G.R. No. L-31978




Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-31978 March 5, 1930 PAUL A. WEEMS, plaintiff-appellant, vs. FRANKLIN BAKER CO. OF THE PHILIPPINES, PHILIPPINE NATIONAL BANK, and ROMAN MABANTA, receiver of the Philippine Vegetable Oil Co., Inc., defendants-appellees. Benj. S. Ohnick and John R. McFie, Jr. for appellant. Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr. for appellee Franklin Baker Co. Jose A. Espiritu for appellee Mabanta. Camus and Delgado for appellee National Bank. STATEMENT The plaintiff is a resident of the Philippine Islands. The defendant, Franklin Baker Company, is a domestic corporation, and the Philippine National Bank is a domestic banking corporation. The defendant, Roman Mabanta, is the receiver of the Philippine Vegetable Oil Company, another domestic corporation. Plaintiff alleges that on November 21, 1926, for value, it became and ever since has been the absolute owner of certain real property in the City of Manila specifically described in the complaint; that on that date the Franklin Baker Company was in the use and possession of the property, paying rental thereon to the Philippine Vegetable Oil Company, predecessor in interest of the plaintiff, or to the receiver of that company; that when the plaintiff became as such owner, he at once notified Franklin Baker Company and demanded the payment to him of all the rentals; that the Franklin Baker Company at all times knew that the plaintiff was the owner and entitled to such rentals; that despite such knowledge, it has refused to pay the rentals to the plaintiff, and has either paid them to the receiver or to the defendant under some agreement unknown to the plaintiff and over his objection; that any claim which the bank may have to the property is subject and inferior to that of the plaintiff, who is entitled to all of the rents since November 21, 1926; that the reasonable rental is P1,550 a month, which from November 21, 1926, to August 7, 1928, amounts to P31,878.22, for which he prays a corresponding judgment, with legal interest and all future rentals, and costs. For answer the Philippine National Bank admits the allegations of paragraphs 1 and 2 of the complaint, and otherwise makes a general and specific denial, and as a special defense alleges that the plaintiff has never acquired any right, title or interest in or to the property; that the lands in question were on November 18, 1920, mortgaged to the Philippine National Bank by the Philippine Vegetable Oil Company, to secure the payment of a loan for P3,500,000, which mortgage was duly registered in the office of the register of deeds of the City of Manila, and at all times since has been and is now in full force and effect; that among other things, the mortgage provides that upon default or violation of its conditions, the bank shall act as attorney-in-fact of the oil company and has authority to take possession of the property, to remove, sell or dispose of it without any formality or an order of the court, and to lease, rent or hire any of the mortgaged property, and collect, rent or payment therefor; that pursuant to such provision, and on motion of the Philippine National Bank, the property in question was on the 5th day of May, 1923, taken over by the bank and placed in the hands of the defendant, Roman Mabanta, as its property custodian, to be administered by him for and on account of the bank; that on November 19, 1926, and in civil case No. 26226, entitled Philippine National Bank, plaintiff, vs. Philippine Vegetable Oil Co., Inc., defendant, Phil. C. Whitaker, intervenor, the defendant, Roman Mabanta, was duly appointed and qualified as the receiver of the Philippine Vegetable Oil Company; that the rents and incomes from the mortgaged property in the possession and under the control of the receiver are insufficient to pay or satisfy the claim of the bank; and that the rights of the bank are superior to those of the plaintiff; that on August 21, 1928, the bank filed a motion in that civil case praying for the delivery to it by the receiver of all the property of the Philippine Vegetable Oil Company in his possession and recovered by its mortgage of November 18, 1920, including the property in question; that on September 4, 1928, the plaintiff appeared in that action and opposed the bank's motion based upon the same grounds now alleged in his complaint; that on September 27, 1928, the court in that action granted the motion of the bank and denied plaintiff's objection, from which he never appealed, and that such order is now final. To the answer of the bank, plaintiff in legal effect made a general and specific denial. A similar answer was also filed by the receiver, and in its answer, Franklin Baker Company claimed and alleged that it was in possession of the property under a good and valid lease, upon which it at all times has paid the stipulated rental, and all of the defendants pray for the dismissal of plaintiff's complaint, with costs. For the purpose of the trial, the parties entered into a stipulation of facts, in addition to which all of them submitted evidence to sustain their respective contentions, based upon which the lower court rendered judgment dismissing plaintiff's complaint, without costs, from which he appealed and assigns the following errors: I. The lower court erred in holding that the appointment of Roman Mabanta, as custodian of the properties of the Philippine Vegetable Oil Co., Inc., for and on behalf of the Philippine National Bank, was made because of the failure of the Philippine Vegetable Oil Co,. Inc., to meet its obligations to said bank under the mortgage of P3,500,000 (Exhibit G), dated November 18, 1920. II. The lower court erred in holding that Roman Mabanta collected rents from the Philippine Food Co., and its successor, the defendant Franklin Baker Company of the Philippines, by virtue of the conditions of the mortgage for P3,500,000, dated November 18, 1920 (Exhibit G). III. The lower court erred in holding that at the time (May 5, 1923) Roman Mabanta purported to take possession of the properties of the Philippine Vegetable Oil Co., Inc., the mortgage for P3,500,000, dated November 18, 1920 (Exhibit G), was already due, and that the Philippine National Bank was not required to foreclose judicially because the mortgage provided for extrajudicial foreclosure. IV. The lower court erred in holding that plaintiff Weems, the purchaser at sheriff's sale on November 21, 1925, did not become entitled to the rents derived from the properties of the Philippine Vegetable Oil Co., Inc., leased to the Philippine Food Co., and its successor Franklin Baker Co. of the Philippines, because on the date of said sheriff's sale the properties were already in the hands of Roman Mabanta as a representative of the Philippine National Bank, the mortgage creditor which had a preferred right thereto. V. The lower court erred in dismissing plaintiff's complaint and in overruling his motion for a new trial. JOHNS, J.: Plaintiff cites and relies upon section 469 of the Code of Civil Procedure which provides: Rents and profits pending redemption. — The purchaser, from the time of the sale until a redemption, and a redemptioner, from the time of his redemption until another redemption, is entitled to receive from the tenant in possession the rents of the property sold or the value of the use and occupation thereof. . . . He concedes that under the provisions of its mortgage, if its conditions were broken, the bank would have a legal right to enter and take possession of the property and collect the rent, but vigorously contends that there is no evidence to show that the conditions of the mortgage were broken, or that the bank ever entered, took or had possession of the property by or through Mabanta as its custodian or any one else. In the last analysis, that is the real question. The mortgage expressly provides that for conditions broken, the bank may take actual possession of the property with or without an order of the court, and that it had the power "to lease, rent or hire any of the mortgaged property and collect, rent or payment therefor," and that "any funds received from rent, sales, etc., as above-mentioned may be applied by the mortgagee in payment of repairs, improvements, taxes, or any obligation incurred in connection with the mortgaged property, or in payment of the original indebtedness," and that "the power herein granted shall not be revoked during the existence of this mortgage, and all acts done by the mortgagee in conformity are hereby ratified." The following appears in the corporate minutes of the bank of April 20, 1923: Oil Committee's Report was approved by the Board, said report being made a part of these minutes. . . . Custodian for mill properties For the purpose of providing economical care and supervision of the different oil properties that are now in the hands of the bank, it is recommended that the Chief Accountant of the Philippine Vegetable Oil Co., Mr. Mabanta, be appointed Custodian of such properties. He has had extensive training and long experience in the affairs of the largest mill interest of the bank, and it is believed that he can supervise the care and upkeep of the mills that are not to be scrapped, collect rents of rented premises, and sell salvaged materials. April 21, 1923, this letter was sent to the defendant Mabanta: Please be advised that the Board of Directors of this Bank at its regular meeting held yesterday appointed you Custodian of the oil properties belonging to the Philippine National Bank, effective April 20, 1923. April 25, 1923, this letter was sent to him by the General Manager of the bank: In conformity with the action of the Board of Directors, you are hereby appointed to take over the property and management of the oil mills held by the Philippine National Bank. You will proceed at once to take charge of all the property and accounts, arranging with Mr. Abry for an inventory of all property. It further appears from the decision of Judge Imperial of date July 28, 1928, in and to which plaintiff was a party, that the court then said: 8. That the incomes of the properties leased to the Philippine Food Company from the time it came under the administration of the Philippine National Bank up to date were collected and received by the latter. Mabanta also testified that pursuant to the instructions which he received from the bank, he took possession of the property for and on account of the bank and as its custodian. Even so the appellant says: 1. On May 5, 1923, Roman Mabanta was put in as treasurer of the Philippine Vegetable Oil Co., Inc., by the Philippine National Bank, due to its control of the Board of Directors of the Philippine Vegetable Oil Co., Inc. (See plaintiff's Exhibit 3.) 2. He was not exhibit in this case one solitary document of any character whatsoever purporting to have been signed by him as "Custodian for the Philippine National Bank." 3. He, thereafter, leased the properties of the Philippine Vegetable Oil Co., Inc., as "Treasurer of the Philippine Vegetable Oil Co., Inc., and not as "Custodian for the Philippine National Bank." (See plaintiff's Exhibit 4.) 4. He endorsed all checks as "Treasurer of the Philippine Vegetable Oil Co., Inc." not as "Custodian." (See plaintiff's Exhibit 6E-6-EE.) 5. On checks which he indorsed twice, (plaintiff's Exhibits 6-O-6-EE) he did not style himself as "Custodian for the Philippine National Bank" ever, but simply as "Roman Mabanta". 6. In all of the letters, dating from June 16, 1923, to October 26, 1926, Roman Mabanta signed as "Treasurer of the Philippine Vegetable Oil Co., Inc.," and never as "Custodian" for the Philippine National Bank. (See plaintiff's Exhibits 7-14.) It must be conceded that the above statements are verified by the record. It is also an undisputed fact that two days before the period of redemption expired from the sheriff's sale, through which plaintiff claims title, that on motion of the bank, the defendant Mabanta was appointed receiver of all of the property of the oil company, including the lands in question, and that he took the actual, physical possession of the property. Hence, it must be conceded that from the time the receiver was appointed, the bank was in the actual or constructive possession of the property, through the receiver, and as stated the lower court found as a fact, which is not disputed, that the incomes derived from the property from the time it came under the administration of the bank were collected and received by the bank. That is to say, from April 25, 1923, when manager of the bank notified Mabanta that he was appointed to take over the property and management of the oil mills held by the bank and instructed him to take charge of all the property and accounts and make an inventory, the bank has received the rents of all of the property including the rents in question, and under the terms and provisions of its mortgage, it had the legal right to take and receive such rentals after the terms and conditions of its mortgage were broken. It will be noted that the mortgage upon which the bank now relies was executed on November 18, 1920, and that the authority to Mabanta to take over the property was given on April 25, 1923, and that the mortgage now in question is for P3,500,000. It is also apparent that the oil company gave its "conforme" and approved the acts of the bank at the time of Mabanta's appointment as custodian of its property, which is confirmed by the fact that ever since his appointment, all of the rents in question were paid over and delivered to the bank. The plaintiff concedes that any title which he claims to the property is subject and inferior to the mortgage lien of the bank of November 18, 1920, for P3,500,000, and there is no claim or pretense by the oil company, the plaintiff, or any one else, that the mortgage has ever been paid, which would be a matter of proof, the burden of which would be on the plaintiff. The bank is a domestic banking corporation organized under special charter of the Legislature, and in the absence of counterproof, we must assume that its business was conducted in the ordinary and usual manner that banks do business, from which it follows that after a lapse of two years and a half, the mortgage debt of the oil company would be due and owing. That is to say, in the ordinary course of banking business, in the absence of any counterproof, the court has the legal right to assume that the debt of the oil company to the bank was due and owing on April 25, 1923, and so the conditions of the mortgage were broken, and under its provisions the bank would then have the legal right to collect and receive the rentals and apply them to the satisfaction of its mortgage debt, and the record is conclusive, in fact it is not disputed, that after the 25th of April, 1923, the bank has received the rents in question. In the last analysis, the real question in this case is between the plaintiff and the bank, as to which one is entitled to the rents which have been paid by the Franklin Baker Company since the plaintiff purchased the property at the sheriff's sale on November 21, 1926. Plaintiff alleges that since that date, the reasonable rental was P1,550 per month, which on August 7, 1928, amounted to P31,878.22. On November 29, 1924, the plaintiff recovered judgment by default against the oil company for P11,493.34, with interest and costs, to satisfy which the property of the oil company was sold by the sheriff on the 21st of November, 1925, and the sheriff's deed was issued on June 9, 1926, and the period for redemption expired on November 20, 1926. Section 469 of the Code of Civil Procedure, upon which plaintiff relies, also provides: . . . But when any rents have been received by the judgment creditor or purchaser, or his or their assignee from property thus sold preceding such redemption, the amounts of such rents and profits shall be a credit upon the redemption money to be paid; . . . That is to say, if the plaintiff should have and receive the rentals for the property from and after the sheriff's sale up to the time the receiver was appointed, it would be more than sufficient to redeem the property from the sheriff's sale, which in any event would be the limit of the amount which plaintiff would be entitled to recover. As we analyze it the record is conclusive that on April 25, 1923, the terms and conditions of the mortgage of the bank were broken for failure of the oil company to pay the amount of the debt, and for such reason by the express provisions of the mortgage, the bank had the legal right to collect and receive the rents, and its mortgage being prior in time, such right would be continuous and was not divested by the sheriff's sale under which plaintiff claims title, from which it follows that any right acquired by the plaintiff at that sale is subject and inferior to the express terms and provisions of the mortgage, and there is no merit in the appeal. There is nothing in the record tending to show that the bank has taken any action to foreclose its mortgage, and the question as to how and when it should be done is not before this court. The judgment of the lower court is affirmed, with costs. So ordered. Johnson, Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur. 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