Case Summary (G.R. No. 186502)
Procedural History
The trial court found the written instrument to be a mortgage, found that petitioner had received fruits from the property (trial court found 65 cavans), and rendered judgment in favor of petitioner for P2,000 with legal interest from filing, attorney’s fees, costs and foreclosure in case of default. The appeal raised only questions of law and was certified to the Supreme Court.
Legal Issue
Whether the contract evidenced by the written instrument and the subsequent transfer of possession was a mortgage (with the mortgagee in possession) or an antichresis, and, relatedly, how the fruits collected by the mortgagee affect the debt, interest, and recovery.
Legal Standard: Mortgage versus Antichresis
The Court reiterates settled law distinguishing mortgage from antichresis. Possession by the mortgagee does not of itself convert a mortgage into antichresis. Antichresis requires an express agreement that the creditor, having possession, shall apply the fruits to pay interest, and thereafter the principal (Art. 2132 Civil Code and cited cases). If a loan with security does not stipulate interest but only contemplates delivery of property for the creditor to gather fruits without an express provision that the fruits are to be applied to interest and principal, the contract remains a mortgage and not antichresis.
Court’s Classification and Rationale
The Supreme Court affirmed that the written instrument (Exhibit “A”) is a true mortgage. The absence of an express stipulation that the fruits were to be applied as interest and principal, together with the written stipulation that the loan was without interest for four years, precluded an inference that the parties orally modified their agreement when possession was delivered. Thus the creditor’s possession made him a “mortgagee in possession” under equitable principles (as understood in American jurisprudence), not an antichretic owner.
Rights and Obligations of the Mortgagee in Possession
As a mortgagee in possession, the creditor is entitled to hold possession lawfully acquired until the debt is satisfied, but must act as a prudent owner and account for rents and profits (or value for use) produced by the property. Any income derived from the property is to be applied toward the mortgage debt; if the debt is satisfied and surplus fruits remain, the mortgagee becomes a trustee for the mortgagor as to the excess. The mortgagor’s remedy for excess appropriation is an equitable action for account and redemption.
Application to the Present Case: Accounting for Fruits
Although the instrument created a mortgage without interest for four years, the Court held that petitioner must account for the fruits he actually received. The trial court’s findings were adopted by the Supreme Court that petitioner had received a net share of 55 cavans of palay up to the filing of the action; the parties admitted P9.00 per cavan as the valuation for that period. The Court applied that valuation (55 cavans × P9 = P495) and deducted that amount from the P2,000 principal to arrive at a reduced principal balance of P1,505.
Interest and Post‑Filing Fruits
The Court sustained the trial court’s award of legal interest from the filing of the action because appellant remained indebted and there was no stipulation permitting interest to be withheld or otherwise displaced. However, the Court required petitioner to account for fruits received from the time of filing until full payment (or, if foreclosure occurs, until foreclosure), and directed that the value of those fruits be deducted from the total amount recoverable. In short: legal interest from filing is allowed, but fruits collected after filing must be credited a
Case Syllabus (G.R. No. 186502)
Case Citation and Procedural Posture
- Reported at 109 Phil. 143, G.R. No. L-15128, decided August 25, 1960.
- Appeal by defendant Segundo Fernando from the judgment of the Court of First Instance of Nueva Ecija in Civil Case No. 1694 for foreclosure of mortgage.
- Appeal was originally brought to the Court of Appeals but was certified to the Supreme Court because it raised only questions of law.
- The facts were not disputed.
Facts
- On May 26, 1950, defendant Segundo Fernando executed a deed of mortgage in favor of plaintiff Cecilio Diego over two parcels of land registered in his name to secure a loan of P2,000, without interest, payable within four years from the date of the mortgage (Exhibit "A").
- After execution of the deed, possession of the mortgaged properties was turned over to the mortgagee (appellee) Diego.
- Debtor (appellant) failed to pay the loan after four years.
- Mortgagee Diego made several demands for payment; as demands were unheeded, Diego filed action for foreclosure of mortgage.
- Appellant alleged the true transaction was antichresis, not mortgage, and claimed appellee had received a total of 120 cavans of palay from the properties, which at P10 per cavan allegedly equaled P5,200, thereby discharging the debt and leaving appellee owing a refund of about P2,720.00.
- Trial court found appellee had received 65 cavans of palay during his possession (as per earlier finding), but later calculation by court indicates appellee received a net share of 55 cavans up to the time of filing, at P9.00 per cavan as admitted by the parties, totaling P495.00.
Issue Presented
- Whether the contract between the parties (Exhibit "A") is a contract of mortgage or of antichresis.
- Ancillary issues addressed:
- Whether possession turned over to the mortgagee converted the mortgage into antichresis.
- Whether appellee must account for fruits (rents and profits) received from the mortgaged properties.
- Whether legal interest from filing of the action was properly awarded by the trial court while appellee remains in possession receiving fruits.
Contentions of the Parties
- Appellant (Segundo Fernando):
- Admitted Exhibit "A" shows a deed of mortgage.
- Argued that the loan being without interest and the transfer of possession to the mortgagee reveal the true transaction was antichresis.
- Claimed appellee received 120 cavans of palay valuing P5,200, thereby more than satisfying the debt and creating an overpayment.
- Contended the trial court erred in ordering him to pay legal interest from filing because appellee remained in possession and enjoyed fruits.
- Appellee (Cecilio Diego) and lower court:
- Maintained the contract Exhibit "A" is a true mortgage as written.
- Asserted that turnover of possession to mortgagee did not alter the nature of the contract.
- Found that appellee received fruits (palay) from the property during possession and that such receipt did not per se convert mortgage into antichresis.
Trial Court Findings and Judgment
- Trial court found nothing in Exhibit "A" to show it was not a true contract of mortgage.
- Found that possession given to mortgagee did not alter the transaction and that the parties must have intended that the mortgagee would collect fruits as interest (an agreement not uncommon).
- Found appellee had already received 65 cavans of palay during the period of his possession (earlier finding).
- Judgment rendered for plaintiff for:
- P2,000 principal (loan),
- legal interest from the filing of the action until full payment,
- P500 attorney's fees,
- costs,
- and, in case of default, foreclosure of the mortgage.
Applicable Legal Principles and Precedents Cited
- It is not an essential requisite of a mortgage that possession of the mortgaged premises be retained by the mortgagor (citing Legaspi and Salcedo vs. Celestial, 66 Phil., 372).
- Antichresis requires an express agreement that the creditor, given possession of the property, is to apply its fruits to payment of interest, and thereafter to the principal (Art. 2132, Civil Code; Barretto vs. Barretto, 37 Phil.