GR 13910; (September, 1919)

EN BANC

G.R. No. 13910; September 17, 1919

SOCIEDAD DE LIZARRAGA HERMANOS, plaintiffs-appellants,

vs.
FELICISIMA ABADA, ET AL., defendants-appellants.

Charles C. Cohn for plaintiff and appellant.
Crossfield and O’Brien for defendants and appellants.

MOIR, J.:

This case is before the court on appeal by plaintiffs from a judgment of the Court of First Instance of Occidental Negros, Honorable Norberto Romualdez, judge.

For a better understanding of the facts the history of the case is given.

Francisco Caponong died in October, 1906, owing the plaintiffs a sum of money which was then less than the amount allowed by the commissioners.

His widow, Felicisima Abada, was appointed administratrix of the estate, commissioners to appraise the estate and to pass on the claims against the estate were duly appointed, and plaintiffs presented their claim which was allowed by the commissioners in the sum of P12,783.74. The commissioner’s report was dated in February, 1909.

The administratrix leased the hacienda [farm] known as “Coronacion” to Hilario Zayco for a term of years, but afterwards she married Vicente Alvarez, one of the defendants, and the lease was transferred to Alvarez by Zayco, October 2, 1908.

On the 11th of April, 1913, nearly seven years after the death of Caponong, the plaintiffs herein filed a suit in the Court of First Instance of Occidental Negros against Felicisima Abada personally and as administratrix of the estate of Francisco Caponong, alleging that Francisco Caponong owed plaintiffs P12,783.74, and that Felicisima Abada in her own name and as administratrix, had been receiving from the plaintiffs money and effects from 1908 to 1912 which money and effects were used by the defendant in “the expense of cultivation and the exploitation of the Hacienda ‘Coronacion,‘ “and that defendant had delivered to plaintiffs the sugar produced until the last crop which she refused to deliver to them. And that due to “los contratiempos agricolas y a la poca produccion de la hacienda [drought and poor crops of the farm],’ and after deducting for the sugar delivered, the account of the defendant showed a balance in favor of plaintiffs on the 27th of August, 1912, of P62,437.15; that of this amount they were informed the defendant recognized as due from the estate only “about P14,000” which however had not been paid; that it had been agreed by Francisco Caponong that the “amounts” taken should draw interest at the rate of 12 per cent from the date of each, and that in case it was necessary to bring suit P1,500 would be paid by defendant to plaintiffs for their expenses and attorney’s fees, and they asked for judgment for P62,437.15 with interest at 12 per cent and P1,500 for attorney’s fee.

A copy of the account of the administratrix, dated August 27, 1912, showing the same balance due plaintiffs, seems to have been filed with that suit.

The defendant’s answer in that case (No. 969, Neg. Occi.) admits she owed P8,555.78 as administratrix, and alleges that the balance was due by her personally.

The guardian of the minor children of Francisco Caponong asked permission of the court to intervene in that suit, and this being granted, he denied the claim under oath, and alleged that the estate of Francisco Caponong did not owe plaintiffs anything.

On the 25th of August, 1914, the parties, including the guardian of the minors, presented a motion in court stating that they had made an amicable settlement of the litigation, and prayed the court to dismiss the action, which was done.

The record shows that the plaintiffs in that suit had a motion pending in the intestate proceedings of Francisco Caponong, petitioning the court to the same effect as the complaint in suit No. 969.

The settlement agreed upon was, briefly, that the defendants, including the guardian of the minor children, “recognized that the deceased Francisco Caponong’s estate was indebted to the plaintiffs, according to a liquidation of the accounts on the 30th of June, 1913, in the sum of P68,611.01, which was to be paid with 10 per cent interest in seven equal annual installments;” and to secure this debt, the defendants agreed to give plaintiffs a first mortgage on all the property of Francisco Caponong, except the growing sugar cane, and on all the property belonging exclusively to Felicisima Abada, and the defendants agreed to secure judicial approval of the settlement. The defendants also agreed to mortgage the carabaos then on the hacienda to plaintiffs.

The contract is dated the 27th of April, 1914.

The mortgage of the hacienda was duly executed by Felicisima Abada for herself and as administratrix, and the guardian of the children and Vicente Alvarez, the husband of Felicisima Abada, signed the mortgage which is also dated the 27th of April, 1914. The carabaos were not mortgaged.

The compromise was approved by the court as well as the mortgage.

The mortgage given was not recorded in the registry of property up to time of the institution of this suit, June 24, 1916.

Coming now to the present action, the plaintiffs allege in the complaint in this suit, the former suit and its settlement with judicial approval; the amount due thereunder; i. e., P68,611.01; that defendants had let two installments go by without paying anything; that the amount due them with accrued interest was P90,383.49; that besides the property mortgaged, as per Exhibit B, another parcel of land was mortgaged, and that defendants promised to mortgage the carabaos on the hacienda ‘Coronacion,” and that this promise was one of the motives and considerations including the plaintiffs to accept the compromise agreement, but that defendants refused to sign the agreement mortgaging the carabaos with the object and intent of reducing the security of plaintiffs; that defendants were about to transfer their property not mortgaged, and they prayed for an attachment on property of defendants not to exceed P20,000 in value, and for judgment for P90, 383.49 with interest, and that if this amount should not be paid that the mortgaged property be sold, and if not sufficient to pay the debts, that the property levied on under the attachment be sold.

The court granted the attachment order the 24th of July, 1916, and the provincial sheriff attached one parcel of land, the growing crops, certain products of the soil, and various animals.

On the 16th of February, 1917, the plaintiffs filed a motion in court alleging that the property mortgaged to secure their debt was not sufficient to secure the debt; that defendants, with the intention of prejudicing the interest of the plaintiffs, were negligent in the conservation and care of the property, and they asked the court to appoint a receiver for the property that was mortgaged. The court granted this motion on the 20th of February, 1917, as to all the property attached, and on the 26th of February, extended the receivership to all the mortgaged property.

The receiver took charge of the property and the defendants were ousted from the house they had been occupying on the premises.

The defendants, Felicisima Abada, administratrix, and Januario Granada, the guardian, filed an amended answer in which they allege their representative capacity; that the claim of the plaintiffs against the intestate proceedings of Francisco Caponong had been allowed in the sum of P12,783.74 by the commissioners; that the property belonged to the children of the deceased; that the only interest of Felicisima Abada personally was her usufructuary interest in one-sixth of the property; that all the property was in custodia legis, and could not lawfully be attached; that the administratrix had not contracted any other obligation, and that, if any existed, it was the personal debt of her present husband, Vicente Alvarez; that Exhibits A and B, (the compromise agreement and the mortgage executed in conformity therewith) made a part of the complaint, were obtained through fraud and false representation; that the approval of the court was obtained through fraud and deceit, and was illegal and of no value; that defendants have never attempted to sell or conceal their property, and prayed the court to declare Exhibits A and B null and void; and that the attachment was malicious and illegal, and they presented a counterclaim based on the wrongful issuance, on false affidavits of the attachment, laying their damages in the sum of P89,960 for which they asked judgment. And a second counterclaim was presented based on the unwarranted appointment of a receiver for property already in custody of the court, through the administratrix and they alleged their damages in this count in the sum of P28,120.

The Honorable Norberto Romualdez, judge, in his decision largely sustained defendants’ claim, and declared that plaintiffs should pay as damages

A further sum of P1,000 damages was awarded to Felicisima Abada for having been put out of her house when the receiver was appointed.

The attachment was dissolved and the receiver discharged, and he was ordered to return the property to defendants.

Judgment was given for the plaintiffs to recover from defendant administratrix the sum of P8,555.78 with interest which, added to the principal, brought the amount to P11,392.99 with 10 per cent interest on that sum till paid.

A personal judgment was also given plaintiffs against the defendants Abada and Alvarez for P79,970.21.

The plaintiffs’ claim against the guardian of the children was dismissed.

From this judgment Felicisima Abada appealed personally and as administratrix alleging that the trial court should have granted greater damages. The questions presented by her appeal will be sufficiently treated in the appeal of plaintiffs.

The plaintiffs allege nineteen different errors of the trial court. It seems that all the questions are involved in errors Nos. 1, 2, 4, 5, 10, 12, 13 and 18, which are as follows:

1. The court erred in holding that the obligation set forth in Exhibits A and B should be understood as limited to the sum of P8,555.78, instead of the sum of P68, 611.01 therein stated.

2. The court erred in reducing the amount of the mortgage, Exhibit B, from P68,611.01 to P8,555,78.

4. The court erred in finding that just and sufficient grounds did not exist for the attachment of the properties which are the subject-matter of this action.

5. The court erred in finding that just and sufficient grounds did not exist for the appointment of a receiver for the properties which are the subject-matter of this action.

10. The court erred in finding that the defendants, or either or any of them, were damaged in the sum of P5,000 by reason of injury to the sugar lands which are the subject-matter of this action.

12. The court erred in declining and refusing to foreclose the mortgages which are the subject-matter of the present action.

13. The court erred in reducing the indebtedness of the Estate of Francisco Caponong from P90,383.49 to P11,392.99.

18. The court erred in absolving from the complaint herein the defendant Januario Granada as guardian of the minors, Juan Buenaventura, Jose, Nicanor and Carlos Caponong y Abada.

As to the first error. ? Exhibit A was the compromise agreement made in action No. 969, Lizarraga Hermanos against Felicisima Abada personally and as administratrix, in which the guardian of the minor children intervened, as defendant, by permission of the court. Exhibit B was the mortgage given to secure the amount agreed upon in that settlement.

The claim of the plaintiffs herein against the estate of Francisco Caponong had been fixed by the commissioners. The amount so determined was all the estate owed plaintiffs. The court says in its decision that in approving the settlement of action No. 969, its approval was meant to include only the amount actually due by the estate, and that the balance of the claim was intended to be approved as against Felicisima Abada personally.

It is argued that “this is sheer and unequivocal repudiation of a solemn and formal act” of the court.

The record in case No. 969 is presented as Exhibit C by plaintiffs. In their complaint in that action (which suit should never have been filed as all the property was in the custody of the court), plaintiffs allege that their original claim against the estate of Francisco Caponong was only P12,783.74, and that the balance of the claim was due from Felicisima Abada as administratrix and personally without stating how much was owed by her personally and how much was owed by her as administratrix.

Whether the court in approving the compromise intended to hold the defendant estate liable only for the original debt, and defendant Abada for the balance, is not material. The language used by the court is very clear and seems to be an outright approval of the “transaccion” (compromise), and would, so far as the language goes, leave no room for doubt of the court’s approval of the agreement in full and as written.

But could the court approve such an agreement? Could the court authorize a mortgage of the state?

The law declares that commissioners shall pass upon all claims against the estate. They had done so in this case. The law fixed the limit of the estate’s liability. The court could not charge it with debts that were never owed by it. The administratrix could only charge the estate with the reasonable and proper expenses of administration.

The estate owed plaintiffs less than P13,000 when the commissioners passed on their claim. Part of this has been paid, and there was a balance due plaintiffs of P8,555.78 at the time of the trial, plus interest. The plaintiffs, after their claim had been presented and allowed by the commissioners, made advances to the administratrix till their claim was more than P68,000.

It is urged that the major part of this debt of P68,000 is administration expenses, and as such is chargeable against the assets of the estate. No reason is given why the expense of administration should be so great, and the evidence fails to sustain this position.

The administration expense would be the necessary expenses of handling the property, of protecting it against destruction or deterioration, and possibly producing a crop, but if plaintiffs, holding a claim originally for less than P13,000 against the estate, let the administratrix have money and effects till their claim grow to P68,000 they can not be permitted to charge this amount as expense of administration. They might be allowed to charge it against the current revenue from the hacienda or the net proceeds of the “exploitation of the hacienda” for which it was obtained and used, as plaintiffs allege, but it cannot relate back to the presenting of their claim to the commissioners, and be a charge against the inheritance of the heirs, or even a claim to prorate with other creditors’ claims allowed by the commissioners. By expense of administration we understand to be the reasonable and necessary expense of caring for the property and managing it till the debts are paid, as provided by law, and of dividing it, if necessary, so as to partition it and deliver to the heirs.

The court could not approve a settlement saddling upon the estate debts it never owed, and if it did, its approval would be a nullity.

To give effect to the compromise as written would result in great wrong, and destroy every chance the minor children had to participate in the inheritance of their father.

The contract was clearly a dead letter, and the approval of the court could not breathe the breath of life into it.

That the mortgage given at the same time and as a result of the agreement was without legal warrant is equally clear. No mortgage can be placed by an administrator on the estate of a descendant, unless it is specifically authorized by statute.

There is no statute in the Philippine Islands authorizing it.

It may be stated as a general proposition, that neither executors, unless specially authorized by will, nor administrators, have the power to bind the estate of the deceased by borrowing money. (The American Law of Administration, Woerner, Vol. 2, sec. 345.)

In the case of Johnson vs. Davidson, the Supreme Court of Illinois (Vol. 162, at page 235) said:

The argument on behalf of appellants seems to proceed upon the supposition that an administrator may bind the heirs by his mortgage of real estate for the purpose of raising money with which to pay the debts of the ancestors, and that a court of equity will sustain the mortgage, or a title derived under it, if it be shown that the borrowed money was honestly applied to the payment of debts. No authority is cited in support of this position, and none, we believe, can be found. (See also Smith vs. Hutchinson, 108 Ill., at p. 668.)

In the case of Black vs. Dressel’s Heirs, the Supreme Court of Kansas (Vol. 20, at page 154) said:

. . . That the statute grants no power to an administrator to borrow money upon a mortgage of the real estate of the decedent, is not controverted. Indeed, such an act is foreign to the policy and purpose of administration, which aims to close up, not to continue an estate. . . .

In 151 N. Y. Reports, Duryea vs. Mackey, it is said at p. 207:

The mortgage executed by the temporary administrator in this case which purported to bind the whole estate, was therefore ineffectual to charge the interest of the devises in remainder, unless the order of the surrogate authorizing the mortgage was a lawful exercise of his jurisdiction or unless they have estopped themselves from questioning its validity. It is very clear that the order of the surrogate was without jurisdiction.

The learned counsels for appellants in their brief do not cite a single authority for the placing of a mortgage on an estate in administration, and none has been found. It must be held that the mortgage was void.

The court should have closed up the estate.

So many courts seem to violate the law on this point that it may serve a useful purpose to call attention to our statutes on the subject of estates.

Section 743 of the Code of Civil Procedure declares:

The court, at the time of granting letters testamentary or of administration, shall allow to the executor or administrator a time for disposing of the estate and paying the debts and legacies of the deceased person, which time shall not, in the first instance, exceed one year; but the court may, on application of the executor or administrator, from time to time, as the circumstances of the estate require, extend the time not exceeding six months at a time, nor so that the whole time allowed to the original executor or administrator shall exceed three years.

Section 745 provides that if the executor or administrator dies, the new administrator appointed shall give the same notice for an extension of time which shall not exceed six months beyond the time which might have been allowed the first administrator.

While these sections may be considered as only directory, all Courts of First Instance should exert themselves to close up estates within twelve months from the time they are presented, and they may refuse to allow any compensation to executors and administrators who do not actively labor to that end, and they may even adopt harsher measures.

The second assignment of error is that the court should not have reduced the amount of the mortgage (Exhibit B) from P68,611.01 to P8,555.78. The court did err, but its error consisted in not declaring the mortgage void.

The court was without jurisdiction to approve the mortgage in the first place, and its approval was a nullity. Plaintiff’s claim against the estate was P8,555.78 with interest as added by the court. This claim should be paid pro rata with any other unpaid claims against the estate.

The other errors of appellant need only brief consideration.

That an attachment should not have been levied on the carabaos in administration is too plain to need discussion. If they were in the name and possession of the administratrix, they were in custodia legis, and could not be lawfully attached. The plaintiffs as creditors of the estate could have petitioned the court to compel the administratrix to take any steps necessary and proper to protect the interest of all concerned.

The appointment of a receiver was equally unjustified and improper. The property being under the court’s control, the court should have removed the administratrix, if necessary, and it could have taken other means to protect the creditors and wind up the estate.

The plaintiffs assign as error No. 10 that the court should not have allowed the sum of P5,000 damages for injury to the sugar lands.

The evidence as to this damage is not considered as clear and satisfactory as it should be.

It seems this claim should have been wholly denied by the trial court, and we think the judgment in favor of the administratrix and against the plaintiffs should be reduced from P13,262.50 to P8,262.50 with interest as provided therein. The other damages allowed by the trial court are so fully sustained by the evidence, it is not necessary to discuss them.

With the above modification and with a declaration that the mortgage, exhibit B, was absolutely void, the judgment appealed from is affirmed, with costs against the appellants. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Street, Malcolm and Avanceña, JJ., concur.

Batas Pinas