ISAGUIRRE V.

DE LARA
G.R. No. 138053
Gonzaga-Reyes, J.

FACTS: Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales
Application over a parcel of land identified as a portion of Lot 502, Guianga Cadastre, with an
area of 2,342 square meters filed with the Bureau of Lands. Felicitas, his wife, succeeded
Alejandro as claimant after the latters death. By virtue of a subdivision survey, the area was
reduced to 1,000 square meters on which a two-story residential-commercial apartment stands, in
the name of Felicitas sons, Apolonio and Rodolfo de Lara. While encountering financial
difficulties in 1953, Felicitas approached Cornelio M. Isaguirre (who was married to her niece)
and executed a document denominated as "Deed of Sale and Special Cession of Rights and
Interests" where she sold a 250 meter portion of Lot 502 with the two-story commercial-
residential structure standing thereon, for and in consideration of the sum of P5,000.00. On
August 21, 1969, Cornelio filed a sales application over the property based on the deed of sale,
resulting in the issuance of an Original Certificate of Title (OCT), in his name. Meanwhile, the
sales application of Felicitas over the entire 1,000 square meter property (including the 250
meter portion claimed by Cornelio) was also approved, and an OCT was issued in her name as
well. Because of the overlap, Cornelio filed an action for quieting of title in RTC Davao against
Felicitas on May 1990. The trial court decided in favor of Cornelio, which declared him as the
lawful owner of the property. However, the Court of Appeals reversed the decision holding that
the transaction entered into by the parties was an equitable mortgage, not a sale, due to the
inadequacy of the consideration and because the payment thereof was made in several
installments of minimal amounts. The OCT in Cornelios name was thereby declared null and
void. Such decision was affirmed by the Supreme Court in GR. No. 120823. Felicitas, then,
sought for a writ of possession from the trial court. This was opposed by Cornelio stating that he
had the right of retention over the property until payment of the loan and the value of the
improvements he had introduced on the property. RTC Davao granted the motion for writ of
possession in favor of Felicitas. Upon appeal, the Court of Appeals held that petitioner was not
entitled to retain possession of the subject property, because the agreement entered into by the
parties was an equitable mortgage; as such, there is no necessity for Cornelio to actually possess
the property because, as the mortgagee, he only has to annotate his claim at the back of the
certificate of title in order to protect his rights against third persons and secure the debt.
Furthermore, the Court of Appeals remanded the case to RTC Davao for its failure to specify the
period within which the mortgagor (Felicitas) must pay the indebtedness and the total amount
thereof with interest, plus necessary expenses incurred by Cornelio over the property. Cornelio
appeals to the Supreme Court.

ISSUE: Whether or not petitioner is entitled to retain possession of the property until the
payment of the loan and the value of necessary and useful improvements he made upon the
property

HELD: No. As a rule, mortgagor retains possession of the mortgaged property since a mortgage
is merely a lien and title to the property does not pass to the mortgagee. Even if a mortgagee does
not have the possession over the property, there is no impairment of his security since the
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. The
mortgage creditor may institute an action to foreclose the mortgage, if the debtor is unable to
pay, whether judicially or extrajudicially, through which the mortgaged property will be sold at a
public auction and the proceeds therefrom given to the creditor to the extent necessary to
discharge the mortgage loan. Furthermore, the Supreme Court cited Alvano v. Batoon, where it
was held that [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. Cornelio had
not presented any evidence to that effect. Also, the Court held that Cornelio was a possessor in
bad faith; thereby, he may only claim reimbursement for necessary expenses because he knew
from the very beginning that he held Felicitas property as mere security for the loan obligation.