RODRIGO GARCIA MATTA AND SOLEDAD LAGO, PLAINTIFFS AND APPELLANTS, VS. THE PHILIPPINE NATIONAL BANK AND EMILIO RODRIGUEZ, DEFENDANTS AND APPELLANTS.

This case is before this court by virtue of three appeals
taken, the first one by the plaintiffs Rodrigo Garcia Matta
and Soledad Lago, the second by the defendant Philippine
National Bank and the third by the other defendant Emilio Rodriguez, from the judgment rendered by the Court
of First Instance of Tayabas, the dispositive part of which
reads as follows:

“By virtue of all these considerations, the court is of
the opinion that it should decide and it hereby decides in
relation to the complaint: (a) as to the first alternative
remedy, it does not lie to recognize in the plaintiffs any
right to be subrogated in place of the defendant Emilio
Rodriguez in the contract of promise to sell or any other
contract entered into between him and the defendant Bank
relative to the properties in question.

“(b)
As to the second alternative remedy, the defendants Philippine National
Bank and Emilio Rodriguez are ordered each to render within a period of
five days a detailed account under oath of all the fruits and products
received by each of them from the properties in question, and upon the
rendition of such account, to make a liquidation of the amount due from
the plaintiffs to said Philippine National Bank, with an express
declaration that in said liquidation the interest on the plaintiffs’
indebtedness to the bank from April 21, 1935, on which they should have
rendered such accounts upon demand of the plaintiffs, should not be
charged against said plaintiffs, and once the liquidation is made, the
plaintiffs are authorized, upon payment of the net amount resulting to
be their lawful indebtedness to the defendant bank under the judgment
in civil case No. 3399, to redeem from said bank, within the period of
fifteen days, the fifteen parcels of land, that is, the real properties
in question which are the subject matter of this action.

“As to the petition for compensatory and punitive indemnity; the same is denied for lack of evidence, without
special pronouncement as to costs.”

In support of their appeal, the plaintiffs Rodrigo Garcia
Matta and Soledad Lago assign the following alleged errors
as committed by the court a quo in its judgment in question, to wit:

“1. The court erred in holding that the plaintiffs have
no right to be subrogated in place of the third party purchaser, the defendant Emilio Rodriguez.

“2. The court erred in denying the right of the plaintiffs
to choose either one of the two remedies applied for In
their amended complaint.”

The defendant Philippine National Bank assigns in support of its appeal the following alleged errors as committed
by the same court in its above-stated decision, to wit:

“1.
In declaring that plaintiffs-appellants Rodrigo Garcia Matta and
Soledad Lago have the right to redeem the fifteen (15) parcels of land
here in question from the defendant-appellant Philippine National Bank,
under section 32, Act No. 2938, after the rendition of an accounting,
when from the facts and circumstances established in this case, such
right plainly does not exist.

“2. In holding that section 469 of the Code of Civil Procedure is applicable to the instant case.

“3. In denying the motion for new trial and in not dismissing the complaint, with costs against the plaintiffs-appellants.”

The defendant Emilio Rodriguez, in turn, assigns in
support of his appeal the following alleged errors as committed by said court in its above-mentioned decision, to
wit:

“1. In applying the provisions of section 469 of the Code
of Civil Procedure to the present case.

“2. In considering the fruits and products of the lands
in litigation, after the sale of the latter at public auction
for the foreclosure of the mortgage to which they were
subject and during: the period of redemption, as belonging
to the plaintiffs-appellees.

“3. In not applying to the case of the herein plaintiffs
the provisions of section 32 of Act No. 2938 relative to
redemption of lands mortgaged to the Philippine National
Bank.

“4. In not holding that the period of one year for the
redemption of the lands in question had expired on March
23, 1935, without the plaintiffs having complied with” the
condition precedent imposed by said legal provision for the
redemption of the lands in question.

“5. In not making any finding relative to the final sale
of said lands made by the defendant bank in favor of its
codefendant Emilio Rodriguez after the expiration of the
redemption period (Exhibit 3-Rodriguez).

“6. In denying the motion for new trial of the defendant
Emilio Rodriguez.”

The three groups of assignments of error above-quoted
may be reduced to the following alleged errors as committed by said court a quo in its decision in question, to
wit: The court a quo erred: (1) in holding that said plaintiffs Rodrigo Garcia Matta and Soledad Lago are entitled
to redeem the 15 parcels of land here under consideration
from the defendant Philippine National Bank under section 32 of Act No. 2938, after the latter has rendered an
accounting of the income and products of said properties;
(2) in applying the provisions of section 469 of the Code
of Civil Procedure to this case, and (3) in holding that
the plaintiffs Rodrigo Garcia Matta and Soledad Lago are
not entitled to be subrogated in place of the defendant
Emilio Rodriguez in the contract of promise to sell or any
other contract entered into between him and the Philippine
National Bank in relation to the properties in question.

The pertinent facts necessary for the resolution of the
questions of law raised in the present appeal are as follows:

The plaintiffs spouses Rodrigo Garcia Matta and Soledad Lago were the owners of the 15 parcels of land which
are the subject matter of this controversy. On December
28, 1929, they obtained from the Philippine National Bank
an agricultural loan in the sum of P8,000. To secure the
payment of the loan in question, said spouses constituted
in favor of said bank a mortgage on two-of the above-mentioned 15 parcels of land, known as lots Nos. 8 and
596 of the cadastral survey of Guinayangan, and described
in the original certificates of title Nos. 3030 and 15860,
respectively, of the registry of deeds of Tayabas (Exhibits
A and Annex A-1 of the complaint).

On April 15, 1930, said spouses obtained from said Philippine National Bank another agricultural loan in the sum
of P45,000. To secure the payment of said new loan,
they constituted in favor of said bank a mortgage on the
remaining 13 parcels of land, of which two, that is, Nos.
27 and 28, are described in original certificate of title No.
1414, five in transfer certificate of title No. 1161, three
in transfer certificate of title No. 1164, one in transfer
certificate of title No. 1610, one in transfer certificate of
title No. 1775, and one in transfer certificate of title No.
1777, all of the registry of deeds of Tayabas (Exhibits
A-1 and Annex A of the complaint).

The plaintiffs having violated some of the conditions set
forth in both mortgages, particularly by having failed to
pay the second annual amortization of both loans, said
bank instituted an action against them for the foreclosure
of both mortgages. Said action is civil case No. 3399 of
the Court of First Instance of Tayabas, entitled “Philippine National Bank vs. Rodrigo Garcia Matta and Soledad Lago.” (Exhibit B-1.)

On December 31, 1932, the court, upon petition of said bank, appointed
the latter as receiver of the mortgaged properties upon filing a bond
in the sum of P10,000 (Exhibit B-3); but as the plaintiffs, on January
14, 1933, had executed a deed entitled “Deed of delivery of mortgaged
properties” stating that they were turning over each and every one of
the mortgaged real properties to said mortgagee Philippine National
Bank, pursuant to the sipulations contained in paragraph 7 of both
instruments of mortgage, in order that said bank could exercise all the
powers set forth in said paragraph 7 as well as others necessary for
the security and payment of its credit, the court, upon petition of the
plaintiffs, by order of January 17, 1933, set aside the above-mentioned
appointment of a receiver and authorized said bank to take possession
of the properties in question, in accordance with the deed of delivery
of mortgaged properties attached to the motion, executed by the
plaintiffs on January 14, 1933. (Exhibit B-7).

In its judgment of March 30, 1933, rendered in civil
case No. 3399, which was modified by a subsequent order
of June 7, 1933, the court directed the plaintiffs to pay
to the Philippine National Bank the sum of P8,656.54 with
interest thereon compounded semiannually at 8 per cent
per annum from March 31, 1933, until fully paid, plus
P200 as attorney’s fees, and the sum of P48,881.61 with
interest thereon also compounded semiannually at the same
rate from March 31, 1933, until fully paid, plus another
sum of P200 as attorney’s fees, giving said plaintiffs a
period of three months within which to pay the amount
thereof, to be counted from the date said judgment became final, with the warning that if payment were not
made within the above-stated period of time, the mortgaged properties would be sold at public auction and the
proceeds thereof applied to the satisfaction of the sums
which the plaintiffs in question were ordered to pay.

The total amount which the plaintiffs owed the Philippine National Bank at the time of the trial of the case,
after deducting the net income of P4,800 received by
Godofredo Reyes, who had administered the properties in
the name of said bank from January 21, 1933, to January
21, 1934, was P66,469.42 plus the interest thereafter accruing thereon at 8 per cent per annum. The plaintiffs
have admitted that at the time of the sale at public auction, they owed the bank approximately P61,518.

Pursuant to the writ of execution issued by the court
in said civil case No. 3399, the provincial sheriff of Tayabas, on December 21, 1933, sold the 15 parcels of land
in question at public auction, the Philippine National Bank,
as mortgagee, having bought them for the total amount
of P12,000. On January 10, 1934, said provincial sheriff
of Tayabas executed the deed of sale of said properties
and the sale was confirmed by the court on March 23,
1934. (Exhibits C and C-1.)

Inasmuch as the Philippine National Bank rejected the
propositions made by Godofredo Reyes to purchase said
properties, the plaintiffs, on March 20, 1935, wrote to said
bank the letter Exhibit H, which reads as follows:

“I acknowledge receipt of your letter of the 19th instant.

“It
seems to me that my statement in my former letter is misunderstood. I
have stated that I desired to redeem from Mr. Emilio Rodriguez the
properties sold to him by the bank under the same terms and conditions
of the sale thereof to him, and to this effect I asked the bank to give
its consent to said redemption in order that I may be subrogated in
place of the purchaser. Therefore, I reiterate this petition and I hope
the bank will give its consent before the 23d instant.

“As
to the redemption for the entire amount owed, mentioned in the last
part of the letter which I am answering, I wish to invite the bank’s
attention to the fact that the properties were turned over by me from
the time the action was instituted and to date the bank has not
rendered either to me or to the court an accounting of the fruits and
products received by it. “Without prejudice; therefore, to my right to
be subrogated in place of the purchaser Mr. Emilio Rodriguez, which I
believe is just, and to show that I have no intention to defraud
anybody, I take the liberty of asking the bank to render to the court
an accounting of said fruits and products, and to permit me in such
case to pay what I may owe after the approval of the accounts by the
court.”

After the offer of Godofredo Reyes had been rejected,
the Philippine National Bank, by resolution of its board
of directors dated January 21, 1935 (Exhibit L-9),
accepted the offer of Emilio Rodriguez for the sum of
P40,000, as a result of which the deed of absolute sale
for said sum was executed in favor of said Emilio Rodriguez, who was to pay P5,000 upon the execution of the
contract and the balance thereof in regular amortizations
within the period of ten years, secured by a mortgage on
said properties sold (Exhibit D). As soon as the sale had
been perfected, the purchaser Emilio Rodriguez entered
upon the possession and enjoyment of the properties sold,
having thereafter availed himself of the fruits and products thereof.

Having been informed of said sale, the herein plaintiffs, as
mortgagors, addressed a communication to the Philippine National Bank
and to the purchaser Emilio Rodriguez, asking for permission to be
subrogated in place of the latter by reimbursing him the sum of P5,000
paid by him in cash and assuming the mortgage obligation contracted in
favor of said bank for the balance of the purchase price. Both the
letter addressed to the Philippine National Bank and that addressed to
Emilio Rodriguez were received by the addressees on the same dater
March 11, 1936 (Exhibits E and F, copies of the letters, and E-1 and
F-1, receipt cards of the letters sent by registered mail). The
purchaser Emilio Rodriguez did not answer the letter addressed to him,
but the Philippine National Bank did so in a communication of March 19,
1935, which was received by the plaintiffs on the following day,
stating that the question depended absolutely upon the will of the
purchaser Emilio Rodriguez and inviting attention to the prerequisite
that if the plaintiffs wished to repurchase the properties, they should
pay the entire amount of the judgment totalling about P70,000 (Exhibit
G).

On March 20, 1935, the plaintiffs addressed a letter (Exhibit H) to the
Philippine National Bank asking for an accounting of the fruits and
products of the mortgaged properties and offering to pay the balance of
the indebtedness resulting from the liquidation to be made. The
Philippine National Bank received this letter on the 21st of said month
and year (Exhibit H-1), the purchaser Emilio Rodriguez having received
a copy thereof on the same date (Exhibits I and I-1).

On March 22, 1935, said Philippine
National Bank answered the letter, alleging that as to the products
harvested from the mortgaged properties, it will submit the
corresponding report to the court in due time, and notifying them at
the same time that the contract of sale entered into between it and
Emilio Rodriguez on January 21, 1935, had been cancelled and
substituted by another of promise to sell.

Said contract of promise to sell (Exhibit K) was executed by the Philippine National Bank on March 20, 1935,
that is, three days before the expiration of the redemption
period.

Upon being informed that the true intention of the parties in the first
contract entered into between the Philippine National Bank and Emilio
Rodriguez was a promise to sell with delivery of the properties to the
future purchaser for his enjoyment, Godofredo Reyes addressed a
communication to said bank inviting its attention to the fact that the
invitations to bid for said properties sent to him by the Philippine
National Bank and, consequently, the bide made by him, were on the
basis of an absolute gale and not of a promise to sell with delivery of
the properties. He offered the sum of P41,000 therefor under a similar
contract of promise to sell, alleging in support of the preference
asked for by him the fact that he was an unsecured creditor of the same
debtors for the sum of P17,000 (Exhibit L-11).

Upon the expiration of one year from the date of the
confirmation of the sale, the Philippine National Bank
and Emilio Rodriguez cancelled the contract of promise to
sell and restored the first contract of absolute sale under
the same conditions for the same sum of P40,000 (Exhibit
3-Rodriguez).

The Philippine National Bank answered Godofredo Reyes in a letter of
April 22, 1935, stating that its contract with the defendant Emilio
Rodriguez was already consummated and, therefore, could not be
cancelled at the will of said bank (Exhibit L-12).

The redemption period of one year provided for in section 32 of Act No. 2938 should expire on March 23, 1935
(Exhibits C, D and H).

The main question to be decided in the present appeal
is whether or not under section 32 of Act No. 2938 the
mortgagor is entitled, for the purposes of the redemption,
to require the Philippine National Bank, as mortgagee,
to render an accounting of the products of the mortgaged
properties purchased by it at public auction.

Section 32 of Act No. 2938 provides as follows:

“Sec.
32. The mortgagor shall have the right, within one year after the sale
of real estate as a result of the foreclosure of a mortgage, to redeem
the property by paying the amount fixed by the court in the order of
execution, with interest thereon at the rate specified in the mortgage,
and all the costs and other judicial expenses incurred by the bank by
reason of the execution and sale and for the custody of said property.”

According to the above-quoted legal provision, in order
that a mortgagor may redeem from the Philippine National Bank the mortgaged property purchased by the
latter at public auction, it is necessary for him (1) to
exercise the right of redemption granted him by law
within one year after the confirmation of such sale by the
court, and (2) to pay the amount fixed by the court in
the order of execution, with interest thereon at the rate
specified in the mortgage, and all the costs and other judicial expenses incurred by said bank by reason of the
execution and sale and for the custody of the mortgaged
properties.

The law, in imposing upon the mortgagor the obligation to pay the
expenses incurred by the Philippine National Bank, as mortgagee, for
the custody of the mortgaged properties purchased by it at public
auction, makes it understood that by its purchase, of the mortgaged
properties at public auction, the mortgagee, that is, the Philippine
National Bank, does not acquire any right of ownership thereof but
merely the right to have them in its custody for the purpose of
protecting its credit, inasmuch as the owner charges nothing for the
custody of his property. Therefore, while the redemption period lasts,
the Philippine National Bank, as mortgagee and purchaser at public
auction, has no more right than to take care of or administer the real
property purchased, and it does not become the owner thereof until the
period of redemption has expired and the mortgagor has failed to avail
himself of his right of redemption. As such administrator or guardian,
the Philippine National Bank is obliged to render accounts of its
administration upon being required to do so by the mortgagor for the
purposes of the redemption. It is unnecessary, therefore, to resort to
section 469 of the Code of Civil Procedure in order to determine
whether or not the Philippine National Bank, as mortgagee, is obliged
to render an accounting of the income and expenses of its
administration of the mortgaged properties purchased by it at public
auction.

Furthermore, reasons of equity and justice counsel such
solution, if the mortgagor is obliged by law to pay the
amount fixed in the order of execution together with the
accrued interest thereon and the expenses of the auction
sale and custody of the mortgaged properties sold before
he can redeem them, and if the Philippine National Bank,
as mortgagee having the properties in question in its possession, were not obliged to render an accounting of the
fruits thereof, said mortgagor would suffer double loss, to
wit: the former would gain not only the interest on its
capital but also the fruits of the mortgagor’s properties,
and the latter would lose, not only the interest in question
but also the fruits of his properties. If the purpose of
Act No. 2938, in authorizing the Philippine National Bank
to grant agricultural loans as stated in section 9 thereof,
is to promote agriculture by extending financial facilities
to the farmer, such purpose would be frustrated if the
above-quoted section 32 were construed in the sense that
the Philippine National Bank, as mortgagee, is not obliged
to render an accounting of the fruits of the mortgaged
properties purchased by it, and the mortgage debtor of
the Philippine National Bank would be in worse conditions
than an ordinary execution debtor, because the latter is
granted not only the right of redemption, which may be
exercised within one year, but also the right to be credited,
upon making the redemption, with the income realized by
the purchaser from the properties sold at public auction.

Section 9 of Act No. 4118, which amends and amplifies Act No. 3135,
provides that “When the property is redeemed after the purchaser has
been given possession, the redeemer shall be entitled to deduct from
the price of redemption any rentals that said purchaser may have
collected in case the property or any part thereof was rented; if the
purchaser occupied the property as his own dwelling, it being town
property, or used it gainfully, it being rural property, the redeemer
may deduct from the price the interest of one per centum per month
provided for in section four hundred and sixty-five of the Code of
Civil Procedure.” It is clear, therefore, that even in extra judicial
foreclosures of mortgage stipulated by the parties, the fruits which
the purchaser may have realized from the mortgaged properties are
credited to the mortgagor in case of redemption.

If the above-stated section 32 of Act No. 2938 were
interpreted in the sense the Philippine National Bank
wishes it to be interpreted, its mortgage debtors would be
the only ones who, besides having to pay the interest and
expenses for the execution and custody of the mortgaged
properties purchased by it, would lose the fruits which said
properties might have produced during the time they were
in its custody.

Therefore, by law as well as by equity and justice, the
Philippine National Bank, as mortgagee, is obliged to
render an accounting of the products of the mortgaged
properties purchased by it at public auction, so that they
may be credited to the price-of the redemption.

The first question whether or not, for the purposes of
the redemption, the Philippine National Bank, as mortgagee, is obliged
to render to the mortgagor an accounting
of the fruits of the mortgaged properties which passed to
its possession, having been decided in the affirmative, we
shall now pass upon the second question whether or not
the personal demand made by the mortgagor on the Philippine National
Bank, as mortgagee, is sufficient to compel
the latter to render such accounting, or whether or not it
is necessary for the court to order such rendition. This
latter view is held by the Philippine National Bank because it claims
that the law does not impose such obligation upon it. If, as already
stated, the Philippine National
Bank is obliged to render an accounting of the fruits of
the mortgaged properties, it is not necessary for the court
to order such rendition of accounts so that the appellee,
the Philippine National Bank, as mortgagee, may be compelled to do so,
the personal demand made by the mortgagor being sufficient.

The plaintiffs demanded of the Philippine National Bank to render an
accounting of the products of the lands in its custody in order to know
how much they had to pay to redeem said properties. The demand made by
the mortgagors took place within the redemption period. The Philippine
National Bank, in refusing to accede to the demand, prevented the
realization of the redemption within said period, and it can not justly
alleged now that the mortgagors are no longer entitled to make the
redemption on the ground that their right has expired. The running of
the redemption period should be considered suspended until the
Philippine National Bank has made the rendition of accounts demanded.

As to the
right of subrogation claimed by the mortgagors, it being an
indispensable requisite for the redemption of the properties mortgaged
to the Philippine National
Lank and sold at public auction that the amount fixed in
the order of execution, together with the interest thereon
at the rate specified in the mortgage and all the costs and
other judicial expenses incurred by the bank by reason of
the execution and sale and for the custody of said property, be paid
first, and the mortgagors Rodrigo Garcia
Matta and Soledad Lago having offered to pay only the
amount offered by the defendant Emilio Rodriguez, that
is, P40,000, paying P5,000 upon the execution, of the deed
of sale and the balance thereof in regular amortizations
within the period of ten years, secured by a mortgage on
said properties, they cannot be subrogated in place of the
defendant Emilio Rodriguez, by redeeming in the manner
they desire the real properties mortgaged to said Philippine National
Bank and sold at public auction.

For the foregoing considerations, this court is of the opinion and so
holds: (1) that the Philippine National Bank, as mortgagee, is obliged
in case of redemption, to render an accounting of the products of the
mortgaged properties purchased by it at public auction; (2) that it is
not necessary for the court to order such rendition of accounts, the
personal demand made by the mortgagor on the Philippine National Bank,
as mortgagee, being sufficient, and (3) that in order that a mortgage
debtor of the Philippine National Bank may be subrogated in place of a
purchaser of the properties mortgaged to said bank and purchased by the
latter at public auction, before the expiration of the redemption
period of one year, it is not sufficient for him to offer to pay the
amount said purchaser has paid to said bank, but he “must offer to pay
also the unpaid balance of the amount fixed in the order of execution
of the judgment, plus the interest thereon, expenses of the execution,
sale and custody of the real properties mortgaged and sold.

Wherefore, the appealed judgment is modified and the
mortgagee Philippine National Bank is ordered to render
an accounting of the products of the mortgaged properties
purchased by it at public auction, and to proceed to liquidate the,
debt of the plaintiffs, as mortgagors, crediting
them with the proceeds of said products, and, upon the
determination of the net balance of the debt, said mortgagors shall be
entitled to redeem the mortgaged properties in the manner prescribed by
section 32 of Act No.
2938, within the period of 15 days. The appeals interposed
by the defendants Philippine National Bank, as mortgagee,
and Emilio Rodriguez, as holder of the option to purchase,
are hereby dismissed, without special pronouncement as
to costs. So ordered.

Avanceña, C. J., Abad Santos, Imperial, Diaz, Laurel,
and Concepcion, JJ., concur.