Alpha Insurance and Surety Co., v. Spouses Reyes

Facts:

The spouses Esperanza C. Reyes and Arturo R. Reyes executed in favor of Alpha Insurance and Surety Co., Inc. a second mortgage over their two parcels of land cranad and the buildings thereon, located at Makati, Rizal, in consideration of Alpha Insurance’s undertaking to act as surety of the said spouses in certain loans craned (not to exceed P10,000.00) to be obtained from banks or financial institutions. The two lots were previously mortgaged to DBP as security for a loan of P17,000.00.

Esperanza C. Reyes borrowed P5,000.00 from the Prudential Bank and Trust Company. She borrowed also P5,000.00 from the Philippine Banking Corporation. Alpha Insurance was her surety and co-maker in two promissory notes covering the said loans. She and her husband executed indemnity agreements in favor of Alpha Insurance in addition to the second mortgage.

Due to the default of Esperanza C. Reyes, Alpha Insurance, as solidary debtor, was constrained to pay the two loans total balance.

As the Reyes spouses did not make any reimbursement to Alpha Insurance, the latter filed in CFI Manila the foreclosure action above-mentioned against the spouses and the DBP. They were declared in default.

Judge Jose L. Moya in his decision simply ordered the Reyes spouses to pay Alpha Insurance.

Because the judge had ignored the prayer in Alpha Insurance’s complaint for the foreclosure of its second mortgage, it filed an MR.

Judge Moya in his order held that the second mortgage could not be recognized as an encumbrance because the DBP did not consent to its execution.

Judge Moya relied on the ruling in Associated Insurance & Surety Co., Inc. vs. Register of Deeds of Pampanga, 105 Phil. 123, which construed the following provisions of Commonwealth Act No. 459, the law creating the Agricultural and Industrial Bank:

“SEC. 26. Securities on loans granted by the Agricultural and Industrial Bank shall not be subject to attachment nor can they be included in the property of insolvent persons or institutions, unless all debts and obligations of the debtor to the Agricultural and Industrial Bank have been previously paid, including accrued interest, collection expenses, and other charges.”

Alpha Insurance filed an MR wherein it alleged that the second mortgage was approved by DBP Governor Roberto S. Benedicto craned and that the second mortgage was registered because of that approval and because the DBP delivered the owner’s duplicate of the title to Alpha Insurance in order to effect the registration. Judge Moya denied the motion. Alpha Insurance appealed to SC.

Issue:

Whether or not the second mortgage could be recognized as an encumbrance

Held:

 Even if the DBP were just an ordinary first mortgagee without any preferential liens under Republic Act No. 85 or Commonwealth Act 459, the statutes mentioned in the Associated Insurance case relied upon by the trial court, it would be unquestionable that nothing may be done to favor plaintiff-appellant, a mere second mortgagee, until after the obligations of the debtors-appellees with the first mortgagee have been fully satisfied and settled. In law, strictly speaking, what was mortgaged by the Reyeses to Alpha was no more than their equity of redemption.

In De la Riva vs. Reynoso, 61 Phil. 734, Antonio de la Riva, the second mortgagee, filed an action against the mortgagor Marceliano Reynoso to foreclose the second realty mortgage. La Urbana Mutual Building and Loan Association, the first mortgagee, was joined as a co-defendant.

This Court held that La Urbana was properly joined as a co-defendant and affirmed the lower court’s judgment ordering Reynoso to pay within ninety days the amounts due to La Urbana and De la Riva, and, in case of failure to do so, ordering the sale at public auction of the mortgaged property and the application of the proceeds of the sale to the two mortgage debts.

Within this precedent, the Court is of the considered opinion and so holds that to avoid further delay in writing finis to the instant case which started way back in 1962, without any more ado, all that has to be done here is to have the property herein involved ordered by the trial court sold at public auction immediately, the proceeds thereof to be used to pay the outstanding obligation, if still there be any, of the defendants-appellees Esperanza Reyes and Arturo Reyes to the Development Bank of the Philippines; if there be any excess thereafter, the same be used to pay their obligation to the plaintiff-appellant, and should there still be any further excess, the same should be given to the said Defendants-Appellees.