Case Digest: Powell vs Philippine National Bank, 54 Phil 54, G.R. No. 31339

Powell vs Philippine National Bank, 54 Phil 54, G.R. No. 31339, November 27, 1929

Subject: Obligations and Contracts

FACTS

On December 17, 1920, Severino P. Aldeguer executed a mortgage deed in favor of the Philippine National Bank, securing a payment of P17,000 with 12% interest per annum. The mortgage was placed on lots Nos. 1318 and 470 in Pontevedra, Occidental Negros.

On July 5, 1923, after a settlement of accounts between Severino P. Aldeguer and the Philippine National Bank, it was determined that Aldeguer owed the bank the sum of P33,348.75. The original mortgage deed was amended to include the new amount with 8% interest per annum.

On July 6, 1923, Severino P. Aldeguer executed a second mortgage on the same lots to secure an additional sum of P12,000 with interest. This mortgage also included the sugar-cane harvest of 1923-1924 on the land and twenty-two head of labor cattle.

In February 1925, a writ of execution was issued by the Court of First Instance of Manila in a separate case involving the Asia Banking Corporation and Severino P. Aldeguer. As a result, the sheriff levied execution on lots Nos. 1318 and 470, which were mortgaged to the Philippine National Bank.

Following the legal procedure, the provincial sheriff of Occidental Negros sold Aldeguer's rights, title, and interest in the lots at public auction on March 30, 1925. The Asia Banking Corporation, as the highest bidder, acquired the lots for P4,000.

On April 23, 1928, the provincial sheriff executed the final deed of sale of Aldeguer's mortgaged land to the Asia Banking Corporation. Subsequently, on April 25, 1928, the Asia Banking Corporation sold the lots to Urquijo Hermanos for P45,000, after clearing all liens.

During this period, Severino P. Aldeguer also entered into transactions with Felipe Gomez for the purchase of fertilizer. Aldeguer executed promissory notes in favor of Gomez, which were later endorsed to the Philippine National Bank.

On April 26, 1928, the Asia Banking Corporation tendered a check to the Philippine National Bank in payment of Aldeguer's debt. However, the bank returned the check and provided a statement of Aldeguer's account, indicating a remaining balance.

The Asia Banking Corporation requested a reconsideration of the account statement, but the Philippine National Bank declined and offered to accept an additional sum in full payment. To fulfill its obligation to Urquijo Hermanos, the Asia Banking Corporation paid the additional amount under protest.

Upon receiving the payment, the Philippine National Bank executed a release of the mortgages on the lands on May 3, 1928.

ISSUE

Whether or not the fruits and rents collected from said lands belonged to said Severino P. Aldeguer as judgment debtor in possession thereof when the period of redemption expired.

RULING

No.

Under the law (Art 1252, NCC), he who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constitute, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.

According to legal principles established in previous cases such as Riosa v. Verzosa and Bulan (26 Phil., 86) and Velasco v. Rosenberg's Incorporated (32 Phil., 72), when a judgment debtor is in possession of land as a result of an execution, they have the right to collect the fruits and rents of that land during the redemption period specified by law. If the redemption period expires without the judgment debtor exercising their right to redeem the property, the ownership of the sold land becomes consolidated in the purchaser. At this point, the purchaser has the right to collect the fruits and rents of the land, while also being responsible for compensating the judgment debtor for the expenses incurred in cultivating, harvesting, and preserving the land, as stated in Article 356 of the Civil Code.