The Supreme Court ruled that a real estate mortgage (REM) is valid if the mortgagor was the declared owner of the property at the time the mortgage was created, even if a contract to sell for a dwelling unit on the property was executed later. The Court also held that the mortgagors were estopped from denying the validity of the mortgage, as they had benefited from the loan and allowed the property to be foreclosed. This decision reinforces the principle that parties cannot benefit from a contract and then later challenge its validity, ensuring stability in real estate transactions.

Can a Prior Tax Declaration Validate a Mortgage Despite a Later Contract to Sell?

The case revolves around spouses Alejandro and Myrna Reblando who obtained a loan from Philippine National Bank (PNB), securing it with a real estate mortgage (REM) over two properties, one of which was identified as Lot No. 10. When the Reblandos defaulted on their loan, PNB foreclosed on the properties. The Reblandos then filed a complaint seeking the nullification of the mortgage over Lot No. 10, arguing they weren’t the owners when the mortgage was constituted, relying on a Contract to Sell entered into after the mortgage.

PNB countered that the mortgage was valid, as the Reblandos had already mortgaged Lot No. 10 in the original REM contract. The central legal question was whether the mortgage over Lot No. 10 was valid, considering the Reblandos’ claim that they did not own the lot when the mortgage was created. Article 2085 of the Civil Code specifies the requisites for a valid mortgage, including that the mortgagor must be the absolute owner of the property.

The Regional Trial Court (RTC) ruled in favor of the Reblandos, declaring the mortgage over Lot No. 10 null and void, primarily because the RTC believed the Reblandos were not the absolute owners of the property at the time of the mortgage. The Court of Appeals (CA) affirmed the RTC’s decision, agreeing that PNB should have exercised more diligence in determining the ownership of Lot No. 10. The appellate court highlighted that the Contract to Sell indicated the Reblandos only acquired rights to the property after the mortgage was constituted, reinforcing the idea that they were not the owners at the time of the mortgage.

However, the Supreme Court reversed the CA’s decision, finding that the mortgage over Lot No. 10 was valid. The Court emphasized that the RTC and CA made factual errors by overlooking crucial evidence. The Court pointed out that the original REM contract, executed on January 28, 1992, included Lot No. 10 as collateral. Crucially, Tax Declaration (TD) No. 59006, issued on September 12, 1990, declared Alejandro Reblando as the owner of Lot No. 10, predating the mortgage.

The Court stated:

Contrary to the findings of the courts a quo, the evidence on record reveals that, at the time the subject mortgage was created, respondent Alejandro was the declared owner of Lot No. 10. His ownership is reflected in TD No. 59006 issued on September 12, 1990 or a little less than two years prior to the constitution of the mortgage on Lot No. 10 in January 1992. The fact of being in actual possession of the property is another indication of such ownership.

The Supreme Court clarified that the Contract to Sell pertained to a dwelling unit, Unit No. 10, and not to the land itself. Therefore, the contract did not negate Alejandro’s ownership of Lot No. 10 as evidenced by the tax declaration. The Court cited Cequeña v. Bolante, emphasizing the evidentiary value of tax declarations and receipts in establishing ownership:

Tax receipts and declarations are prima facie proofs of ownership or possession of the property for which such taxes have been paid. Coupled with proof of actual possession of the property, they may become the basis of a claim for ownership. x x x

Moreover, the Supreme Court invoked the principle of estoppel. Estoppel prevents a party from denying the validity of a contract after enjoying its benefits. Rule 131, Section 2(a) of the Rules of Court states:

Whenever a party has, by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing to be true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it.

The Court reasoned that the Reblandos, having entered into the mortgage contract, benefited from the loan, and then defaulted, were estopped from challenging the mortgage’s validity. This ruling aligns with the principle articulated in Toledo v. Hyden, that a party cannot deny the validity of a contract after enjoying its benefits.

The Supreme Court’s decision underscores the importance of thorough due diligence in real estate transactions and reinforces the principle that parties are bound by their agreements, especially when they have benefited from them. The court noted that the Reblandos acted in bad faith by attempting to mislead the lower courts by omitting a portion of the REM contract as an annex to the complaint, concealing the simultaneity of the mortgage. Parties should not attempt to deceive courts into believing their cause by making it appear that their evidence supports their position when, in fact, it is not in any way related to the case.

FAQs

What was the key issue in this case?	The key issue was whether the mortgage over Lot No. 10 was valid, given the Reblandos’ claim that they did not own the lot at the time the mortgage was created. The Supreme Court examined the validity of the mortgage in relation to the requirements of Article 2085 of the Civil Code.
What is a real estate mortgage (REM)?	A real estate mortgage is a contract where real property is used as security for the fulfillment of an obligation, typically a loan. If the borrower defaults, the lender can foreclose on the property to recover the debt.
What is the principle of estoppel?	Estoppel prevents a party from denying the validity of a contract or agreement after benefiting from it. It is based on the idea that it would be unfair and unjust to allow someone to take advantage of an agreement and then later challenge its validity.
What is the significance of a tax declaration in proving ownership?	Tax declarations and receipts are considered prima facie evidence of ownership or possession of property. While not conclusive, they can support a claim of ownership, especially when coupled with actual possession of the property.
What was the importance of the Contract to Sell in this case?	The Contract to Sell was presented by the Reblandos to argue that they did not own Lot No. 10 at the time of the mortgage. However, the Supreme Court found that the contract pertained to a dwelling unit (Unit No. 10) and not the land itself, thus it didn’t negate Alejandro’s ownership of Lot No. 10.
Why did the Supreme Court reverse the Court of Appeals’ decision?	The Supreme Court reversed the CA’s decision because the lower courts overlooked key evidence, specifically the tax declaration showing Alejandro as the owner of Lot No. 10 prior to the mortgage. Additionally, the lower courts misconstrued the Contract to Sell as evidence against ownership of the land.
What is required for a valid mortgage?	According to Article 2085 of the Civil Code, the following are the requisites for a valid mortgage: (a) that it be constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have free disposal of their property, and in the absence of free disposal, that they be legally authorized for the purpose.
What was the basis for the Supreme Court’s decision on estoppel?	The Supreme Court based its decision on estoppel on the fact that the Reblandos entered into the mortgage contract, benefited from the loan, and then defaulted. The Court reasoned that they could not then challenge the validity of the mortgage after enjoying its benefits, without any proof of coercion or fraud on the part of PNB.

This case provides important guidance on the factors considered in determining the validity of a real estate mortgage, particularly regarding ownership and the application of estoppel. It also serves as a reminder of the importance of honest and transparent conduct in legal proceedings. Parties must act with justice, honesty, and good faith in their dealings, and should not attempt to deceive the courts by manipulating evidence.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Philippine National Bank vs. Spouses Alejandro and Myrna Reblando, G.R. No. 194014, September 12, 2012