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G.R. No. L-10132

TodayisWednesday,April27,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.L10132July18,1957
LATONDEA,INC.,plaintiffappellant,
vs.
ALTOSURETY&INSURANCECO.,INC.,ETAL.,defendantsappellees.
ManuelV.SanJoseandArturoB.Christiforappellant.
SinaiC.HamadaandGuillermoF.deGuzmanforappellees.
REYES,J.B.L.,J.:
ThisappealinvolvesaquestionofprioritybetweencreditorsthattheCourtofFirstInstanceofManilaresolvedin
favoroftheappelleeAltoSuretyandInsuranceCo.,Inc.
It appears that onApril 21, 1949, one Primitivo P. Ferrer executed in favor of LaTondea, Inc., a second chattel
mortgage upon certain properties described in the complaint, to guarantee payment of certain amounts. Some of
these properties were already subject to a first mortgage in favor of one Pedro Ruiz. All mortgages were duly
registered.
On August 18, 1949, Pedro Ruiz sought foreclosure of the first mortgage in his favor, alleging default by the
mortgagor Ferrer and in view of the latter's refusal to surrender the properties mortgaged, Ruiz started action in
court(CaseNo.10880oftheCourtofFirstInstanceofPangasinan)andaskedfortheirreplevin.However,Ferrer
securedtheirreleasebymeansofaredeliverybondforP20,000,guaranteedbytheAltoSuretyandInsuranceCo.
The case having been tried, the court rendered judgment on December 1, 1950, sentencing Ferrer to pay Ruiz
P6,590.00plusinterestandattorney'sfees.AsFerrerdefaulted,theAltoSuretypaidforhimonJune19,1952.
Whilethisfirstcasewasstillpending,LaTondea,Inc.institutedcourtproceedingsagainstFerreronNovember15,
1949 (No. 9658 of the Court, of First Instance of Manila to foreclose its second mortgage and to recover various
other sums and on June 7, 1950, judgment was rendered sentencing Ferrer to pay P7,122.49 plus interest and
costsonaccountofthemortgagedebt,withadecreeforitsforclosureifnotpaidwithinninetydays.Ferrerwasalso
sentencedtopayontheothercauseofaction.InviewoftheforeclosuredecreetheProvincialSheriffofPangasinan
leviedonthemortgagedpropertiesandadvertisedthemforsale.Thesalewaspostponedfromtimetotime,untilon
December13,1950,uponrequestofFerrerandtosavehimthecustodyfees,plaintiffdirectedthesherifftorelease
thepropertiesfromlevy,onconditionthatFerrerwouldsatisfy,thejudgmentbyMarch31,1951,andshouldhefail
todoso,LaTondeawouldbeatlibertytoproceedwiththeforeclosure.
OnMarch13,1951,theAltoSuretyfiledcomplaints(CivilCasesNos.241and242oftheCourtofFirstInstanceof
Baguio) against Ferrer to recover bond premiums and indemnities paid for his account, and secured writs of
preliminaryattachment.ThenonApril23,1951theProvincalSheriff,atthebehestofAltoSurety,attachedthevery
propertiesmortgagedbyFerrertoLaTondea,Inc.,andwhichhadbeentheobjectofthewritofexecutionreleased
asheretoforenarrated.
FerrernothavingpaidhisdebttoLaTondeaattheendofMarch1951,asstipulated,themortgageeobtainedan
alias writ of execution of the judgment in its favor on May 26. But as the properties had been in the meantime
attached byAlto Surety, andAlto Surety refused to lift its attachment, the foreclosure sale could not proceed. La
Tondea then filed with the Sheriff a third party claim to the property theAlto Surety in turn issued an indemnity
bondinfavoroftheSheriff,guaranteedbytheAssociatedInsuranceCompany,tomaintainitslevyandonMay19,
1952,thegoodsweresoldatauctionattheinstanceofAltoSuretyandpurchasedbythesameforP3,507.50.
ThereuponLaTondea,Inc.filedthepresentcomplaintfordamagesagainstAltoSurety,theAssociatedInsurance
Co.,andtheProvincialSheriffofPangasinan.Afterduetrial,theCourtofFirstInstancedismissedthecomplainton
the ground that (1) the release of the levy originally made by the Sheriff in the foreclosure proceedings of La
Tondea's mortgage, extinguished its lien on the goods, and deprived it of preference (2) that the judgment of
foreclosure was novated and extinguished by extension of time and release of execution levy granted by La
Tondea to Ferrer and (3) that sinceAlto Surety had paid off the claims of the first mortgagee, Pedro Ruiz, the
suretycompanybecamesubrogatedtotherightsofthefirstmortgagee,andthereforeAltoSurety'srightsbecame
superiortothoseofthesecondmortgageeLaTondea,Inc.ThelatterappealedthejudgmenttothisCourtonpoints
oflawexclusively.
1.AstotheallegedextinctionofthelienofLaTondeabecauseofitsreleaseoftheexecutionlevy,thecourtbelow
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appearstohavemissedthefactthatLatondeaheldamortgagelien,independentofthatarisingfromthelevy.Itis
true that if the creditor, instead of foreclosing the mortgage, files an ordinary action against the mortgagor, the
creditor is deemed to have abandoned the mortgage (Bachrach Motor Co. vs. Icaragal, 68 Phil. 287 Manila
TradingandSupplyCo.vs.CoKim,71Phil.448andcasescited).Butthatisnotthecasenow,forLaTondeahere
preciselysuedfortheforeclosureofthemortgageinitsfavor,andcannothaveintendedtoabandonitsmortgage.
Itisapparentthat,nothavingbeenwaivedactuallyorconstructively,themortgagelienheldbyLaTodeacouldnot
bedeemedreleasedmerelybecausetheexecutionlevywasdischargedwithoutthecreditbeingsatisfied.HadLa
Tondeanotsecuredawritofexecutiononitsforeclosurejudgment,undeniablytheattachmentleviedatthebehest
of Alto Surety would have been subordinate to the registered mortgage in favor of La Tondea and would not
supersedeit.WeseenoreasonwhyAltoSuretyshouldbeinabetterpositionwhenanexecutionlevyismadeand
laterliftedthaninthecasewherenosuchlevyatallishad.
Thetheorythatthejudgmentlienmergedorabsorbed(andtherebyextinguished)themortgagelienignoresthefact
thatthejudgmentliendependsuponthelevybutthatofthemortgageisbaseduponitsregistrationandthatthe
very purpose of the mortgage lien is precisely to assure that a judgment for the amount of the debt will remain
collectibleandwillbesatisfiedfromtheproceedsofthemortgagedpropertyhence,thepurposeofthemortgage
lien would be defeated unless it is allowed to stand as long as the foreclosure judgment is in force and is not
satisfied. Until then it can not be contended as appellees do, that the mortgage has become functus oficio.
Wherefore,asstatedinAmericanJurisprudence,Vol.37,p.79,section596,
Altho there, is some conflict on the question, the weight of authority favors the doctrine that a decree of
foreclosuredoesnotmergethelienofthemortgageuntilithasbeenconsummatedbysaleandsatisfaction.
Thedecreedoesnot,ithasbeensaid,destroythelienofthemortgagebut,rather,judiciallydeterminesthe
amountthereof.
2.Therulingofthecourtbelow,thattheactofLaTondea,Inc.indissolvingtheexecutionlevyandgivingitsdebtor
untilMarch31,1951,whereintopay,constitutesanovationthatextinguishedtheoriginaljudgment,iscontraryto
the rulings of this Court in Zapanta vs. De Rotaeche, 21 Phil. 154 and Inchausti vs. Yulo, 34 Phil. 978. In both
cases,thisCourtruledthatinordertoextinguishordischargeanobligationbynovationtheintentofthepartiesto
doso(animusnovandi)mustbeeitherexpressedorelseclearlyapparentfromtheincompatibility"onallpoints"of
theoldandthenewobligations(Art.1204,CivilCodeof1889Article1292,newCivilCode)andthattheactof
givingadebtormoretimetopayanobligationisnotanovationthatwillextinguishtheoriginaldebt.AsintheDe
Rotaeche case, the subsequent arrangement between La Tondea and the judgment debtor Ferrer clearly
recognizedthatthejudgmentofforeclosurecontinuedtobeinforce,becausethearrangementwasthatifFerrerdid
notpayuntilMarch31st,1951,LaTondeaInc.wouldaskfortheexecutionofthejudgment.
In the present case, the contract referred to does not expressly extinguish the obligation existing in said
judgment. Upon the contrary it expressly recognizes the obligations existing between the parties in said
judgment and expressly provides a method by which the same shall be extinguished, which method is, as
expressly indicated in said contract, by monthly payments. The contract, instead of containing provisions
"absolutely incompatible" with the obligations of the judgment, expressly ratifies such obligations contains
provisionsforsatisfyingthem.Thesaidagreementsimplygavetheplaintiffamethodandmoretimeforthe
satisfactionofsaidjudgment.Itdidnotextinguishtheobligationscontainedinthejudgment,untilthetermsof
saidcontracthadbeenfullycompliedwith.Hadtheplaintiffcontinuedtocomplywiththeconditionsofsaid
contract, he might have successfully invoked its provisions against the issuance of an execution upon the
saidjudgment.Thejudgmentwasnotsatisfiedandtheobligationsexistingthereunderstillsubsisteduntilthe
termsofagreementhadbeenfullycompliedwith.Theplaintiffwasboundtoperformtheconditionsmentioned
insaidcontractpunctuallyandfully,indefaultofwhichthedefendantwasremittedtotheoriginalrightsunder
hisjudgment.(Zapantavs.DeRotaeche,supra.)
Thatanextensionofthetimedoesnotconstituteextinctivenovationisevidentfromthefactthatextensionhadtobe
made a special ground for the extinguishment of the contract of guaranty inArticle 1851 of the old Code (Article
2079 new Civil code) notwithstanding that Article 1847 (now 2076) applies or guaranty the same grounds that
extinguishallotherobligations,naturallyincludingnovation.Iftheextensionoftheperiodforpaymentwereincluded
innovation,Article1851(now2079),makingitaseparategroundofdischargewouldbenecessary.
3.Thelastargumentfortheappelleesisthat,bypayingoffthefirstmortgageofPedroRuiz,AltoSuretybecame
legally subrogated to the rights of the first mortgagee.This stand fails to take into account that such subrogation
onlyoccursuponpaymentofthefirstmortgage(CivilCodeof1889,Article1210newCivilCode,Article1302),and
thatAltoSuretydidnotbeginpayingoffthefirstmortgageuntilMarch1952,norcompleteitspaymentuntilJune19,
1952, while its attachment was levied one year before, in April of 1951. The complaint upon which Alto Surety
obtainedtheattachmentinquestionwasnotfortheforeclosureoffirstmortgage,andinfact,didnotevenallege
that the first mortgage had been paid byAlto Surety. Hence, the subrogation in its favor did not exist when the
attachmentwaslevied,normakethelattersuperiortothelienofthesecondmortgagee,LaTondea,Inc.,asofthe
timeoftheattachmentnorwoulditjustifytherefusaloftheappelleestoallowtheforeclosuresaletoproceed,or
theirrejectionofthethirdpartyclaimfiledbythesecondmortgageeonSeptember5,1951.Asofthelatterdate,La
Tondea,Inc.wasalreadyentitledtoseizeandsellthesecurity(ofcourse,subjecttothefirstmortgage),andthe
attaching creditor, Alto Surety, had only a lien subordinate to that of its opponent. The refusal to surrender the
mortgagedpropertybeingevidentlywrongful,theappelleesareliablefordamages.
Astotheextentofsuchdamages,thereisnoevidenceonrecordotherthanthethirdpartyclaimofLaTondea,
assertingthatthegoodsattachedbyAltoSuretywereworthnotlessthanP7,500theindemnitybondsubscribedby
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bothAltoSuretyandAssociatedInsuranceandSuretyCo.,inthesumofP7,500andthattheattachedgoodswere
sold at the instance of Alto Surety, and purchased by it at P3,507 (Exhibit 14Alto). Since the appellant did not
petitionforanincreaseoftheindemnitybond,itisinferablethatitwasagreeablethatthegoodsattachedwerenot
worthmore.ConsideringthatLaTondeawasnotentitledtotheownershipofthedisputedgoods,butonlyclaimed
the right toseize andsellthem atpublicauctionsubject to the first mortgage, and there being no other pertinent
evidence,webelievethatthereisnobasisatpresentforassessingtheappellant'sdamages.Asthisfailureappears
duetotheconcentrationofthepartiesonthemainlegalquestionofpreference,equityjustifiesareopeningofthe
casetoadmitevidenceontheparticularissueofdamages.
Inviewoftheforegoing,thedecisionappealedfromisreversed,andtheattachmentleviedonthegoodsinquestion
bytheappelleeAltoSuretyandInsuranceCo.isdeclaredillegalandvoid.Therecordsareorderedremandedtothe
court of origin with instructions to reopen the case and receive evidence on the question of damages caused by
illegalattachment.Costsinthisinstanceshallbetaxedagainsttheappellees,AltoSuretyandInsuranceCo.and
AssociatedInsuranceCo.Soordered.
Paras,C.J.,Bengzon,Padilla,Montemayor,BautistaAngelo,Labrador,ConcepcionandEndencia,JJ.,concur.
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