FACTS:

Cabanatuan City Colleges obtained a loan secured by a real estate mortgage on two parcels of land. While the mortgage was still in effect, the college agreed to lease a portion of the encumbered property to the petitioners, who built a residential house on it with the knowledge of the mortgagee. The college defaulted on the loan, the mortgage was foreclosed, and the property was sold to the mortgagee, later assigned to the private respondent. Following the expiration of the redemption period, the private respondent filed for a writ of possession not only over the land and school buildings but also the residential house. The trial court granted the motion and ordered the occupants to vacate. The petitioners opposed, claiming ownership of the residential house.

ISSUES:

1. Whether or not a residential house built by a lessee on a portion of a leased property, which was previously encumbered under a real estate mortgage, can be covered by a writ of possession following the foreclosure sale.

RULING:

1. The Supreme Court ruled in favor of the petitioners. Article 2127 of the Civil Code states that a mortgage extends to accessions and improvements on the mortgaged property. However, it is a settled rule that the improvements are considered part of the mortgage only if owned by the mortgagor. Since the petitioners were the owners of the residential house, they could not be ousted based on a petition for a writ of possession under Act No. 3135. The foreclosure would be ineffective unless the mortgagor has title to the property to be foreclosed. Therefore, the inclusion of the residential house in the writ of possession was improper.

PRINCIPLES:

• A mortgage extends to accessions and improvements on the mortgaged property.

• Improvements are considered part of the mortgage only if owned by the mortgagor.

• Foreclosure would be ineffective unless the mortgagor has title to the property to be foreclosed.