G.R. No. L-2987 February 20, 1951
ERNEST BERG, plaintiff-appellant, vs. VALENTIN TEUS, defendant-appellee.

FACTS

Ernest Berg filed an action to foreclose a real estate and chattel mortgage executed in November 1944 by Valentin Teus to secure six promissory notes aggregating P80,000, payable on demand two years after the declaration of armistice between the United States and Japan. The complaint alleged that Teus violated the mortgage terms by failing to pay taxes, making material alterations, and selling the mortgaged properties to Central Azucarera del Norte. Based on a stipulation in the mortgage that a violation would cause automatic foreclosure, Berg prayed for the mortgage to be declared automatically foreclosed and for immediate possession. He also moved for the appointment of a receiver. Teus moved to dismiss the complaint, citing Executive Orders Nos. 25 and 32 (the moratorium orders). Initially, Judge Zoilo Hilario held the suit premature for collecting the notes but set the case for trial on the merits regarding the receivership. Later, after Berg filed a “complete complaint,” Judge Luis Ortega dismissed the entire action based on the moratorium. Berg appealed, contending the moratorium orders were no longer in force due to the disappearance of the emergency.

ISSUE

Whether the trial court correctly dismissed the entire foreclosure action, including the ancillary remedy of receivership, based on the moratorium orders.

RULING

No. The Supreme Court reversed the order of dismissal and remanded the case. The Court, assuming without deciding that Executive Orders Nos. 25 and 32 were still in force, held that the case fell within the relaxed rule established in its later decisions (Medina vs. Santos, Moya vs. Barton, Alejo vs. Gomez, and Realty Investments Inc. vs. Villanueva). These rulings distinguished actions solely for enforcing monetary obligations (which the moratorium covered) from actions where the monetary claim was subsidiary, accessory, or not the sole object. Here, the alleged violations of the mortgage conditions (failure to pay taxes, alterations, and alienation of properties) made it necessary and urgent to protect Berg’s interest by potentially placing the properties in the court’s custody through receivership. Since receivership is an ancillary remedy, dismissing the main action would bar this protective relief and could cause irreparable injury by allowing the destruction or alienation of the security. The Court emphasized that the moratorium was not intended to deprive a creditor of all means to prevent the destruction of the debt’s security. The trial court should proceed with the case on the merits, leaving the defendant free to seek a stay of execution if a monetary judgment is issued and the plaintiff free to challenge the moratorium’s constitutionality or continued effect.