G.R. No. 48560 . February 26, 1943.
BINALBAGAN ESTATE, INC., plaintiff, vs. VALERIANO M. GATUSLAO, ET AL., defendants. VALERIANO M. GATUSLAO, defendant-appellant, vs. A.P. SEVA, defendant-appellee.

FACTS

The Hacienda San Jose (Lot No. 2075-A) was among properties mortgaged by the Estate of Rafael Jocson to Segundo Monteblanco. To satisfy the mortgage debt in a foreclosure suit, the sheriff sold the hacienda at public auction to Valeriano M. Gatuslao on October 14, 1938, which sale was confirmed by the court on December 9, 1938. A portion of the mortgage credit had been adjudicated by the court to Attorney A.P. Seva as his attorney’s fees, but only a partial payment was made from the foreclosure sale proceeds. At the time of the sheriff’s sale on October 14, 1938, the hacienda had a standing sugar cane crop belonging to its lessees. The rent payable to the owner from this crop, determined to be 1,251 piculs of sugar, became due after milling commenced shortly after the sale. Both Gatuslao (as purchaser) and Seva (as a judgment creditor of the mortgagor) claimed these rents. The Binalbagan Estate, Inc., holder of the sugar, filed an interpleader action. The trial court authorized the sale of the sugar and delivery of the proceeds (P8,376.20) to Seva, who posted a bond. The trial court adjudicated the amount to Seva, ruling that the rents were included in the mortgage under Article 1877 of the Civil Code and the precedent of Afable vs. Belando.

ISSUE

To whom do the pending fruits (the sugar rents) of property sold by the sheriff to satisfy a mortgage belong—to the purchaser at the foreclosure sale or to a mortgage/judgment creditor of the former owner?

RULING

The Supreme Court reversed the trial court’s decision and ruled in favor of the purchaser, Valeriano M. Gatuslao. The Court held that the rents (pending fruits) belonged to Gatuslao as the purchaser at the foreclosure sale. While Article 1877 of the Civil Code provides that a mortgage includes rents not collected when the obligation falls due, this inclusion was for the purpose of the foreclosure sale itself. Upon the perfection of the sheriff’s sale on October 14, 1938, Gatuslao became the owner of the hacienda. Under Article 1468 of the Civil Code, all fruits of the sold property belong to the vendee from the day the contract of sale is perfected. The confirmation of the sale retroacted to that date. As pending civil fruits of the property, the sugar rents were an accessory that followed the principal (the hacienda) sold. The Court distinguished Afable vs. Belando, which involved a dispute between a mortgagee and an unsecured creditor attaching rents during foreclosure, not between the purchaser and a creditor after the sale. The Court stated that a mortgage creditor cannot sell the mortgaged property and still claim a right to the property or its fruits sold. Consequently, appellee A.P. Seva was ordered to pay the sum of P8,376.20 with interest to appellant Valeriano M. Gatuslao.