Title
Asiatic Petroleum Co. , Ltd. vs. Vda. de Molina
Case
G.R. No. 45486
Decision Date
May 24, 1939
Plaintiff, a mortgagee, petitioned insolvency court to sell mortgaged property, enforcing security without waiving rights. Junior mortgagee's equity of redemption remained intact due to lack of notice.
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Case Digest (G.R. No. 45486)

Facts:

  1. Contract of Agency and Mortgage Execution:

    • On March 8, 1929, a contract of agency was entered into between the plaintiff, Asiatic Petroleum Company (P.I.), Ltd., and Tam Meng, appointing the latter as the selling agent for the plaintiff's goods.
    • As security for the faithful performance of the agent's obligations, Tam Meng and Tam Chio & Co. executed a mortgage on a parcel of land, including its improvements, for up to eight thousand pesos (P8,000). This mortgage was annotated as a first mortgage on the transfer certificate of title.
  2. Second Mortgage in Favor of Defendant:

    • Subsequently, the mortgagors executed a second mortgage on the same property in favor of the defendant, Josefa Valencia Viuda de Molina, to secure a loan of five thousand pesos (P5,000). This second mortgage was also duly annotated on the certificate of title.
  3. Insolvency Proceedings:

    • The mortgagor, Tam Meng, was later declared insolvent.
    • The plaintiff filed a petition in the insolvency court under Section 59 of the Insolvency Act, requesting the sale of the mortgaged property at public auction.
    • The court granted the petition, and the property was sold at auction, with the plaintiff being the highest bidder at one thousand five hundred pesos (P1,500). The sale was later confirmed by the court.
  4. Lack of Notice to Defendant:

    • The defendant, as the junior mortgagee, had no notice of the plaintiff's petition for the sale or the confirmation of the sale.
  5. Foreclosure Action:

    • The plaintiff filed an action against the defendant to foreclose her equity of redemption.
    • The trial court dismissed the complaint, ruling that the plaintiff, by filing the motion for sale in the insolvency proceedings, had waived its mortgage security.

Issue:

  1. Whether the plaintiff, by petitioning the insolvency court to sell the mortgaged property, waived its mortgage security under Section 59 of the Insolvency Act.
  2. Whether the defendant, as the junior mortgagee, is entitled to notice of the sale and retains her equity of redemption.

Ruling:

The Supreme Court reversed the trial court's decision and ruled in favor of the plaintiff. The Court held that:

  1. The plaintiff did not waive its mortgage security by petitioning the insolvency court to sell the mortgaged property. Such an act constitutes enforcement, not waiver, of the security.
  2. The sale of the mortgaged property at public auction may be treated as an execution sale incident to foreclosure. Since the defendant had no notice of the sale, her equity of redemption remained unaffected.
  3. The plaintiff is entitled to foreclose the defendant's equity of redemption. The defendant was ordered to exercise her equity of redemption within ninety (90) days by paying the plaintiff the sum of six thousand five hundred pesos (P6,500) with interest at six percent (6%) per annum from February 17, 1936. In default of payment, her lien on the property would be canceled.

Ratio:

  1. Waiver of Security:

    • Under Section 59 of the Insolvency Act, the only mode of waiver of a mortgage security is its release or surrender to the receiver, sheriff, or assignee. The plaintiff did not release or surrender its security but instead sought to enforce it by petitioning for the sale of the mortgaged property. This act does not constitute a waiver.
  2. Enforcement of Security:

    • The sale of the mortgaged property at public auction is an enforcement of the mortgage security, not a waiver. The plaintiff's action was consistent with its rights as a mortgagee.
  3. Equity of Redemption:

    • The defendant, as the junior mortgagee, was entitled to notice of the sale. Since she had no notice, her equity of redemption remained intact. The plaintiff's independent suit to foreclose her equity of redemption was proper.
  4. Application of Section 59 of the Insolvency Act:

    • The Court affirmed the analysis of Section 59 by Attorneys Gregorio Araneta and Salvador Araneta, which states that a mortgage creditor shall be admitted as a creditor for the balance of the debt after deducting the value of the property. The plaintiff's actions were in line with this provision.


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