G.R. No.

L-15128

August 25, 1960

CECILIO DIEGO, plaintiff-appellee,

vs.
SEGUNDO FERNANDO, defendant-appellant.
Facts:
Segundo Fernando, defendant, executed a Deed of Mortgage in favor of the plaintiff,
Cecilio Diego over two parcels of lands to secure a loan of P2,000.00 without interest,
payable within four years from the date of the execution of the instrument. After the
execution, the possession of the mortgaged properties was turned over to Diego.
For failure to pay the loan after four years, Diego filed an action for foreclosure of
mortgage. Fernando contended that the true transaction between him and Diego was one
of antichresis and not of mortgage and that the plaintiff had already received a total of
120 cavans of palay from the the properties given as security, which, are at the rate of
P10 per cavan, represented the value of P5,200, his debt had already been paid with the
plaintiff owing him a refund of P2,720.
The lower court ruled in favor of the plaintiff stating that there was nothing in the deed
of mortgage to show that it was not a true contract of mortgage and that the fact that the
possession of the properties were turned over to the mortgagee did not alter the
transaction; that the parties intended that the mortgagee would collect the fruits of the
properties as interest on the loan, which agreement is common.
Issue: Whether the contract between the parties is one of mortgage or antichresis
Held: The contract between the parties is one of mortgage.
Fernando alleged that the fact that the loan was without interest and that the
possession of the properties were transferred to Diego reveals the true transaction
between them as one of antichresis. However, the Court ruled that it is not an essential
contract of mortgage that the possession of the properties will be retained by the
mortgagor. And that to be antichresis, it must be expressly agreed between creditor and
debtor that the former, having been given possession of the properties given as security,
is to apply their fruits to the payment of the interest, if owing, and thereafter to the
principal of his credit (Art. 2132, Civil Code) so that if a contract of loan with security does
not stipulate the payment of interest but provides for the delivery to the creditor by the
debtor of the property given as security, in order that the latter may gather its fruits,
without stating that said fruits are to be applied to the payment of interest, if any, and
afterwards that of the principal, the contract is a mortgage and not antichresis.
However, the Court further ruled that the above conclusion does not mean that Diego,
having received the fruits of the properties will be allowed to appropriate them for himself
and not be required to account for them to Fernando because the contract of mortgage

clearly provided that the loan was without interest within four years from the date of the
instrument and that there was no evidence that the parties intended to supersede such
stipulation.

The true position off the appellee herein under his contract with appellant is a "mortgage in
possession" that is "one who has lawfully acquired actual or constructive possession of the premises
mortgaged to him, standing upon his rights as mortgagee and not claiming under another title, for the
purpose of enforcing his security upon such property or making its income help to pay his debt". As such
mortgagee in possession, his rights and obligations are, similar to those of an antichretic creditor: In the
present case, the parties having agreed that the loan was to be without interest, and the appellant not
having expressly waived his right to the fruits of the properties mortgaged during the time they were in
appellee's possession, the latter, like an antichretic creditor, must account for the value of the fruits
received by him, and deduct it from the loan obtained by appellant. According to the findings of the trial
court, appellee had received a net share of 55 cavans of palay out of the mortgaged properties up to the
time he filed the present action; at the rate of P9.00 per cavan (a rate admitted by the parties), the total
value of the fruits received by appellee is P495.00. Deducting this amount from the loan of P2,000.00
received by appellant from appellee, the former has only P1,505.00 left to pay the latter.
G.R. Nos. L-43673 and 43674

October 24, 1938

LICERIO LEGASPI and JULIAN SALCEDO, plaintiffs-appellants,

vs.
DAMASO CELESTIAL, defendant-appellee.
Facts:
The plaintiffs brought an action against the defendant in the justice of peace court
praying that the judgment be rendered, ordering that the defendant pay the sum of
P556.160. The defendant answered the complaint admitting that he was disposed to pay
the said debt but assailed that the contract entered between him and the plaintiffs was
one of antichresis and that the latter were bound to account of the products of the salt
beds (mortgaged properties). The justice of peace ordered the defendant to pay the said
debt with legal interest from the date when the action was filed.

Plaintiffs then filed another complaint in the Court of First Instance praying that the same defendant
Damaso Celestial be ordered to pay them the sum of P7,637, with the legal interest thereon from the date
of the filing of the complaint, until fully paid, and the costs of the suit, and that, upon his failure to do
so, the mortgage constituted by said defendant in their favor to secure the payment of the loan in
question be ordered foreclosed. The defendant answered the complaint stating that he never refused to
pay the debt but the plaintiffs should have rendered to the defendant an account of the said product of
the mortgaged properties so that they may be applied to the payment of the loan.
Plaintiffs contended that the salt gathered from the 60 salt beds was for the exclusive use, benefit
and enjoyment of the plaintiffs who were not obliged to submit to the defendant a liquidation of the salt
produced and gathered, in order that the same may be deducted from the principal.

Issue: Whether the contract between the parties is that of mortgage or antichresis
Held:
There were two contracts that were entered into by the parties. One was entitled Contract of
Antichresis and the other as Contract of Mortgage. However, the Court noted that in both contracts,
the defendant Damaso Calestial, as debtor, agrees to turn over to the plaintiffs, as creditors, the
possession of the salt beds so that the latter, after paying the expenses for the production, administration
and harvest of the salt with one-half of the produce, may keep the other half of the use, benefit and
enjoyment. It is not stipulated that the net produce of the salt beds shall first be applied to the payment
of the interest, if any, and afterwards to that of the principal of their credit. Both contracts merely
provide that the creditors shall keep one-half of the products. Therefore, they are not contracts of
antichresis, as defined by article 1881 of the Civil Code.
In a contract of mortgage, the mortgagor, as a general rule, retains the possession of the property
mortgaged as security for the payment of the sum of money borrowed from the mortgagee, and pays the
latter a certain per cent thereof as interest on his principal by way of compensation for his sacrifice in
depriving himself of the use of said money and the enjoyment of its fruits, in order to give them to the
mortgagor. Inasmuch as it is not an essential requisite of the contract of mortgage that the property
mortgaged remain in the possession of the mortgagor (article 1857 of the Civil Code), the latter may
deliver said property to the mortgagee, without thereby altering the nature of the contract. It not being an
essential requisite of said contract of mortgage that the principal of the mortgage credit bear interest, or
that the interest, as compensation for the use of the principal and enjoyment of its fruits, be in the form
of a certain per cent thereof, such interest may be in the form of fruits of the property mortgage, without
the contract's longing thereby its character of a mortgage contract. It is stipulated in the contracts under
consideration that, during the term thereof and while the total amount of the loan remains unpaid by the
debtor, the salt beds constituted as security for the payment of said loan, shall be administered by the
creditors who shall destine one-half of the products thereof for the maintenance and support of the
croppers and the improvements of the property, keeping the other half for themselves. It appears,
therefore, that the debtor, instead of paying a certain per cent of the principal of the loan as
compensation for the sacrifice made by the creditors in depriving themselves of the use of their principal
and the enjoyment of its fruits, so as to give them to the debtor, has delivered to them the property
constituted as a security for the payment of the loan, so that they may administer and use it, enjoying its
fruits, by way of compensation for their said sacrifice in lending said debtor their money. Therefore, the
contracts, which are the subject matter of this action, have all the essential requisites of a mortgage,
enumerated in article 1857 of the Civil Code and, consequently, are mortgage contracts.
From the foregoing considerations, this court is of the opinion and so holds, that when a contract of
loan with security does not stipulate the payment of interest but provides for the delivery to the creditor
by the debtor of the real property constituted as security for the payment thereof, in order that the
creditor may administer the same and avail himself of its fruits, without stating that said fruits are to be
applied to the payment of interest, if any, and afterwards to that of the principal of the credit, the contract
shall be considered to be one of mortgage and not of antichresis.
G.R. No. 46623 December 7, 1939

MARCIAL KASILAG, petitioner,

vs.
RAFAELA RODRIGUEZ, URBANO ROQUE, SEVERO MAPILISAN and IGNACIO DEL
ROSARIO, respondents.
Facts:
The respondents, the heirs of Emiliana Ambrosio sought to recover from the petitioner,
Marcial Kasilag, the possession of a land and its improvements granted by way of
homestead to Emiliana and that the petitioner should pay the P650 which is the value of
the fruits which he received from the land and that the petitioner shall sign the necessary
documents to transfer the land and its possession to the respondents.
The petitioner denied all the material allegations stating that he was in the possession
of the land and that he was receiving the fruits thereof by virtue of a mortgage contract
entered into between him and Emiliana and in a counterclaim asked the respondents to
pay him P1000 with 12% interest per annum which the deceased owed him and that
should the respondents be granted the better right possession of the land, they should pay
him P5000, the amount of the improvements he made on the land.
Emiliana Ambrosio and Marcial Kasilag entered into a mortgage contract to secure a
loan of P1000 with interest at 12% per annum payable within four and a half years after
the execution of the instrument. One year after the execution of the deed, it came to pass
to Emiliana that she would be unable to pay the stipulated interest so the parties entered
into a verbal contract that the possession of the land would be conveyed to Marcial on the
condition that the latter would not collect the interest on the loan, would attend to the
payment of the land tax, would benefit on the fruits of the land and would introduce
improvements thereon. By virtue of this verbal contract, Marcial did not collect the
interest, gathered the fruits of the land and made improvements thereon and
subsequently the tax declaration was transferred in his name.
After analysis of the conditions agreed upon by the parties, the Court of Appeals ruled
that the contract entered into by the parties is one of absolute sale of the land and its
improvements. And upon this ruling, it held null and void and with no legal effect the
Mortgage Contract as well as the subsequent verbal contract of the parties, however,
ordering the respondents to pay the petitioner the loan of P1000 with legal interest of 6%
per annum.
Issue: Whether the Court of Appeals erred in ruling that the contract entered into by
Emiliana and Marcial is one of absolute deed of sale of the land and its improvements and
that the mortgage is void and without any legal effect
Held: The contract of mortgage is valid and binding.
The Court ruled that the word used by the parties in the contract clearly shows that
they intended to enter into a principal contract of loan and into an accessory contract of
mortgage of the improvements on the land acquired as homestead. And as a cardinal rule
in the interpretation of contracts is to the effect that the intention of the parties should
always prevail because their will has the force of law between them.

It will be recalled that by clause VIII of the contract, the parties agreed that should
Emiliana Ambrosio fail to redeem the mortgage within the stipulated period of four and a
half years, by paying the loan together with interest, she would execute in favor of the
petitioner an absolute deed of sale of the land for P1,000, including the interest stipulated
and owing. The stipulation was verbally modified by the same parties after the expiration
of one year, in the sense that the petitioner would take possession of the land and would
benefit by the fruits thereof on condition that he would condone the payment of interest
upon the loan and he would attend to the payment of the land tax. These pacts made by
the parties independently were calculated to alter the mortgage a contract clearly entered
into, converting the latter into a contract of antichresis. (Article 1881 of the Civil Code.)
The contract of antichresis, being a real encumbrance burdening the land because they
are prohibited by section 116 of Act No. 2874, is illegal and void.
Section 116 of Act No. 2874
Section 116. Except in favor of the Government or any of its branches, units or
institutions, or legally constituted banking corporations, lands acquired under the free
patent or homestead provisions shall not be subject to encumbrance or alienation from the
date of the approval of the application and for a term of five years from and after the date
of issuance of the patent or grant, nor shall they become liable to the satisfaction of any
debt contracted prior to the expiration of said period; but the improvements or crops on
the land may be mortgaged or pledged to qualified persons, associations, or corporations.
(As amended by section 23 of Act No. 3517).