Short answer. Yes. Article 2127 provides that a mortgage extends to the amount of the indemnity granted or owing to the owner in virtue of expropriation for public use. So when the government takes your mortgaged land and pays compensation, the mortgage attaches to that money, standing in place of the land taken.
What the law says
the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use
Civil Code, Article 2127 — Extent of the Mortgage. Read the full provision →
The mortgage reaches the expropriation indemnity
A mortgage is not confined to the bare land. Article 2127 spells out how far it reaches, and one item is directly on point: the mortgage extends to the amount of the indemnity granted or owing to the proprietor ... in virtue of expropriation for public use. When the State exercises its power of eminent domain over mortgaged property, it must pay the owner just compensation. That compensation takes the economic place of the land. Rather than let the mortgagee's security simply vanish when the land is taken, the law channels the mortgage onto the money paid for it.
Why the law does this
The rule protects the creditor's security through a change in the property's form. A mortgage gives the lender a claim against a specific asset. If expropriation could strip that asset away and hand the owner cash free of the mortgage, the lender's protection would collapse the moment the government stepped in. Article 2127 prevents that by treating the indemnity as a substitute for the land — a principle of subrogation. The value the mortgagee bargained for is preserved; it just now exists as the compensation fund instead of the physical property.
The same idea covers insurance and other items
Expropriation is only one of several things the article sweeps in. The mortgage also extends to natural accessions, to improvements, growing fruits, to rents or income not yet received when the obligation becomes due, and to the indemnity ... from the insurers of the property mortgaged. The common thread is that whatever is naturally added to the property, or paid in place of it when it is damaged or taken, generally falls within the mortgage. So an insurance payout for the mortgaged property is treated much like the expropriation indemnity — it stands in for the property and answers to the mortgage.
What this means for you
If your mortgaged land is expropriated, do not assume the compensation is yours to keep free and clear while the loan remains unpaid. The mortgagee's claim follows the money, subject to the declarations, amplifications and limitations established by law. In practice this means the creditor may look to the indemnity to satisfy the secured debt. The protection also runs whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person, so transferring the property does not shake off the mortgage's reach over these substitute values.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Philippine National Bank vs. Sps. Bernard and Cresencia Marañon, G.R. No. 189316, July 1, 2013 — read the decision on LawPhil →
- Midway Maritime and Technological Foundation, represented by its Chairman/President PhD in Education, Dr. Sabino M. Manglicmot vs. Marissa E. Castro, et al, G.R. No. 189061, August 6, 2014 — read the decision on LawPhil →
- Star Two (SPV-AMC), Inc. vs. Paper City Corporation of the Philippines, G.R. No. 169211, March 6, 2013 — read the decision on LawPhil →
- Bienvenido C. Teoco, et al. vs. Metropolitan Bank and Trust Co, G.R. No. 162333, December 23, 2008 — read the decision on LawPhil →