G.R. No. 48207 ; April 27, 1942
Agricultural and Industrial Bank, plaintiff-appellee, vs. Manuel Tambunting, ET AL., defendants. Manuel Tambunting, defendant-appellant.

FACTS

On May 31, 1935, appellant Manuel Tambunting executed a mortgage deed over a parcel of land with improvements in Manila in favor of the Teachers’ Retirement and Disability Fund (administered by appellee Agricultural and Industrial Bank) to secure a P17,000 loan. Paragraph 8 of the deed stipulated that the mortgage would be “automatically foreclosed, without necessity of any judicial proceedings” upon the mortgagor’s failure to comply with its terms, such as paying interest, taxes, and insurance premiums. Paragraph 9 authorized the mortgagee, upon such automatic foreclosure, to take possession of the mortgaged property without court proceedings, to hold it, collect rents, and manage it until public auction sale, and to charge rental if occupied by the mortgagor. Paragraph 10 provided that any public auction sale would follow Act No. 3135 , with notice to the mortgagor. The mortgagee retained the option to institute judicial foreclosure instead.
The mortgagor failed to pay the debt after maturity. The mortgagee chose judicial foreclosure, filing an action in the Court of First Instance of Manila on May 15, 1939. On January 15, 1940, the plaintiff bank moved the court, invoking paragraphs 8 and 9 of the mortgage, to authorize it to take possession of the mortgaged premises, alleging the defendant’s failure to pay taxes and insurance premiums, forcing the plaintiff to advance payments and repair expenses. The court granted the motion in an order dated February 8, 1940. The defendant appealed this order.

ISSUE

Whether the stipulation in paragraph 9 of the mortgage deed, authorizing the mortgagee to take possession of the mortgaged property upon foreclosure, is valid and enforceable, particularly in the context of a judicial foreclosure proceeding.

RULING

The Supreme Court affirmed the lower court’s order, upholding the validity of the stipulation. The Court held that the appellant failed to show the stipulation was contrary to law, morals, or public order as required by Article 1255 of the Civil Code. The stipulation does not violate Article 1859 (prohibiting creditor appropriation of mortgaged property) or Article 1884 (stating nonpayment does not vest ownership in the creditor), as it merely authorizes possession for administration purposes, not appropriation of ownership. The provision is consonant with the principles of antichresis (Articles 1881 et seq. of the Civil Code) and analogous to the Rules of Court provisions for appointing a receiver to preserve property in litigation. The Court also rejected the appellant’s contention that the authorization applied only to extrajudicial foreclosure, reasoning that if the mortgagee is authorized to take possession without court intervention, the mortgagor has no cause to complain when the court intervenes, which offers greater protection of his rights. The order was affirmed with costs against the appellant.