Case Summary (G.R. No. L-15128)
Key Dates
• May 26, 1950 – Execution of deed of mortgage securing a P2,000 loan, payable in four years without interest
• Circa May 26, 1954 – Maturity of the loan; debtor’s failure to pay
• Date of action – After maturity, foreclosure suit filed (exact date not specified)
• August 25, 1960 – Supreme Court decision
Applicable Law
• Civil Code provisions on mortgage (Arts. 2071–2147) and antichresis (Art. 2132) under the pre-1973 Code
• Jurisprudence distinguishing mortgage and antichresis (Legaspi v. Celestial; Barretto v. Barretto; Diaz v. De Mendezona)
• Legal interest on default (Art. 1108, old Civil Code; Art. 2209, New Civil Code)
Appeal and Undisputed Facts
The appeal challenges the foreclosure judgment rendered by the trial court after the debtor failed to repay a P2,000 loan secured by a mortgage on two registered lands. Both parties agree on the material facts: loan amount, security, maturity, non-payment and subsequent foreclosure suit.
Creation of the Mortgage and Delivery of Possession
On May 26, 1950, Fernando executed a written deed of mortgage in Diego’s favor, pledging two parcels of land to secure a four-year, interest-free loan of P2,000. Possession of the mortgaged properties was immediately transferred to Diego.
Default and Foreclosure Proceedings
Upon debtor’s non-payment at maturity, Diego made repeated demands. With no payment forthcoming, he filed a petition for foreclosure of mortgage before the Court of First Instance of Nueva Ecija.
Appellant’s Antichresis Defense and Alleged Equivalence
Fernando contended that the true nature of the contract was antichresis, not mortgage. He claimed that Diego had already collected 120 cavans of palay (valued at P10 per cavan, or P5,200) and therefore the debt was fully extinguished, with an alleged surplus refund due him.
Lower Court’s Findings on Nature of Contract
The trial court found no provision in the deed indicating antichresis. It held that delivery of possession alone does not transform a mortgage into antichresis. Evidence showed Diego received only 65 cavans of palay during his possession, insufficient to extinguish the debt. The court ordered principal of P2,000 plus legal interest from filing, attorney’s fees of P500, costs, and foreclosure in case of non-payment.
Legal Distinction Between Mortgage and Antichresis
Under Civil Code Art. 2132 and established Philippine jurisprudence, antichresis requires an express agreement that the creditor, upon taking possession, will apply the fruits first to interest, then to principal. Absent such stipulation, a pledge of land with transferred possession remains a mortgage.
Mortgage in Possession and Equity Principles
A mortgagee who lawfully acquires possession without changing the contractual terms is deemed a “mortgagee in possession.” Equity jurisprudence treats such a party similarly to an antichretic creditor: he may hold possession to enforce the security and must manage the property prudently, accounting for rents and profits toward the debt.
Obligation to Account for Fruits
Although Diego received the fruits of the mortgaged land, he must account for their value because the written agreement stipulated an interest-free loan. There was no verbal modification granting him the right to treat the palay as interest.
Calculation of Fruits Value and Adjusted Principal
Trial finding
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Facts
- On May 26, 1950, Segundo Fernando executed a deed of mortgage (Exhibit “A”) over two parcels of land in his name to secure a P2,000 loan from Cecilio Diego, payable in four years, “without interest.”
- Immediately after execution, possession of the mortgaged properties was delivered to Diego.
- Fernando failed to pay the loan at the end of four years.
- Diego made repeated demands for payment, all of which Fernando ignored.
- Diego filed an action for foreclosure of mortgage in Civil Case No. 1694, Court of First Instance of Nueva Ecija.
Procedural History
- Trial Court: Found Exhibit “A” to be a true mortgage, not antichresis; determined that Diego received 65 cavans of palay as fruits; rendered judgment for Diego in P2,000 plus legal interest from filing, P500 attorney’s fees, costs, and foreclosure in case of default.
- Court of Appeals: The appeal was lodged but later certified to the Supreme Court because it involved pure questions of law.
- Supreme Court: Took up the case on appeal from the Court of Appeals and reviewed only legal issues.
Issue
- Whether the contract evidenced by Exhibit “A” is a mortgage or an antichresis.
- Whether Diego, having received fruits of the mortgaged land, must account for them.
- Whether legal interest from filing was properly awarded despite Diego’s continued possession.
Held
- Exhibit “A” is a valid mortgage, not an antichresis.
- Diego, as a mortgagee in possession, must account for fruits received and apply their value against the principal.
- Legal interest from fili