ALFONSO DE LOS REYES ET AL., PLAINTIFFS AND APPELLEES, VS. LUIS DE LEON, DEFENDANT AND APPELLANT.

MAKALINTAL, J.:

This appeal was originally filed with the Court of Appeals. Subsequently, it
was endorsed to and accepted by this Court for the reason that the issues raised
involve only questions of law.

As security for a loan of P60,000, Japanese Currency, obtained from the
herein appellant, the appellees executed two mortgage agreements in favor of the
former. The first, entitled “Real Estate Mortgage” and executed on July 4, 1944,
so far as germane to this litigation, provided:

“That for and in consideration of the loan of FORTY THOUSAND PESOS
(P40,000.00), Philippine Currency, received from the Mortgagee, the receipt of
which is hereby acknowledged, and to secure the payment of the same as well as
interest thereon, and other advances of money that may hereinafter be obtained
from the mortgagor as well as for other valuable considerations received or that
the latter may acquire, including interest and expenses of any other obligations
owing to the Mortgagee whether direct or indirect, principal or secondary, the
Mortgagor does hereby transfer and convey by way of Mortgage unto the Mortgagee,
his assigns and successors, the parcel of land herein below described, their
title thereto being evidenced by Transfer Certificate of Title No. 66955,of the
Register of Deeds of the City of Manila, which parcel of land is more
particularly described as follows:

*          *          *          *          *          *          *

“This Mortgage is constituted under the following conditions:

“(1) Time is the paramount condition of this Agreement, namely, that the said
loan of FORTY THOUSAND PESOS (P40,000.00) shall not be paid sooner nor later
than within the first Three years after the Greater East Asia War, to be
computed from the signing of the Treaty of Peace;

*          *          *          *          *          *          *

“(3) The Mortgagor x x x shall pay in time the taxes and assessments of the
mortgaged property, reporting to the Mortgagee the fact of such payment on the
dates in which they were effected;

“(4) The Mortgagor shall not lease the mortgaged property under contract nor
shall sell nor dispose of the same in any manner, nor encumber the same with a
second mortgage, without the written consent of the Mortgagee;

“(6) If at any time the Mortgagor shall fail or refuse to pay any of his
obligations stipulated when due, or whatever obligation herein secured, then all
the entire loan of Forty Thousand Pesos(P40,000.00) including accumulated
interest, and other obligations of the Mortgagor of any nature, shall become due
and payable, and the Mortgagee may immediately foreclose this mortgage
judicially or extrajudicially, under Act No. 3135, as amended, and in case of
foreclosure, the Mortgagee, on filing the corresponding petition, shall be
appointed receiver, * * *;”

The second agreement was denominated “Real Estate Additional Mortgage.” Dated
July 11, 1944 and constituted upon the same property as the one offered in the
first instrument, it stipulated, insofar as relevant to the issues in this case,
the following:”

That on July 4th 1944, the Mortgagor obtained from the Mortgagee the loan of
FORTY THOUSAND (P40,000.00), secured by alien of first mortgage under real
property situated at Nebraska, Malate, Manila, Philippines, more particularly
described under Transfer Certificate of Title No. 66955,in the Land Records of
the City of Manila, as follows:

*          *          *          *          *          *          *

“That the MORTGAGOR, desiring to obtain an additional loan of TWENTY THOUSAND
PESOS (P20,000.00) from the MORTGAGEE, has, by these presents, transferred,
conveyed and assigned, in favor of the MORTGAGEE, his assigns, heirs’ and
successors in interest, the above described parcel of land, subject to the
following conditions: .

“That all the terms and conditions in Deed of Mortgage, dated July 4,
1944,between the same parties, hereto, executed before Notary Public for the
City of Manila, Mr. Nicanor Sison, per Doc. No. 21, page 90, Book I, Series of
1944, in the notarial register of the above-mentioned notary public, were herein
incorporated and made part of this document, with the exception only of the
terms which may be repugnant and contrary to the additional conditions and
supplementary agreements hereinafter stipulated, to wit:” The conditions of this
additional mortgage, are: (A) That the amount of FORTY THOUSAND PESOS
(P40,000.00), including the accrued interest above-mentioned as consideration in
Doc. No. 21, Page No. 90, Book I, Series of 1944, executed before the Notary
Public for the City of Manila, Mr. Nicanor Sison, between the parties hereto,
shall be paid not sooner nor later than within Three(3) years after the war,
counted from the date of the signing of the Treaty of Peace by the Belligerent
Powers; and (B) That said payment must be made in Philippine Currency; Provided,
however, in the event that prior to the termination of the present war and the
signing of the Treaty of Peace and its proclamation by the corresponding powers,
the Mortgagor does not redeem and pay the loan obtained under the original
mortgage as per document above-mentioned, then this additional loan and all its
consideration shall be automatically condoned, cancelled and annulled, including
TEN THOUSAND PESOS P10,000.00) of the original loan together with the accrued
interest up to the cessation of the war born the entire amount of the original
loan, * * *.”

Subsequently, or on August 5, 1953, the appellees received the following
communication from the appellant’s lawyer:

“This is to inform you that by reason of your failure to pay the taxes due
for the years 1951 and 1952 and 1953 on the property covered by Transfer
Certificate of Title No. 66955 of the City of Manila which was mortgaged by you
in favor of Luis de Leon to secure a loan of P60,000.00, your indebtedness in
the latter amount together with the accumulated interest thereon has become due
and payable, and we are, therefore, taking the necessary extrajudicial steps to
forclosure said property in accordance with the terms and conditions of the two
real estate mortgages executed by you in favor of Luis de Leon.”

Acting on the foregoing communication, the appellees paid the back taxes
complained of on September 3, 1953.

The foreclosure sale was scheduled by the Sheriff on September 4, 1953.
Before the sale could proceed, appellee de los Reyes presented to the appellant
and his counsel the receipts evidencing payment of the taxes for 1951 and1952
(only the first installment of the tax for 1953 was then due). Nevertheless,
appellant and his counsel insisted on the foreclosure to collect the
indebtedness allegedly in the amount of P60,000.00. However, the extrajudicial
sale was deferred until September 21, 1953.

At the auction, the appellant was the lone and sole bidder. He won the bid at
P30,000.00 and for which he was, therefore, issued the Sheriff’s Certificate of
Sale.

On August 21, 1954, appellees filed suit to annul the foreclosure sale,
charging therefore three grounds, to wit: (1) misrepresentation of the amount of
the actual indebtedness, (2) absence of demand prior to foreclosure, and (3)
prematurity, because the foreclosure was effected long before the period
stipulated in the contract.

The defendant-appellant filed a timely answer with a counterclaim for
damages. In the same, only one ground was invoked by him in justification of the
act complained of, namely, “failure on the part of the plaintiffs to pay the
real estate taxes for 1951 to 1953, inclusive.”

Upon the issues thus joined as above, the trial court rendered judgment
holding that “all the proceedings had in the said sale and foreclosure” to be
“null and void and of no effect,” and condemning appellant to pay the sum of
P3,0000 as attorney’s fees.

On failing to have the aforesaid judgment reconsidered, the case was
appealed.

The judgment should be affirmed for several reasons:

(1) The ground for such foreclosure was the failure of appellees to pay the
taxes on the mortgaged property for 1951, 1952 and 1953. The pertinent
stipulation of the mortgage contract reads as follows:

“(6) If at any time the Mortgagor shall fail or refuse to pay any of his
obligations stipulated when due, or whatever obligation herein secured, then all
the entire loan of Forty Thousand Pesos(P40,000.00) including accumulated
interest, and other obligations of the Mortgagor of any nature, shall become due
and payable, and the Mortgagee may immediately foreclose this mortgage
judicially or extrajudicially, under Act No. 3135, as amended, and in case of
foreclosure, the Mortgagee, on filing the cor-responding, petition, shall be
appointed receiver, * * *;”

The issue on this point is: Did appellees incur in default in their
obligation to pay the taxes, vis-a-vis appellant, even without previous demand
by the latter for such payment? And did appellees, assuming that their failure
to pay the taxes rendered the entire loan due and payable, incur in default in
the payment of said loan in the absence of a previous demand upon them? It
should be remembered that no demand was made either in respect of the taxes or
of the loan itself, the only notice given to appellees being the letter received
by them from appellant’s lawyer on August 5, 1953, to the effect that he was
taking the necessary steps to foreclose the mortgage extrajudicially because the
taxes had not been paid.

Article 1169 of the Civil Code provides that those obliged to deliver or to
do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of the obligation. Demand is
dispensed with only: (a) when the obligation or the law expressly so declares,
that is, that the debtor shall be considered in default without the need for
such demand;(b) when time is of the essence of the obligation; and (c)when
demand would be useless.

Circumstances (a) and (c) were not present in the instant case. Circumstance
(b) was stipulated, but in a sense contrary to the pretension of appellant. Thus
paragraph (1) of the original contract of mortgage states: “Time is the
paramount condition of this agreement, namely, that the said loan of P40,000.00
shall not be paid sooner nor later than within the first three (3) years after
the Greater East Asia War, to be computed from the signing of the Treaty of
Peace.” In the subsequent mortgage of July 4,1944, for an additional loan of
P20,000.00, the time element was emphasized and modified by the following
clause: “Provided, however, in the event that prior to the termination of the
present war and the signing of the Treaty of Peace and its proclamation by
the corresponding powers, the Mortgagor does not redeem and pay the loan
obtained under the original mortgage . . . then this additional mortgage shall
be automatically condoned, cancelled and annulled, including ten thousand pesos
(P10,000.00) of the original loan together with accrued interest up to the
cessation of the war. In other words, provided appellees did not accelerate
payment but waited instead until after the treaty of peace was signed and
proclaimed by the “corresponding powers,” they were entitled to a reduction of
their mortgage indebtedness to only one-half, or P30,000.00. The treaty of peace
was signed on September 8, 1951 and proclaimed by President Magsaysay on
November 5, 1956. From the date of signing appellees had until September 1954,
and until November 1959 from the date of proclamation. Consequently, under
neither alternative had there been default in the fulfillment of the principal
obligation when the mortgage was foreclosed extra-judicially and the property
sold on September 4, 1953.

Referring specifically to the nonpayment of the taxes for 1951, 1952 and the
first part of 1953, we believe that in the light of the principal stipulation of
the contract concerning the time when the mortgage debt was to be paid, such
nonpayment of taxes was not a material breach of the contract and that in any
event, when the taxes were actually paid there was substantial compliance with
the obligation in this particular aspect so as to arrest effectively the
foreclosure sale.

(2) The fixing of the period for payment was obviously to insure, for the
benefit of appellant, that such payment would be made in Philippine currency and
not in Japanese fiat money; and for the benefit of appellees, so that their
indebtedness would be reduced from P60,000.00 to only P30,000.00. Appellees did
not lose their right to avail of the period for having violated “any undertaking
in consideration of which the creditor agreed to the period” (Art. 1198 Civil
Code). This is so because the timely payment of real estate taxes on the
mortgaged property was clearly not the consideration which moved the parties to
fix, as they did, the term or period for the payment of the indebtedness.

(3) The extrajudicial foreclosure of the mortgage at the instance of
appellant was for the sum of P60,000.00 instead of only P30,000.00, which was
the amount appellees were bound to pay after the treaty of peace was signed
and/or proclaimed. Thus, after appellant had bought the mortgaged property at
the sheriff’s sale appellees would still stand indebted to them for P30,000.00.
This result is entirely against the import of the contract and the intent of the
parties thereunder. It is unjust, unfair and oppressive, for appellees in effect
would be penalized for the acceleration of payment which was not of their own
choosing, but brought about by the extrajudicial foreclosure made at the
instance of appellant when no default had yet been incurred by appellees.

The judgment appealed from is affirmed, with costs.

Bengzon, C.J., Labrador, Concepcion, Reyes, J.B.L., Barrera,
Paredes, and Dizon, JJ., concur.