MARIA SAENZ Y LOPEZ ET AL., PLAINTIFFS AND APPELLANTS, VS. L. P. MITCHELL, ASSIGNEE OF THE INVOLUNTARY INSOLVENCY OF RAFAEL FERNANDEZ, JOSEFA ESCALER, ASSISTED BY HER HUSBAND RA…

These are two appeals, one taken by the
plaintiffs Maria Saenz y Lopez et al., and the other by the defendant
L. P. Mitchell, as assignee of the involuntary insolvency of Rafael
Fernandez, from the judgment rendered by the Court of First Instance of
Pampanga, the dispositive part of which reads as follows:

“Wherefore, the court orders the insolvency of
Rafael Fernandez and his wife Josefa Escaler to pay jointly and
severally to the plaintiffs the sum of P85,000, plus the costs. The
said insolvency is likewise ordered to refund to the plaintiffs the sum
of P28,000.

“The defendant Malabon Sugar Company is absolved from the complaint.

“So ordered.”

In support of their appeal, the plaintiffs Maria Saenz y Lopez et
al., assign the following alleged errors as committed by the court a quo in its decision:

“1. The judge a quo erred in ordering the
insolvency of Rafael Fernandez and his wife Josefa Escaler to pay only
the sum of P85,000, instead of P240,000, by way of damages caused to
the plaintiffs.

“2. The judge a quo erred in not
declaring the mortgage constituted by the plaintiff Francisco Gutierrez
in favor of the now insolvent Rafael Fernandez on the sugar-cane crop
from the Hacienda Dolores for the agricultural year 1931-1932, as well
as the assignment thereof by Rafael Fernandez in favor of Malabon Sugar
Company, null and void.

“3. The judge a quo erred in absolving the defendant Malabon Sugar Company from the complaint.

“4. The judge a quo
erred in not declaring that the assignment by Fernandez in favor of
Malabon Sugar Co. was at all events valid only in so far as it affects
the plaintiff Francisco Gutierrez Saenz and that it was null and void
as regards the other plaintiffs.

“5. The judge a quo at all events erred in not ordering the insolvency to pay to the plaintiffs the value of the crop for the year 1931-1932.

“6. The judge a quo
erred in his computation of the amount of the commissions, premiums and
brokerage collected by Rafael Fernandez in violation of the Usury Law.

“7. The judge a quo
erred in not ordering the insolvency of Rafael Fernandez to pay to the
plaintiffs the sum of P5,000 by way of interest and attorney’s fees.

“8. The judge a quo
erred in not ordering the defendants Rafael Fernandez and Josefa
Escaler to pay legal interest on the amount of the damages incurred by
the plaintiffs, from the date of the filing of the complaint.”

As grounds of his appeal, the defendant L. P. Mitchell, as assignee
of the involuntary insolvency of Rafael Fernandez, in turn, assigns the
following alleged errors:

“1. The trial court erred in holding that the
defendant L. P. Mitchell is liable to the plaintiffs for the damages
alleged in the complaint and in not holding that said defendant is an
innocent third party with reference to the transactions complained of
by the plaintiffs.

“2. The trial court erred in not holding
that plaintiffs’ damages, if any, were brought about by their own
negligent and fraudulent acts and hence they are not entitled to
recover anything from the defendant L. P. Mitchell who represents the
creditors of the insolvent and not the insolvent himself.

“3. The trial court erred in holding that it had jurisdiction to
entertain the claims of the plaintiffs in this case and in sentencing
the defendant L. P. Mitchell to pay to said plaintiffs different sums
of money.

“4. The trial court erred in finding that the Hacienda Dolores was worth P345,000.”

The following facts were proved at the trial and admitted by the parties:

The plaintiffs Maria Saenz y Lopez et al. were the owners of the
Hacienda Dolores having an area of 2,022 hectares, situated in the
municipality of Porac, Province of Pampanga, and registered in their
name in the registry of property of said province. It is covered by
transfer certificate of title No. 3132, issued on February 27, 1929,
and is assessed at P500,000, according to the inventory of the assignee
of the insolvency of Rafael Fernandez (Exhibits A and R).

On September 19, 1929, the said plaintiffs-appellants Maria Saenz y
Lopez Vda. de Gutierrez Repide, in her own behalf and as guardian of
her minor daughter Maria Gutierrez Saenz, Francisco Gutierrez Saenz,
married to Lillian Durcen, and Luis Gutierrez Saenz, executed in favor
of Rafael Fernandez a second mortgage on said Hacienda Dolores for a
period of five years, and with interest at 12 per cent per annum, to
secure the payment of a loan of P100,000 obtained by them from
Fernandez, as evidenced by a promissory note for said amount, the
mortgage creditor Rafael Fernandez having assumed the mortgagors’
obligation in favor of Francisco J. Gonzalez who held the first
mortgage as security for the payment of a loan of P30,000 payable
within one year, with interest at 10 per cent per annum (Exhibit C).

On July 11, 1930, the said plaintiffs-appellants obtained from
Rafael Fernandez an additional loan of P85,000 payable on May 31, 1931,
and with interest at 12 per cent per annum, executing a third mortgage
on the same hacienda (Exhibit B) and giving additional security
therefor, consisting of 16,000 piculs of sugar pertaining to the
Hacienda Dolores (Exhibit E). In a deed of the same date, July 11,
1930, executed by the same parties, the period for the payment of the
debts was extended to September 20, 1931 (Exhibit F).

The sum of P25,000 was paid on account of the additional indebtedness of P85,000, leaving a total balance of P160,000.

Later, the same plaintiffs-appellants obtained another additional
loan of P100,000, thereby raising the indebtedness to P260,000, and the
mortgage creditor Rafael Fernandez retained the sum of P31,000 by way
of interest. It was on this occasion that Rafael Fernandez required the
plaintiffs-appellants to execute a deed of sale of the Hacienda Dolores
dated March 30, 1931 (Exhibit I), on condition that he and his wife
Josefa Escaler would execute, as they in fact executed, on the same
date, March 30, 1931, the document Exhibit J, signed by him and his
wife, the herein defendant-appellee Josefa Escaler, whereby the said
spouses acknowledged having bought the Hacienda Dolores from said
plaintiffs-appellants and bound themselves to resell the same to them
within the period of five years.

On the same date, March 30, 1931, Rafael Fernandez executed a
contract of lease of said hacienda in favor only of Francisco Gutierrez
Saenz, one of the vendors, for a period of five years and at a rental
of P31,200 a year, payable in advance (Exhibit K).

On that very date, March 30, 1931, the lessee Francisco Gutierrez
Saenz executed in favor of the lessor Rafael Fernandez a chattel
mortgage (Exhibit L), whereby, to secure the payment of a loan of
P160,000 which he had obtained from the lessor, he mortgaged all the
centrifugal sugar which might be produced during the agricultural year
19311932 from the sugar cane planted in the Hacienda Dolores held by
him under lease.

By means of the deed of sale Exhibit I, Rafael Fernandez was able
to have the register of deeds of the Province of Pampanga issue in his
favor transfer certificate of title No. 4904, and by means of said
certificate he succeeded in mortgaging the hacienda to Warner, Barnes
& Co. for the sum of P308,000 (Exhibit N).

On May 7, 1931, Rafael Fernandez assigned to the Malabon Sugar
Company his rights and interests in the mortgage on the crop executed
in his favor under Exhibit L by Francisco Gutierrez Saenz, as
additional security for the payment of a credit of P500,000 which said
Malabon Sugar Company had granted to Fernandez (Exhibit O).

The debtor Rafael Fernandez having failed to pay his indebtedness,
the mortgage creditor Warner, Barnes & Co. appointed the justice of
the peace of the municipality of Porac, Pampanga, as its assignee and
as attorney in fact of Rafael Fernandez, so that, pursuant to the
provisions of Act No. 3135, he could sell at public auction the
mortgaged hacienda, which he so did, adjudicating the same to Warner,
Barnes & Co., Ltd., for the sum of P308,553 and executing in its
favor the corresponding certificate of sale (Exhibit P).

All the above-mentioned documents were duly registered in the
registry of deeds of Pampanga, with the exception of the document
containing the promise to resell, Exhibit J, signed by the spouses
Rafael Fernandez and Josefa Escaler.

On July 14, 1931, the plaintiffs-appellants brought this action
against the spouses Rafael Fernandez and Josefa Escaler, and Warner,
Barnes & Co. The complaint was later amended so as to include the
Malabon Sugar Co. as party defendant and to exclude said firm of
Warner, Barnes & Co.

On September 23, 1931, the said defendant Rafael Fernandez was
declared insolvent. L. P. Mitchell was appointed assignee of his
insolvency and, for this reason, the complaint was again amended in
order to substitute said assignee in place of Fernandez.

Being procedural in nature, the first question to be decided, which
is raised by the defendant-appellant L. P. Mitchell, assignee of the
involuntary insolvency of Rafael Fernandez, in his third assignment of
error, is whether or not the trial court had jurisdiction to take
cognizance of the claim of the plaintiffs-appellants against Rafael
Fernandez, the latter being insolvent and his property being in the
hands of an assignee.

The claims of the plaintiffs-appellants against the
defendant-appellant L. P. Mitchell, as assignee of the involuntary
insolvency of Rafael Fernandez, are of two kinds: The first, for
liquidated debts amounting to P67,000 consisting of promissory notes
for the total amount of P34,000; of commissions and premiums amounting
to P28,000, alleged to have been collected in violation of the Usury
Law; and of interest and attorney’s fees in the sum of P5,000; and the
second, for unliquidated damages amounting to P240,000, resulting from
alleged fraudulent acts.

The last saving clause of section 60 of Act No. 1956, otherwise
known as the Insolvency Law, provides “that if the amount due the
creditor is in dispute, the suit, by leave of the court in insolvency,
may proceed to judgment for the purpose of ascertaining the amount due,
which amount, when adjudged, may be allowed in the insolvency
proceedings, but execution shall be stayed as aforesaid.” And section
33 of the same Act provides that “* * * If any action or proceeding in
which the insolvent is defendant is pending at the time of the
adjudication, the assignee may defend the same in the same manner and
with like effect as it might have been defended by the insolvent * * *.”

In the case under consideration, the Court of First Instance which
heard the involuntary insolvency of Rafael Fernandez, under the
authority conferred upon it by the last saving clause of section 60 of
Act No. 1956, above quoted, gave leave for the continuation of the
present case, which was then pending in the Court of First Instance of
Pampanga when Rafael Fernandez was declared insolvent, and the herein
defendant-appellant L. P. Mitchell, as assignee in insolvency, appeared
therein in accordance with the provisions of section 33 of Act No.
1956, also above quoted. The Court of First Instance of Pampanga, in
proceeding to try the case instituted by the herein
plaintiffs-appellants against Rafael Fernandez and his wife Josefa
Escaler, notwithstanding the fact that Rafael Fernandez had already
been declared insolvent and title to his property had already passed
into the hands of an assignee, acted in accordance with the law, and,
therefore, with jurisdiction.

The second procedural question to be decided, which is raised by
the defendant-appellant L. P. Mitchell, assignee of the involuntary
insolvency of Rafael Fernandez, in his third assignment of error, is
whether or not the Court of First Instance of Pampanga had jurisdiction
to order the said insolvency to pay the damages fixed in its judgment
and awarded to the plaintiffs-appellants.

The Insolvency Law (Act No. 1956), in providing in its section 60
that “* * * the suit, by leave of the court in insolvency, may proceed
to judgment for the purpose of ascertaining the amount due * * *,” is
silent as to the person against whom said judgment should be .entered.
It provides, however, that the amount due, when adjudged, may be
allowed in the insolvency proceedings, but execution shall be stayed.
Since the object of the law in authorizing the court in insolvency to
grant leave for the suit to proceed is to ascertain the amount due from
the insolvent in order to enable the creditor to present it in the
insolvency proceedings, it is the insolvent who should be declared
liable for the payment of the amount due and ascertained. Since the
purpose of the action is to collect from an insolvent, judgment should
be entered against said insolvent so that his creditor may present his
claim in his insolvency, and not against the insolvency itself
represented by the assignee, who is an officer of the court in
insolvency, which alone has jurisdiction under the law to determine who
of the alleged creditors of the insolvent are entitled to collect from
the insolvency, to ascertain the amount each of them should collect,
and to order the assignee to make payment. Otherwise, ordinary courts
would be empowered to ascertain the amount which a creditor, whose
claim against the insolvent is in dispute, should collect from the
insolvency, a thing contrary to the letter and spirit of the Insolvency
Law.

Therefore, the trial court exceeded its jurisdiction in ordering
the insolvency of Rafael Fernandez to pay to the plaintiffs-appellants
the amount specified in its judgment, which said plaintiffs-appellant’s
are entitled to collect from said Rafael Fernandez.

The third question of procedure to be resolved is whether or not
the defendant-appellee Josefa Escaler, not having appealed from the
judgment, may make a counter assignment of error and ask for the
reversal of said judgment.

In sustaining the affirmative, she relies upon the pronouncement of this court in the case of Garcia Valdez vs. Soterana Tuason (40 Phil., 943), and upon the doctrine laid down in the case of Lucero vs. De Guzman (45 Phil., 852), and in those enunciated by some American courts as elucidated in 3 Corpus Juris, p. 1403, sec. 1567.

In the case of Garcia Valdez vs. Soterana Tuason, supra,
the court overruled the demurrer to the complaint, which ruling was
excepted to by the defendant, and proceeded with the trial of the case,
after which the court entered an order dismissing the same. The
plaintiff appealed. On appeal, the defendant-appellee in her brief
called the court’s attention to the error committed by the lower court
in overruling her demurrer. Finding the defendant-appellee’s
observation to be well founded, this court considered the same and,
through Justice Street, said: “It is not incumbent on the appellee, who
occupies a purely defensive position and is seeking no affirmative
relief, to make assignments of error. Only an appellant is required to
make such assignments. Therefore, when the case occurs, as not
infrequently happens, that a trial judge decides a case in favor of one
of the parties on a certain ground, it is entirely proper for this
court, upon affirming the judgment, to base its decision upon some
other point which may have been ignored by the trial court or in
respect to which that court may have been entirely in error.”

In the election case of Lucero vs. De Guzman, supra, this court, again through Justice Street, on page 879, said:

“The rules of this court require that assignments
of error should be specific. Of course this does not mean that in an
election case a separate assignment must be made with respect to every
ballot, which would be intolerable. But it is the duty of the
appellant’s attorney, in his discussion of the errors imputed to the
trial court in the revision of ballots in the different precincts, to
point out the error, or errors, into which said court is supposed to
have fallen. In a number of instances in the case before us, the
appellant’s attorneys have contented themselves with a mere submission
of the particular ballot in question to the judgment of this court,
without attempting to show wherein the trial court erred in admitting
or rejecting such ballot. We have uniformly refused to examine such
ballots for lack of sufficient assignment.

“The appellee,
having been, successful in the court below, of course is not required
to make formal assignments of error in this court. Nevertheless it is
incumbent upon the appellee to point out in his brief any errors
against himself into which the court may be supposed to have fallen ;
and in the present case the appellee has availed himself of this
privilege by pointing out numerous instances in which the trial court
committed error against him. We have carefully examined all of the
points favorable to the appellee thus presented, provided the ballots
with reference to which error is supposed to have been committed have
been identified with such precision as would enable us to resolve the
point at issue.”

In 3 Corpus Juris, p. 1403, sec. 1567, the following doctrines are enunciated:

“In some jurisdictions an assignment of errors by
an appellee cannot be considered unless an appeal has been taken or
writ of error sued out by him; but in other jurisdictions error may be
assigned by appellee or defendant in error without taking an appeal or
suing out a writ of error. It has been held that, even in the absence
of a statute expressly authorizing it, cross errors may be assigned
without taking an appeal or suing out a writ of error, and the rule has
much to commend it.”

It will be noted that in the case of Garcia Valdez vs. Soterana Tuason, supra,
the appellee’s counter assignment of error was taken into
consideration, notwithstanding the fact that she did not appeal, for
the reason that her position was purely defensive and no affirmative
relief was sought. The doctrine laid down in the election case of
Lucero vs. De Guzman, supra, was ratified by this court in the case of Mendoza vs. Mendiola (53 Phil., 267), wherein it was said:

“2. ID.; ELECTION CONTEST; CONSIDERATION BY.THIS
COURT OP ERRORS ASSIGNED BY CONTESTEE WHO DID NOT APPEAL FROM JUDGMENT
OF COURT BELOW.—The points raised by the contestee’s assignments of
error should indeed have been considered, notwithstanding his failure
to appeal from the judgment of the court below, inasmuch as the
questions discussed in said assignments of error were raised by him
during the hearing of the case. According to section 480 of the
Election Law, the procedure on appeal in election contests is the same
as in criminal cases, that is, they are tried de novo on appeal to this court. (U. S. vs. Noriega and Tobias, 31 Phil., 310; see the case of Lucero vs. De Guzman, 45 Phil., 852.)”

As regards the citation made by the defendant-appellee Josefa
Escaler in her brief of a paragraph from 3 Corpus Juris, p. 1403, the
doctrines contained therein are not uniform. The general rule is laid
down on page 1404, section 1568, of the same treatise, as follows:

“NECESSITY FOR ASSIGNING.—The general rule is well
settled that errors operating against appellee or defendant in error
will not be considered unless duly assigned. This is so, although
appellee’s bill of exceptions is otherwise properly in the record, and
although cross errors not assigned are argued or discussed in the
brief. By failing to assign cross errors appellee or defendant in error
is estopped from complaining thereof. And it has been held that rulings
to which appellee has assigned no cross error in the supreme court will
not be reviewed on his complaint even though he has assigned cross
errors in a court of intermediate appellate jurisdiction.”

From all the foregoing, the conclusion is reached that an appellee,
who is at the same time not an appellant, may on appeal be permitted to
make counter assignments of error in ordinary actions, when the purpose
is merely to defend himself against an appeal in which errors are
alleged to have been committed by the trial court both in the
appreciation of facts and in the interpretation of the law, in order to
sustain the judgment in his favor but not when his purpose is to seek
modification or reversal of the judgment, in which case it is necessary
for him to have excepted to and appealed from the judgment.

In this case, the defendant-appellee Josefa Escaler, in making a
counter assignment of error alleged to have been committed by the trial
court, seeks to obtain the reversal of the appealed judgment, which she
is not permitted to do, having failed to except to or appeal from said
judgment.

Passing now to the merits of the case, the first question to be
decided is that raised by the plaintiffs-appellants in their brief
under the first assignment of error alleged to have been committed by
the court a quo, and which consists in the trial court having
ordered the insolvency of Rafael Fernandez and his wife Josefa Escaler
to pay, by way of damages caused to them, only P85,000, instead of
P240,000. It will be noted that the question raised in said assignment
of error is purely one of fact. We have carefully examined the
documentary as well as the oral evidence presented at the trial by the
parties in support of their respective contentions and have considered
the weight and probative force thereof, in the light of all the
circumstances of the case, and we do not justify in disturbing the
findings of the court a quo upon this point.

The question raised by said plaintiffs-appellants in their sixth
assignment of error is likewise purely one of fact. Aside from the
error in the sum which, instead of P28,300, should be P26,600, for
commissions, premiums, and brokerage collected by Rafael Fernandez,
neither are we justified in altering the conclusions of the trial court
on this point.

With respect to the question whether or not the court a quo
erred in not declaring the mortgage executed by the plaintiff Francisco
Gutierrez Saenz in favor of Rafael Fernandez on the sugar-cane crop of
the Hacienda Dolores for the agricultural year 1931-1932, as well as
the assignment of the same by Rafael Fernandez in favor of Malabon
Sugar Company null and void, it may be noted that the deed executed by
the plaintiffs-appellants in favor of Rafael Fernandez, under which
they sold to the latter the Hacienda Dolores for the sum of P260,000,
was inscribed in the corresponding registry of deeds without any
incumbrance or condition of any kind, Rafael Fernandez having acquired
absolute and full title of ownership over said hacienda. As the
registered exclusive owner of said hacienda, Fernandez had the right to
lease the same to anybody, and the contract of lease executed by him in
favor exclusively of Francisco Gutierrez Saenz, and registered in the
registry of deeds and noted on the corresponding certificate of title,
was prima facie valid, and its registration constituted a
notice to the whole world that Francisco Gutierrez Saenz was the lessee
thereof. As the exclusive lessee, under deed and by registration, of
the Hacienda Dolores which already belonged to Rafael Fernandez,
Francisco Gutierrez Saenz had the exclusive right to mortgage to
anybody the crop produced by him on the hacienda held by him under
lease, and the inscription in the registry of deeds of the mortgage
deed executed in favor of Rafael Fernandez in accordance with law
operated as a notice to the whole world of the existence of the said
lien. (Mahoney vs. Tuason, 39 Phil., 952; Standard Oil Co. of New York vs.
Jaramillo, 44 Phil., 630.) In acquiring in good faith and for value the
rights of Rafael Fernandez in the mortgage on the crop by virtue of the
deed of assignment Exhibit 0, after having seen that there was no
notation on Rafael Fernandez’ certificate of title to said hacienda
showing that other persons had any interest in the crop in question,
the defendant-appellee Malabon Sugar Company is protected against any
nullifying defect or vice in said mortgage on the crop. (Sparks vs. Galena Nat. Bank, 68 Kan., 148; 74 Pac, 619, 620; 11 Corpus Juris, 663.)

The plaintiffs-appellants contend that although Francisco Gutierrez
Saenz is estopped from attacking the validity, of the deed of mortgage
on the crop executed by him in favor of Rafael Fernandez, and which
Fernandez assigned to the Malabon Sugar Company, it being unlawful for
him to repudiate his own acts, his coplaintiffs-appellants are not,
because they did not assent to said mortgage. If, as above stated,
Rafael Fernandez, by virtue of the inscription in the registry of
deeds, became the absolute owner of the Hacienda Dolores and he could,
as such owner, lease it to anybody, and if Francisco Gutierrez Saenz,
acting for and in his behalf, leased the same from Rafael Fernandez,
said Francisco Gutierrez Saenz could, without anybody’s knowledge or
consent, validly constitute a mortgage on the crop produced on the
hacienda held by him under lease, and the herein plaintiffs-appellants
cannot claim any right in said crop, inasmuch as there is nothing in
the registration of the hacienda in the name of Rafael Fernandez to
indicate that they had any interest in the crop that might be produced
thereon.

As to the question regarding the clauses contained in the
promissory notes Exhibits M-l and M-2 for the payment of attorney’s
fees, inasmuch as the amounts therein stipulated are specific, the same
should be presented for collection in the insolvency of Rafael
Fernandez.

With reference to the legal interest claimed
by the plaintiffs-appellants on the amount of the damages awarded, they
are entitled to the same from the date of the appealed judgment until
this judgment becomes final, in accordance with the provisions of
section 510 of the Code of Civil Procedure.

In view of the foregoing considerations, we are of the opinion and
so hold: (1) That the insolvency of a debtor, the assignee of which
intervenes in an action brought by a creditor for the recovery of a
credit against the said debtor before the latter was declared
insolvent, which action was authorized by the court in insolvency to be
proceeded with for the purpose of ascertaining by judgment the amount
due, cannot be ordered to pay said credit after the amount thereof is
determined, and it is the insolvent himself for whom the assignee
appeared, who should be ordered to pay, it being the creditor’s duty to
present said judgment in the insolvency proceedings; (2) that a
defendant-appellee, who has neither excepted to nor appealed from a
judgment, cannot in the appeal taken by the plaintiff-appellant make
counter assignments of errors alleged to have been committed by the
court a quo for the purpose of asking for the modification or
reversal of said judgment; and (3) that the grantee, who in good faith
and for value has acquired the rights of the grantor in a mortgage on
crop executed by a lessee in favor of the lessor, who is the registered
owner of the leased property, which lease and chattel mortgage have
been duly inscribed in the corresponding registry of deeds, is
protected against any defect which might vitiate or nullify the lease
as well as the chattel mortgage.

Wherefore, with the sole modification that, instead of the
insolvency, the insolvent Rafael Fernandez himself is substituted, and
that the plaintiffs-appellants are allowed interest at 6 per cent per
annum on the amount of the damages of P85,000 from the date of the
appealed judgment until this judgment shall have become final, in
conformity with the provisions of section 510 of the Code of Civil
Procedure, the appealed judgment is in all other respects affirmed,
without special pronouncement as to costs. So ordered.

Malcolm, Hull, Imperial, and Goddard, JJ., concur.