G.R. No. L-6080 - Susara vs. Martinez

Case Summary (G.R. No. L-6080)

Factual Background

The complaint alleged that on March 30, 1906, during the period when Francisco Martinez was declared incapable of managing his property and Attorney Vicente Ilustre served as guardian, Ilustre, as guardian and with the approval of the court, executed with Susara a contract of loan and acknowledgment of a debt in favor of Susara for P4,125. The debt was allegedly secured by real property located at Nos. 93, 95, and 97, Calle Sevilla, Manila, owned by Francisco Martinez. The complaint asserted that the contract was embodied in a public instrument, Exhibit A, which was approved by the court on April 3 of the year before, and that Susara remained the legitimate owner of the credit and security. It further alleged that repayment was due within three years from March 30, 1906, expiring on March 30, 1909, and that the debtor or his representative was obligated to pay annually interest of P367.50. Susara claimed that only P244 had been paid as interest for the last year, leaving an unpaid interest of P123.50, which, together with unpaid principal, produced a total of P4,248.50 as of the filing of the complaint. He alleged consequential loss and damage of P246 and prayed for judgment compelling payment of P4,494.50, plus legal interest from the filing date until full payment, and, in case of insolvency, the sale at public auction of the mortgaged property with the net proceeds applied to the judgment.

Content of the Alleged Mortgage Instrument (Exhibit A)

Exhibit A reflected the participation of Vicente Ilustre, as guardian of Francisco Martinez y Garcia, and Marcelo Susara, as creditor. The guardian stated that his ward owned a house and lot on Calle Sevilla, Binondo, designated as Nos. 93, 95, and 97, and that, in his capacity as guardian and with court approval, he mortgaged the property through a special preferred mortgage in favor of Susara for P4,125, subject to stated conditions. Susara allegedly delivered P2,000 for the purposes of the contract. The instrument also recited that Susara held a credit of P2,125 against Francisco Martinez, verbally acknowledged by the debtor and previously affirmed by a partial payment on account recorded at the foot of a related document dated July 8, 1903. The instrument stated that the credit of P2,125 constituted an encumbrance on the property, and that the combined total of P2,125 and P2,000 formed the mortgage amount. It further stipulated that P2,000 would earn 12% interest per annum, while the remainder P2,125 would earn 6% interest per annum. The mortgage term was stated to be two years, extendible for another year at the will of the guardian/party of the first part. Susara acknowledged acceptance of the contract in all its parts, and the instrument was signed on March 30 in the presence of two witnesses and ratified the same date before a notary public. It bore an approval note signed by Judge A. S. Crossfield dated April 3, 1906, with the court stamp. The exhibit attached a copy of a promissory note dated July 8, subscribed by Francisco Martinez, payable on October 23 to Susara’s order for P2,600, with stated value as received in specified jewelry items. Under the debtor’s signature appeared the notation: “Paid on account a credit of P600.”

Procedural History and Defendant’s Response

After the complaint was filed on October 28, 1909, Mariano Martinez filed an answer denying paragraphs 8, 9, and 10 of the complaint and each and all of their parts. Those paragraphs concerned the asserted annual interest due, the amount actually received as interest, the claimed amount of indebtedness comprising principal and interest, and the asserted loss and damages. As a special defense, the defendant alleged that the controversy involved a claim against the estate of a deceased person, for whose settlement the court had appointed commissioners under the applicable law. He therefore sought dismissal of the complaint with costs against Susara.

At trial, the Court of First Instance dismissed the complaint on March 7 of the year mentioned in the record. The decision did not include a special finding as to costs. Susara moved for a new trial, arguing that the findings were contrary to evidence and law. The motion was overruled. Susara excepted, filed the necessary bill of exceptions on March 31, and the defendant opposed its approval on the ground that it was not presented in due time, a fact that Susara admitted. The Court held that the impropriety of the appeal’s admission was a matter within the competency of the Supreme Court on a motion to dismiss, and it approved the bill of exceptions and ordered it forwarded to the clerk of the court. The Supreme Court thereafter proceeded to decide the case.

The Parties’ Contentions on Appeal

The appeal proceeded on the premise that Susara’s action was, in substance, a mortgage action intended to collect a credit secured by real property under section 254 and following of the Code of Civil Procedure. The theory presented was that, upon the alleged execution and court approval of Exhibit A, Susara held a mortgage credit enforceable against the property or its proceeds in the event of insolvency. Conversely, the trial court dismissed the complaint on a different ground: it held that the purported mortgage instrument was not registered in the registry of property. The defendant also invoked, as a special defense, the concept that the claim should have been presented to the commissioners for settlement of the estate under section 636 and following of the Code of Civil Procedure.

An incidental procedural matter was also mentioned. Susara’s side had earlier raised a challenge to the admission of the appeal as approved through the bill of exceptions, but the Supreme Court declined to pass upon that incidental issue in the later stage of the proceedings due to waiver and omission affecting the ability to raise and argue the matter at that point.

Ruling of the Supreme Court

The Supreme Court affirmed the judgment of the Court of First Instance. It dismissed Susara’s complaint and imposed the costs against the appellant.

Legal Basis and Reasoning

The Court reasoned that Susara’s complaint sought recovery of a credit secured by real property and requested, in the event of insolvency, the mortgaged property’s sale at public auction with application of net proceeds to satisfy the judgment. Thus, it treated the action as a mortgage action contemplated by section 254 and following of the Code of Civil Procedure. The Court then focused on whether the mortgage credit existed as a legally enforceable right.

The Court held that the dispositive defect was the absence of registration of the mortgage instrument in the registry of property. It relied on Article 1875 of the Civil Code, emphasizing that beyond the requisites in Article 1857, the mortgage could not be validly constituted unless “the instrument by which it is created be entered in the registry of property.” The Court found that Exhibit A, the instrument purporting to be the mortgage, did not appear to be registered in the registry of property, as reflected in the appealed judgment. For that reason, the Court concluded that no validly constituted mortgage existed and that the creditor could not pursue a mortgage action on the basis of a document that failed to meet the statutory requirement.

The Court further state

Case Syllabus (G.R. No. L-6080)

Parties and Procedural Posture

Marcelo Susara filed a written complaint in the Court of First Instance of Manila against Mariano Martinez, as administrator of the intestate estate of the late Francisco Martinez.
After trial, the trial court dismissed the complaint.
Susara filed an exception to the judgment and sought a new trial, on the ground that the findings were contrary to the evidence and the law.
The trial court overruled the motion for new trial, and Susara took an exception.
Susara then filed a bill of exceptions on March 31 of the same year.
The defendant opposed the approval of the bill of exceptions for allegedly being filed not in due time, which the plaintiff apparently admitted.
The trial court ruled that whether the appeal was improperly admitted was within the competency of the Supreme Court on a motion to dismiss, approved the bill of exceptions, and ordered it forwarded.
On appeal, the Court affirmed the dismissal of the complaint and assessed costs against the appellant.

Key Factual Allegations

Susara alleged that Francisco Martinez had been judicially declared incapable of managing his property, and a guardian, Attorney Vicente Ilustre, had been appointed on March 30, 1906.
Susara alleged that upon the date of March 30, 1906, Ilustre, in his capacity as guardian, executed a written instrument with Susara evidencing a loan and an acknowledgment of debt.
Susara alleged that the debt was secured by a property located at Nos. 93, 95, and 97 Calle Sevilla, Manila, owned by Francisco Martinez.
Susara alleged that the instrument was embodied in a public instrument, and that a copy identified as Exhibit A was presented with the complaint and treated as integral to it.
Susara alleged that the court approved the transaction on April 3 of the prior year and that Susara remained the legitimate owner of the credit and security.
Susara alleged that the principal of P4,125 was to be refunded within three years from March 30, 1906, expiring on March 30, 1909.
Susara alleged an annual interest obligation of P367.50 and claimed that the debtor or his representative had paid only P244 as interest for the last year.
Susara alleged that as of the filing of the complaint, the debtor owed P123.50 as unpaid interest and that the principal plus unpaid interest amounted to P4,248.50.
Susara alleged further that due to nonpayment he suffered loss and damage of P246.
Susara sought judgment ordering Mariano Martinez to pay P4,494.50 with legal interest from the filing of the complaint until full payment.
Susara also prayed that in case of insolvency, the mortgaged property be sold at public auction and the net proceeds be applied to satisfy the judgment.

Instrument and Mortgage Terms

Exhibit A stated that the guardian, with the approval of the court, mortgaged the property at Nos. 93, 95, and 97 Calle Sevilla to secure Susara’s credit.
Exhibit A stated that Susara delivered P2,000 for the purposes of the contract.
Exhibit A stated that Susara already held a credit of P2,125, verbally acknowledged and supported by a prior recorded document dated July 8, 1903, with a partial payment noted.
Exhibit A treated the existing P2,125 credit as constituting an encumbrance on the same property.
Exhibit A combined P2,000 and P2,125 into a total mortgaged sum of P4,125.
Exhibit A provided for interest at 12% per annum on P2,000 and 6% per annum on the remaining P2,125.
Exhibit A provided a mortgage term of two years, extendible for another year at the will of the guardian.
Exhibit A reflected acceptance by Susara and stated execution before witnesses on March 30 and ratification before a notary on the same date.
Exhibit A included an approval note signed by Judge A. S. Crossfield dated April 3, 1906 bearing the stamp of the court.
Attached to Exhibit A was a co