Philippine National Bank (PNB) as security for a loan, using Transfer Certificate of Title (TCT) No. T-156512 purportedly registered in the name of Emilie Montealegre. Respondents Spouses Bernard and Cresencia Marañon claimed to be the true registered owners of the subject lot by virtue of TCT No. T-129577, which they alleged was illegally cancelled by TCT No. T-156512 through a falsified Deed of Sale bearing their forged signatures.

Spouses Rodolfo and Emilie Montealegre mortgaged a 152-square meter parcel of land located at Cuadra-Smith Streets, Downtown, Bacolod, erected with a building leased to various tenants, to petitioner Philippine National Bank (PNB) as security for a loan. In their transactions with PNB, Spouses Montealegre used Transfer Certificate of Title (TCT) No. T-156512 over the subject lot purportedly registered in the name of Emilie Montealegre. When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings on the mortgaged properties, including the subject lot. In the auction sale held on August 16, 1991, PNB emerged as the highest bidder and was issued the corresponding Certificate of Sale dated December 17, 1991, which was subsequently registered on February 4, 1992.

Before the expiration of the redemption period, or on July 29, 1992, Spouses Bernard and Cresencia Marañon filed before the RTC a complaint for Annulment of Title, Reconveyance and Damages against Spouses Montealegre, PNB, the Register of Deeds of Bacolod City, and the Ex-Officio Provincial Sheriff of Negros Occidental. The complaint, docketed as Civil Case No. 7213, alleged that Spouses Marañon are the true registered owners of the subject lot by virtue of TCT No. T-129577, which was illegally cancelled by TCT No. T-156512 under the name of Emilie, who used a falsified Deed of Sale bearing the forged signatures of Spouses Marañon to effect the transfer of title to the property in her name. In its Answer, PNB averred that it is a mortgagee in good faith and for value and that its mortgage lien on the property was registered, thus valid and binding against the whole world. As reflected in the Pre-trial Order dated March 12, 1996, the parties stipulated, among others, that the period for legal redemption of the subject lot had already expired.

While the trial proceedings were ongoing, Paterio Tolete, one of the tenants of the building erected on the subject lot, deposited his rental payments with the Clerk of Court of Bacolod City which, as of October 24, 2002, amounted to ₱144,000.00. On June 2, 2006, the RTC rendered its Decision in favor of Spouses Marañon after finding, based on the expert testimony of Colonel Rodolfo Castillo, Head of the Forensic Technology Section of Bacolod City Philippine National Police, that the signatures of Spouses Marañon in the Deed of Sale presented by Spouses Montealegre before the Register of Deeds to cause the cancellation of TCT No. T-129577 were forged. The RTC concluded the sale to be null and void, and PNB was adjudged to be a mortgagee in good faith whose lien on the subject lot must be respected. Neither of the parties sought reconsideration of the decision or appealed.

Thereafter, Spouses Marañon filed motions for the release of the rental payments deposited with the Clerk of Court and paid to PNB by Tolete. On June 13, 2006, they filed an Urgent Motion for the Withdrawal of Deposited Rentals praying that the ₱144,000.00 rental fees deposited by Tolete be released in their favor, which the RTC granted. On September 5, 2006, Spouses Marañon filed an Urgent Ex-Parte Motion for Withdrawal of Deposited Rentals praying that the ₱30,000.00 rental fees paid to PNB by Tolete on December 12, 1999 be released in their favor, covering the five-month period from August 1999 to December 1999 at a monthly lease rate of ₱6,000.00. The RTC granted the motion, reasoning that pursuant to its Decision dated June 2, 2006 declaring Spouses Marañon to be the true registered owners of the subject lot, they are entitled to its fruits.

PNB moved for reconsideration, arguing that its mortgage lien should be carried over to the new title reconveying the lot to Spouses Marañon, and that with the expiration of the redemption period on February 4, 1993, PNB became the owner of the subject lot and thus entitled to its fruits. The RTC denied the motion and reiterated its directives. PNB then sought recourse with the CA via a petition for certiorari and mandamus, claiming that as the lawful owner of the subject lot per the RTC's judgment, it is entitled to the fruits of the same. The CA denied the petition, holding that not being parties to the mortgage transaction, Spouses Marañon cannot be deprived of the fruits of the subject lot, and that PNB was not a mortgagee in good faith because as a financial institution imbued with public interest, it should have looked beyond the certificate of title and conducted an inspection of the circumstances surrounding the transfer.

• Immutability of Judgments: PNB argued that the RTC Decision dated June 2, 2006 lapsed into finality when it was not appealed or submitted for reconsideration, and all conclusions therein are immutable and can no longer be modified by any court, even by the RTC that rendered the same. The CA erroneously altered the RTC Decision by reversing the pronouncement that PNB is a mortgagee in good faith.
• Carry-over of Mortgage Lien: PNB asseverated that its mortgage lien was carried over to the new title issued to Spouses Marañon, and thus it retained the right to foreclose the subject lot upon non-payment of the secured debt.
• Entitlement to Rent as Owner: PNB asserted that it is entitled to the rent because it became the subject lot's new owner when the redemption period expired without the property being redeemed.

• Ownership and Right to Fruits: Spouses Marañon argued that having been adjudged as the real owners of the subject lot in the RTC Decision dated June 2, 2006, they are entitled to its fruits, including the rental payments deposited with the Clerk of Court and paid to PNB by Tolete.

• Immutability of Judgments: Whether the Court of Appeals erred in reversing the RTC's final and executory finding that PNB is a mortgagee in good faith.
• Entitlement to Rent: Whether PNB is entitled to the rental fees paid by tenant Tolete as fruits of the subject lot.
• Application of Article 2127: Whether Article 2127 of the Civil Code operates to include the building and its rents in PNB's mortgage lien and foreclosure despite the mortgagor not being the true owner of the property.

• Immutability of Judgments: Yes, the CA erred. The RTC Decision dated June 2, 2006, which adjudged PNB as a mortgagee in good faith, lapsed into finality and became immutable and unalterable. The CA had no recourse but to uphold PNB's status as a mortgagee in good faith regardless of any alleged defects.
• Entitlement to Rent: No. Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. Since Spouses Marañon never lost ownership over the subject lot, they are the rightful recipients of the disputed rent.
• Application of Article 2127: No. Article 2127 of the Civil Code is predicated on the presumption that the mortgagor owns the accessions and accessories of the mortgaged property. Where the mortgagor is later found or declared not to be the true owner, the provision is irrelevant and inapplicable. Since Spouses Montealegre were not the true owners of the subject lot, the building and the rent it yields were not included in the mortgage or foreclosure.

• Immutability of Judgments: The status of PNB's lien on the subject lot was already settled by the RTC in its Decision dated June 2, 2006, where PNB was adjudged as a mortgagee in good faith whose lien shall subsist and be respected. The decision lapsed into finality when neither party moved for its reconsideration or appealed. Being a final judgment, the dispositions and conclusions therein have become immutable and unalterable not only as against the parties but even the courts. The doctrine of immutability of judgments espouses that a judgment that has acquired finality becomes immutable and unalterable, and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law, whether made by the court that rendered it or by the highest court of the land. The doctrine has a two-fold purpose: (1) to avoid delay in the administration of justice and to make orderly the discharge of judicial business, and (2) to put an end to judicial controversies, at the risk of occasional errors. The CA had no other recourse but to uphold the status of PNB as a mortgagee in good faith for the sake of maintaining stability of judicial pronouncements. The RTC Orders dated September 8, 2006 and December 6, 2006 were implements of the pronouncement that Spouses Marañon are still the rightful owners of the subject lot, a matter settled with finality.

• Entitlement to Rent: Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. The rightful recipient of the disputed rent should be the owner of the subject lot at the time the rent accrued. It is beyond question that Spouses Marañon never lost ownership over the subject lot, as this is the precise consequence of the final and executory judgment in Civil Case No. 7213 whereby the title to the subject lot was reconveyed to them and the cloud thereon consisting of Emilie's fraudulently obtained title was removed. The protection afforded to PNB as a mortgagee in good faith refers to the right to have its mortgage lien carried over and annotated on the new certificate of title issued to Spouses Marañon, and thereafter to enforce such lien through foreclosure proceedings in case of non-payment of the secured debt.

• Application of Article 2127: Article 2127 of the Civil Code provides that the mortgage extends to the natural accessions, improvements, growing fruits, and rents or income not yet received when the obligation becomes due. However, the rule is predicated on the presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the principal, since it is an indispensable requisite of a valid real estate mortgage that the mortgagor be the absolute owner of the encumbered property. Absent an adverse claimant or any evidence to the contrary, all accessories and accessions accruing or attached to the mortgaged property are included in the mortgage contract. Corollarily, any evidence sufficiently overthrowing the presumption that the mortgagor owns the mortgaged property precludes the application of Article 2127. The provision is irrelevant and inapplicable to mortgages and their resultant foreclosures if the mortgagor is later on found or declared to be not the true owner of the property. Since PNB's mortgagors, Spouses Montealegre, are not the true owners of the subject lot, much less of the building which produced the disputed rent, the foreclosure proceedings could not have included the building and the rent it yields. PNB's lien as a mortgagee in good faith pertains to the subject lot alone. Since the building was not foreclosed, it remains a property of Spouses Marañon; it is not affected by non-redemption and is excluded from any consolidation of title made by PNB over the subject lot. There is technically no juridical tie created by a valid mortgage contract that binds PNB to the subject lot because its mortgagor was not the true owner, and the mortgagee in good faith principle cannot be extended so as to create a juridical tie between PNB and the improvements attached to the subject lot.

• Doctrine of Immutability of Judgments — A judgment that has acquired finality becomes immutable and unalterable, and may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact or law, and whether it will be made by the court that rendered it or by the highest court of the land. The doctrine has a two-fold purpose: (1) to avoid delay in the administration of justice and to make orderly the discharge of judicial business, and (2) to put an end to judicial controversies, at the risk of occasional errors. The Court applied this doctrine to bar the CA from reversing the RTC's final finding that PNB was a mortgagee in good faith.

• Article 2127 of the Civil Code — Scope of Mortgage — The mortgage extends to the natural accessions, improvements, growing fruits, and rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use. The rule is predicated on the presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the principal, since it is an indispensable requisite of a valid real estate mortgage that the mortgagor be the absolute owner of the encumbered property. Where the mortgagor is later found or declared not to be the true owner, the provision is irrelevant and inapplicable.

• Mortgagee in Good Faith — A mortgagee in good faith is protected in its right to have its mortgage lien carried over and annotated on the new certificate of title issued to the true owner, and to enforce such lien through foreclosure proceedings in case of non-payment of the secured debt. However, such protection cannot be extended to create a juridical tie between the mortgagee and improvements attached to the subject lot where the mortgagor was not the true owner.

• "Being a final judgment, the dispositions and conclusions therein have become immutable and unalterable not only as against the parties but even the courts. This is known as the doctrine of immutability of judgments which espouses that a judgment that has acquired finality becomes immutable and unalterable, and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land." — This passage states the canonical formulation of the doctrine of immutability of judgments and is the basis for the Court's ruling that the CA erred in reversing the RTC's final finding on PNB's status as a mortgagee in good faith.

• "The doctrine of immutability and inalterability of a final judgment has a two-fold purpose: (1) to avoid delay in the administration of justice and thus, procedurally, to make orderly the discharge of judicial business and (2) to put an end to judicial controversies, at the risk of occasional errors, which is precisely why courts exist." — This passage articulates the policy rationale behind the doctrine of immutability of judgments, emphasizing that it is a matter of public policy and a time-honored principle of procedural law.

• "Corollary, any evidence sufficiently overthrowing the presumption that the mortgagor owns the mortgaged property precludes the application of Article 2127. Otherwise stated, the provision is irrelevant and inapplicable to mortgages and their resultant foreclosures if the mortgagor is later on found or declared to be not the true owner of the property, as in the instant case." — This passage defines the qualification to Article 2127 of the Civil Code and is the controlling rule for the Court's holding that PNB's lien does not extend to the building and its rents.

• "It must be remembered that there is technically no juridical tie created by a valid mortgage contract that binds PNB to the subject lot because its mortgagor was not the true owner. But by virtue of the mortgagee in good faith principle, the law allows PNB to enforce its lien. We cannot, however, extend such principle so as to create a juridical tie between PNB and the improvements attached to the subject lot despite clear and undeniable evidence showing that no such juridical tie exists." — This passage explains the limits of the mortgagee in good faith principle and why PNB cannot claim the rents from the building on the subject lot.

• Apo Fruits Corporation vs. Court of Appeals, G.R. No. 164195, December 4, 2009, 607 SCRA 200 — Cited for the doctrine of immutability of judgments, including its rationale and two-fold purpose. The Court quoted this case extensively to support its ruling that the RTC Decision had become final and immutable.

• Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439 (1933) — Cited to illustrate that a mortgage constituted on a sugar central includes not only the land but also the buildings, machinery, and accessories installed at the time the mortgage was constituted, as well as those installed after its constitution. Distinguished in the present case because the mortgagor was not the true owner.

• Spouses Paderes vs. Court of Appeals, 502 Phil. 76 (2005) — Cited for the proposition that improvements constructed by the mortgagor on the subject lot are covered by the real estate mortgage contract with the mortgagee bank and included in foreclosure proceedings. Distinguished because the mortgagor in that case owned the improvements.

• Castro, Jr. vs. CA, 321 Phil. 262 (1995) — Cited for the rule that Article 2127 is predicated on the presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the principal, and that ownership by the mortgagor is an indispensable requisite of a valid real estate mortgage.

• Unionbank of the Philippines vs. Court of Appeals, 370 Phil. 837 (1999) — Cited for the rule that as a purchaser at a public auction, the mortgagee is only substituted to and acquires the right, title, interest and claim of the judgment debtors or mortgagors to the property at the time of levy, and the judgment in the main action for reconveyance will not be rendered ineffectual by the consolidation of ownership and the issuance of title in the name of the purchaser.

• Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corporation, G.R. Nos. 180880-81, September 18, 2012, 681 SCRA 44 — Cited for the doctrine of immutability of judgments.

• Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc., 421 Phil. 709 (2001) — Cited for the proposition that rent is a civil fruit that belongs to the owner of the property producing it.

• Philippine Banking Corporation vs. Dy, G.R. No. 183774, November 14, 2012, 685 SCRA 567 — Cited for the protection afforded to a mortgagee in good faith to have its mortgage lien carried over and annotated on the new certificate of title.

• Equitable PCI Bank, Inc. vs. OJ-Mark Trading, Inc., G.R. No. 165950, August 11, 2010, 628 SCRA 79 — Cited for the right of a mortgagee in good faith to enforce its lien through foreclosure proceedings.

• Torbela vs. Rosario, G.R. No. 140528, December 7, 2011, 661 SCRA 633 — Cited for the principle that rent, as an accessory, follows the principal.

• PNB vs. CA, 341 Phil. 72 (1997) — Cited for the rule that as a purchaser in the public sale, PNB was only substituted to and acquired the right, title, interest and claim of the mortgagor to the property as of the time of the levy.

• Article 2127, Civil Code — Provides that the mortgage extends to the natural accessions, improvements, growing fruits, and rents or income not yet received when the obligation becomes due. The Court held this provision inapplicable where the mortgagor was not the true owner of the mortgaged property.
• Article 440, Civil Code — Provides that the ownership of property gives the right of accession to everything which is produced thereby or which is incorporated or attached thereto, either naturally or artificially. Cited to support the rule that the owner of the property is entitled to its fruits.
• Article 441, Civil Code — Provides that to the owner belongs the natural fruits, industrial fruits, and civil fruits. Cited to support the ruling that Spouses Marañon, as the true owners, are entitled to the rental fees.
• Article 442, Civil Code — Defines natural fruits, industrial fruits, and civil fruits, with civil fruits being the rent of buildings, the price of leases of lands and other property, and the amount of perpetual or life annuities or other similar income. Cited to establish that the disputed rental payments constitute civil fruits.
• Section 13, Article VIII, Constitution — Cited in the Certification that the conclusions in the Resolution were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.
• Rule 45, Rules of Court — The procedural basis for the petition for review on certiorari filed by PNB before the Supreme Court.

Chief Justice Maria Lourdes P. A. Sereno, Associate Justice Teresita J. Leonardo-de Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Martin S. Villarama, Jr. concurred with the Resolution penned by Justice Bienvenido L. Reyes.

N/A — No dissenting opinions were noted in the provided case text.