G.R. No. 873 - People vs. Mendezona

Case Summary (G.R. No. 873)

Factual Background

The complaint alleged that on January 5, 1900, Mendezona, as manager of Mendezona & Co., received from the Spanish-Philippine Bank the sum of $300,000, offering as security, among other property, the Franciscan procuration house, an offer allegedly contained in a letter addressed to the bank’s management. The complaint further alleged that on February 19, 1900, Mendezona obtained a further credit of $300,000 as an extension of the earlier credit, again offering the same property as security, through another letter.

According to the complaint, after the bank demanded execution of the corresponding mortgage deed—which Mendezona had verbally undertaken to execute—he allegedly deflected performance by claiming that the notary public, Mr. Barrera, had the title deeds or papers, thereby postponing execution until August 6, 1902. On that date, the complaint asserted that Mendezona, as manager, sold the property for $400,000 to named purchasers (Juan Martinez Ybanez, Manuel Ybeas, Felipe Garcia, and Jorge Romanillos), with a declaration in the deed that the property was free from all charges and incumbrances. The complaint concluded that these acts were committed against the form of the statute made and provided and caused damage to the bank in at least $150,000.

Preliminary Investigation and the Record’s Findings

The preliminary investigation yielded a more detailed account of the property’s earlier transactions. The record showed that on November 22, 1899, representatives of the Franciscan Friars and Mendezona entered into a verbal contract of sale concerning the same city property. The consideration was $190,000, and the parties later agreed that the amount would be left on deposit with Mendezona & Co., drawing interest at 8 per cent per annum, while the purchaser was authorized to take immediate possession and make alterations as needed. The verbal contract was stated to have been confirmed by letter.

It also appeared that by the end of November 1899, Mendezona took possession and began alterations. On July 21, 1900, the deed of conveyance was drawn. Further, the property stood in Mendezona’s books as an asset valued at $250,000, and the books showed a liability reflecting a debit of $190,000 in favor of the Franciscan Friars as of January 1, 1900.

The notary Barrera testified under oath that documents relating to the procuration building were delivered to him by the father provincial of the Franciscan Friars two or three months before the date of executing the deed of sale (July 21). He also testified that the father provincial delivered the draft instrument stipulating that the sale consideration would remain with Mendezona & Co. as a deposit. The record further showed that after March of the relevant year, demands were made on Mendezona for execution of a public deed of mortgage, but he allegedly responded that title deeds were being prepared for delivery to the notary.

Framing of the Criminal Theory in the Complaint

The Court read the complaint’s allegations as asserting that Mendezona committed estafa through fraudulent delay and misrepresentation connected to the mortgage offer and the subsequent sale. The Court characterized the charge as consisting essentially of two factual matters: first, that Mendezona allegedly failed to perform his promise to give a mortgage on the procuration building to secure the $600,000 received from the bank, using subterfuge and deceit to evade execution; and second, that he allegedly sold or disposed of the property to others while declaring in the deed that it was free from incumbrance or gravamen, while it had been offered as security.

The complaint used the generic term “estafa” but did not specify the “species” of fraud or cite the specific article(s) of the Penal Code violated. That specification appeared only later in printed briefs asking for application of certain Penal Code provisions that the Court discussed within the decision.

Legal Standards Discussed by the Court

The Court emphasized that the mere nonperformance of a promise—such as an agreement to mortgage property—does not automatically constitute estafa or any other crime unless the promisor acted with fraudulent intent and in bad faith when contracting the principal obligation and making the promise to give security.

In this connection, the Court relied on Art. 1862 of the Civil Code, which provides that a promise to mortgage or pledge creates only a personal action between the contracting parties. It stated that criminal liability attaches only where the defrauder commits fraud in the particular cases expressed by law, such as offering as unencumbered things known to be encumbered or pretending to be the owner of things that do not belong to him. The Court reasoned that these criminal conditions were not present in the accused’s case as established by the preliminary investigation.

Analysis of Fraudulent Intent and the Timing of Deceit

The Court held that it could not be concluded—based on the record—that at the time the two loan agreements of $300,000 each were made, Mendezona had acted deceitfully, with malicious intent to defraud the bank, and with intent to break his promise to give the procuration house as security. The Court stressed that the deed of sale executed by the vendors was dated July 21, 1900, and it reasoned that without a deed of sale there could not have been a mortgage deed or a mortgage recording in the Registry of Property.

The Court further pointed out that the title deeds were initially in the possession of the Franciscan Friars and were delivered to the notary by the father provincial two or three months before the execution of the deed of sale. The Court treated that fact as showing that the delay in drafting and executing the deed was not chargeable to Mendezona. The Court also found no evidence contradicting the record’s result.

The Court stated that even if delay existed, it could not be treated as evidence that the accused himself committed fraudulent acts, since Mendezona’s testimony indicated that he had not even seen the title deeds for the property he later sold.

The Court also addressed the accused’s subsequent sale of the property. Sixteen days after the deed of sale in favor of Mendezona, he sold the procuration building to the Augustinian Friars for $400,000, subject to the right of redemption. Yet the Court held that this later disposition did not establish estafa, because when Mendezona offered the property as security, he had the property in his possession as owner. The Court therefore concluded that he did not act in bad faith nor practice deceit at the time he contracted the personal obligation.

Doctrine on Deceit Antecedent to the Obligation

The Court reiterated the doctrine that in fraud-based prosecutions, deceit must be antecedent to the obligation and must cause the obligation; it must not be merely supervenient. It cited doctrine attributed to the Supreme Court of Spain, describing judgments where deceit before the obligation was treated as essential.

The Court also discussed that as of August 6, 1900, the property was unquestionable unencumbered, and that it could not be considered encumbered merely because it had been offered or promised as security. It reasoned that the promise to mortgage did not itself create a legally existing mortgage. For a mortgage to exist with legal effects, the formalities required by the Civil Code and the relevant Mortgage Law provisions had to be complied with, including the execution of the mortgage by a public instrument and proper recording.

Rejection of the Theoretical Fit to Penal Code Articles

The Court evaluated the facts against the Penal Code provisions invoked by the complainant in its briefs. It reasoned that to bring the case within the cited Penal Code provisions discussed as covering declarations of ownership or encumbrance-related fraud, it must appear that Mendezona pretended to be the owner without being such, or that he defrauded the bank by pretending to be solvent in a higher degree or owning more property than he actually had at the time of obtaining the loan.

The Court held that the preliminary investigation did not show that Mendezona was not the owner at the time he offered the property and sold it. On the contrary, it appeared that he had purchased the property more than a month earlier

Case Syllabus (G.R. No. 873)

Parties and Procedural Posture

The case involved the United States as complainant and appellant, and Secundino Mendezona as defendant and appellee.
The Spanish-Philippine Bank filed a complaint charging Mendezona with estafa.
The Court of First Instance conducted a preliminary investigation and later issued an appealed order.
The United States appealed the order to the Supreme Court, which reviewed the record of the preliminary investigation.
The Supreme Court affirmed the appealed order pursuant to sections 13 and 14 of General Orders, No. 58, with costs assessed de oficio.

Key Factual Allegations

The complaint alleged that, as manager of the firm of Mendezona & Co., Mendezona received $300,000 from the Spanish-Philippine Bank on January 5, 1900, offering as security, among other property, the procuration house of the Franciscan Friars.
The complaint alleged that on February 19 of the same year, Mendezona obtained an additional credit of $300,000 as an extension of the first, again offering the same property as security.
The complaint alleged that when the bank demanded execution of the corresponding mortgage deed, Mendezona delayed it by invoking that notary public Barrera had the title deeds or papers.
The complaint alleged that Mendezona delayed execution of the mortgage deed until August 6, 1902, when he allegedly sold the procuration building for $400,000 to specified buyers.
The complaint alleged that in the deed of sale the vendor declared the property was free from all charges and encumbrances, and that this declaration harmed the bank in an amount of at least $150,000.
The record from the preliminary investigation showed that a verbal contract of sale existed as early as November 22, 1899, between the Franciscan Friars and Mendezona, with consideration of $190,000.
The record showed that under the arrangement, the purchaser was authorized to take immediate possession and make alterations, while the purchase price would remain on deposit with Mendezona & Co., drawing 8 per cent interest in favor of the vendor friars.
The record showed that toward the end of November 1899, Mendezona took possession and made alterations, and that a deed of conveyance was drawn on July 21, 1900.
The record further showed that the procuration building stood on the books of Mendezona & Co. as an asset valued at $250,000, and that liabilities reflected a debit of $190,000 to the Franciscan Friars.
The notary testified that the title documents were delivered to him by the father provincial of the Franciscan Friars two or three months before the deed of sale execution and that a draft instrument stipulated that the consideration would remain with Mendezona & Co. as deposit.
The record indicated that several demands were made after March 1900 for execution of a public deed of mortgage, which Mendezona did not execute, replying that the papers were being prepared for delivery to notary Barrera.
The record supported that sixteen days after execution of Mendezona’s deed of sale to the Augustinian friars, Mendezona sold the property again, thereby disposing of it in a manner that prevented later execution of a mortgage on that property.

Framing of the Charged Estafa

The Supreme Court construed the complaint as alleging two distinct factual theories forming the basis of the estafa charge.
First, the complaint alleged that Mendezona acted fraudulently and in bad faith by eluding execution of the mortgage deed promised to secure the bank’s loans.
Second, the complaint alleged that Mendezona stated in the deed of sale that the property was free from incumbrance or gravamen, while it had been offered as security for the bank’s loans.
The complaint used estafa as a generic classification, but it did not initially specify the species of fraud or cite the particular penal article violated.
The complainant later invoked articles 535 (section 1), 537, and 541 of the Penal Code in its briefs.

Statutory and Doctrinal Framework

The Court analyzed whether the alleged conduct fell under article 541 or under the penal sanctions connected with article 537 of the Penal Code.
The Court emphasized that the mere nonperformance of the promise to give a mortgage does not constitute estafa or any other crime unless the promisor acted fraudulently and in bad faith at the time of contracting the principal obligation and when making the promise to give security.
The Court relied on Article 1862 of the Civil Code, which provides that a promise to mortgage or pledge produces only a personal action between contracting parties.
The Court noted that under Article 1862 of the Civil Code, criminal liability attaches only to the defrauder in the specific cases where the accused offers as unencumbered things the accused knows to be encumbered or pretends to be owner of things that do not belong to him.
The Court applied a requirement that, in fraud, the deceit must be antecedent to the obligation and be the cause of the obligation, and not merely supervenient.
The Court cited doctrine from Spanish Supreme Court decisions dated 7 January, 14 March, 23 June 1888, and 18 December 1889, for the principle that antecedent deceit is indispensable.
The Court further held that a promise to m