G.R. No. 31155, December 27, 1929
HIJOS DE I. DE LA RAMA, plaintiff-appellant, vs. SALVADOR BETIA, ASTURIAS SUGAR CENTRAL, INC., and THE PHILIPPINE NATIONAL BANK, defendants-appellees.

FACTS

On July 13, 1920, Salvador Betia mortgaged several parcels of land to Hijos de I. de la Rama (plaintiff) to secure a P30,000 loan. The mortgage included the land and the sugar crops from 1921-1922. When Betia defaulted in 1921, the plaintiff sued for foreclosure. Pending this suit, the plaintiff, Betia, and Asturias Sugar Central, Inc. (Central) entered into an agreement (Exhibit F) on December 19, 1923. The plaintiff agreed to suspend its foreclosure action. The Central agreed to finance Betia’s plantation operations for four harvests, with advances not exceeding P4 per picul of estimated crop. The contract stipulated that the Central “shall have preference for the collection of any amount advanced” and that any balance from the sale of sugar, after paying the Central, would be delivered to the plaintiff. Betia eventually incurred a debt of P17,317.76 to the Central. The plaintiff later filed a complaint for foreclosure against Betia and also sought an accounting from the Central for the sugar produced during the financing period. The Central filed a cross-claim, asserting a preferential lien over the mortgaged land itself for its advances. The trial court ruled in favor of the Central’s cross-claim, granting it a preferential right over the proceeds of the sale of the plantation, subordinate only to the plaintiff’s mortgage credit.

ISSUE

Did the contractual preference granted to Asturias Sugar Central, Inc., for the recovery of its advances to Salvador Betia extend to the mortgaged land itself, or was it limited only to the sugar crops produced?

RULING

No. The Supreme Court modified the trial court’s decision, holding that the preference granted to the Central under the contract (Exhibit F) was limited to the sugar crops produced and did not extend to the mortgaged land. The Court based its ruling on the following:
1. The contract’s terms specifically referred to the sugar crops (“per picul of the crop”) as the basis for calculating advances and for the application of the preference. It made no mention of the land.
2. Any obscurity in the contract must be construed against the party who caused it (Article 1288, Civil Code). The Central, through its assistant manager (an attorney), drafted the agreement.
3. The agreement to suspend the foreclosure action did not constitute a waiver of the plaintiff’s mortgage lien; it was merely a necessary step to allow the financing arrangement and continued cultivation.
4. An express stipulation of preference over the crops was necessary because the plaintiff’s original mortgage already covered them. Without such a stipulation, the plaintiff’s mortgage would have primacy.
5. The exception was the amount advanced by the Central for the payment of land taxes, as this expense directly benefited the land. For this specific amount, the Central was granted a preferential lien on the proceeds of the land sale.
Thus, the proceeds from the foreclosure sale of the land should be applied: first, to the Central’s credit for land taxes paid; second, to the plaintiff’s mortgage credit; and the balance, if any, to Betia. The judgment against the plaintiff for the P17,317.76 general advance was eliminated.