G.R. No. L-5810
PEDRO GAMBOA, plaintiff-appellee, vs. FELIX RONSALEZ, defendant-appellant.
November 23, 1910

FACTS:
On November 26, 1904, defendant Felix Ronsalez executed an instrument in favor of Juan Icamina, described as a “mortgage” of a lot for P300 (Mexican currency) for a term of three years. The instrument stipulated that if Ronsalez could not redeem the land by the end of the term, Icamina “may dispose of the land,” unless a new contract was made or the land sold at an increased price. Ronsalez retained control of the land and was to pay P3.50 per month as “rental or interest” on the principal. The instrument was a private document.

On April 19, 1909, Juan Icamina transferred all his rights under this instrument to Pedro Gamboa, the plaintiff-appellee.

Ronsalez failed to redeem the land after three years and never paid the monthly P3.50. Gamboa demanded payment of the P300 plus monthly dues, or the execution of a definitive deed of sale, which Ronsalez refused.

Gamboa filed a complaint. Ronsalez admitted the debt but argued that the interest had been remitted by Icamina prior to the transfer of rights to Gamboa. He presented a letter from Icamina dated July 20, 1908, stating, “never mind the interest, but only the P300,” which was later clarified to mean “not the interest, only the P300.”

The Court of First Instance of Iloilo ruled in favor of Gamboa, ordering Ronsalez to pay P300 principal and P186 accumulated interest, and in case of insolvency, for the sale of the land. Ronsalez appealed.

ISSUE:
1. Was there a valid remission of the stipulated interest?
2. What is the legal nature of the contract executed between Ronsalez and Icamina (i.e., is it a valid mortgage)?
3. What is the proper remedy for the plaintiff-appellee?

RULING:
1. No, there was no valid remission of interest. The Court held that Icamina’s letter merely constituted an offer to remit the interest conditional on the immediate payment of the principal. Since Ronsalez did not accept this offer by paying the principal, the condition for remission was not met, and no valid remission of interest occurred under Article 1262 of the Civil Code (which requires the concurrence of offer and acceptance). Thus, Ronsalez remained liable for the stipulated interest.

2. The contract is not a valid mortgage. The Court clarified that while the parties intended to create a mortgage, the instrument was a private document and was not entered in the registry of property. Article 1875 of the Civil Code explicitly requires that for a mortgage to be validly constituted, “the instrument in which it is created be entered in the registry of property.” Without this essential requirement, the transaction cannot be considered a valid mortgage, but rather a loan secured by a private document.

3. The proper remedy is an ordinary action for collection of debt. Although the contract was not a valid mortgage, the debt itself is unquestionable. Therefore, an ordinary action for its collection is appropriate. The Supreme Court affirmed the lower court’s finding that Ronsalez owed the principal amount and the stipulated interest. However, it reversed the part of the lower court’s judgment that implied a mortgage foreclosure (ordering the execution of the mortgage, specific payment deadline before a session, and the sale of the lot as if it were a valid mortgage) because the contract was not a valid mortgage.

Final Disposition: The Supreme Court sentenced Felix Ronsalez to pay Pedro Gamboa P300 as principal and the stipulated interest of P3.50 per month from November 26, 1904, until the date of payment, plus costs of both instances. The judgment of the lower court was affirmed in this modified sense.