In Philippine National Bank vs. Spouses Marañon, the Supreme Court addressed the issue of who is entitled to the rental income of a property when ownership is disputed following foreclosure. The Court ruled that Spouses Marañon, as the rightful owners of the property, were entitled to the rental income, despite PNB’s status as a mortgagee in good faith. This decision clarifies that while a mortgagee in good faith is protected, this protection does not extend to depriving the true owner of the civil fruits of their property, particularly when the mortgage was based on a fraudulent transfer. This case underscores the importance of due diligence in property transactions and the protection of property rights against fraudulent claims.

Mortgage in Good Faith: Who Gets the Rent When Title is Disputed?

The case revolves around a parcel of land in Bacolod City owned by Spouses Bernard and Cresencia Marañon. Spouses Rodolfo and Emilie Montealegre fraudulently transferred the title of the land to Emilie’s name using a falsified Deed of Sale. Subsequently, Spouses Montealegre mortgaged the land to PNB as security for a loan. When Spouses Montealegre defaulted on the loan, PNB foreclosed the mortgaged properties, including the disputed land. At the auction sale, PNB emerged as the highest bidder. Spouses Marañon then filed a complaint for annulment of title and reconveyance, arguing that the transfer of title to Spouses Montealegre was fraudulent.

The Regional Trial Court (RTC) ruled in favor of Spouses Marañon, declaring the cancellation of their original title and the issuance of the new title to Emilie Montealegre as null and void. However, the RTC also recognized PNB as a mortgagee in good faith, stating that its mortgage lien should be respected. Following the RTC decision, Spouses Marañon sought the release of rental payments that had been deposited with the Clerk of Court by a tenant of the building on the land. The RTC ordered PNB to release the rental fees to Spouses Marañon, leading PNB to appeal, arguing that as a mortgagee in good faith and eventual purchaser of the property, it was entitled to the rental income.

The Court of Appeals (CA) affirmed the RTC’s decision, holding that Spouses Marañon could not be deprived of the fruits of their property, as they were not parties to the mortgage transaction between PNB and Spouses Montealegre. PNB then elevated the case to the Supreme Court, arguing that the CA had erroneously altered the RTC’s decision by reversing the pronouncement that PNB was a mortgagee in good faith and that its mortgage lien was carried over to the new title issued to Spouses Marañon.

The Supreme Court denied PNB’s petition, affirming that while PNB’s status as a mortgagee in good faith had been settled by the RTC’s decision, this status did not entitle them to the rental income from the property. The Court emphasized the doctrine of immutability of judgments, stating that a final judgment becomes immutable and unalterable, and may no longer be modified, even if the modification is meant to correct erroneous conclusions of fact or law. This principle ensures stability and finality in judicial pronouncements.

According to the Court, rent is a civil fruit that belongs to the owner of the property producing it. The Court cited Article 442 of the Civil Code, defining civil fruits as “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.” Consequently, the rightful recipient of the rent should be the owner of the land at the time the rent accrued, which in this case was Spouses Marañon, as they never lost ownership over the subject lot due to the fraudulent transfer.

The Court further explained that the protection afforded to PNB as a mortgagee in good faith only extended to the right to have its mortgage lien carried over and annotated on the new certificate of title issued to Spouses Marañon. The purpose of this is to allow PNB to enforce its lien through foreclosure proceedings in case of non-payment of the secured debt. However, this principle does not override the fundamental right of ownership and the entitlement to the fruits of that ownership.

The Court clarified the application of Article 2127 of the Civil Code, which states that a mortgage extends to the natural accessions, improvements, growing fruits, and rents or income not yet received when the obligation becomes due. According to the Court, this provision is predicated on the presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the principal. In this case, the mortgagors, Spouses Montealegre, were not the true owners of the subject lot, and therefore, the foreclosure proceedings could not have included the building on the land and the rent it yielded.

In its decision, the Supreme Court emphasizes the fundamental principle that ownership carries with it the right to enjoy the fruits of the property. PNB’s status as a mortgagee in good faith does not override the right of Spouses Marañon, the true owners, to the rental income from their property. The Court balanced the need to protect mortgagees in good faith with the equally important principle of upholding property rights and preventing unjust enrichment.

FAQs

What was the key issue in this case?	The key issue was determining who was entitled to the rental income of a property when the title was fraudulently transferred and the property was subsequently mortgaged and foreclosed. The dispute was between the original owners and the bank that acted as a mortgagee in good faith.
Who were the parties involved?	The parties involved were Philippine National Bank (PNB), as the mortgagee and purchaser of the foreclosed property, and Spouses Bernard and Cresencia Marañon, the original and rightful owners of the property.
What was PNB’s argument in the case?	PNB argued that as a mortgagee in good faith and the purchaser of the property after foreclosure, it was entitled to the rental income. PNB also invoked the principle that its mortgage lien should be respected and carried over to the new title issued to Spouses Marañon.
What did the Supreme Court rule regarding the rental income?	The Supreme Court ruled that Spouses Marañon, as the rightful owners of the property, were entitled to the rental income. The Court held that the right to enjoy the civil fruits of the property belongs to the owner.
What is the doctrine of immutability of judgments?	The doctrine of immutability of judgments states that a final judgment is unalterable and may no longer be modified, even if the modification is meant to correct errors of fact or law. This promotes stability and finality in judicial pronouncements.
How did Article 2127 of the Civil Code apply to this case?	The Court clarified that Article 2127, which extends a mortgage to accessions and accessories, is predicated on the mortgagor being the true owner. Since the Montealegres fraudulently obtained the title, the mortgage did not extend to the building and its rental income.
What does it mean to be a mortgagee in good faith?	A mortgagee in good faith is a lender who, in accepting a mortgage, acts without knowledge or suspicion that the mortgagor’s title is defective. This status generally protects the mortgagee’s lien on the property.
What was the significance of the fraudulent transfer in this case?	The fraudulent transfer was critical because it meant that the mortgagors, Spouses Montealegre, were not the true owners of the property. This invalidated their claim to the building and its rental income, ultimately favoring Spouses Marañon.

The Supreme Court’s decision in Philippine National Bank vs. Spouses Marañon clarifies the rights of parties in cases involving fraudulent property transfers, mortgages, and foreclosure. It reinforces the principle that while mortgagees in good faith are protected, property rights and the entitlement to the fruits of ownership are paramount. This ruling serves as a reminder of the importance of conducting thorough due diligence in property transactions to avoid disputes and protect the interests of all parties involved.

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 BERNARD AND CRESENCIA MARAÑON, G.R. No. 189316, July 01, 2013