Case Summary (G.R. No. 35223)
Procedural Posture
Bachrach Motor Co., Inc. sued Talisay‑Silay Milling Co., Inc. for delivery of P13,850 (promissory notes or other instruments) alleged to be a bonus in favor of Mariano L. Ledesma, sought accounting of amounts due to Ledesma, and prayed that Ledesma’s alleged sale be annulled. The Philippine National Bank (PNB) intervened claiming a preferential right to any bonus payable to Ledesma by reason of mortgages executed by planters in favor of PNB and an assignment by Ledesma (Exhibit 9). Talisay‑Silay answered, asserting that P7,500 of the credit belonged to Cesar Ledesma by purchase. Cesar Ledesma separately asserted ownership of the P7,500 in good faith. At trial the parties accepted the sale to Cesar Ledesma, and the trial court dismissed claims against him and ordered delivery of P7,500 to him. The trial court held Bachrach had a preferred right to P11,076.02 (the remainder of Ledesma’s bonus) and ordered delivery to Bachrach. PNB appealed, assigning multiple errors.
Claims, Cross‑Claims and Assignments of Error
PNB’s primary contention on appeal was that the bonus constituted civil fruits of the mortgaged lands owned by planters (including Ledesma) and therefore was subject to the mortgage in favor of PNB; alternatively, PNB relied on the assignment executed by Ledesma on March 7, 1930 (Exhibit 9). PNB’s assignments of error included: (1) the trial court erred in holding the bonus was not civil fruits; (2) the court should have held the bonus became subject to PNB’s mortgage when Ledesma’s obligation fell due; (3) the court erred in characterizing Exhibit 9 as fraudulent (or otherwise void); (4) the court erred in recognizing Bachrach’s attachment(s) as creating a prior preferential right; and (5) the court erred in declaring Bachrach’s preference and ordering delivery to Bachrach instead of PNB.
Trial Court Findings
The trial court found that the sale to Cesar Ledesma of P7,500 of the credit was valid and recognized it; accordingly, P7,500 was to be delivered to him. As to the remaining amount (P11,076.02), the court concluded Bachrach Motor Co., Inc. had a preferred right to receive the bonus and ordered Talisay‑Silay Milling Co., Inc. to deliver that sum to Bachrach. The court therefore rejected PNB’s claim of preferential right over the bonus.
Legal Issue Presented
The fundamental legal question the Court considered was whether the bonus payable by the Talisay‑Silay Milling Co. to planters who mortgaged their land to PNB constituted civil fruits of the mortgaged land and thus became subject to the mortgage in favor of PNB (and, concomitantly, whether any assignment by Ledesma of the bonus to PNB was valid as an assignment of civil fruits).
Applicable Law — Article 355, Civil Code
Article 355 of the Civil Code was treated as identifying three categories of civil fruits: (1) rents of buildings; (2) proceeds from leases of lands; and (3) income from perpetual or life annuities or similar sources of revenue. The Court emphasized that, in context, the phrase “other analogous” refers to rents or income analogous to the listed types; thus the Civil Code’s concept of civil fruits is limited to the enumerated and analogous categories.
Court’s Analysis on the Nature of the Bonus
The Court examined the origin and terms of the bonus. Talisay‑Silay had resolved on December 22, 1923 (amended March 23, 1928) to credit owners of plantations who mortgaged their land to the bank an annual sum equal to two percent of the debt secured, payable when the central’s obligations permitted. The Court noted the bonus was granted as compensation for the risk planters assumed by subjecting their land to a mortgage for the benefit of the central, and that the bonus amount was based on the total debt secured (the yearly balance). The Court stressed that the bonus bore only a remote and accidental relation to the mortgaged land; it derived from the risk and the debt, not from any yield, production, or income of the property itself.
Reasoning — Why the Bonus Is Not Civil Fruits
Applying Article 355, the Court concluded the bonus was neither rent of a building nor rent/proceeds of land, and the only remaining sense was “income.” Even under a broad sense of “income,” the decisive inquiry is whether the amount is derived from the land itself. The Court found that the bonus was not derived from the mortgaged property; it was calculated from the debt secured and contingent upon the central’s ability or au
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Procedural Posture and Relief Sought
- The Bachrach Motor Co., Inc. (plaintiff-appellee) filed a complaint against the Talisay-Silay Milling Co., Inc. (defendant) for delivery of P13,850 or promissory notes or other instruments of credit payable June 30, 1930, alleged to be a bonus in favor of Mariano Lacson Ledesma.
- The complaint also prayed (a) that the sugar central (Talisay-Silay Milling Co., Inc.) render an accounting of amounts owed to Mariano Lacson Ledesma by way of bonus, dividends or otherwise, (b) that the central pay plaintiff a sum sufficient to satisfy the judgment claimed, and (c) that a sale made by Mariano Lacson Ledesma be declared null and void.
- The Philippine National Bank intervened (appellant), filing a third-party claim asserting a preferential right to any amount that Mariano Lacson Ledesma might be entitled to from the Talisay-Silay Milling Co. as bonus, on the ground that such bonus was civil fruits of land mortgaged to the Bank and by virtue of a deed of assignment, and praying that the central be ordered to deliver said sum directly to the Bank on account of the Bank’s credit against Ledesma.
- Cesar Ledesma answered, asserting ownership by purchase in good faith of P7,500 of the credit and praying for dismissal insofar as he was concerned.
- The plaintiff answered the Bank’s claim, asserting that plaintiff’s credit against Mariano Lacson Ledesma was prior and preferred to the Bank’s, and prayed dismissal of the Bank’s claim.
Facts Established at Trial
- The Talisay-Silay Milling Co., Inc. had indebtedness to the Philippine National Bank, evidenced by a situation dating to December 22, 1923.
- To secure the central’s debt to the Bank, the central induced planters, including Mariano Lacson Ledesma, to mortgage their land to the Philippine National Bank.
- The central, by resolution of December 22, 1923 (amended March 23, 1928), undertook to credit owners of plantations mortgaged to the Bank with an annual sum equal to two percent of the debt secured according to the yearly balance. Payment of the bonus was to be made at once or in part as soon as the central became free of its obligations to the Bank, and of those under the contract of supervision, and had funds available for that purpose or obtained authority from the Bank to make such payment (Exhibits 5, 6; P. N. B.).
- At trial the parties recognized the sale in favor of Cesar Ledesma of the P7,500 part of the credit, and the trial court dismissed complaints and cross-complaints against Cesar Ledesma and authorized delivery of P7,500 to him.
- The trial court found that Bachrach Motor Co., Inc. had a preferred right to receive P11,076.02, representing Mariano Lacson Ledesma’s bonus, and ordered the Talisay-Silay Milling Co., Inc. to deliver that sum to the plaintiff.
Trial Court Disposition
- The trial court dismissed the complaint and cross-complaint against Cesar Ledesma and authorized disposition of the P7,500 to him in recognition of his purchase.
- The court adjudged Bachrach Motor Co., Inc. as having a preferred right to the P11,076.02 bonus belonging to Mariano Lacson Ledesma and ordered delivery of that sum to the plaintiff.
Issues Presented on Appeal (Assignments of Error by the Philippine National Bank)
- The Bank assigned error to the trial court’s holding that the bonus promised by the Talisay-Silay Milling Co. to planters who mortgaged their land for the benefit of the central is not civil fruits of the mortgaged land.
- The Bank assigned error for the court’s refusal to hold that the bonus became subject to the mortgage executed by Mariano Lacson Ledesma to the Bank securing his personal debt when that obligation fell due.
- The Bank assigned error to the court’s holding that the assignment (referred to as Exhibit 9, P. N. B.) of the bonus made March 7, 1930 by Mariano Lacson Ledesma to the Bank for application on his debt is fraudulent.
- The Bank assigned error in the court’s holding that Bachrach Motor Co., Inc.,