ISAGUIRRE V. DE LARAG.R. No. 138053Gonzaga-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.