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redemption as decreed by the court. sale could not have any impairing effect upon its rights as
Ruperta Lavilles mortgaged a 48.965 square meter-parcel mortgagee. After all, a real mortgage is merely an
of land situated in Passi, Iloilo to the PNB as security for a Issue: encumbrance; it does not extinguish the title of the debtor,
loan of P1,800.00. The mortgage was duly recorded. 1. Appellant's stand is that her undivided interest whose right to dispose — a principal attribute of ownership
consisting of 20,000 square meters of the — is not thereby lost.14 And, on the assumption that PNB
while the mortgage above-described was in full force and mortgaged lot, remained unaffected by the recognized the efficaciousness of the sale by Ruperta
effect, and without PNB's knowledge and consent, Ruperta foreclosure and subsequent sale to PNB. Because, Lavilles of a portion of the mortgaged land to Primitiva
Lavilles sold the appellant Primitiva Mallorca 20,000 so she argues, she was not a party to the real Mallorca, which Lavilles "had the right to make" and which
square meters of the mortgaged land. estate mortgage in favor of PNB, and she "neither anyway PNB "cannot oppose", PNB cannot be prejudiced
secured nor contracted a loan" with said bank. thereby, for, at all events, "such sale could not affect the
Mallorca moved the Iloilo cadastral court to have the sale What PNB foreclosed, she maintains, "was that mortgage, as the latter follows the property whoever the
to her duly annotated on the title,3 and, for the purpose, to portion belonging to Ruperta Lavilles only," not possessor may be."15
require PNB to surrender the owner's copy of TCT 27070 the part belonging to her.
to the Register of Deeds On Primitiva Mallorca's part, she cannot rightfully deny the
Ruling mortgage lien on the portion of the land she purchased.
The court order of February 3, 1958 directed PNB to First. Registration of the mortgage in the Register of Deeds
deliver said TCT 27070 to the Register of Deeds, and Appellant's position clashes with precepts well-entrenched is notice to all persons of the existence thereof.16 Second.
warned that "[t]he mortgage in favor of the Philippine in law. By Article 2126 of the Civil Code,7 a "mortgage By express provision of Section 39 of the Land
National Bank is duly registered in the Office of the directly and immediately subjects the property upon Registration Act, "every subsequent purchaser of registered
Register of Deeds and to whomsoever the land is sold the which it is imposed, whoever the possessor may be, to land who takes a certificate of title for value in good faith
vendee will assume the responsibility of complying with the fulfillment of the obligation for whose security it shall hold the same free of all encumbrance except those
the provisions of the mortgage." was constituted." Sale or transfer cannot affect or release noted on said certificate."17 Clear implication exists that if
the mortgage. A purchaser is necessarily bound to an encumbrance is so noted, that purchaser is bound
The Register of Deeds then cancelled TCT 27070, issued a acknowledge and respect the encumbrance to which is thereby. Third. Mallorca herself petitioned the court to
new one, TCT 24256, making two co-owner's copies of the subjected the purchased thing and which is at the order PNB to deliver the owner's copy of TCT 27070 to the
title — one each for Ruperta Lavilles and for Primitiva disposal of the creditor "in order that he, under the Register of Deeds for annotation of Mallorca's interest, as
Mallorca. PNB's mortgage lien was annotated on both terms of the contract, may recover the amount of his heretofore adverted to. And the court, in giving its stamp of
copies. credit therefrom."8 For, a recorded real estate is a right in approval to the petition, expressly directed that "to
rem, a lien on the property whoever its owner may be.9 whomsoever the land is sold the vendee will assume the
Ruperta Lavilles failed to pay her mortgage debt. PNB, on Because the personality of the owner is disregarded; the responsibility of complying with the provisions of the
April 16, 1958 foreclosed the mortgage extrajudicially. On mortgage subsists notwithstanding changes of ownership; mortgage." Fourth. Mallorca's own co-owner's copy of the
May 12, 1958, a certificate of sale was issued to PNB as the the last transferee is just as much of a debtor as the first title issued to her carried PNB's mortgage lien. Fifth. The
highest bidder in the foreclosure sale one; and this, independent of whether the transferee knows fact that Mallorca failed to exercise her right of redemption,
or not the person of the mortgagee.10 So it is, that a which she sought to enforce in a judicial court, ends her
Mallorca sued PNB to enforce her right of redemption with mortgage lien is inseparable from the property interest to the land she claims, and, doubtless, estops her
damages mortgaged. All subsequent purchasers thereof, must from denying PNB's mortgage lien thereon.
respect the mortgage, whether the transfer to them be
LC with or without the consent of the mortgagee. For, the
-dismissed claim for damages but declaring Mallorca VICTORIA YAU CHU, assisted by her husband
mortgage, until discharge, follows the property.11 MICHAEL CHU, petitioners,
"entitled to exercise her right of redemption with respect to
the 20,000 square meters sold to her by Ruperta Lavilles vs.
And then, militating against appellant's cause is one other HON. COURT OF APPEALS, FAMILY SAVINGS
within the period specified by law." special feature of a real mortgage — its indivisibility.12 BANK and/or CAMS TRADING ENTERPRISES, INC.
This Court has understood mortgage indivisibility in the
sense that each and every parcel under mortgage answers
Mallorca's appeal from this judgment was, on June 18, for the totality of the debt.13
1960, denied by the lower court — it was filed out of time.
Her move to reconsider was rejected. She then went to the Since 1980, the petitioner, Victoria Yau Chu, had been
Court of Appeals on mandamus. On January 14, 1961, the It does not really matter that the mortgagee, as in this case, purchasing cement on credit from CAMS Trading
appellate court denied the same for lack of merit.5 did not oppose the subsequent sale. Naturally, because the Enterprises, Inc. (hereafter "CAMS Trading" for brevity).
sale was without PNB's knowledge. Even if such To guaranty payment for her cement withdrawals, she
executed in favor of Cams Trading deeds of assignment of maturity. The prohibition against a pacto commissorio is Binauganan, Tarlac City and covered by TCT No.
her time deposits in the total sum of P320,000 in the Family intended to protect the obligor, pledgor, or mortgagor
297840.1[1]
Savings Bank (hereafter the Bank). Except for the serial against being overreached by his creditor who holds a
numbers and the dates of the time deposit certificates, the pledge or mortgage over property whose value is much
deeds of assignment, which were prepared by her own more than the debt. Where, as in this case, the security for
lawyer, uniformly provided — the debt is also money deposited in a bank, the amount of
which is even less than the debt, it was not illegal for the
creditor to encash the time deposit certificates to pay the On February 12, 2001, petitioners and respondent
... That the assignment serves as a
collateral or guarantee for the payment debtors' overdue obligation, with the latter's consent. executed an Amendment to Amended Real Estate
of my obligation with the said CAMS Mortgage2[2] consolidating their loans inclusive of charges
TRADING ENTERPRISES, INC. on Whether the debt had already been paid as now alleged by
account of my cement withdrawal from the debtor, is a factual question which the Court of Appeals thereon which totaled P5,916,117.50. On even date, the
said company, per separate contract found not to have been proven for the evidence which the parties executed a Dacion in Payment Agreement 3 [3]
executed between us. debtor sought to present on appeal, were receipts for
payments made prior to July 18, 1980. Since the petitioner wherein petitioners assigned the properties covered by
On July 24,1980, Cams Trading notified the Bank that Mrs. signed on July 18, 1980 a letter admitting her indebtedness TCT No. 297840 to respondent in settlement of their total
Chu had an unpaid account with it in the sum of to be in the sum of P404,500, and there is no proof of
payment made by her thereafter to reduce or extinguish her obligation, and a Memorandum of Agreement4[4] reading:
P314,639.75. It asked that it be allowed to encash the time
deposit certificates which had been assigned to it by Mrs. debt, the application of her time deposits, which she had
Chu. It submitted to the Bank a letter dated July 18, 1980 of assigned to the creditor to secure the payment of her debt,
Mrs. Chu admitting that her outstanding account with Cams was proper. The Court of Appeals did not commit a
Trading was P404,500. After verbally advising Mrs. Chu of reversible error in holding that it was so.
the assignee's request to encash her time deposit certificates
and obtaining her verbal conformity thereto, the Bank Sps Ong v. Roban Lending That the FIRST PARTY
agreed to encash the certificates.It delivered to Cams [Roban Lending Corporation] and
Trading the sum of P283,737.75 only, as one time deposit the SECOND PARTY [the
DECISION petitioners] agreed to consolidate
certificate (No. 0048120954) lacked the proper signatures.
Upon being informed of the encashment, Mrs. Chu and restructure all aforementioned
demanded from the Bank and Cams Trading that her time loans, which have been all past due
deposit be restored. When neither complied, she filed a and delinquent since April 19,
complaint to recover the sum of P283,737.75 from them. 2000, and outstanding obligations
The case was docketed in the Regional Trial Court of totaling P5,916,117.50. The
Makati, Metro Manila (then CFI of Rizal, Pasig Branch SECOND PARTY hereby sign
CARPIO MORALES, J.: [sic] another promissory note in the
XIX), as Civil Case No. 38861
amount of P5,916,117.50 (a copy
of which is hereto attached and
Ruling: The Court of Appeals found that the deeds of On different dates from July 14, 1999 to March forms xxx an integral part of this
assignment were contracts of pledge, but, as the collateral document), with a promise to pay
was also money or an exchange of "peso for peso," the 20, 2000, petitioner-spouses Wilfredo N. Ong and Edna
the FIRST PARTY in full within
provision in Article 2112 of the Civil Code for the sale of Sheila Paguio-Ong obtained several loans from Roban
the thing pledged at public auction to convert it into money
to satisfy the pledgor's obligation, did not have to be Lending Corporation (respondent) in the total amount of
followed. All that had to be done to convert the pledgor's P4,000,000.00. These loans were secured by a real estate
time deposit certificates into cash was to present them to
the bank for encashment after due notice to the debtor. mortgage on petitioners parcels of land located in
d) Ordering an
accounting on plaintiffs loan
accounts to determine the true and
Petitioners further alleged that they had correct balances on their obligation
In April 2002 (the day is illegible), petitioners
previously made payments on their loan accounts, but against legal charges only; and
filed a Complaint,6[6] docketed as Civil Case No. 9322,
because of the illegal exactions thereon, the total balance e) Ordering
before the Regional Trial Court (RTC) of Tarlac City, for
appears not to have moved at all, hence, accounting was in defendant to [pay] to the plaintiffs:
declaration of mortgage contract as abandoned, annulment --
order.11[11]
of deeds, illegal exaction, unjust enrichment, accounting,
e.1 Moral damages in an amount not less than
and damages, alleging that the Memorandum of Agreement P100,000.00 and exemplary damages of
and the Dacion in Payment executed are void for being P50,000.00;
3. The attorneys fees are reduced to 2. Plaintiff Lydia P. Cuba obtained loans from the
25% of the principal amount only. Development Bank of the Philippines in the
amounts of P109,000.00; P109,000.00; and
P98,700.00 under the terms stated in the
Promissory Notes dated September 6, 1974;
August 11, 1975; and April 4, 1977;
Civil Case No. 9322 is REMANDED to the
3. As security for said loans, plaintiff Lydia P. Cuba
court of origin only for the purpose of receiving evidence executed two Deeds of Assignment of her
on petitioners prayer for accounting. Leasehold Rights;
4. Plaintiff failed to pay her loan on the scheduled 12. After the Notice of Rescission, defendant DBP of Leasehold Rights as a mortgage was obvious and
dates thereof in accordance with the terms of the took possession of the Leasehold Rights of the unmistakable; hence, upon CUBAs default, DBPs only
Promissory Notes; fishpond in question; right was to foreclose the Assignment in accordance with
law.
5. Without foreclosure proceedings, whether judicial 13. That after defendant DBP took possession of the
or extra-judicial, defendant DBP appropriated Leasehold Rights over the fishpond in The trial court also declared invalid condition no. 12 of the
the Leasehold Rights of plaintiff Lydia Cuba question, DBP advertised in the SUNDAY Assignment of Leasehold Rights for being a clear case of
over the fishpond in question; PUNCH the public bidding dated June 24, pactum commissorium expressly prohibited and declared
1984, to dispose of the property; null and void by Article 2088 of the Civil Code. It then
6. After defendant DBP has appropriated the concluded that since DBP never acquired lawful ownership
Leasehold Rights of plaintiff Lydia Cuba over 14. That the DBP thereafter executed a Deed of of CUBAs leasehold rights, all acts of ownership and
the fishpond in question, defendant DBP, in Conditional Sale in favor of defendant possession by the said bank were void. Accordingly, the
turn, executed a Deed of Conditional Sale of Agripina Caperal on August 16, 1984; Deed of Conditional Sale in favor of CUBA, the notarial
the Leasehold Rights in favor of plaintiff Lydia rescission of such sale, and the Deed of Conditional Sale in
Cuba over the same fishpond in question; favor of defendant Caperal, as well as the Assignment of
15. Thereafter, defendant Caperal was awarded Leasehold Rights executed by Caperal in favor of DBP,
Fishpond Lease Agreement No. 2083-A on were also void and ineffective.
7. In the negotiation for repurchase, plaintiff Lydia December 28, 1984 by the Ministry of
Cuba addressed two letters to the Manager Agriculture and Food.
DBP, Dagupan City dated November 6, 1979 As to damages, the trial court found ample evidence on
and December 20, 1979. DBP thereafter record that in 1984 the representatives of DBP ejected
Defendant Caperal admitted only the facts stated in CUBA and her caretakers not only from the fishpond area
accepted the offer to repurchase in a letter paragraphs 14 and 15 of the pre-trial order. iii[3]
addressed to plaintiff dated February 1, 1982; but also from the adjoining big house; and that when
CUBAs son and caretaker went there on 15 September
Trial was thereafter had on other matters. 1985, they found the said house unoccupied and destroyed
8. After the Deed of Conditional Sale was executed and CUBAs personal belongings, machineries, equipment,
in favor of plaintiff Lydia Cuba, a new tools, and other articles used in fishpond operation which
Fishpond Lease Agreement No. 2083-A dated The principal issue presented was whether the act of DBP
in appropriating to itself CUBAs leasehold rights over the were kept in the house were missing. The missing items
March 24, 1980 was issued by the Ministry of were valued at about P550,000. It further found that when
Agriculture and Food in favor of plaintiff fishpond in question without foreclosure proceedings was
contrary to Article 2088 of the Civil Code and, therefore, CUBA and her men were ejected by DBP for the first time
Lydia Cuba only, excluding her husband; in 1979, CUBA had stocked the fishpond with 250,000
invalid. CUBA insisted on an affirmative resolution. DBP
stressed that it merely exercised its contractual right under pieces of bangus fish (milkfish), all of which died because
9. Plaintiff Lydia Cuba failed to pay the the Assignments of Leasehold Rights, which was not a the DBP representatives prevented CUBAs men from
amortizations stipulated in the Deed of contract of mortgage. Defendant Caperal sided with DBP. feeding the fish. At the conservative price of P3.00 per fish,
Conditional Sale; the gross value would have been P690,000, and after
deducting 25% of said value as reasonable allowance for
The trial court resolved the issue in favor of CUBA by the cost of feeds, CUBA suffered a loss of P517,500. It
10. After plaintiff Lydia Cuba failed to pay the declaring that DBPs taking possession and ownership of the
amortization as stated in Deed of Conditional then set the aggregate of the actual damages sustained by
property without foreclosure was plainly violative of CUBA at P1,067,500.
Sale, she entered with the DBP a temporary Article 2088 of the Civil Code which provides as follows:
arrangement whereby in consideration for the
deferment of the Notarial Rescission of Deed The trial court further found that DBP was guilty of gross
of Conditional Sale, plaintiff Lydia Cuba ART. 2088. The creditor cannot appropriate the things bad faith in falsely representing to the Bureau of Fisheries
promised to make certain payments as stated in given by way of pledge or mortgage, or dispose of them. that it had foreclosed its mortgage on CUBAs leasehold
temporary Arrangement dated February 23, Any stipulation to the contrary is null and void. rights. Such representation induced the said Bureau to
1982; terminate CUBAs leasehold rights and to approve the Deed
It disagreed with DBPs stand that the Assignments of of Conditional Sale in favor of CUBA. And considering
11. Defendant DBP thereafter sent a Notice of Leasehold Rights were not contracts of mortgage because that by reason of her unlawful ejectment by DBP, CUBA
Rescission thru Notarial Act dated March 13, (1) they were given as security for loans, (2) although the suffered moral shock, degradation, social humiliation, and
1984, and which was received by plaintiff fishpond land in question is still a public land, CUBAs serious anxieties for which she became sick and had to be
Lydia Cuba; leasehold rights and interest thereon are alienable rights hospitalized the trial court found her entitled to moral and
which can be the proper subject of a mortgage; and (3) the exemplary damages. The trial court also held that CUBA
intention of the contracting parties to treat the Assignment was entitled to P100,000 attorneys fees in view of the
considerable expenses she incurred for lawyers fees and in 5. ORDERING defendant Development Bank of the rights, since she agreed to repurchase the said rights under
view of the finding that she was entitled to exemplary Philippines to pay to plaintiff the following a deed of conditional sale; and (5) condition no. 12 of the
damages. amounts: deed of assignment was an express authority from CUBA
for DBP to sell whatever right she had over the fishpond. It
In its decision of 31 January 1990, iv[4] the trial court a) The sum of ONE MILLION SIXTY-SEVEN also ruled that CUBA was not entitled to loss of profits for
disposed as follows: THOUSAND FIVE HUNDRED PESOS lack of evidence, but agreed with the trial court as to the
(P1,067,500.00), as and for actual actual damages of P1,067,500. It, however, deleted the
damages; amount of exemplary damages and reduced the award of
WHEREFORE, judgment is hereby rendered in favor of moral damages from P100,000 to P50,000 and attorneys
plaintiff: fees, from P100,000 to P50,000.
b) The sum of ONE HUNDRED THOUSAND
1. DECLARING null and void and without any legal (P100,000.00) PESOS as moral damages;
The Court of Appeals thus declared as valid the following:
effect the act of defendant Development Bank (1) the act of DBP in appropriating Cubas leasehold rights
of the Philippines in appropriating for its own c) The sum of FIFTY THOUSAND and interest under Fishpond Lease Agreement No. 2083;
interest, without any judicial or extra-judicial (P50,000.00) PESOS, as and for exemplary (2) the deeds of assignment executed by Cuba in favor of
foreclosure, plaintiffs leasehold rights and damages; DBP; (3) the deed of conditional sale between CUBA and
interest over the fishpond land in question under DBP; and (4) the deed of conditional sale between DBP
her Fishpond Lease Agreement No. 2083 (new); d) And the sum of ONE HUNDRED and Caperal, the Fishpond Lease Agreement in favor of
THOUSAND (P100,000.00) PESOS, as Caperal, and the assignment of leasehold rights executed by
2. DECLARING the Deed of Conditional Sale dated and for attorneys fees; Caperal in favor of DBP. It then ordered DBP to turn over
February 21, 1980 by and between the possession of the property to Caperal as lawful holder of
defendant Development Bank of the Philippines 6. And ORDERING defendant Development Bank of the leasehold rights and to pay CUBA the following
and plaintiff (Exh. E and Exh. 1) and the acts of the Philippines to reimburse and pay to amounts: (a) P1,067,500 as actual damages; P50,000 as
notarial rescission of the Development Bank of defendant Agripina Caperal the sum of ONE moral damages; and P50,000 as attorneys fees.
the Philippines relative to said sale (Exhs. 16 MILLION FIVE HUNDRED THIRTY-TWO
and 26) as void and ineffective; THOUSAND SIX HUNDRED TEN PESOS Since their motions for reconsideration were denied,vi[6]
AND SEVENTY-FIVE CENTAVOS DBP and CUBA filed separate petitions for review.
3. DECLARING the Deed of Conditional Sale dated (P1,532,610.75) representing the amounts paid
August 16, 1984 by and between the by defendant Agripina Caperal to defendant In its petition (G.R. No. 118342), DBP assails the award of
Development Bank of the Philippines and Development Bank of the Philippines under actual and moral damages and attorneys fees in favor of
defendant Agripina Caperal (Exh. F and Exh. their Deed of Conditional Sale. CUBA.
21), the Fishpond Lease Agreement No. 2083-A
dated December 28, 1984 of defendant Agripina CUBA and DBP interposed separate appeals from the
Caperal (Exh. 23) and the Assignment of Upon the other hand, in her petition (G.R. No. 118367),
decision to the Court of Appeals. The former sought an CUBA contends that the Court of Appeals erred (1) in not
Leasehold Rights dated February 12, 1985 increase in the amount of damages, while the latter
executed by defendant Agripina Caperal in holding that the questioned deed of assignment was a
questioned the findings of fact and law of the lower court. pactum commissorium contrary to Article 2088 of the Civil
favor of the defendant Development Bank of the
Philippines (Exh. 24) as void ab initio; Code; (b) in holding that the deed of assignment effected a
In its decision v[5] of 25 May 1994, the Court of Appeals novation of the promissory notes; (c) in holding that CUBA
ruled that (1) the trial court erred in declaring that the deed was estopped from questioning the validity of the deed of
4. ORDERING defendant Development Bank of the of assignment was null and void and that defendant Caperal assignment when she agreed to repurchase her leasehold
Philippines and defendant Agripina Caperal, could not validly acquire the leasehold rights from DBP; rights under a deed of conditional sale; and (d) in reducing
jointly and severally, to restore to plaintiff the (2) contrary to the claim of DBP, the assignment was not a the amounts of moral damages and attorneys fees, in
latters leasehold rights and interests and right of cession under Article 1255 of the Civil Code because DBP deleting the award of exemplary damages, and in not
possession over the fishpond land in question, appeared to be the sole creditor to CUBA - cession increasing the amount of damages.
without prejudice to the right of defendant presupposes plurality of debts and creditors; (3) the deeds
Development Bank of the Philippines to of assignment represented the voluntary act of CUBA in
foreclose the securities given by plaintiff; We agree with CUBA that the assignment of leasehold
assigning her property rights in payment of her debts, rights was a mortgage contract.
which amounted to a novation of the promissory notes
executed by CUBA in favor of DBP; (4) CUBA was
estopped from questioning the assignment of the leasehold It is undisputed that CUBA obtained from DBP three
separate loans totalling P335,000, each of which was
covered by a promissory note. In all of these notes, there all terms, covenants, and conditions stipulated in the The power herein granted shall not be revoked as long as
was a provision that: In the event of foreclosure of the promissory note or notes covering the proceeds of this loan, the Assignor is indebted to the Assignee and all acts that
mortgage securing this notes, I/We further bind making said promissory note or notes, to all intent and may be executed by the Assignee by virtue of said power
myself/ourselves, jointly and severally, to pay the purposes, an integral part hereof. are hereby ratified.
deficiency, if any. vii[7]
Neither did the assignment amount to payment by cession The elements of pactum commissorium are as follows: (1)
Simultaneous with the execution of the notes was the under Article 1255 of the Civil Code for the plain and there should be a property mortgaged by way of security
execution of Assignments of Leasehold Rights viii[8] simple reason that there was only one creditor, the DBP. for the payment of the principal obligation, and (2) there
where CUBA assigned her leasehold rights and interest on Article 1255 contemplates the existence of two or more should be a stipulation for automatic appropriation by the
a 44-hectare fishpond, together with the improvements creditors and involves the assignment of all the debtors creditor of the thing mortgaged in case of non-payment of
thereon. As pointed out by CUBA, the deeds of assignment property. the principal obligation within the stipulated period.xi[11]
constantly referred to the assignor (CUBA) as borrower;
the assigned rights, as mortgaged properties; and the Nor did the assignment constitute dation in payment under Condition no. 12 did not provide that the ownership over
instrument itself, as mortgage contract. Moreover, under Article 1245 of the civil Code, which reads: Dation in the leasehold rights would automatically pass to DBP upon
condition no. 22 of the deed, it was provided that failure to payment, whereby property is alienated to the creditor in CUBAs failure to pay the loan on time. It merely provided
comply with the terms and condition of any of the loans satisfaction of a debt in money, shall be governed by the for the appointment of DBP as attorney-in-fact with
shall cause all other loans to become due and demandable law on sales. It bears stressing that the assignment, being in authority, among other things, to sell or otherwise dispose
and all mortgages shall be foreclosed. And, condition no. its essence a mortgage, was but a security and not a of the said real rights, in case of default by CUBA, and to
33 provided that if foreclosure is actually accomplished, the satisfaction of indebtedness.x[10] apply the proceeds to the payment of the loan. This
usual 10% attorneys fees and 10% liquidated damages of provision is a standard condition in mortgage contracts and
the total obligation shall be imposed. There is, therefore, no is in conformity with Article 2087 of the Civil Code, which
shred of doubt that a mortgage was intended. We do not, however, buy CUBAs argument that condition
no. 12 of the deed of assignment constituted pactum authorizes the mortgagee to foreclose the mortgage and
commissorium. Said condition reads: alienate the mortgaged property for the payment of the
Besides, in their stipulation of facts the parties admitted principal obligation.
that the assignment was by way of security for the payment
of the loans; thus: 12. That effective upon the breach of any condition of this
assignment, the Assignor hereby appoints the Assignee his DBP, however, exceeded the authority vested by condition
Attorney-in-fact with full power and authority to take no. 12 of the deed of assignment. As admitted by it during
3. As security for said loans, plaintiff Lydia P. Cuba actual possession of the property above-described, together the pre-trial, it had [w]ithout foreclosure proceedings,
executed two Deeds of Assignment of her with all improvements thereon, subject to the approval of whether judicial or extrajudicial, appropriated the
Leasehold Rights. the Secretary of Agriculture and Natural Resources, to [l]easehold [r]ights of plaintiff Lydia Cuba over the
lease the same or any portion thereof and collect rentals, to fishpond in question. Its contention that it limited itself to
In Peoples Bank & Trust Co. vs. Odom,ix[9] this Court had make repairs or improvements thereon and pay the same, to mere administration by posting caretakers is further belied
the occasion to rule that an assignment to guarantee an sell or otherwise dispose of whatever rights the Assignor by the deed of conditional sale it executed in favor of
obligation is in effect a mortgage. has or might have over said property and/or its CUBA. The deed stated:
improvements and perform any other act which the
We find no merit in DBPs contention that the assignment Assignee may deem convenient to protect its interest. All WHEREAS, the Vendor [DBP] by virtue of a deed of
novated the promissory notes in that the obligation to pay a expenses advanced by the Assignee in connection with assignment executed in its favor by the herein vendees
sum of money the loans (under the promissory notes) was purpose above indicated which shall bear the same rate of [Cuba spouses] the former acquired all the rights and
substituted by the assignment of the rights over the interest aforementioned are also guaranteed by this interest of the latter over the above-described property;
fishpond (under the deed of assignment). As correctly Assignment. Any amount received from rents,
pointed out by CUBA, the said assignment merely administration, sale or disposal of said property may be The title to the real estate property [sic] and all
complemented or supplemented the notes; both could stand supplied by the Assignee to the payment of repairs, improvements thereon shall remain in the name of the
together. The former was only an accessory to the latter. improvements, taxes, assessments and other incidental Vendor until after the purchase price, advances and interest
Contrary to DBPs submission, the obligation to pay a sum expenses and obligations and the balance, if any, to the shall have been fully paid. (Emphasis supplied).
of money remained, and the assignment merely served as payment of interest and then on the capital of the
security for the loans covered by the promissory notes. indebtedness secured hereby. If after disposal or sale of
said property and upon application of total amounts It is obvious from the above-quoted paragraphs that DBP
Significantly, both the deeds of assignment and the had appropriated and taken ownership of CUBAs leasehold
promissory notes were executed on the same dates the received there shall remain a deficiency, said Assignor
hereby binds himself to pay the same to the Assignee upon rights merely on the strength of the deed of assignment.
loans were granted. Also, the last paragraph of the
assignment stated: The assignor further reiterates and states demand, together with all interest thereon until fully paid.
DBP cannot take refuge in condition no. 12 of the deed of Even in cases where foreclosure proceedings were had, this proof as to the existence of those items before DBP took
assignment to justify its act of appropriating the leasehold Court had not hesitated to nullify the consequent auction over the fishpond in question. As pointed out by DBP, there
rights. As stated earlier, condition no. 12 did not provide sale for failure to comply with the requirements laid down was not inventory of the alleged lost items before the loss
that CUBAs default would operate to vest in DBP by law, such as Act No. 3135, as amended.xv[15] With which is normal in a project which sometimes, if not most
ownership of the said rights. Besides, an assignment to more reason that the sale of property given as security for often, is left to the care of other persons. Neither was a
guarantee an obligation, as in the present case, is virtually a the payment of a debt be set aside if there was no prior single receipt or record of acquisition presented.
mortgage and not an absolute conveyance of title which foreclosure proceeding.
confers ownership on the assignee.xii[12] Curiously, in her complaint dated 17 May 1985, CUBA
Hence, DBP should render an accounting of the income included losses of property as among the damages resulting
At any rate, DBPs act of appropriating CUBAs leasehold derived from the operation of the fishpond in question and from DBPs take-over of the fishpond. Yet, it was only in
rights was violative of Article 2088 of the Civil Code, apply the said income in accordance with condition no. 12 September 1985 when her son and a caretaker went to the
which forbids a creditor from appropriating, or disposing of the deed of assignment which provided: Any amount fishpond and the adjoining house that she came to know of
of, the thing given as security for the payment of a debt. received from rents, administration, may be applied to the the alleged loss of several articles. Such claim for losses of
payment of repairs, improvements, taxes, assessment, and property, having been made before knowledge of the
The fact that CUBA offered and agreed to repurchase her other incidental expenses and obligations and the balance, alleged actual loss, was therefore speculative. The alleged
leasehold rights from DBP did not estop her from if any, to the payment of interest and then on the capital of loss could have been a mere afterthought or subterfuge to
questioning DBPs act of appropriation. Estoppel is the indebtedness. justify her claim for actual damages.
unavailing in this case. As held by this Court in some
cases,xiii[13] estoppel cannot give validity to an act that is We shall now take up the issue of damages. With regard to the award of P517,000 representing the
prohibited by law or against public policy. Hence, the value of the alleged 230,000 pieces of bangus which died
appropriation of the leasehold rights, being contrary to Article 2199 provides: when DBP took possession of the fishpond in March 1979,
Article 2088 of the Civil Code and to public policy, cannot the same was not called for. Such loss was not duly proved;
be deemed validated by estoppel. besides, the claim therefor was delayed unreasonably. From
Except as provided by law or by stipulation, one is entitled 1979 until after the filing of her complaint in court in May
to an adequate compensation only for such pecuniary loss 1985, CUBA did not bring to the attention of DBP the
Instead of taking ownership of the questioned real rights suffered by him as he has duly proved. Such compensation
upon default by CUBA, DBP should have foreclosed the alleged loss. In fact, in her letter dated 24 October
is referred to as actual or compensatory damages. 1979,xix[19] she declared:
mortgage, as has been stipulated in condition no. 22 of the
deed of assignment. But, as admitted by DBP, there was no
such foreclosure. Yet, in its letter dated 26 October 1979, Actual or compensatory damages cannot be presumed, but 1. That from February to May 1978, I was then seriously ill
addressed to the Minister of Agriculture and Natural must be proved with reasonable degree of certainty.xvi[16] in Manila and within the same period I neglected the
Resources and coursed through the Director of the Bureau A court cannot rely on speculations, conjectures, or management and supervision of the cultivation and harvest
of Fisheries and Aquatic Resources, DBP declared that it guesswork as to the fact and amount of damages, but must of the produce of the aforesaid fishpond thereby resulting
had foreclosed the mortgage and enforced the assignment depend upon competent proof that they have been suffered to the irreparable loss in the produce of the same in the
of leasehold rights on March 21, 1979 for failure of said by the injured party and on the best obtainable evidence of amount of about P500,000.00 to my great damage and
spouses [Cuba spouces] to pay their loan the actual amount thereof.xvii[17] It must point out specific prejudice due to fraudulent acts of some of my fishpond
amortizations.xiv[14] This only goes to show that DBP was facts which could afford a basis for measuring whatever workers.
aware of the necessity of foreclosure proceedings. compensatory or actual damages are borne.xviii[18]
Nowhere in the said letter, which was written seven months
In view of the false representation of DBP that it had In the present case, the trial court awarded in favor of after DBP took possession of the fishpond, did CUBA
already foreclosed the mortgage, the Bureau of Fisheries CUBA P1,067,500 as actual damages consisting of intimate that upon DBPs take-over there was a total of
cancelled CUBAs original lease permit, approved the deed P550,000 which represented the value of the alleged lost 230,000 pieces of bangus, but all of which died because of
of conditional sale, and issued a new permit in favor of articles of CUBA and P517,500 which represented the DBPs representatives prevented her men from feeding the
CUBA. Said acts which were predicated on such false value of the 230,000 pieces of bangus allegedly stocked in fish.
representation, as well as the subsequent acts emanating 1979 when DBP first ejected CUBA from the fishpond and
from DBPs appropriation of the leasehold rights, should the adjoining house. This award was affirmed by the Court
of Appeals. The award of actual damages should, therefore, be struck
therefore be set aside. To validate these acts would open down for lack of sufficient basis.
the floodgates to circumvention of Article 2088 of the Civil
Code. We find that the alleged loss of personal belongings and
equipment was not proved by clear evidence. Other than In view, however, of DBPs act of appropriating CUBAs
the testimony of CUBA and her caretaker, there was no leasehold rights which was contrary to law and public
policy, as well as its false representation to the then
Ministry of Agriculture and Natural Resources that it had and left it in the safekeeping of his son, Mike Abella, in cover the amount of the unpaid electric and water bills.
foreclosed the mortgage, an award of moral damages in the Tagbilaran City. Mike kept the tractor in the garage of the Pablo was not amenable to this proposal. The two of them
amount of P50,000 is in order conformably with Article house he was leasing from Calibo. having failed to come to an agreement, Pablo left and went
2219(10), in relation to Article 21, of the Civil Code. back to Cebu City, unsuccessful in his attempt to take
Exemplary or corrective damages in the amount of P25,000 Since he started renting Calibos house, Mike had been possession of the tractor.xxii[1]
should likewise be awarded by way of example or religiously paying the monthly rentals therefor, but
correction for the public good.xx[20] There being an award beginning November of 1986, he stopped doing so. The On November 25, 1988, private respondent instituted an
of exemplary damages, attorneys fees are also following month, Calibo learned that Mike had never paid action for replevin, claiming ownership of the tractor and
recoverable.xxi[21] the charges for electric and water consumption in the leased seeking to recover possession thereof from petitioner. As
premises which the latter was duty-bound to shoulder. adverted to above, the trial court ruled in favor of private
WHEREFORE, the 25 May 1994 Decision of the Court of Thus, Calibo confronted Mike about his rental arrears and respondent; so did the Court of Appeals when petitioner
Appeals in CA-G.R. CV No. 26535 is hereby REVERSED, the unpaid electric and water bills. During this appealed.
except as to the award of P50,000 as moral damages, which confrontation, Mike informed Calibo that he (Mike) would
is hereby sustained. The 31 January 1990 Decision of the be staying in the leased property only until the end of The Court of Appeals sustained the ruling of the trial court
Regional Trial Court of Pangasinan, Branch 54, in Civil December 1986. Mike also assured Calibo that he would be that Mike Abella could not have validly pledged the subject
Case No. A-1574 is MODIFIED setting aside the finding settling his account with the latter, offering the tractor as tractor to petitioner since he was not the owner thereof, nor
that condition no. 12 of the deed of assignment constituted security. Mike even asked Calibo to help him find a buyer was he authorized by its owner to pledge the tractor.
pactum commissorium and the award of actual damages; for the tractor so he could sooner pay his outstanding Respondent court also rejected petitioners contention that,
and by reducing the amounts of moral damages from obligation. if not a pledge, then a deposit was created. The Court of
P100,000 to P50,000; the exemplary damages, from Appeals said that under the Civil Code, the primary
P50,000 to P25,000; and the attorneys fees, from P100,000 In January 1987 when a new tenant moved into the house purpose of a deposit is only safekeeping and not, as in this
to P20,000. The Development Bank of the Philippines is formerly leased to Mike, Calibo had the tractor moved to case, securing payment of a debt.
hereby ordered to render an accounting of the income the garage of his fathers house, also in Tagbilaran City.
derived from the operation of the fishpond in question.
The Court of Appeals reduced the amount of actual
Apprehensive over Mikes unsettled account, Calibo visited damages payable to private respondent, deducting
Let this case be REMANDED to the trial court for the him in his Cebu City address in January, February and therefrom the cost of transporting the tractor from
reception of the income statement of DBP, as well as the March, 1987 and tried to collect payment. On all three Tagbilaran, Bohol, to Cebu City.
statement of the account of Lydia P. Cuba, and for the occasions, Calibo was unable to talk to Mike as the latter
determination of each partys financial obligation to one was reportedly out of town. On his third trip to Cebu City,
another. Issue:
Calibo left word with the occupants of the Abella residence
thereat that there was a prospective buyer for the tractor. Ruling:
SO ORDERED. The following week, Mike saw Calibo in Tagbilaran City to
inquire about the possible tractor buyer. The sale, however,
did not push through as the buyer did not come back In a contract of pledge, the creditor is given the right to
Calibo v. CA retain his debtors movable property in his possession, or in
anymore. When again confronted with his outstanding
obligation, Mike reassured Calibo that the tractor would that of a third person to whom it has been delivered, until
stand as a guarantee for its payment. That was the last time the debt is paid. For the contract to be valid, it is necessary
January 25, 1979, plaintiff-appellee [herein petitioner] Calibo saw or heard from Mike. that: (1) the pledge is constituted to secure the fulfillment
Pablo U. Abella purchased an MF 210 agricultural tractor of a principal obligation; (2) the pledgor be the absolute
with Serial No. 00105 and Engine No. P126M00199 owner of the thing pledged; and (3) the person constituting
(Exhibit A; Record, p.5) which he used in his farm in After a long while, or on November 22, 1988, Mikes father, the pledge has the free disposal of his property, and in the
Dagohoy, Bohol. Pablo Abella, came to Tagbilaran City to claim and take absence thereof, that he be legally authorized for the
possession of the tractor. Calibo, however, informed Pablo purpose.xxiii[2]
that Mike left the tractor with him as security for the
Sometime in October or November 1985, Pablo Abellas payment of Mikes obligation to him. Pablo offered to write
son, Mike Abella rented for residential purposes the house Mike a check for P2,000.00 in payment of Mikes unpaid As found by the trial court and affirmed by respondent
of defendant-appellant Dionisio R. Calibo, Jr., in lease rentals, in addition to issuing postdated checks to court, the pledgor in this case, Mike Abella, was not the
Tagbilaran City. cover the unpaid electric and water bills the correctness of absolute owner of the tractor that was allegedly pledged to
which Pablo said he still had to verify with Mike. Calibo petitioner. The tractor was owned by his father, private
In October 1986, Pablo Abella pulled out his told Pablo that he would accept the P2,000.00-check only if respondent, who left the equipment with him for
aforementioned tractor from his farm in Dagohoy, Bohol, the latter would execute a promissory note in his favor to safekeeping. Clearly, the second requisite for a valid
pledge, that the pledgor be the absolute owner of the
property, is absent in this case. Hence, there is no valid We do not here pass upon the other assignment of errors respectively liable for the payment of the debt; that the
pledge. made by petitioner concerning alleged irregularities in the property pledged by the debtor to the bank included a stock
raffle and disposition of the case at the trial court. A or merchandise, consisting of wines, liquors, canned goods,
He who is not the owner or proprietor of the property petition for review on certiorari is not the proper vehicle for and other similar articles valued at P90,591.75, Philippine
pledged or mortgaged to guarantee the fulfillment of a such allegations. currency, then stored in the warehouses of the debtor,
principal obligation, cannot legally constitute such a Reyes, No. 12 Plaza Moraga, in the city of Manila, which
guaranty as may validly bind the property in favor of his EL BANCO ESPAÑOL-FILIPINO, plaintiff-appellant, said goods and merchandise were liable for the payment of
creditor, and the pledgee or mortgagee in such a case vs. the said sum of P90,591.75, Philippine currency; that in the
acquires no right whatsoever in the property pledged or JAMES PETERSON, sheriff of the city of Manila, ET aforesaid deed of pledge it was agreed by and between the
mortgaged.xxiv[3] AL bank and the debtor, Reyes, that the goods should be
delivered to Ramon Garcia y Planas for safe-keeping, the
Facts: Spanish-Filipino Bank, a corporation, through its debtor having actually turned over to the said Garcia y
There also does not appear to be any agency in this case. Planas the goods in question by delivering to him the keys
We agree with the Court of Appeals that: attorneys, Del-Pan, Ortigas and Fisher, filed a complaint
against the sheriff of the city of Manila and the other of the warehouse in which they were kept; that in a
defendant, Juan Garcia, praying that judgment be rendered subsequent contract entered into by and between the debtor,
As indicated in Article 1869, for an agency relationship to against the said sheriff, declaring that the execution levied Reyes, and the plaintiff bank on the 29th of September,
be deemed as implied, the principal must know that another upon the property referred to in the complaint, to wit, 1905, the said contract executed on the 4th of March was
person is acting on his behalf without authority. Here, wines, liquors, canned goods, and other similar modified so as to provide that the goods then (September
appellee categorically stated that the only purpose for his merchandise, was illegal, and directing the defendants to 29) in possession the depositary should only be liable for
leaving the subject tractor in the care and custody of Mike return the said goods to the plaintiff corporation, and in the sum of P40,000, Philippine currency, the said contract
Abella was for safekeeping, and definitely not for him to case that he had disposed of the same, to pay the value of the 4th of March remaining in all other respects in full
pledge or alienate the same. If it were true that Mike thereof, amounting to P30,000, Philippine currency, and force and effect, Luis M.a Sierra having been subsequently
pledged appellees tractor to appellant, then Mike was further that it be declared that the said plaintiff corporation, appointed by agreement between the bank and the debtor as
acting not only without appellees authority but without the under the contract of pledge referred to in the complaint depositary of the goods thus pledged in substitution for the
latters knowledge as well. had the right to apply the proceeds of the sale of the said said Ramon Garcia y Planas.
goods to the payment of the debt of P40,000, Philippine
Article 1911, on the other hand, mandates that the principal currency, for the security of which the said merchandise On the 19th of October, 1905, in an action brought in the
is solidarily liable with the agent if the former allowed the was pledged, with preference over the claim of the other Court of First Instance of the city of Manila by Juan Garcia
latter to act as though he had full powers. Again, in view of defendant, Juan Garcia and that both defendants be held y Planas against Francisco Reyes and Ramon Agtarat,
appellees lack of knowledge of Mikes pledging the tractor jointly liable to the plaintiff for the sum of P500, Philippine judgment was rendered against the last-mentioned two for
without any authority from him, it stands to reason that the currency, as damages, and the said defendants to pay the the sum of P15,000, Philippine currency, to be paid by
former could not have allowed the latter to pledge the costs of the proceedings, and for such other and further them severally or jointly, upon which judgment execution
tractor as if he had full powers to do so.xxv[4] relief as the plaintiff might be entitled to under the law. was issued against the property of the defendants, Reyes
Plaintiff alleges in its complaint that under the contract and Agtarap. On the aforesaid 19th day of October, for the
There is likewise no valid deposit in this case. In a contract entered into on the 4th of March, 1905, by and between the purpose of levying upon the property of the defendants, the
of deposit, a person receives an object belonging to another Spanish-Filipino Bank and Francisco Reyes, the former, sheriff at the request of Garcia, the plaintiff in that case,
with the obligation of safely keeping it and of returning the loaned to the latter the sum of P141,702, Philippine entered the warehouse where the goods pledged to the
same.xxvi[5] Petitioner himself states that he received the currency; that on the same date Francisco Reyes was plaintiff bank were stored under the custody of the
tractor not to safely keep it but as a form of security for the already indebted to the bank in the sum of P84,415.38, depositary, Sierra, and levied upon them as per list attached
payment of Mike Abellas obligations. There is no deposit Philippine currency, which, added to the amount of the to the complaint marked "Exhibit A." The sheriff seized the
where the principal purpose for receiving the object is not loan, made a total of P226,117.38, Philippine currency, goods which had been pledged to the bank, depriving the
safekeeping.xxvii[6] received by the said Reyes as a loan from the plaintiff bank, latter of the possession of the same, to which said contract
the entire sum at an annual interest of 8 per cent; that to executed on the 4th of March, 1905. Without the authority
secure the payment of these two sums and the interest of the bank, Reyes could not dispose of the said goods. The
Consequently, petitioner had no right to refuse delivery of thereon, the debtor, Francisco Reyes, by a public value of the goods seized by the sheriff was P30,000,
the tractor to its lawful owner. On the other hand, private instrument executed before a notary on the aforesaid date Philippine currency, the said sheriff, having refused, and
respondent, as owner, had every right to seek to repossess mortgaged in favor of the plaintiff bank several pieces of still refusing, to return to the same to the bank,
the tractor, including the institution of the instant action for property belonging to him, and pledged to the said bank notwithstanding repeated demands made upon him to this
replevin. part of his personal property, specifying the proportion on effect, and it being alleged in the complaint that unless
which the said real and personal property thus mortgaged prohibited by the court the sheriff would proceed to sell the
and pledged in favor of the plaintiff corporation would be said goods at public auction and apply the proceeds to the
satisfaction of the judgment rendered in favor of the Juan If so, the bank's claim had preference over the claim of a pledgee appointed a person to examine daily the property in
Garcia y Planas, while the other debtor Reyes had not paid third person not secured, as was the bank's, by a pledge, the warehouse where the same was kept.
to the bank the P40,000, Philippine currency, to secure the with reference to the property pledged to the extent of its
payment of which the goods mentioned in Exhibit A had value, and therefore such property could not have been The sheriff's testimony supports the allegation that the
been pledged to the bank, that is, to secure the payment of a legally levied upon by the sheriff at the request of the depositary, Sierra, was present at the place where the goods
sum in excess of the actual value of the goods in the hands defendant, Juan Garcia. (Arts. 1921, 1922, Civil Code.) were kept, as well as the representative of the bank,
of the sheriff. Rodriguez, when he, the sheriff, went there for the purpose
The contract in question complies with all the requisites of levying upon the said property. He further testified that
The defendant sheriff, James J. Peterson, and Juan Garcia, provided in article 1857 of the Civil Code, such as that the Rodriguez, the representative of the bank, then protested
his codefendant, through their attorneys, Hartigan, Marple, property was pledged to secure a debt, the date of the and notified him that the property in question was pledged
Rohde and Gutierrez, answering the complaint, stated that execution, the terms of the pledge, and the property to the Spanish-Filipino Bank.
they admitted the allegations contained in paragraphs 1, 2, pledged, all of which appears in a public document, and the
3, 4, 5, 12, and 17 of the complaint, but denied the property pledged was placed in the hands of a third person The contract in question was, therefore, a perfect contract
allegations contained in paragraphs 6, 7, 8, 9, 10, 11, 14, by common consent of the debtor and creditor, under the of pledge under articles 1857 and 1863 of the Civil Code, it
16, and 18. They further denied the allegations contained in supervision of an agent of the bank. (Arts. 1863, 1865, having been conclusively shown that the pledgee took
paragraph 12, with the exception that the defendant sheriff 1866, 1869, 1871, Civil Code.) The defect alleged to exist charge and possession of the goods pledged through a
levied upon the goods mentioned in Exhibit A attached to in the said contract is that the debtor, Reyes, continued in depository and a special agent appointed by it, each of
the complaint for the purpose of satisfying the judgment possession of the property pledged; that he never parted whom had a duplicate key to the warehouse wherein the
referred to therein; and also the allegations contained in with the said property, and that neither the creditor nor the said goods were stored, and that the pledgee, itself,
paragraph 13 of the complaint, with the exception that the depositary appointed by common consent of the parties received and collected the proceeds of the goods as they
sheriff seized the property mentioned in Exhibit A under were ever in possession of the property pledged, and for were sold.
the execution referred to therein; and finally defendants this reason, and upon the further ground that the contract
denied the allegation contained in paragraph 15 of the was fraudulent, the court below dismissed the complaint
complaint, with the exception of the allegation that the with the costs against the plaintiff. The fact that the said goods continued in the warehouse
value of the property seized is P30,000. They accordingly which was formerly rented by the pledgor, Reyes, does not
asked that the action be dismissed and that it be adjudged affect the validity and legality of the pledge, it having been
In the motion for a new trial it was alleged by the plaintiff demonstrated that after the pledge had been agreed upon,
that the plaintiff had no interest whatever in the property that the judgment of the court below was contrary to law,
described in the complaint, and that the plaintiff be taxed and after the depository appointed with the common
and that the findings of fact contained therein were plainly consent of the parties had taken possession of the said
with the costs of these proceedings. and manifestly against the weight of the evidence. If property, the owner, the pledgor, could no longer dispose of
plaintiffs contention is correct, then the judgment of the the same, the pledgee being the only one authorized to do
The testimony introduced by the parties having been court below should be reversed. so through the depositary and special agent who
received, and the exhibits having been attached to the represented it, the symbolical transfer of the goods by
record, the court below entered judgment on the 4th of From the evidence introduced at the trial, both oral and means of the delivery of the keys to the warehouse where
January, 1906, dismissing plaintiff's action and directing documentary, it appears that a third person, appointed by the goods were stored being sufficient to show that the
that the defendant recover from the Spanish-Filipino Bank the common consent of the debtor and creditor, was in depositary appointed by the common consent of the parties
the costs of this action, for which execution was duly possession of the goods pledged in favor of the bank under was legally placed in possession of the goods. (Articles
issued. To this judgment counsel for plaintiff excepted and the direct supervision of an agent of the bank expressly 438, 1463, Civil Code.)
announced his intention of prosecuting a bill of exceptions, appointed for this purpose, and it has not been shown that
and further made a motion for a new trial on the ground the said Reyes continued in the possession of the goods
that the judgment of the court below was contrary to law The fact that the debtor, Reyes, procured purchasers and
after they had been pledged to the plaintiff bank. made arrangements for the sale of the goods pledged and
and that the findings of fact were plainly and manifestly
contrary to the weight of the evidence. that the bills for the goods thus sold were signed by him
Exhibit C and the testimony of Francisco Reyes, Luis M.a does not affect the validity of the contract, for the pledgor,
Sierra, and Mariano Rodriguez corroborate the existence Reyes, continued to be the owner of the goods, (art. 1869,
The decision of this case depends mainly upon the question and authenticity of the contract of pledge recorded in a Civil Code), he being the one principally interested in the
as to whether the contract of pledge entered into by and public instrument and conclusively and satisfactorily show sale of the property on the best possible terms.
between the Spanish-Filipino Bank and Francisco Reyes to that the debtor, after the pledge of the property, parted with
secure a loan made by the former to the latter was valid, all the possession of the same, and that it was delivered to a
the requisites prescribed by the Civil Code having been As to the reservation stipulated in paragraph 13 of the
third person designated by common consent of the parties. contract executed on the 4th of March, 1905, it could not
complied with. For the purpose of giving this possession greater effect, the affect the contract in question for the reason that
reservation referred to the rent from the property
mortgaged, to the bank and the dividends from the shares Iloilo, Philippine Islands, do hereby execute this document nevertheless obvious that the pledge only became effective
of stock also pledged to the bank, and not the merchandise extrajudicially and state that I am indebted to Mr. Eulogio as against the plaintiff in execution from the date of the
so pledged, and such reservation could not have rendered Betita, resident of the municipality of Estancia, Province of filing and did not rise superior to the execution attachment
the contract of pledge null. Iloilo, Philippine Islands, in the sum of P470, Philippine previously levied (see Civil Code, article 1227).
currency, and was so indebted since the year 1922, and as a
If the case is to be decided in accordance with the facts security to my creditor I hereby offer four head of carabaos Manresa, in commenting on article 1865, says:
alleged and established, the defendant not having belonging to me exclusively (three females and one male),
introduced any evidence to show that the said contract of the certificates of registration of said animals being Nos.
2832851, 4670520, 4670521 and 4670522, which I ART. 1865. A pledge will not be valid against a
pledge was fraudulent as to other creditors, there was no third party if the certainty of the date is not
legal ground upon which the court below could have held delivered to said Mr. Eulogio Betita.
expressed in a public instrument.
that the contract evidenced by the instrument in question
was entered into to defraud other creditors of the pledgor. I hereby promise to pay said debt in the coming month of
February, 1925, in case I will not be able to pay, Mr. This article, the precept of which did not exist in
Eulogio Betita may dispose of the carabaos given as our old law, answers the necessity for not
For the reason hereinbefore set out, and the judgment of the disturbing the relationship or the status of the
court below being contrary to the evidence, the said security for said debt”
ownership of things with hidden or simulated
judgment is hereby reversed, and it is hereby adjudged that contracts of pledge, in the same way and for the
the plaintiff corporation, under and by virtue of the contract identical reasons that were taken into account by
of pledge in question, had a preferential right over that of the mortgage law in order to suppress the implied
the defendant, Juan Garcia, to the goods pledged or the LC- held that inasmuch as this document was prior in date and legal mortgages which produce so much
value thereof, the value to be applied to the payment of the to the judgment under which the execution was levied, it instability in real property.
debt of P40,000, Philippine currency, for the security of was a preferred credit and judgment was rendered in favor
which the said property was pledged, and the defendants of the plaintiff for the possession of the carabaos, without
are accordingly hereby ordered to return to the plaintiff Considering the effects of a contract of pledge, it
damages and without costs. From this judgment the is easily understood that, without this warranty
corporation the property improperly levied upon, or to pay defendants appeal.
its value, amounting to P30,000, Philippine currency, demanded by law, the case may happen wherein
without special provision as to costs. After the expiration of a debtor in bad faith from the moment that he
twenty days let judgment be entered in accordance Ruling: sees his movable property in danger of execution
herewith, and ten days thereafter the case be remanded to may attempt to withdraw the same from the
the court below for execution. So ordered. The judgment must be reversed unless the document above action of justice and the reach of his creditors by
quoted can be considered either a chattel mortgage or else a simulating, through criminal confabulations,
pledge. That it is not a sufficient chattel mortgage is anterior and fraudulent alterations in his
Betita v. Ganzon possession by means of feigned contracts of this
evident; it does not meet the requirements of section 5 of
the Chattel Mortgage Law (Act No. 1508), has not been nature; and, with the object of avoiding or
Facts: recorded and, considered as a chattel mortgage, is preventing such abuses, almost all the foreign
consequently of no effect as against third parties (Williams writers advise that, for the effectiveness of the
On May 15, 1924, the defendant Alejo de la Flor recovered vs. McMicking, 17 Phil., 408; Giberson vs. A. N. Jureidini pledge, it be demanded as a precise condition that
a judgment against Tiburcia Buhayan for the sum of P140 Bros., 44 Phi., 216; Benedicto de Tarrosa vs. F. M. Yap in every case the contract be executed in a public
with costs. Under this judgment the defendant Ganzon, as Tico & Co. and Provincial Sheriff of Occidental Negros, 46 writing, for, otherwise, the determination of its
sheriff levied execution on the carabaos in question which Phil., 753). date will be rendered difficult and its proof more
were found in the possession of one Simon Jacinto but so, even in cases in which it is executed before
registered in the name of Tiburcia Buhayan. The plaintiff witnesses, due to the difficulty to be encountered
Neither did the document constitute a sufficient pledge of in seeking those before whom it was executed.
herein, Eulogio Betita, presented a third party claim the property valid against third parties. Article 1865 of the
(terceria) alleging that the carabaos had been mortgaged to Civil Code provides that "no pledge shall be effective as
him and as evidence thereof presented a document dated against third parties unless evidence of its date appears in a Our code has not gone so far, for it does not
May 6, 1924, but the sheriff proceeded with the sale of the public instrument." The document in question is not public, demand in express terms that in all cases the
animals at public auction where they were purchased by the but it is suggested that its filing with the sheriff in pledge be constituted or formalized in a public
defendant Clemente Perdena for the sum of P200, and this connection with the terceria gave in the effect of a public writing, nor even in private document, but only
action was thereupon brought. instrument and served to fix the date of the pledge, and that that the certainty of the date be expressed in the
it therefore fulfills the requirements of article 1865. first of the said class of instruments in order that
“I, Tiburcia Buhatan, of age, widow and resident of the Assuming, without conceding, that the filing of the it may be valid against a third party; and, in
sitio of Jimamanay, municipality of Balasan, Province of document with the sheriff had that effect, it seems default of any express provision of law, in the
cases where no agreement requiring the execution
in a public writing exists, it should be subjected
to the general rule, and especially to that
established in the last paragraph of article 1280, On 24 April 1998, FBDC executed a lease
according to which all contracts not included in contract in favor of Tirreno, Inc. (Tirreno) over a unit at the
the foregoing cases of the said article should be Fort Bonifacio v. Yllas
made in writing even though it be private, Entertainment Center Phase 1 of the Bonifacio Global City
whenever the amount of the presentation of one DECISION in Taguig, Metro Manila. The parties had the lease contract
or of the two contracting parties exceeds 1,500
pesetas. (Vol. 12, ed., p. 421.) notarized on the day of its execution. Tirreno used the
leased premises for Savoia Ristorante and La Strega Bar.
If the mere filing of a private document with the sheriff
after the levy of execution can create a lien of pledge
CARPIO, J.:
superior to the attachment, the purpose of the provisions of
article 1865 as explained by Manresa clearly be defeated.
Such could not have been the intention of the authors of the
Code. (See also Ocejo, Perez & Co. vs. International Two provisions in the lease contract are pertinent
Banking Corporation, 37 Phil., 631 and Tec Bi & Co. to the present case: Section 20, which is about the
Chartered Bank of India, Australia & China, 41 Phil., 596.) The Case
consequences in case of default of the lessee, and Section
The alleged pledge is also ineffective for another reason, 22, which is about the lien on the properties of the lease.
namely, that the plaintiff pledgee never had actual The pertinent portion of Section 20 reads:
possession of the property within the meaning of article
1863 of the Civil Code. But it is argued that at the time of
This is a petition for review on certiorari52[1] of
the levy the animals in question were in the possession of
one Simon Jacinto; that Jacinto was the plaintiff's tenant; the Orders issued on 7 March 200353[2] and 3 July
and that the tenant's possession was the possession of his
200354[3] by Branch 59 of the Regional Trial Court of Section 20. Default of the Lessee
landlord.
Makati City (trial court) in Civil Case No. 01-1452. The
20.1 The LESSEE shall be deemed to be in
It is, of course, evident that the delivery of possession trial courts orders dismissed Fort Bonifacio Development default within the meaning of this Contract in case:
referred to in article 1863 implies a change in the actual
possession of the property pledged and that a mere Corporations (FBDC) third party claim and denied FBDCs
symbolic delivery is not sufficient. In the present case the Motion to Intervene and Admit Complaint in Intervention. (i) The LESSEE
animals in question were in the possession of Tiburcia fails to fully pay on time
Buhayan and Simon Jacinto before the alleged pledge was any rental, utility and
entered into and apparently remained with them until the service charge or other
execution was levied, and there was no actual delivery of financial obligation of the
possession to the plaintiff himself. There was therefore in LESSEE under this
reality no change in possession. The Facts Contract;
to Tirrenos alleged failure to settle its outstanding partial return indicated the seizure of the following items
obligations. On 29 September 2000, FBDC entered and a. Furniture, Fixtures and Equipment of Savoia Ristorante from FBDC:
and La Strega Bar, a restaurant owned and managed by
occupied the leased premises. FBDC also appropriated the
[Tirreno], inclusive of the leasehold right of [Tirreno] over
equipment and properties left by Tirreno pursuant to its rented building where [the] same is presently located.
Section 22 of their Contract of Lease as partial payment for
b. Goodwill over the aforesaid restaurant, including its
Tirrenos outstanding obligations. Tirreno filed an action for business name, business sign, logo, and any and all interest
forcible entry against FBDC before the Municipal Trial therein.
In ruling on FBDCs motion for leave to intervene properties which [FBDC] took and appropriated in payment
of [Tirrenos] unpaid lease rentals.58[7]
and to admit complaint in intervention, the trial court stated
A. FIXTURES the facts as follows:
(2) boxes Kitchen equipments [sic]57[6] In deciding against FBDC, the trial court declared
that Section 22 of the lease contract between FBDC and
FBDC, likewise filed a Motion to Admit its
Complaint-in-Intervention. Tirreno is void under Article 2088 of the Civil Code.59[8]
The trial court stated that Section 22 of the lease contract
The sheriff delivered the seized properties to respondents. In Opposition to the third-party claim and the
pledges the properties found in the leased premises as
motion to intervene, [respondents] posit that the basis of
FBDC questioned the propriety of the seizure and delivery [FBDCs] third party claim being anchored on the aforesaid security for the payment of the unpaid rentals. Moreover,
of the properties to respondents without an indemnity bond Contract [of] Lease is baseless. [Respondents] contend that
Section 22 provides for the automatic appropriation of the
the stipulation of the contract of lease partakes of a pledge
before the trial court. FBDC argued that when respondents which is void under Article 2088 of the Civil Code for properties owned by Tirreno in the event of its default in
and Tirreno entered into the chattel mortgage agreement on being pactum commissorium.
the payment of monthly rentals to FBDC. Since Section 22
9 November 2000, Tirreno no longer owned the mortgaged is void, it cannot vest title of ownership over the seized
xxx
properties as FBDC already enforced its lien on 29 properties. Therefore, FBDC cannot assert that its right is
September 2000. By reason of the failure of [Tirreno] to pay its superior to respondents, who are the mortgagees of the
lease rental and fees due in the amount of P5,027,337.91,
after having notified [Tirreno] of the termination of the disputed properties.
lease, x x x FBDC took possession of [Tirreno.s] properties
found in the premises and sold those which were not of use
to it. Meanwhile, [respondents], as mortgagee of said
properties, filed an action for foreclosure of the chattel
mortgage with replevin and caused the seizure of the same
reconsideration in an order dated 3 July 2003. FBDC filed The Ruling of the Court
the present petition before this Court to review pure
The trial court quoted from Bayer Phils. v. questions of law.
Agana60[9] to justify its ruling that FBDC should have
filed a separate complaint against respondents instead of The petition has merit.
filing a motion to intervene. The trial court quoted from
Bayer as follows: The Issues
blanket mortgage clause. Moreover, petitioner is unable to limit the amount for which the mortgage may stand as petitioner and respondents intended the real estate
show that respondents are hiding behind the corporate security if from the four corners of the instrument the intent mortgage to secure not only the P250,000.00 loan from the
structure to evade payment of their obligations. Save for the to secure future and other indebtedness can be petitioner, but also future credit facilities and advancements
notation in the promissory note that the loan was for house gathered.[42] that may be obtained by the respondents. The terms of the
construction and personal consumption, there is no proof above provision being clear and unambiguous, there is
showing that the loan was indeed for respondents personal neither need nor excuse to construe it otherwise.
Facts:
Even the promissory notes in issue were made on
standard forms prepared by petitioner, and as such are The controversy at bar involves a 152-square meter parcel
of land located at Cuadra-Smith Streets, Downtown, RTC- RTC rendered its Decision13 in favor of the
likewise contracts of adhesion. Being of such nature, the respondents after finding, based on the expert
Bacolod (subject lot) erected with a building leased by
same should be interpreted strictly against petitioner and various tenants. The subject lot was among the properties
with even more reason since having been accomplished by mortgaged by Spouses Rodolfo and Emilie Montealegre
(Spouses Montealegre) to PNB as a security for a loan. In
respondents in the presence of petitioners personnel and their transactions with PNB, Spouses Montealegre used What precipitated the controversy at hand were the
approved by its manager, they could not have been unaware Transfer Certificate of Title (TCT) No. T-156512 over the subsequent motions filed by Spouses Marañon for release
subject lot purportedly registered in the name of Emilie of the rental payments deposited with the Clerk of Court
of the import and extent of such contracts. Montealegre (Emilie).6 and paid to PNB by Tolete.
Petitioner, however, is not without recourse. Both the Court When Spouses Montealegre failed to pay the loan, PNB On June 13, 2006, Spouses Marañon filed an Urgent
initiated foreclosure proceedings on the mortgaged Motion for the Withdrawal of Deposited Rentals15 praying
of Appeals and the trial court found that respondents have properties, including the subject lot. In the auction sale held that the ₱144,000.00 rental fees deposited by Tolete with
not yet paid the P250,000.00, and gave no credence to their on August 16, 1991, PNB emerged as the highest bidder. It the Clerk of Court be released in their favor for having
was issued the corresponding Certificate of Sale dated been adjudged as the real owner of the subject lot. The
claim that they paid the said amount when they paid December 17, 19917 which was subsequently registered on RTC granted the motion in its Order16 dated June 28, 2006.
petitioner P2,000,000.00. Thus, the mortgaged property February 4, 1992.8
could still be properly subjected to foreclosure proceedings On September 5, 2006, Spouses Marañon again filed with
Before the expiration of the redemption period or on July the RTC an Urgent Ex-Parte Motion for Withdrawal of
for the unpaid P250,000.00 loan, and as mentioned earlier, 29, 1992, Spouses Marañon filed before the RTC a Deposited Rentals17 praying that the ₱30,000.00 rental fees
paid to PNB by Tolete on December 12, 1999 be released Issue: PNB further asseverates that its mortgage lien was Rent, as an accessory follow the principal.37 In fact, when
in their favor. The said lease payments were for the five carried over to the new title issued to Spouses Marañon and the principal property is mortgaged, the mortgage shall
(5)-month period from August 1999 to December 1999 at thus it retained the right to foreclose the subject lot upon include all natural or civil fruits and improvements found
the monthly lease rate of ₱6,000.00. non-payment of the secured debt. PNB asserts that it is thereon when the secured obligation becomes due as
entitled to the rent because it became the subject lot’s new provided in Article 2127 of the Civil Code, viz:
The RTC granted the motion in its Order18 dated September owner when the redemption period expired without the
8, 2006 reasoning that pursuant to its Decision dated June property being redeemed. Art. 2127. The mortgage extends to the natural accessions,
2, 2006 declaring Spouses Marañon to be the true to the improvements, growing fruits, and the rents or
registered owners of the subject lot, they are entitled to its income not yet received when the obligation becomes due,
fruits. and to the amount of the indemnity granted or owing to the
Ruling: We deny the petition. proprietor from the insurers of the property mortgaged, or
The PNB differed with the RTC’s ruling and moved for in virtue of expropriation for public use, with the
reconsideration averring that as declared by the RTC in its declarations, amplifications and limitations established by
It is readily apparent from the facts at hand that the status law, whether the estate remains in the possession of the
Decision dated June 2, 2006, its mortgage lien should be of PNB’s lien on the subject lot has already been settled by
carried over to the new title reconveying the lot to Spouses mortgagor, or it passes into the hands of a third person.
the RTC in its Decision dated June 2, 2006 where it was
Marañon. PNB further argued that with the expiration of adjudged as a mortgagee in good faith whose lien shall
the redemption period on February 4, 1993, or one (1) year subsist and be respected. The decision lapsed into finality Consequently, in case of non-payment of the secured debt,
from the registration of the certificate of sale, PNB is now when neither of the parties moved for its reconsideration or foreclosure proceedings shall cover not only the
the owner of the subject lot hence, entitled to its fruits. appealed. hypothecated property but all its accessions and accessories
PNB prayed that (1) the Order dated September 8, 2006 be as well. This was illustrated in the early case of Cu Unjieng
set aside, and (2) an order be issued directing Spouses e Hijos v. Mabalacat Sugar Co.38 where the Court held:
Marañon to turn over to PNB the amount of ₱144,000.00
released in their favor by the Clerk of Court.19 That a mortgage constituted on a sugar central includes not
Rent is a civil fruit31 that belongs to the owner of the only the land on which it is built but also the buildings,
On November 20, 2006, the RTC issued an Order again property32 producing it by right of accession33.34 The machinery, and accessories installed at the time the
directing PNB to release to Spouses Marañon the rightful recipient of the disputed rent in this case should mortgage was constituted as well as the buildings,
₱30,000.00 rental payments considering that they were thus be the owner of the subject lot at the time the rent machinery and accessories belonging to the mortgagor,
adjudged to have retained ownership over the property.20 accrued. It is beyond question that Spouses Marañon never installed after the constitution thereof x x x .39
lost ownership over the subject lot. This is the precise
consequence of the final and executory judgment in Civil
On December 6, 2006, the RTC issued another Order Case No. 7213 rendered by the RTC on June 3, 2006 Otherwise stated, absent an adverse claimant or any
denying PNB’s motion for reconsideration and reiterating whereby the title to the subject lot was reconveyed to them evidence to the contrary, all accessories and accessions
the directives in its Order dated September 8, 2006. and the cloud thereon consisting of Emilie’s fraudulently accruing or attached to the mortgaged property are included
obtained title was removed. Ideally, the present dispute can in the mortgage contract and may thus also be foreclosed
CA denied the petition and affirmed the RTC’s judgment be simply resolved on the basis of such pronouncement. together with the principal property in case of non-payment
ratiocinating that not being parties to the mortgage However, the application of related legal principles ought of the debt secured.
transaction between PNB and Spouses Montealegre, to be clarified in order to settle the intervening right of
Spouses Marañon cannot be deprived of the fruits of the PNB as a mortgagee in good faith. Corollary, any evidence sufficiently overthrowing the
subject lot as the same will amount to deprivation of presumption that the mortgagor owns the mortgaged
property without due process of law. The RTC further held The protection afforded to PNB as a mortgagee in good property precludes the application of Article 2127.
that PNB is not a mortgagee in good faith because as a faith refers to the right to have its mortgage lien carried Otherwise stated, the provision is irrelevant and
financial institution imbued with public interest, it should over and annotated on the new certificate of title issued to inapplicable to mortgages and their resultant foreclosures if
have looked beyond the certificate of title presented by Spouses Marañon35 as so adjudged by the RTC. Thereafter, the mortgagor is later on found or declared to be not the
Spouses Montealegre and conducted an inspection on the to enforce such lien thru foreclosure proceedings in case of true owner of the property, as in the instant case.1âwphi1
circumstances surrounding the transfer to Spouses non-payment of the secured debt,36 as PNB did so pursue.
Montealegre. The principle, however, is not the singular rule that governs It is beyond question that PNB’s mortgagors, Spouses
real estate mortgages and foreclosures attended by Montealegre, are not the true owners of the subject lot
fraudulent transfers to the mortgagor. much less of the building which produced the disputed rent.
The foreclosure proceedings on August 16, 1991 caused by
PNB could not have, thus, included the building found on
the subject lot and the rent it yields. PNB’s lien as a
mortgagee in good faith pertains to the subject lot alone the necessary publication in order to
because the rule that improvements shall follow the settle the financial debts of P4,800.00,
principal in a mortgage under Article 2127 of the Civil plus 12% yearly interest, and attorney's
Code does not apply under the premises. Accordingly, fees... 2
since the building was not foreclosed, it remains a property When defendants-appellants defaulted in paying, the
of Spouses Marañon; it is not affected by non-redemption Tumalad v. Vicencio mortgage was extrajudicially foreclosed, and on 27 March
and is excluded from any consolidation of title made by 1956, the house was sold at public auction pursuant to the
PNB over the subject lot. Thus, PNB’s claim for the rent said contract. As highest bidder, plaintiffs-appellees were
paid by Tolete has no basis. Case certified to this Court by the Court of Appeals (CA- issued the corresponding certificate of sale.3 Thereafter, on
G.R. No. 27824-R) for the reason that only questions of 18 April 1956, plaintiffs-appellant commenced Civil Case
law are involved. No. 43073 in the municipal court of Manila, praying,
Lastly, it is worthy to note that the effects of the foreclosure This case was originally commenced by defendants-
of the subject lot is in fact still contentious considering that among other things, that the house be vacated and its
appellants in the municipal court of Manila in Civil Case possession surrendered to them, and for defendants-
as a purchaser in the public sale, PNB was only substituted No. 43073, for ejectment. Having lost therein, defendants-
to and acquired the right, title, interest and claim of the appellants to pay rent of P200.00 monthly from 27 March
appellants appealed to the court a quo (Civil Case No. 1956 up to the time the possession is surrendered.4 On 21
mortgagor to the property as of the time of the levy.44 There 30993) which also rendered a decision against them, the
being already a final judgment reconveying the subject lot September 1956, the municipal court rendered its decision
dispositive portion of which follows: —
to Spouses Marañon and declaring as null and void Emilie's WHEREFORE, the court hereby
purported claim of ownership, the legal consequences of ... ordering the defendants to vacate the
renders judgment in favor of the premises described in the complaint;
the foreclosure sale, expiration of the redemption period plaintiffs and against the defendants,
and even the consolidation of the subject lot's title in PNB's ordering further to pay monthly the
ordering the latter to pay jointly and amount of P200.00 from March 27,
name shall be subjected to such final judgment. This is the severally the former a monthly rent of
clear import of the ruling in Unionbank of the Philippines 1956, until such (time that) the
P200.00 on the house, subject-matter of premises is (sic) completely vacated;
v. Court of Appeals:45 this action, from March 27, 1956, to plus attorney's fees of P100.00 and the
January 14, 1967, with interest at the costs of the suit.5
This is because as purchaser at a public auction, legal rate from April 18, 1956, the Defendants-appellants, in their answers in both the
UNIONBANK is only substituted to and acquires the right, filing of the complaint, until fully paid, municipal court and court a quo impugned the legality of
title, interest and claim of the judgment debtors or plus attorney's fees in the sum of the chattel mortgage, claiming that they are still the owners
mortgagors to the property at the time of levy. Perforce, the P300.00 and to pay the costs. of the house; but they waived the right to introduce
judgment in the main action for reconveyance will not be It appears on the records that on 1 September 1955 evidence, oral or documentary. Instead, they relied on their
rendered ineffectual by the consolidation of ownership and defendants-appellants executed a chattel mortgage in favor memoranda in support of their motion to dismiss,
the issuance of title in the name of UNIONBANK.46 of plaintiffs-appellees over their house of strong materials predicated mainly on the grounds that: (a) the municipal
(Citation omitted) located at No. 550 Int. 3, Quezon Boulevard, Quiapo, court did not have jurisdiction to try and decide the case
Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which because (1) the issue involved, is ownership, and (2) there
Nonetheless, since the present recourse stemmed from a were being rented from Madrigal & Company, Inc. The was no allegation of prior possession; and (b) failure to
mere motion claiming ownership of rent and not from a mortgage was registered in the Registry of Deeds of Manila prove prior demand pursuant to Section 2, Rule 72, of the
main action for annulment of the foreclosure sale or of its on 2 September 1955. The herein mortgage was executed to Rules of Court.6
succeeding incidents, the Court cannot proceed to make a guarantee a loan of P4,800.00 received from plaintiffs- During the pendency of the appeal to the Court of First
ruling on the bearing of the CA's Decision dated June 18, appellees, payable within one year at 12% per annum. The Instance, defendants-appellants failed to deposit the rent for
2008 to PNB's standing as a purchaser in the public mode of payment was P150.00 monthly, starting November, 1956 within the first 10 days of December,
auction. Such matter will have to be threshed out in the September, 1955, up to July 1956, and the lump sum of 1956 as ordered in the decision of the municipal court. As a
proper forum. P3,150 was payable on or before August, 1956. It was also result, the court granted plaintiffs-appellees' motion for
agreed that default in the payment of any of the execution, and it was actually issued on 24 January 1957.
amortizations, would cause the remaining unpaid balance to However, the judgment regarding the surrender of
All told, albeit the dispositive portions of the assailed CA becomeimmediately due and Payable and —
decision and resolution are differently premised, they ought possession to plaintiffs-appellees could not be executed
the Chattel Mortgage will be because the subject house had been already demolished on
to be upheld as they convey the similar conclusion that enforceable in accordance with the
Spouses Marañon are the rightful owners of the rent earned 14 January 1957 pursuant to the order of the court in a
provisions of Special Act No. 3135, separate civil case (No. 25816) for ejectment against the
by the building on the subject lot. and for this purpose, the Sheriff of the present defendants for non-payment of rentals on the land
City of Manila or any of his deputies is on which the house was constructed.
WHEREFORE, foregoing considered, the petition is hereby hereby empowered and authorized to The motion of plaintiffs for dismissal of the appeal,
DENIED. sell all the Mortgagor's property after execution of the supersedeas bond and withdrawal of
deposited rentals was denied for the reason that the liability evidence;11 and further, that when the question to be and specifically that the property given as security "is a
therefor was disclaimed and was still being litigated, and determined is one of title, the Court is given the authority to house of mixed materials, which by its very nature is
under Section 8, Rule 72, rentals deposited had to be held proceed with the hearing of the cause until this fact is considered personal property." In the later case of Navarro
until final disposition of the appeal.7 clearly established. In the case of Sy vs. Dalman,12 wherein vs. Pineda,21 this Court stated that —
On 7 October 1957, the appellate court of First Instance the defendant was also a successful bidder in an auction The view that parties to a deed of
rendered its decision, the dispositive portion of which is sale, it was likewise held by this Court that in detainer chattel mortgage may agree to consider
quoted earlier. The said decision was appealed by cases the aim of ownership "is a matter of defense and a house as personal property for the
defendants to the Court of Appeals which, in turn, certified raises an issue of fact which should be determined from the purposes of said contract, "is good only
the appeal to this Court. Plaintiffs-appellees failed to file a evidence at the trial." What determines jurisdiction are the insofar as the contracting parties are
brief and this appeal was submitted for decision without it. allegations or averments in the complaint and the relief concerned. It is based, partly, upon the
Defendants-appellants submitted numerous assignments of asked for. 13 principle of estoppel" (Evangelista vs.
error which can be condensed into two questions, namely: . Moreover, even granting that the charge is true, fraud or Alto Surety, No. L-11139, 23 April
(a) Whether the municipal court from deceit does not render a contract void ab initio, and can 1958). In a case, a mortgaged house
which the case originated had only be a ground for rendering the contract voidable or built on a rented land was held to be a
jurisdiction to adjudicate the same; annullable pursuant to Article 1390 of the New Civil Code, personal property, not only because the
(b) Whether the defendants are, under by a proper action in court. 14 There is nothing on record to deed of mortgage considered it as such,
the law, legally bound to pay rentals to show that the mortgage has been annulled. Neither is it but also because it did not form part of
the plaintiffs during the period of one disclosed that steps were taken to nullify the same. Hence, the land (Evangelists vs. Abad, [CA];
(1) year provided by law for the defendants-appellants' claim of ownership on the basis of a 36 O.G. 2913), for it is now settled that
redemption of the extrajudicially voidable contract which has not been voided fails. an object placed on land by one who
foreclosed house. It is claimed in the alternative by defendants-appellants that had only a temporary right to the same,
We will consider these questions seriatim. even if there was no fraud, deceit or trickery, the chattel such as the lessee or usufructuary, does
(a) Defendants-appellants mortgagors question the mortgage was still null and void ab initio because only not become immobilized by attachment
jurisdiction of the municipal court from which the case personal properties can be subject of a chattel mortgage. (Valdez vs. Central Altagracia, 222
originated, and consequently, the appellate jurisdiction of The rule about the status of buildings as immovable U.S. 58, cited in Davao Sawmill Co.,
the Court of First Instance a quo, on the theory that the property is stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc. vs. Castillo, et al., 61 Phil. 709).
chattel mortgage is void ab initio; whence it would follow Inc.,15 cited in Associated Insurance Surety Co., Inc. vs. Hence, if a house belonging to a person
that the extrajudicial foreclosure, and necessarily the Iya, et al. 16 to the effect that — stands on a rented land belonging to
consequent auction sale, are also void. Thus, the ownership ... it is obvious that the inclusion of the another person, it may be mortgaged as
of the house still remained with defendants-appellants who building, separate and distinct from the a personal property as so stipulated in
are entitled to possession and not plaintiffs-appellees. land, in the enumeration of what may the document of mortgage.
Therefore, it is argued by defendants-appellants, the issue constitute real properties (art. 415, New (Evangelista vs. Abad, Supra.) It
of ownership will have to be adjudicated first in order to Civil Code) could only mean one thing should be noted, however that the
determine possession. lt is contended further that ownership — that a building is by itself an principle is predicated on statements by
being in issue, it is the Court of First Instance which has immovable property irrespective of the owner declaring his house to be a
jurisdiction and not the municipal court. whether or not said structure and the chattel, a conduct that may conceivably
Defendants-appellants predicate their theory of nullity of land on which it is adhered to belong to estop him from subsequently claiming
the chattel mortgage on two grounds, which are: (a) that, the same owner. otherwise. (Ladera vs. C.N. Hodges,
their signatures on the chattel mortgage were obtained Certain deviations, however, have been allowed for various [CA] 48 O.G. 5374): 22
through fraud, deceit, or trickery; and (b) that the subject reasons. In the case of Manarang and Manarang vs. In the contract now before Us, the house on rented land is
matter of the mortgage is a house of strong materials, and, Ofilada,17 this Court stated that "it is undeniable that the not only expressly designated as Chattel Mortgage; it
being an immovable, it can only be the subject of a real parties to a contract may by agreement treat as personal specifically provides that "the mortgagor ... voluntarily
estate mortgage and not a chattel mortgage. property that which by nature would be real property", CEDES, SELLS and TRANSFERS by way of Chattel
On the charge of fraud, deceit or trickery, the Court of First citing Standard Oil Company of New York vs. Jaramillo. 18 Mortgage23 the property together with its leasehold rights
Instance found defendants-appellants' contentions as not In the latter case, the mortgagor conveyed and transferred over the lot on which it is constructed and participation ..."
supported by evidence and accordingly dismissed the to the mortgagee by way of mortgage "the following 24 Although there is no specific statement referring to the
charge,8 confirming the earlier finding of the municipal described personal property." 19 The "personal property" subject house as personal property, yet by ceding, selling or
court that "the defense of ownership as well as the consisted of leasehold rights and a building. Again, in the transferring a property by way of chattel mortgage
allegations of fraud and deceit ... are mere allegations."9 case of Luna vs. Encarnacion,20 the subject of the contract defendants-appellants could only have meant to convey the
It has been held in Supia and Batiaco vs. Quintero and designated as Chattel Mortgage was a house of mixed house as chattel, or at least, intended to treat the same as
Ayala10 that "the answer is a mere statement of the facts materials, and this Court hold therein that it was a valid such, so that they should not now be allowed to make an
which the party filing it expects to prove, but it is not Chattel mortgage because it was so expressly designated inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendats- filing of the proper motion and the approval of the govern the extrajudicial foreclosure of the chattel mortgage.
appellants merely had a temporary right as lessee, and corresponding bond that the order for a writ of possession Neither was there an allegation to that effect. Since
although this can not in itself alone determine the status of issues as a matter of course. No discretion is left to the plaintiffs-appellees' right to possess was not yet born at the
the property, it does so when combined with other factors court. 33 In the absence of such a compliance, as in the filing of the complaint, there could be no violation or
to sustain the interpretation that the parties, particularly the instant case, the purchaser can not claim possession during breach thereof. Wherefore, the original complaint stated no
mortgagors, intended to treat the house as personalty. the period of redemption as a matter of right. In such a cause of action and was prematurely filed. For this reason,
Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and case, the governing provision is Section 34, Rule 39, of the the same should be ordered dismissed, even if there was no
Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Revised Rules of Court 34 which also applies to properties assignment of error to that effect. The Supreme Court is
Machinery and Williamson, 26 wherein third persons purchased in extrajudicial foreclosure proceedings.35 clothed with ample authority to review palpable errors not
assailed the validity of the chattel mortgage,27 it is the Construing the said section, this Court stated in the assigned as such if it finds that their consideration is
defendants-appellants themselves, as debtors-mortgagors, aforestated case of Reyes vs. Hamada. necessary in arriving at a just decision of the cases. 37
who are attacking the validity of the chattel mortgage in In other words, before the expiration of It follows that the court below erred in requiring the
this case. The doctrine of estoppel therefore applies to the the 1-year period within which the mortgagors to pay rents for the year following the
herein defendants-appellants, having treated the subject judgment-debtor or mortgagor may foreclosure sale, as well as attorney's fees.
house as personalty. redeem the property, the purchaser FOR THE FOREGOING REASONS, the decision
(b) Turning to the question of possession and rentals of the thereof is not entitled, as a matter of appealed from is reversed and another one entered,
premises in question. The Court of First Instance noted in right, to possession of the same. Thus, dismissing the complaint. With costs against plaintiffs-
its decision that nearly a year after the foreclosure sale the while it is true that the Rules of Court appellees.
mortgaged house had been demolished on 14 and 15 allow the purchaser to receive the Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro,
January 1957 by virtue of a decision obtained by the lessor rentals if the purchased property is Fernando, Teehankee, Barredo, Villamor and Makasiar,
of the land on which the house stood. For this reason, the occupied by tenants, he is, nevertheless, JJ., concur.
said court limited itself to sentencing the erstwhile accountable to the judgment-debtor or
mortgagors to pay plaintiffs a monthly rent of P200.00 mortgagor as the case may be, for the Diego v. Fernando
from 27 March 1956 (when the chattel mortgage was amount so received and the same will
foreclosed and the house sold) until 14 January 1957 (when be duly credited against the redemption On May 26, 1950, the defendant Segundo Fernando
it was torn down by the Sheriff), plus P300.00 attorney's price when the said debtor or executed a deed of mortgage in favor of plaintiff Cecilio
fees. mortgagor effects the redemption. Diego over two parcels of land registered in his name, to
Appellants mortgagors question this award, claiming that Differently stated, the rentals secure a loan P2,000, without interest, payable within four
they were entitled to remain in possession without any receivable from tenants, although they years from the date of the mortgage (Exhibit "A"). After
obligation to pay rent during the one year redemption may be collected by the purchaser the execution of the deed, possession of the mortgaged
period after the foreclosure sale, i.e., until 27 March 1957. during the redemption period, do not properties were turned over to the mortagagee.
On this issue, We must rule for the appellants. belong to the latter but still pertain to
Chattel mortgages are covered and regulated by the Chattel the debtor of mortgagor. The rationale
Mortgage Law, Act No. 1508.28 Section 14 of this Act for the Rule, it seems, is to secure for The debtor having failed to pay the loan after four years,
allows the mortgagee to have the property mortgaged sold the benefit of the debtor or mortgagor, the mortagagee Diego made several demands upon him for
at public auction through a public officer in almost the the payment of the redemption amount payment; and as the demands were unheeded, Diego filed
same manner as that allowed by Act No. 3135, as amended and the consequent return to him of his this action for foreclosure of mortgage.
by Act No. 4118, provided that the requirements of the law properties sold at public auction.
relative to notice and registration are complied with. 29 In (Emphasis supplied) Defendant Fernando's defense was that the true transaction
the instant case, the parties specifically stipulated that "the The Hamada case reiterates the previous ruling in Chan vs. between him and plaintiff was one of antichresis and not of
chattel mortgage will be enforceable in accordance with Espe.36 mortgage; and that as plaintiff had allegedly received a
the provisions of Special Act No. 3135 ... ." 30 (Emphasis Since the defendants-appellants were occupying the house total of 120 cavans of palay from the properties given as
supplied). at the time of the auction sale, they are entitled to remain in security, which, at the rate of P10 a cavan, represented a
Section 6 of the Act referred to 31 provides that the debtor- possession during the period of redemption or within one value of P5,200, his debt had already been paid, with
mortgagor (defendants-appellants herein) may, at any time year from and after 27 March 1956, the date of the auction plaintiff still owing him a refund of some P2,720.00.
within one year from and after the date of the auction sale, sale, and to collect the rents or profits during the said
redeem the property sold at the extra judicial foreclosure period. The Court below, however, found that there was nothing in
sale. Section 7 of the same Act 32 allows the purchaser of It will be noted further that in the case at bar the period of the deed of mortgage Exhibit "A" to show that it was not a
the property to obtain from the court the possession during redemption had not yet expired when action was instituted true contract of mortgage, and that the fact that possession
the period of redemption: but the same provision expressly in the court of origin, and that plaintiffs-appellees did not of the mortgaged properties were turned over to the
requires the filing of a petition with the proper Court of choose to take possession under Section 7, Act No. 3135, mortgagee did not alter the transaction; that the parties
First Instance and the furnishing of a bond. It is only upon as amended, which is the law selected by the parties to
must have intended that the mortgagee would collect the mortgaged, will be allowed to approprite them for himself satisfied, he becomes a trustee for the mortgagor
fruits of the mortgaged properties as interest on his loan, and not be required to account for them to the appellant. as to the excess of the rents and profits over such
which agreement is not uncommon; and that the evidence For the contract of mortgage Exhibit "A" clearly provides debt; and lastly, that the mortgagor can only
showed that plaintiff had already received 55 cavans of that the loan of P2,000 was "without interest within four (4) enforce his rights to the land by an equitable
palay from the properties during the period of his years from date of this instrument"; and there being no action for an account and to redeem. (3 Pom. Eq.
possession. Whereupon, judgment was rendered for evidence to show that the parties had intended to supersede Jur. secs. 1215-1218)
plaintiff in the amount of P2,000, the loan he gave the such stipulation when the possession of the mortgaged
defendant, with legal interest from the filing of the action properties were turned over to the appellee by another Similarly, in Enriquez vs. National Bank, 55 Phil., 414, we
until full payment, plus P500 as attorney's fees and the allowing the latter to collect, the fruits thereof as interest on ruled that a creditor with a lien on real property who took
costs; and in case of default in payment, for the foreclosure the loan, the trial court is not authorized to infer from this possession thereof with the consent of the debtor, held it as
of the mortgage. From this judgment, defendant took the transfer of possession alone that the loan was to be without an "antichretic creditor with the right to collect the credit
present appeal. interest for four years, and substituted another giving with interest from the fruits, returning to the antichretic
appellee the right to receive the fruits of the mortgaged creditor the balance, if any, after deducting the expenses,"
properties as interests. because the fact that the debtor consented and asked the
creditor to take charge of managing his property "does not
Issue: whether the contract between the parties is one of The true position of appellee herein under his contract with entitle the latter to appropriate to itself the fruits thereof
mortgage or of antichresis appellant is a "mortgage in possession" as that term is unless the former has expressly waived his right thereto."
understood in American equity jurisprudence; that is "one
Appellant, while admitting that the contract Exhibit "A" who has lawfully acquired actual or constructive possession In the present case, the parties having agreed that the loan
shows a deed of mortgage, contends that the admitted fact of the premises mortgaged to him, standing upon his rights was to be without interest, and the appellant not having
that the loan was without interest, coupled with the transfer as mortgagee and not claiming under another title, for the expressly waived his right to the fruits of the properties
of the possession of the properties mortgaged to the purpose of enforcing his security upon such property or mortgaged during the time they were in appellee's
mortgagee, reveals that the true transaction between him making its income help to pay his debt" (Diaz vs. De possession, the latter, like an antichretic creditor, must
and appellee was one of antichresis. Mendezona, citing 27 Cyc. 1237, 48 Phil., 666). As such account for the value of the fruits received by him, and
mortgagee in possession, his rights and obligations are, as deduct it from the loan obtained by appellant. According to
As correctly pointed out by appellee and the lower court, pointed out by this Court in Macapinlac vs. Gutierrez the findings of the trial court, appellee had received a net
however, it is not an essential requisite of a mortgage that Repide (43 Phil., 770), similar to those of an antichretic share of 55 cavans of palay out of the mortgaged properties
possession of the mortgaged premises be retained by the creditor: up to the time he filed the present action; at the rate of
mortagagor (Legaspi and Salcedo vs. Celestial, 66 Phil., P9.00 per cavan (a rate admitted by the parties), the total
372). To be antichresis, it must be expressly agreed The respective rights and obligations of the value of the fruits received by appellee is P495.00.
between creditor and debtor that the former, having been parties to a contract of antichresis, under the Civil Deducting this amount from the loan of P2,000.00 received
given possession of the properties given as security, is to Code, appear to be similar and in many respects by appellant from appellee, the former has only P1,505.00
apply their fruits to the payment of the interest, if owing, identical with those recognized in the equity left to pay the latter.
and thereafter to the principal of his credit (Art. 2132, Civil jurisprudence of England and America as
Code, Barretto vs. Barretto, 37 Phil., 234; Diaz vs. De incident to the position of a mortgagee in
Mendezona, 48 Phil., 666); so that if a contract of loan with possession, in reference to which the following Legaspi v. Celestiel
security does not stipulate the payment of interest but propositions may be taken to be established,
provides for the delivery to the creditor by the debtor of the namely, that if the mortgagee acquires possession
property given as security, in order that the latter may in any lawful manner, he is entitled to retain such
gather its fruits, without stating that said fruits are to be possession until the indebtedness is satisfied and The plaintiffs Licerio Legaspi and Julian Salcedo appeal to
applied to the payment of interest, if any, and afterwards the property redeemed; that the non-payment of this court from the judgment rendered by the Court of First
that of the principal, the contract is a mortgage and not the debt within the term agreed does not vest the Instance of Cavite in civil cases Nos. 3025 and 3037 of said
antichresis (Legaspi vs. Celestial, supra).. ownership of the property in the creditor; that the court, the dispositive part of which reads as follows:
general duty of the mortgagee in possession
Ruling: The court below, therefore, did not err in holding towards the premises is that of the ordinary Wherefore, judgment is rendered by this court
that the contract Exhibit "A" is a true mortgage and not an prudent owner; that the mortgagee must account holding that both the so-called instrument of
antichresis for the rents and profits of the land, or its value mortgage Exhibit A and the instrument Exhibit
for purposes of use and occupation, any amount C-1 are really contracts of antichresis and,
thus realized going towards the discharge on the consequently, the plaintiffs should render to the
The above conclusion does not mean, however, that mortgage debt; that if the mortgage remains in defendant an account of the 65 salt beds, which
appellee, having received the fruis of the properties possession after the mortgage debt has been are the subject matter of the two cases, as soon
this decision becomes final, taking into Premises considered, judgment hereby rendered The plaintiffs, replying to the special defense and cross-
consideration the sums already paid by the ordering the defendant to pay the herein plaintiffs complaint, denied each and every one of the facts alleged
defendant to the plaintiffs. the sum of P556.60 with interest at the legal rate therein, stating that the salt gathered from the 60 salt beds
from January 17, 1935, and to pay the costs of mentioned in the complaint was for the exclusive use,
The writ of preliminary attachment issued in civil suit. It is so ordered. benefit and enjoyment of the plaintiffs who, under the
case No. 3037 is set aside, without costs in both provisions of Exhibit A and the intention of the parties,
cases. It is so ordered. From the foregoing judgment, the defendant appealed to were not obliged to submit to the defendant a liquidation of
the Court of First Instance of Cavite. the salt produced and gathered, in order that the same may
be deducted from the principal.
In support of their appeal, the appellants assign the
following alleged errors as committed by the court a quo in On January 30, 1935, the same plaintiffs filed a complaint
its judgment in question, to wit: in civil case No. 3025 of said Court of First Instance, On February 25, 1935, the parties to civil case No. 3025
praying that the same defendant Damaso Celestial be submitted the following stipulation to the court, to wit:
1. The court erred in holding that both the ordered to pay them the sum of P7,637, with the legal
instrument of mortgage Exhibit A and the interest thereon from the date of the filing of the complaint, Come now the parties to this case, assisted by
instrument Exhibit C-1 are really contracts of until fully paid, and the costs of the suit, and that, upon his their respective attorney, and respectfully submit
antichresis. failure to do so, the mortgage constituted by said defendant the following stipulation:
in their favor to secure the payment of the loan in question
be ordered foreclosed.lâwphi1.nêt 1. That, aside from this case, the same
2. The court likewise erred in ordering the
plaintiffs to render to the defendant an account of plaintiffs had instituted against the
the fruits produced by the 65 salt beds, which are The defendant, answering the complaint, admitted the same defendant in the justice of the
the subject matter of both cases. material facts alleged therein as well as the conditions set peace court of Kawit, Cavite, civil case
forth in the documents Exhibit "A" attached thereto, stating No. 165, for the recovery of the sum of
that he had never refused to pay any balance of the debt P556.60 representing a loan made by
3. Lastly, the court erred in not absolving the resulting after a rendition of accounts by the plaintiffs and a the plaintiffs on a portion of the same
plaintiffs from the counterclaim and cross- liquidation; and by way of counterclaim and cross- parcel of land which is the subject
complaint filed by the defendant, with the costs complaint, alleged that the sixty-five salt beds administered matter of the mortgage in this case
to the latter. by the plaintiffs, by virtue of the above-stated documents, before this Honorable Court of First
yielded a net produced of a about 6,500 cavans of salt every Instance, as evidenced by another
On January 17, 1935, the plaintiffs brought an action six months at P1 a cavan; that the plaintiffs should render notarial document dated August 13,
against the defendant Damaso Celestial in the justice of the to the defendant an account of said products so that they 1932. And in this stipulation, said case
peace court of Kawit, Cavite, praying that judgment be may be applied to the payment of his loan or debt; that the shall be understood to be consolidated
rendered, ordering said defendant to pay to the abovenamed approximate total value of half of the number of cavans of with the present one.
plaintiffs the sum of P556.160, plus the corresponding legal salt reaped and availed of by the plaintiffs from the sixty-
interest thereon from the date of the filing of the complaint, five salt beds administered by them during three years and 2. That the defendants agrees and is
until fully paid, and the costs. eleven months, that is, from February 23, 1931, to February disposed to make immediate delivery to
8, 1935, the date of the filing of the answer, was P13,000; the plaintiffs of the total amount of
The defendant, answering the complaint, admitted the that after deducting from said P13,000 the total amount of P8,193.60, without prejudice to his
essential facts alleged therein, stating that he was disposed the defendant's debt to the plaintiffs under the above-stated right to prosecute the case in
to pay what he should appear still to be indebted and, by contracts, that is, P8,193.60, there would still remain a connection with his contention of their
way of counterclaim and cross-complaint, claimed that, the balance in favor of the defendant in the sum of P4,806.40, administration. In must render to him
contract entered into between him and the plaintiffs being which he is entitled to collect from the plaintiffs. He prayed an account of their administration. In
an antichresis, the latter were bound to render an account of that judgment be rendered, ordering the plaintiffs to render consideration hereof, the plaintiffs, in
the products of the five salt beds, the total production of an account of their administration and to pay jointly and turn, agree and bind themselves now to
which was from 300 to 350 cavans of salt at P1 a cavan. severally the sum of P4,806.40, with the legal interest secure the amount in question, or the
thereon, plus the damages that would result if the contract receipt thereof, for the due compliance
of mortgage already perfected with Melchor de Lara should with the judgment to be rendered by the
After due trial of the case, the justice of the peace court of be frustrated and should he fail to find another to execute
Kawit, Cavite, on February 5, 1935, rendered judgment in court on said rendition of accounts,
said contract of mortgage in the sum of P25,000. with sufficient property of their own
said case, the dispositive part of which reads as follows:
worth not less than the 14th instant,;
and likewise forthwith to respect, turn
over and restore now, as they hereby do administer or take charge of the work and harvest contracts under consideration that, during the term thereof
so, to the defendant or his assignees, of the 60 salt beds and pay for the maintenance of and while the total amount of the loan remains unpaid by
the conclusive possession, the croppers and defray the expenses for the the debtor, the salt beds constituted as security for the
administration, benefit and use of the improvement thereof; and the party of the first payment of said loan, shall be administered by the creditors
mortgaged property in question, part shall turn over to the party of the second part who shall destine one-half of the products thereof for the
particularly the sixty-five salt beds the administration of the sixty salt beds maintenance and support of the croppers and the
administered by said plaintiffs to date. mortgaged for the duration of the stipulation improvements of the property, keeping the other half for
contract. themselves. It appears, therefore, that the debtor, instead of
Wherefore, both parties sign this stipulation and paying a certain per cent of the principal of the loan as
pray this honorable court to render its decision in (c) The crop from the sixty salt beds shall be compensation for the sacrifice made by the creditors in
accordance herewith, upon acting on the motion shared equally by the croppers and the party of depriving themselves of the use of their principal and the
of the defendant, dated February 7, 1935. the second part, after deducting the expenses paid enjoyment of its fruits, so as to give them to the debtor, has
by the party of the second part during each delivered to them the property constituted as a security for
harvest period and throughout the existence of the payment of the loan, so that they may administer and
Cavite, Cavite, February 9, 1935. use it, enjoying its fruits, by way of compensation for their
this mortgage.
said sacrifice in lending said debtor their money. Therefore,
In view of the foregoing stipulation, the court a quo the contracts, which are the subject matter of this action,
rendered contracts entered into between the plaintiffs It should be noted that the contract Exhibit C-1 is entitled have all the essential requsites of a mortgage, enumerated
Licerio Legaspi and Julian Salcedo, on the one hand, and "Contract of Artichresis" while the contract Exhibit A is in article 1857 of the Civil Code and, consequently, are
Damaso Celestial, on the other hand, appearing in the entitled "Contract of Mortgage". Both in the contract mortgage contracts.
instruments Exhibits A and C-1 are of mortgage or Exhibit C-1 and in the contract Exhibit A, the defendant
antichresis. Damaso Calestial, as debtor, agrees to turn over to the
plaintiffs, as creditors, the possession of the salt beds so With respects to the second assignment of alleged error,
that the latter, after paying the expenses for the production, this court, having arrived at the conclusion that the
The contracts Exhibit C-1, entitled "Contract of administration and harvest of the salt with one-half of the contracts entered into between the plaintiffs and the
Antichresis", contains the following stipulation: produce, may keep the other half of the use, benefit and defendant are contracts of mortgage and not of antichresis,
enjoyment. It is not stipulated that the net produce of the finds the same to be well founded.
That during the existence of this Contract, the salt beds shall first be applied to the payment of the
Party of the SECOND PART (Licerio Legaspi interest, if any, and afterwards to that of the principal of This court likewise finds the third assignment of alleged
and Julian Salcedo) or their representative shall their credit. Both contracts merely provide that the creditors error to be well founded.
administer and enjoy the benefits and fruits shall keep one-half of the products. Therefore, they are not
gathered and harvested thereon; and that the contracts of antichresis, as defined by article 1881 of the From the foregoing considerations, this court is of the
Party of the FIRST PART (Damaso Celestial) Civil Code. In a contract of mortgage, the mortgagor, as a opinion and so holds, that when a contracts of loan with
shall give and turn over to the Party of the general rule, retains the possession of the property security does not stipulate the payment of interest but
SECOND PART the administration and to mortgaged as security for the payment of the sum of money provides for the delivery to the creditor by the debtor of the
possession of the said 5 salt beds during the term borrowed from the mortgagee, and pays the latter a certain real property constituted as security for the payment
of this contract. per cent thereof as interest on his principal by way of thereof, in order that the creditor may administer the same
compensation for his sacrifice in depriving himself of the and avail himself of its fruits, without stating that said fruits
In the contract Exhibit A, the parties stipulated the use of said money and the enjoyment of its fruits, in order are to be applied to the payment of interest, if any, and
following: to give them to the mortgagor. Inasmuch as it is not an afterwards to that of the principal of the credit, the contract
essential requisite of the contract of mortgage that the shall be considered to be one of mortgage and not of
property mortgaged remain in the possession of the antichresis.
(a) The term of this mortgage is three (3) years to mortgagor (article 1857 of the Civil Code), the latter may
be counted from February 23, 1931, and should deliver said property to the mortgagee, without thereby
the party of the first part, after the expiration of altering the nature of the contract. It not being an essential Wherefore, the appealed judgment is reversed, and the
this term, fail to pay to the party of the second requisite of said contract of mortgage that the principal of defendant's debt to the plaintiffs is declared paid and the
part the amount of this mortgage, this contract the mortgage credit bear interest, or that the interest, as deeds of security executed by both parties cancelled,
shall subsist in full force and effect and continue compensation for the use of the principal and enjoyment of dismissing the counterclaim and cross-complained filed by
the debt or amount of the mortgage is fully paid. its fruits, be in the form of a certain per cent thereof, such said defendant and appellee Damaso Celestial, with costs to
interest may be in the form of fruits of the property the latter. So ordered
(b) During the term of the mortgage, the party of mortgage, without the contract's longing thereby its
the second part of the mortgagees shall character of a mortgage contract. It is stipulated in the