G.R. No.

L-15128 August 25, 1960

CECILIO DIEGO,  plaintiff-appellee,

vs.
SEGUNDO FERNANDO,  defendant-appellant.

Facts:

Segundo Fernando, defendant, executed a Deed of Mortgage in favor of the plainti,

Cecilio Diego over two parcels of lands to secure a loan of P2,00000 without interest,
pa!a"le within four !ears fro# the date of the execution of the instru#ent $fter the
execution, the possession of the #ortgaged properties was turned over to Diego

For failure to pa! the loan after four !ears, Diego %led an action for foreclosure of
#ortgage Fernando
Fernando contended that the true transaction
transaction "etween hi# and Diego was one
of antichresis
antichresis and not of #ortgage and that the plainti had alread! received a total of
&20 cavans of pala! fro# the the properties given as securit!, which, are at the rate of
P&0 per cavan, represented the value of P',200, his de"t had alread! "een paid with the
plainti owing hi# a refund of P2,(20

 )he lower court

court ruled in favor
favor of the plainti
plainti stating that
that there was nothing in the deed
of #ortgage to show that it was not a true contract of #ortgage and that the fact that the
possession of the properties were turned over to the #ortgagee did not alter the
transaction*
transaction* that the parties intended that the #ortgagee would collect the fruits of the
properties as interest on the loan, which agree#ent is co##on

+ssue: hether the contract "etween the parties is one of #ortgage or antichresis

-eld: )he contract "etween the parties is one of #ortgage

Fernando alleged that the fact that the loan was without interest and that the
possession of the properties were transferred to Diego reveals the true transaction
"etween the# as one of antichresis
antichresis -owever, the Court ruled that it is not an essential
contract of #ortgage that the possession of the properties will "e retained "! the
#ortgagor $nd that to "e antichresis, it #ust "e expressl! agreed "etween creditor and
de"tor that the for#er, having "een given possession of the properties
properties given as securit!,
is to appl! their fruits to the pa!#ent of the interest, if owing, and thereafter to the
principal of his credit .$rt 2&/2, Civil Code so that if a contract of loan with securit! does
not stipulate the pa!#ent of interest "ut provides for the deliver! to the creditor "! the
de"tor of the propert! given as securit!, in order that the latter #a! gather its fruits,
without stating that said fruits are to "e applied to the pa!#ent of interest, if an!, and
afterwards
afterwards that of the principal, the contract is a #ortgage and not antichresis

-owever, the Court further ruled that the a"ove conclusion does not #ean that Diego,
having received the fruits of the properties will "e allowed to appropriate the# for hi#self
and not "e re1uired to account for the# to Fernando "ecause the contract of #ortgage
clearl! provided that the loan was without interest within four !ears fro# the date of the
instru#ent and that there was no evidence that the parties intended to supersede such
stipulation

The true position off the appellee herein under his contract with appellant is a "mortgage in
 possession" that is "one who has lawfully acquired actual or constructive possession
possession of the premises
mortgaged to him, standing upon his rights as mortgagee and not claiming under another title, for the
 purpose of enforcing his security upon such property or making its income help to pay his debt". As As such
mortgagee in possession, his rights and obligations are, similar to those of an antichretic creditor: n the
 present case, the parties having agreed that the loan was to be without interest, and the appellant not
having e!pressly waived his right to the fruits of the p roperties mortgaged during the time they were in
appellees possession, the latter, like an antichretic creditor, must account for the value of the fruits
received by him, and deduct it from the loan obtained by appellant. According to the findings of the trial trial
court, appellee had received a net share of ## cavans of palay out of the mortgaged properties up to the
time he filed the present action$ at the rate of %&.'' per cavan (a rate admitted by the parties), the total
value of the fruits received by appellee is %*&#.''. +educting this amount from the loan of %,'''.''
received by appellant from appellee, the former has only %,#'#.'' left to pay the latter.

G.R. Nos. L-4363 !"# 4364 O$to%&' 24, 1938

LICERIO LEGAS(I !"# )ULIAN SALCEDO,  plaintiffs-appellants,

vs.
DA*ASO CELES+IAL,  defendant-appellee.

Facts:

 )he plaintis "rought

"rought an action against
against the defendant
defendant in the ustice
ustice of peace
peace court
pra!ing that the udg#ent "e rendered,
rendered, ordering that the defendant pa! the su# of
P''3&30 )he defendant answered the co#plaint ad#itting that he was disposed to pa!
the said de"t "ut assailed that the contract entered "etween hi# and the plaintis was
one of antichresis and that the latter were "ound to account of the products of the salt
"eds .#ortgaged properties
properties )he ustice of peace ordered the defendant to pa! the said
de"t with legal interest fro# the date when the action was %led

%laintiffs then filed another complaint in the ourt of /irst nstance praying that the same defendant
+amaso elestial be ordered to pay them the sum of %0,120, with the legal interest thereon from the date
of the filing of the complaint, until fully paid, a nd the costs of the suit, and that, upon his failure to do
so, the mortgage constituted by said defendant in their favor to secure the payment of o f the loan in
question be ordered foreclosed. The defendant a nswered the complaint stating that he never refused to
 pay the debt but the plaintiffs should have rendered to the defendant an account of the said product of
the mortgaged properties so that they may be applied to the payment of the loan.

%laintiffs contended that the salt gathered from the 1' salt beds was for the e!clusive use, benefit
and en3oyment of the plaintiffs who were not obliged to submit to the defendant a liquidation of the salt
 produced and gathered, in order that the same may be deducted from the principal.
ssue: 4hether the contract between the parties is that of mortgage or antichresis

5eld:

There were two contracts that were entered into by the parties. 6ne was entitled 7ontract
7on tract of
Antichresis8 and the other as 7ontract of 9ortgage8. 5owever, the ourt noted that in both contracts,
the defendant +amaso alestial, as debtor, agrees to turn over to the plaintiffs, as creditors, the
 possession of the salt beds so that the latter,
latter, after paying the e!penses for the production, administration
administration
and harvest of the salt with one-half of the produce, may keep the other half of the use, benefit
ben efit and
en3oyment. t is not stipulated that the net produce of the salt beds shall first be applied to the p ayment
of the interest, if any, and afterwards to that of the principal of their credit. oth contracts merely
 provide that the creditors shall keep one-half of the products. Therefore, they are not contracts
contracts of
antichresis, as defined by article ;; of the ivil ode.

n a contract of mortgage, the mortgagor, as a general rule, retains the possession of the property
mortgaged as security for the payment of the sum of money borrowed from the mortgagee, and pays the
latter a certain per cent thereof as interest on his principal by way of compensation for his sacrifice in
depriving himself of the use of said money and the en3oyment of its fruits, in order to give them to the
mortgagor. nasmuch
nasmuch as it is not an essential requisite of the contract of mortgage that the property
mortgaged remain in the possession of the mortgagor (article ;#0 of the ivil ode), the latter may
deliver said property to the mortgagee, without thereby altering the nature of the contract. t not being an
essential requisite of said contract of mortgage that the principal of the mortgage credit bear interest, or
that the interest, as compensation for the use of the principal and en3oyment of its fruits, be in the form
of a certain per cent thereof, such interest may be in the form of fruits of the property mortgage, without
the contracts longing thereby its character of a mortgage contract. t is stipulated in the contracts under
consideration that, during the term thereof and while the total amount of the loan remains unpaid
u npaid by the
debtor, the salt beds constituted as security for the payment of said loan, shall be administered by the
creditors who shall destine one-half of the products thereof for the maintenance and support of the
croppers and the improvements of the property, keeping the other half for themselves. t appears,
therefore, that the debtor, instead of paying a certain per cen t of the principal of the loan as
compensation for the sacrifice made by the creditors in depriving themselves of the use of their principal
and the en3oyment of its fruits, so as to give them to the debtor, has delivered to them the property
constituted as a security for the payment of the loan, so that they may administer
ad minister and use it, en3oying its
fruits, by way of compensation for their said sacrifice in lending said debtor their money. Therefore,
Therefore, the
contracts, which are the sub3ect matter of this action, have all the essential requisites of a mortgage,
enumerated in article ;#0 of the ivil ode and, consequently, are mortgage contracts.

/rom the foregoing considerations, this court is of the op inion and so holds, that when a contract of
loan with security does not stipulate the payment of interest but provides for the delivery to the creditor
 by the debtor of the real property constituted as security for the payment thereof, in order that the
creditor may administer the same and avail himself of its fruits, without stating that said fruits are to be
applied to the payment of interest, if any, and afterwards to that of the principal of the credit, the contract
shall be considered to be one of mortgage and not of antichresis.

G.R. No. 46623 December 7, 1939

MARCIAL KASILAG, petitioner,
vs
RAFAELA RODRIGUE, UR!ANO RO"UE, SE#ERO MA$ILISAN %&' IGNACIO DEL
ROSARIO, respondents

Facts:

 )he respondents,
respondents, the heirs
heirs of 4#iliana
4#iliana $#"rosio
$#"rosio sought to recover fro#
fro# the petitioner,
Marcial 5asilag, the possession of a land and its i#prove#ents granted "! wa! of
ho#estead to 4#iliana and that the petitioner should pa! the P3'0 which is the value of
the fruits which he received fro# the land and that the petitioner shall sign the necessar!
docu#ents to transfer the land and its possession to the respondents

 )he petitioner denied all the

the #aterial allegations
allegations stating
stating that he was in
in the possession
possession
of the land and that he was receiving the fruits thereof "! virtue of a #ortgage contract
entered into "etween hi# and 4#iliana and in a counterclai# as6ed the respondents to
pa! hi# P&000 with &27 interest per annu# which the deceased owed hi# and that
should the respondents "e granted the "etter right possession of the land, the! should pa!
hi# P'000, the a#ount of the i#prove#ents he #ade on the land

4#iliana $#"rosio and Marcial 5asilag entered into a #ortgage contract to secure a
loan of P&000 with interest at &27 per annu# pa!a"le within four and a half !ears after
the execution of the instru#ent 8ne !ear after the execution of the deed, it ca#e to pass
to 4#iliana that she would "e una"le to pa! the stipulated interest so the parties entered
into a ver"al contract that the possession of the land would "e conve!ed to Marcial on the
condition that the latter would not collect the interest on the loan, would attend to the
pa!#ent of the land tax, would "ene%t on the fruits of the land and would introduce
i#prove#ents
i#prove#ents thereon 9! virtue of this ver"al contract, Marcial did not collect the
interest, gathered the fruits of the land and #ade i#prove#ents thereon and
su"se1uentl! the tax declaration was transferred in his na#e

$fter anal!sis of the conditions agreed upon "! the parties, the Court of $ppeals ruled
that the contract entered into "! the parties is one of a"solute sale of the land and its
i#prove#ents
i#prove#ents $nd upon this ruling, it held null and void and with no legal eect the
Mortgage Contract as well as the su"se1uent ver"al contract of the parties, however,
ordering the respondents to pa! the petitioner the loan of P&000 with legal interest of 37
per annu#

+ssue: hether the Court of $ppeals erred in ruling that the contract entered into "!
4#iliana and Marcial
Marcial is one of a"solute deed of sale of the land and its i#prove#ents and
that the #ortgage is void and without an! legal eect

-eld: )he contract of #ortgage is valid and "inding

 )he Court ruled

ruled that the word
word used "! "! the parties in the contract clearl!
clearl! shows that
that
the! intended to enter into a principal contract
contract of loan and into an accessor! contract of
#ortgage of the i#prove#ents on the land ac1uired as ho#estead $nd as a cardinal rule
in the interpretation
interpretation of contracts is to the eect that the intention of the parties should
alwa!s prevail "ecause their will has the force of law "etween the#
 +t will "e recalled that "! clause +++ of the contract, the parties agreed that should
4#iliana $#"rosio
$#"rosio fail to redee# the #ortgage within the stipulated period of four and a
half !ears, "! pa!ing the loan together with interest, she would execute in favor of the
petitioner an a"solute deed of sale of the land for P&,000, including the interest stipulated
stipulated
and owing )he stipulation was ver"all! #odi%ed "! the sa#e parties after the expiration
of one !ear, in the sense that the petitioner would ta6e possession of the land and would
"ene%t "! the fruits thereof on condition that he would condone the pa!#ent of interest
upon the loan and he would attend to the pa!#ent of the land tax )hese pacts #ade "!
the parties independentl! were calculated to alter the #ortgage a contract clearl! entered
into, converting the latter into a contract of antichresis .$rticle &;;& of the Civil Code
 )he contract
contract of antichresis,
antichresis, "eing a real encu#"rance
encu#"rance "urdening
"urdening the land
land "ecause the!
are prohi"ited "! section &&3 of $ct <o 2;(=, is illegal and void

Sec()o& 116 o* Ac( No. 2+74

Sec()o& 116. 4xcept in favor of the >overn#ent or an! of its "ranches, units or

institutions, or legall! constituted "an6ing corporations, lands ac1uired under the free
patent or ho#estead provisions shall not "e su"ect to encu#"rance or alienation fro# the
date of the approval of the application and for a ter# of %ve !ears fro# and after the date
of issuance of the patent or grant, nor shall the! "eco#e lia"le to the satisfaction
satisfaction of an!
de"t contracted prior to the expiration of said period* "ut the i#prove#ents or crops on
the land #a! "e #ortgaged or pledged to 1uali%ed persons, associations, or corporations
.$s a#ended "! section 2/ of $ct <o /'&(