CU UNJIENG E HIJOS, PLAINTIFFS AND APPELLEES, VS. THE MABALACAT SUGAR COMPANY ET AL., DEFENDANTS. THE MABALACAT SUGAR COMPANY, APPELLANT.

This is an appeal taken by the defendant, the Mabalacat Sugar Company
from the order of the Court of First Instance of Pampanga confirming
the sale of the properties of the defendant entity, made by the sheriff
of the said province, by virtue of the writ of execution, issued by the
Court of First Instance of Pampanga, upon the judgment rendered by this
court confirming that of the trial court in this case.

In
support of its appeal, the appellant assigns 19 alleged errors as
committed by the trial court in the aforesaid order, which we shall
discuss in the body of this decision.

The first question to
decide in this appeal, raised in the first, second and third
assignments of error, is whether or not it is proper to order the sale
at public auction of the mortgaged properties in the hands of the
receiver appointed by the same court which tried the action for
foreclosure of said mortgage.

The placing of the mortgaged
properties in the hands of a receiver during the pendency of an action
for foreclosure is for no other purpose than to secure the income and
products of the same to cover expected deficit and to preserve them
from deterioration. Although it is true that after paying the expenses
and obligations incurred by the receiver, the balance of the properties
under receivership is used to satisfy the mortgage debt, applying it
first to the payment of the interest thereon and then of the capital,
in case there is a pronouncement to that effect or a deficiency
judgment, and, therefore, it is indispensable that the receiver first
render an accounting of his receivership before the sale at public
auction of the mortgaged properties takes place, in order to know
whether the assets, if there be any in the hands of the receiver, are
sufficient to satisfy the amount of the judgment, however, inasmuch as
this court has already decided in the certiorari proceedings with a
petition for a writ of preliminary injunction, that the sale of the
mortgaged properties could take place notwithstanding the fact that the
accounts of the receiver contained in his report which this court found
satisfactory are still pending approval, it is now unnecessary to
discuss the propriety of ordering the execution sale of the mortgaged
properties pending the final approval of the accounts of the receiver
and the termination of the receivership.

The fact that the
mortgaged properties are in the hands of a receiver appointed by the
court which tried the foreclosure suit does not prevent the same court
from ordering the sale of the aforesaid mortgaged properties, inasmuch
as although the said properties are in custodia legis by
virtue of the judicial receivership, there cannot be any conflict of
jurisdiction therein because the court that ordered the sale thereof is
the same which ordered that they be placed under receivership.

The second question to decide is whether or not the sheriff committed
an irregularity by including in the sale certain machinery and
accessories alleged not to have been included in the mortgage nor in
the notice of sale at public auction.

The machinery and
accessories which were the subject matter of a third party claim were
acquired by the Mabalacat Sugar Company and installed in the sugar mill
known as Mabalacat Sugar Central after the mortgage had already been
constituted in favor of Cu Unjieng e Hijos on April 23, 1926. The
aforesaid mortgage was constituted on the following properties of the
Mabalacat Sugar Company: “Two (2) parcels of land with all the
buildings, improvements, sugar-cane mill, railway, telephone
installations, apparatus, utensils, and everything forming part or
necessary to complete the said sugar-cane mill, railway, or telephone
installation, actually existing or that may later exist on the said
lots, belonging exclusively to the mortgage debtor, the Mabalacat Sugar
Company, by virtue of an order of the Court of First Instance of
Pampanga, free from all liens1 and incumbrances, and more particularly
described as follows:” Therefore, the machinery and accessories in
question, are included in the aforesaid mortgage.

Furthermore, article 1877 of the Civil Code provides as follows:

“ART.
1877. A mortgage includes all natural accessions, improvements, growing
fruits, and rents not collected when the obligation falls due, and the
amount of any indemnities paid or due the owner by the insurers of the
mortgaged property or by virtue of the exercise of the power of eminent
domain, with the declarations, amplifications, and limitations
established by law, whether the estate continues in the possession of
the person who mortgaged it or whether it passes into the hands of a
third person.”

In the case of Bischoff vs.
Pomar and Compañia General de Tabacos (12 Phil., 690), this court,
interpreting the provision of law cited above, laid down the following
doctrine:

“1. REALTY; MORTGAGE OF REAL
ESTATE INCLUDES IMPROVEMENTS AND FIXTURES.—It is a rule, established by
the Civil Code and also by the Mortgage Law, with which the decisions
of the Courts of the United States are in accord, that in a mortgage of
real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land, although
they may have been placed there after the mortgage was constituted, are
also included. (Arts. 110 and 111 of the Mortgage Law, and 1877 of the
Civil Code. Decision of the United States Supreme Court in the matter
of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo (26 Sup. Ct. Rep., 46; 199 U. S., 353).

“2.
ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC.—In order that it
may be understood that the machinery and other objects placed upon and
used in connection with a mortgaged estate are excluded from the
mortgage, when it was stated in the mortgage that the improvements,
buildings, and machinery that existed thereon were also comprehended,
it is indispensable that the exclusion thereof be stipulated between
the contracting parties.”

(See also Manresa, Commentaries on the Civil Code, 3d edition, vol. 12, pp. 528, 529.)

As to whether or not the machinery and accessories in question were
included in the notice of sale at public auction, inasmuch as the
sheriff stated therein that he would sell all the properties belonging
to the Mabalacat Sugar Central and said machinery and accessories are
integral parts of said sugar central, they were included in the notice
in question, following the principle of law that the accessory follows
the principal.

Another irregularity alleged to have been
committed by the sheriff in the sale at public auction of the mortgaged
properties is that he sold them at an absolutely inadequate price.

B. A. Green, president of the defendant entity, the Mabalacat Sugar
Company, testified that the mortgaged properties were worth from
P300,000 to P400,000, and that the price of P177,000 for which they
were auctioned is absolutely inadequate.

On the other hand,
Wyllie, manager of the Luzon Sugar Company, testified that the
properties sold at public auction were worth only P143,388, and Renton
Hind, well known sugar centrals expert, testified that said properties
were worth only P130,000.

In the case of Bank of the Philippine Islands vs. Green (52 Phil., 491), this court said:

“Inasmuch
as the opposition to the confirmation of the sale made by the sheriff
pursuant to the execution only alleged as a ground that the price for
which the mortgaged property was sold was absolutely inadequate and
unreasonable, and whereas it has heretofore been held by this court
that a smaller price, for which the same property was sold at the first
auction, notwithstanding that it was inadequate, was not sufficient by
itself alone to annul the order confirming the sale (which was annulled
for a different reason); therefore, the fact that the opponent was not
given an opportunity to present evidence in support of the allegations
of his opposition does not constitute a prejudicial error which would
nullify the order confirming the sale made by the sheriff.”

Furthermore, at no time during or after the sale at public auction has
it been claimed, and neither is it now claimed, that there was any
purchaser ready to offer an amount greater than that offered by the
plaintiffs, for which the mortgaged properties were adjudicated to them.

It has been intimated, but not proven, that the sheriff prevented a
purchaser from bidding at the auction. It has not been claimed,
however, and neither is it now claimed, that said purchaser, if any, is
at present ready to offer a greater sum.

It is also pointed
out that the sheriff committed the alleged irregularity of not selling
the mortgaged properties by lots or piece by piece.

Speaking
of a sugar central, it is of value only when sold in its entirety,
inasmuch as the pieces of which it is composed, if sold separately,
lose their intrinsic value and can only be sold as second hand articles
at a very cheap price. Therefore, the manner in which the mortgaged
properties were sold by the sheriff was the most advantageous to the
creditors as well as to the mortgage-debtors.

In view of the
foregoing considerations, we are of the opinion and so hold: (1) That a
mortgage constituted on a sugar central includes not only the land on
which it is built but also the buildings, machinery, and accessories
installed at the time the mortgage was constituted as well as the
buildings, machinery and accessories belonging to the mortgagor,
installed after the constitution thereof (Bischoff vs. Pomar
and Compañia General de Tabacos, 12 Phil., 690); (2) that the notice
announcing the sale at public auction of all the properties of a sugar
central extends to the machinery and accessories acquired and installed
in its mill after the constitution of the mortgage; (3) that the court,
that has ordered the placing of the mortgaged properties in the hands
of a receiver in a foreclosure suit, has jurisdiction to order the sale
at public auction of the said mortgaged properties even before the
termination of the receivership; and (4) that the fact that the price
at which the mortgaged properties were sold at public auction is
inadequate, is not in itself sufficient to justify the annulment of the
sale.

Wherefore, finding no error in the order appealed from it is hereby affirmed in toto, with costs against the appellant. So ordered.

Malcolm, Abad Santos, Hull, and Imperial, JJ., concur.