aliman's digest

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS vs. CA, PNB AND DBP

FACTS:

Philippine Milling Company (Francisco Gomez and Hector Torres as the principal and majority stockholder), a domestic corporation which owns and operates in the Mindoro Mill District a sugar mill where all the sugar cane planters of that mill district mill their sugar cane, obtained two loans from the Rehabilitation Finance Corporation (RFC), first executed on August 7, 1950 in the amount of P2,000,000.00 and second on November 2, 1951 in the amount of P1,860,000.00, and as security it executed a deed of mortgage hypothecating to the RFC, particularly described real and personal property, "together with all the buildings and improvements now existing or which may hereafter be constructed on the mortgaged property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist."

Mortgagors also assigned to the RFC on August 16, 1950, in a public instrument, the sugar quota of the mill district aggregating no less than 148,000 piculs and sugar warehouse receipts covering, the first 29,500 piculs of sugar milled by the sugar central annually and such additional sugar as may be necessary to cover the annual amortization of the loan, taking into consideration the fluctuating sugar prices, which assignments shall remain in full force and effect as long as (their) aforementioned loan has not been settled in full.

Another deed of assignment executed on November 2, 1951, this is for the second mortgage, like that of August 16, 1950, supra, respecting "its rights and interests on all the sugar quota of the Mindoro Mill District aggregating no less than 148,000 piculs and additional sugar warehouse receipts covering the first 27,350 piculs of sugar milled by the sugar central annually, and such additional sugar may be necessary to cover the annual amortization on the loan, until the full amount of the additional loan has been fully paid.”

Earlier, or on or about January 13, 1951, the real estate and personal property subject of the two (2) mortgages just described, were again mortgaged by Philippine Milling Co., Francisco M. Gomez and Hector A. Torres, this time in favor of the Philippine National Bank as collateral for a loan of P235,000.00. This real estate and chattel mortgage was amended on April 6, 1951 by increasing its consideration from P235,000.00 to P335,000.00, and still later, on January 18, 1952, by further increasing the consideration to P1,405,0,00.00. The original deed and its two (2) amendments were all registered with the Register of Deeds of Occidental Mindoro.

In July, 1957, two (2) letters-agreements were executed between Gomez & Torres (represented by Francisco M. Gomez) on the one hand, and Theo H. Davies & Co., Ltd. ("for itself and representing [or as authorized representative of) San Carlos Planters' Association"]), on the other, by virtue of which the former sold to the latter a total of 18,000 piculs of the production allowance (or sugar quota) of Plantation No. 30-15, to wit:

1) On July 3, 1957: 8,250 piculs of "our ''A" quota and 1,750.00 piculs of our "B" quota corresponding to Plantation No. 30-15 of the Mindoro Mill District which is duly registered in our name;"  and

2) on July 11, 1957: 6,600.00 piculs of "our "A" quota and 1,400.00 piculs of our "B" quota . . ."

In the later agreement, Gomez & Torres guaranteed "that said 8,000.00 piculs of quotas as well as the 10,000.00 piculs sold to you on July 3, 1957, belong to us and are free from any lien or incumbrance whatsoever."

Eventually, the Development Bank of the Philippines (formerly RFC) caused the extrajudicial foreclosure of its mortgages of August 7, 1950 and November 2, 1951 by the Provincial Sheriff of Occidental Mindoro. On June 17, 1960 — the one-year redemption period granted by law to the mortgagors, having expired without a redemption having been attempted, and the DBP having consolidated its ownership over the real and personal property subject of the mortgage sale — the DBP executed a deed of sale in favor of the PNB covering all the foreclosed property, for P5,147,309.07 and other valuable consideration.

After about two (2) years, in March, 1962, PNB wrote to the San Carlos Planters' Association and the planters to whom the latter had sold portions of the 18,000 piculs of the sugar quota in question, supra, demanding the restoration and delivery to it (the PNB) of their respective portions of said quota. As already mentioned, 25 the 18,000 piculs consisted of 14,850 piculs of 'A' quota and 3,150 piculs of 'B' quota.

When the latter failed to do so, the PNB together with the DBP brought suit in the Court of First Instance of Occidental Mindoro. The Trial Court's judgment, rendered on April 8, 1968, 29 went against the plaintiffs. PNB and Francisco Gomez appealed to the Court of Appeals.

CA modified the Trial Court's judgment as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is hereby modified, in these aspects:

1. declaring the Philippine National Bank the owner of the sugar quota or production allowances in question;

2. ordering the defendants-appellees (excepting the defendant-appellee Administrator of the Sugar Quota Office) to reconvey to plaintiff-appellant PNB, the said sugar quota or production allowance in question registered in their names, or if the same cannot now be legally done, directing the defendants-appellees (excepting appellee Administrator of the Sugar Quota Office) to jointly and severally pay to PNB the value of the sugar quota or production allowance in question.

The appealed judgment is hereby affirmed in all other respects.

From this judgment, the Compañia General de Tabacos (TABACALERA) has appealed to this Court.

ISSUES: Is the sale of sugar quota to San Carlos Planters Association valid? What is the classification of sugar quota as a property? Does the disposal or encumbrance of sugar quota need to be registered in the Sugar Quota Administration to be valid?

HELD:

1) The sale is invalid. Theo H. Davies & Co., Ltd., and San Carlos Planters' Association are purchasers in bad faith of the sugar quota in question because they could not be deemed to have no prior knowledge of the encumbrances thereon.

2) The sugar quota an intangible property in question should be considered as real property by destination, "an improvement attaching to the land entitled thereto."

3) The recording in the Registry of Deeds of a mortgage over lands and other immovables operates to charge "the whole world" with notice thereof. The registration therefore of the mortgages executed by the Philippine Milling Company, Hector A. Torres and Francisco Gomez in favor of the RFC and later of the PNB, thus had the effect of charging all persons, including Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies and successors in interest, with notice of the encumbrance, not only over the lands belonging to the mortgagors but also of the sugar quotas as well as "all the buildings and improvements . . . existing or which may hereafter be constructed on the mortgaged property, all; elements, . . . agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist." So, none of the parties in this case can plead lack of knowledge of the mortgage lien over the sugar quota or production allowance.

Even if the sugar quota is assumed to be personal, not raid property, and hence not embraced in the mortgage of the immovables created by the corresponding deeds, it would nevertheless still be covered by the chattel mortgage created in and by the same deeds. Since, like the recording of a real estate mortgage, registration of a chattel mortgage also puts all persons on notice of its existence, the legal situation would be exactly the same: the registration of the above described deeds of chattel (and real estate) mortgage over the sugar quota, among other things, would also have charged all persons with notice thereof from the time of such registration.

OPHELIA L. TUATIS, VS. SPOUSES ELISEO ESCOL AND VISMINDA ESCOL

FACTS:

Tuatis and Visminda, entered into a Deed of Sale of a Part of a Registered Land by Installment in the amount of P10,000 under the following terms and conditions:

1.                  That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of THREE THOUSAND PESOS (P3,000.00), as downpayment;

2.                  That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of FOUR THOUSAND PESOS (P4,000.00), on or before December 31, 1989;

3.                  That the remaining balance of THREE THOUSAND PESOS (P3,000.00) shall be paid by the BUYER [Tuatis] to the SELLER [Visminda] on or before January 31, 1990;

4.                  That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].

Tuatis claimed that she already paid the entire purchase price and in the meantime, took possession of the subject property and constructed a residential building thereon. Tuatis requested Visminda to sign a prepared absolute deed of sale covering the subject property, but the latter refused, contending that the purchase price had not yet been fully paid.

Visminda countered that, except for the P3,000.00 down payment and P1,000.00 installment paid by Tuatis on 19 December 1989 and 17 February 1990, respectively, Tuatis made no other payment to Visminda. Despite repeated verbal demands, Tuatis failed to comply with their agreement. Litigation occurs and the RTC decreed the dismissal of Tuatis' Complaint for lack of merit, the return by Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of the P4,000.00 she received from Tuatis.

Tuatis appeal to the CA however the appellate court dismissed the appeal for failure of Tuatis to serve and file her appellant's brief within the second extended period for the same.

Visminda filed a Motion for Issuance of a Writ of Execution before the RTC on 14 January 2002. The RTC granted Visminda's Motion in a Resolution dated 21 February 2002, and issued the Writ of Execution on 7 March 2002.

Tuatis thereafter filed before the RTC on 22 April 2002 a Motion to Exercise Right under Article 448 of the Civil Code of the Philippines. Tuatis moved that the RTC issue an order allowing her to buy the subject property from Visminda. While Tuatis indeed had the obligation to pay the price of the subject property, she opined that such should not be imposed if the value of the said property was considerably more than the value of the building constructed thereon by Tuatis. Tuatis alleged that the building she constructed was valued at P502,073.00, but the market value of the entire piece of land measuring 4.0144 hectares, of which the subject property measuring 300 square meters formed a part, was only about P27,000.00. Tuatis maintained that she then had the right to choose between being indemnified for the value of her residential building or buying from Visminda the parcel of land subject of the case. Tuatis stated that she was opting to exercise the second option.

ISSUE: Who has the right of choice under article 448 of the civil code?

HELD:

The options under Article 448 are available to Visminda, as the owner of the subject property. There is no basis for Tuatis' demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on Visminda's choice, Tuatis' rights as a builder under Article 448 are limited to the following: (a) under the first option, a right to retain the building and subject property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of the building, in which case, she can only be obliged to pay reasonable rent for the same.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.