Case Summary (G.R. No. 4373)

Inclusion of Improvements in Mortgage

The legal principle established by the Civil Code and the Mortgage Law states that a mortgage of real estate inherently includes improvements made to the property. This encompasses all objects that are permanently affixed to the mortgaged land or building, regardless of whether they were added after the mortgage was established. Relevant articles from the Mortgage Law (Articles 110 and 111) and the Civil Code (Article 1877) support this interpretation, aligning with decisions from U.S. courts, such as the Supreme Court's ruling in Royal Insurance Co. vs. R. Miller.

• Mortgage includes improvements and fixtures.
• Permanent attachments are included, regardless of when added.
• Supported by Civil Code and Mortgage Law.

Exclusion of Machinery and Other Objects

For machinery and other items to be excluded from a mortgage, there must be a clear stipulation between the contracting parties indicating such exclusion. If the mortgage explicitly states that improvements, buildings, and machinery are included, then any exclusion must be expressly agreed upon. This requirement ensures clarity in the rights and obligations of both the mortgagor and the mortgagee.

• Exclusion requires explicit agreement between parties.
• Machinery included unless specifically excluded in the mortgage.
• Clarity in rights and obligations is essential.

Rights of Disposal and Mortgage Encumbrance

Even if the owner of a mortgaged property has the right to sell or dispose of it, such actions do not eliminate the existing mortgage encumbrance. The rights of the creditor take precedence, and any purchaser must acknowledge the mortgage. This principle ensures that the creditor can recover their debt from the value of the property, regardless of subsequent transactions involving the property.

• Owner can dispose of property but remains encumbered by mortgage.
• Creditor's rights limit the owner's rights.
• Purchaser must respect existing encumbrances.

Case Background and Allegations

Samuel Bischoff claimed ownership of a steam sugar mill and associated equipment located at Hacienda San Jose, which he alleged was unlawfully taken by the defendants, Compaia General de Tabacos and Juan Pomar, who acted as a receiver for Romana Ganzon’s property. Bischoff sought the return of his property and damages for its use. The defendants countered with evidence of a series of mortgages that included the property in question, asserting that Bischoff was aware of these encumbrances prior to his purchase.

• Bischoff claimed unlawful possession of his property.
• Defendants asserted property was part of a mortgage.
• Bischoff was aware of existing mortgages before purchase.

Court's Findings and Judgment

The lower court ruled that the steam sugar mill and its components were included in the mortgage executed by Romana Ganzon in favor of Lazaro Mota, which was later transferred to Compaia General de Tabacos. The court absolved the defendants of the complaint, allowing Bischoff to pursue any claims against Ganzon for the amount he paid for the property. The court's decision was based on the understanding that the improvements were included in the mortgage, regardless of their specific mention in the mortgage documents.

• Court found property included in the mortgage.
• Defendants were absolved of liability.
• Bischoff retains right to pursue claims against Ganzon.

Legal Principles on Mortgaged Property

The court emphasized that improvements and fixtures are included in a mortgage unless explicitly excluded. The relevant legal provisions affirm that a mortgage extends to all improvements, including machinery and fixtures, unless there i...continue reading