G.R. Nos. 46898-99 November 28, 1989
PHILIPPINE NATIONAL BANK, petitioner, vs. HON. RUSTICO DE LOS REYES, AMANDO ARANA and JULIA REYES, respondents.

FACTS

Respondent spouses Amando Arana and Julia Reyes mortgaged six parcels of land to the Philippine National Bank (PNB) to secure a loan. Two parcels were covered by free patent titles, while four were untitled and only had tax declarations. Upon the spouses’ default, PNB extrajudicially foreclosed the mortgage, purchased the properties at auction, and consolidated ownership after the redemption period. PNB then agreed to sell the lands to a third party, Gerardo Badong. The respondent spouses filed an action for legal redemption, invoking Section 119 of the Public Land Act, and deposited the redemption price with the court. They argued the mortgage was indivisible, granting them the right to redeem all six parcels. PNB conceded the right to redeem the two titled parcels but contested the redemption of the four untitled lots.
During the pendency of the redemption case, PNB filed a separate ex parte petition for a writ of possession over two of the untitled lots, which was granted. The trial court later heard the main redemption case and the contempt proceedings stemming from the spouses’ defiance of the writ jointly. The court ruled in favor of the spouses, applying the doctrine of indivisibility of mortgage to allow redemption of all six parcels and dismissing the contempt charge. PNB appealed this decision.

ISSUE

The primary issue is whether the respondent spouses are entitled to redeem all six mortgaged parcels, including the four untitled lots, based on the indivisibility of the mortgage and the application of the Public Land Act.

RULING

The Supreme Court affirmed the trial court’s decision with modification. On the issue of indivisibility, the Court held that a mortgage is indivisible under Article 2085 of the Civil Code. The entirety of the mortgaged property remains answerable for the total debt until full payment, even if partially foreclosed. Therefore, the respondent spouses correctly exercised their right of redemption over all six parcels as a single obligation secured by the entire set of properties.
Regarding the four untitled lots, the Court modified the ruling. It found that the mortgage over these untitled parcels was void from the beginning. The lots were part of the public domain, and the spouses, as mere applicants for free patents, had no alienable rights to them that could be validly mortgaged under the Public Land Act. Consequently, no foreclosure could legally attach to these properties. The Court ordered the parties to be restored to their original positions concerning these four lots, with PNB returning any payments received and the spouses reimbursing PNB for any fruits or income derived. The Court declined to apply the in pari delicto doctrine strictly, noting an exception exists for contracts prohibited by law for the protection of a party, as is the case with public land laws designed to protect homesteaders. The decision to allow redemption of the two validly mortgaged titled parcels was upheld.