ALCANTARA v. ALINEA, ET AL.

, (MARCH 22, 1907)

FACTS: In 1904, the defendants, Alinea and Belarmino, borrowed from the plaintiff Alcantara P480, payable in January 1905 under the agreement that if, at the expiration of the said period, said amount should not be paid it would be understood that the house and lot they owned be considered as absolutely sold to Alcantara for the said sum. However, notwithstanding that the time for the payment of said sum has expired and no payment has been made, the defendants refused to deliver to Alcantara the said property, openly violating that which they contracted to do and depriving him to his loss of the rents which Alcantara should have received from February 1905. Alcantara filed a complaint in the Court of First Instance of La Laguna, praying that judgment be rendered in his behalf ordering the defendants to deliver to him the house and lot claimed, and to pay him in addition thereto as rent the sum of pesos per month from February of that year, and to pay the costs of the action. The defendants answered denying all the allegations, and alleged that the amount claimed included the interest; and that the principal borrowed was only P200 and that the interest was P280, although in drawing the document by mutual consent of the parties, the amount of indebtedness was made to appear in the sum of P480; and that as their special defense defendants alleged that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff had refused to accept the same. The trial court rendered a judgment ordering the defendants to deliver to Alcantara the house and lot and to pay the costs of the action. ISSUES: 1. 2. HELD: 1. The contract was that of a loan and a promise of sale of a house and lot, with the amount loaned as the price, if within a fixed period of time such amount should not be paid by the debtor-vendor of the property to the creditor-vendee of same. Either one of the contracts is perfectly legal, and both are authorized respectively by articles 1451, 1740, and 1753, and those following, of the Civil Code. The contract was not a mortgage, because in order to constitute a valid mortgage it is indispensable that the instrument be registered in the Register of Property, in accordance with article 1875 of the Civil Code, and the document of contract, Exhibit A, does not constitute a mortgage, nor could it possibly be a mortgage, because said document is not vested with the character and conditions of a public instrument. The contract was not a pledge because the property was not a personal property and because the debtor continued in possession thereof and the said property has never been occupied by the creditor. The contract was not an antichresis too because the creditor has never been in possession of the property, has not enjoyed the said property, and has not received its rents. WON the contract between the parties is that of a mortgage, or a pledge, or an antichresis. WON the contract is against the law.

2.

No.

The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the nonpayment or return of the amount loaned, has not produced any change in the nature and legal conditions of either contract, or any essential defect which would tend to nullify the same. If the promise of sale is not vitiated because, according to the agreement between the parties, the price of the same is to be the amount loaned and not repaid, neither would the loan be null or illegal, for the reason that the added agreement provides that in the event of failure of payment the sale of property as agreed will take effect, the consideration being the amount loaned and not paid.

The contract (pactum commissorium), indicates the existence of the contracts of mortgage or of pledge or that of antichresis, none of which have coincided in the loan indicated herein. It is a principle in law, that the will of the contracting parties is the law of contracts. It was agreed between plaintiff and defendants herein that if defendants should not pay the loan of 480 pesos in January 1905, the property belonging to the defendants and described in the contract should remain sold for the aforesaid sum. The document of contract has been recognized by the defendant Alinea and by the witnesses who signed same with him, being therefore an authentic and efficacious document, in accordance with article 1225 of the Civil Code; and as the amount loaned has not been paid and continues in possession of the debtor, it is only just that the promise of sale be carried into effect, and the necessary instrument be executed by the vendees. Judgment of the trial court for plaintiff Alcantara was AFFIRMED

WILLARD, J., dissenting: This contract violates the fundamental principle of the Spanish law, which does not permit a debtor, at the time he secures a loan of money, to make an agreement whereby the mere failure to pay the loan at maturity shall divest him irrevocably or allow his interest in the specific property mentioned in the agreement without any right on his part to redeem or to have the property sold to pay the debt. (Civil Code, arts. 1859, 1872, and 1884.) I therefore dissent.

PARAY v. RODRIGUEZ, ET AL., G.R. No. 132287 (JANUARY 24, 2006)

FACTS: Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 1979 to 1980, respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray (Parays) the payment of certain loan obligations. When the Parays attempted to foreclose the pledges on account o f respondents failure to pay their loans, respondents filed complaints with RTC of Cebu City. The actions sought the declaration of nullity of the pledge agreements, among others. However the RTC dismissed the complaint and gave due course to the foreclosure and sale at public auction of the various pledges. This decision attained finality after it was affirmed by the Court of Appeals and the Supreme Court. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of various amounts. It was claimed that respondents had attempted to tender payments to the Parays, but had been rejected. Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding for all of the pledged shares. None of respondents participated or appeared at the auction. Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public auction. Respondents argument: Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts. Petitioners argument: Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that the tender of payment and consignations were made long after their obligations had fallen due. They pointed out that the amounts consigned could not extinguish the principal loan obligations of respondents since they were not sufficient to cover the interests due on the debt. They likewise argued that the essential procedural requisites for the auction sale had been satisfied. Ruling of RTC: The RTC dismissed the complaint, expressing agreement with the position of the Parays. It held that respondents had failed to tender or consign payments within a reasonable period after default and that the proper remedy of respondents was to have participated in the auction sale. Ruling of CA: The Court of Appeals however reversed the RTC on appeal, ruling that the consignations extinguished the loan obligations and the subject pledge contracts; and the auction sale as null and void. It (CA) chose to uphold the sufficiency of the consignations owing to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws. The attempts at payment by respondents were characterized as made in the exercise of the right of redemption. CA likewise found fault with the auction sale, holding that there was a need to individually sell the various shares of stock as they had belonged to different pledgors.

ISSUES:

1. WON right of redemption exists over personal properties (such as the subject pledged shares).

2. WON the consignations made by respondents prior to the auction sale are sufficient to extinguish the loan
obligations and the subject pledged contracts.

3. WON the act of respondents in consigning the payments should be deemed done in the exercise of their right of 4. 5.
redemption owing to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws. WON a buyer at a public auction ipso facto becomes the owner of the pledged shares pending the lapse of the one-year redemptive period WON there is a need to individually sell the various shares of stock as they had belonged to different pledgors.

HELD: 1. No. No law or jurisprudence establishes or affirms such right. Indeed, no such right exists. The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point. The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely execution sales of real property. It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged. In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed them. Said judgment did not direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to conduct such sale at their own volition. 2. No.

There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article 2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not been satisfied in due time, the creditor may proceed with the sale by public auction under the procedure provided under Article 2112 of the Code. In order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should cover not just the principal loans, but also the monthly interests thereon. In the case at bar, while the amounts consigned by respondents could answer for their respective principal loan obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per month or 60% per annum.

3.

No.

The pledged shares in this case are not subject to redemption. Thus, the consigned payments should not be treated with liberality, or somehow construed as having been made in the exercise of the right of redemption.

4.

Yes.

Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period.

5.

No.

This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place. Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately, such as in the case of lot sales for real property under Section 19. However, these instances again pertain to execution sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged properties sold at auction be sold separately. On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of the items should be sold if two or more things are pledged. No similar option is given to pledgors under the Civil Code. Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal obligation.

RULING: Decision of the Court of Appeals is SET ASIDE and the decision of the RTC Cebu City is REINSTATED.