[ G. R. No. 25235. December 09, 1926 ] 49 Phil. 703
[ G. R. No. 25235. December 09, 1926 ]
LIM JULIAN, PLAINTIFF AND APPELLANT, VS. TIBURCIO LUTERO, ASUNCION MAGALONA, AND RAFAEL LUTERO, DEFENDANTS AND APPELLEES. “EL HOSPITAL DE SAN PABLO DE ILOILO,” INTERVENOR AND APPELLEE. D E C I S I O N
JOHNSON, J.:
The purpose of this action was to foreclose a certain mortgage given to secure future advancements for the sum of P12,000, interest, commissions, damages, and such other amounts as may be due at the time of maturity. It was executed and delivered to Lim Julian by Tiburcio Lutero and his wife Asuncion Magalona on the 15th day of April, 1920. It was duly registered in the office of the registrar of deeds of the Province of Iloilo on the 16th day of June, 1920. It was executed to secure future “advancements” to be made by Lim Julian to the mortgagors to cover expenses “incurred by the mortgagors in the cultivation and harvesting of the agricultural crops for the year 1920-1921.” To be a little more specific concerning the purposes of the said “advancements,” reference may be made to the mortgage itself. The mortgage recites “that said credit (for future advancements) is given to the mortgagors exclusively for the purpose of being employed in the cultivation and care of the sugar plantations and the milling and production of sugar from said sugar plantations and in the purchase of animals for the work in connection therewith and all expenses that may be necessary for the work concerning said sugar plantations.” The mortgage covered the following property: (a) Three parcels of land particularly described in paragraph 2 of the complaint, containing an area of 755,706 square meters more or less; (b) Twenty-four vacunos and twelve carabaos; (c) One steam engine; (d) One battery with two furnaces and eight tanks; (e) A house of strong material, with galvanized iron roof; (f) A storehouse for the stems of sugar cane, of light material; (g) A milling shed of mixed material, with nipa roof; (h) A number of houses for the laborers; (i) All the sugar cane estimated at 3,000 piculs for the crop of 1920-1921, to be produced upon said lands, which were known as the “Hacienda San Ramon” situated in the municipality of Janiuay. The complaint alleged that there was still due and unpaid on said mortgage (a) the sum of P22,807.09 with interest at 12 per cent per annum from the 27th day of June, 1921, until paid; and (b) the sum of P2,000 as penalty for failure on the part of the defendants to comply with their contract. The plaintiff prayed for a judgment for said amounts, and that in case of a failure on their part to pay the same, that an order be issued for the sale of the mortgaged premises. Plaintiff also prayed for a judgment for costs. The action was commenced in the Court of First Instance of the Province of Iloilo on the 8th day of March, 1922. On the 6th day of April, 1922, the defendants Tiburcio Lutero and Asuncion Magalona filed their answer, denying each and all of the allegations of the complaint. On the 25th day of September, 1922, the “Hospital de San Pablo de Iloilo” presented a petition for intervention, which was granted. The defendant Rafael Lutero was made a defendant in the action simply because he was a tenant occupying and cultivating the three parcels of land in question. The “Hospital de San Pablo de Iloilo” was permitted to intervene, upon its allegation that it had a prior mortgage upon the property in question (Exhibit AA) for the sum of P22,400. Said alleged mortgage was executed on the 17th day of June, 1920. It was executed before a notary but was never registered in the registry of property. Said document cannot be considered a mortgage therefore. (Art. 1875, Civil Code.) It will be remembered that the, mortgage in favor of the plaintiff herein was executed upon the 15th day of April, 1920, nearly two months before Exhibit AA was executed and delivered. The mortgage held by the plaintiff was actually registered in the office of the registrar of deeds on the 16th day of June, 1920, or one day before the alleged mortgage of the intervenor was executed. More will be said concerning the contention of the intervenor when we come to discuss the rights which they claim in the present action. On the 25th day of March, 1925, or nearly four years after the present action was commenced, the defendants Tiburcio Lutero and his wife Asuncion Magalona filed another answer to the petition, in which they alleged, in addition to a general denial, and after admitting the execution and delivery of the mortgage in favor of the plaintiff, that said mortgage had been paid and that whatever indebtedness still existed against them and in favor of the plaintiff was an ordinary debt. Upon the issue thus presented by the petition, the second answer of the defendants and the petition of the intervenor, the cause was brought on for trial. After hearing the evidence the Honorable Fernando Salas, judge, reached the following conclusions; (a) That the complaint against Tiburcio Lutero and Asuncion Magalona should be dismissed with costs against the plaintiff; (b) that Rafael Lutero, the tenant, should be absolved from all liability under the complaint with costs against the plaintiff; (c) that the registrar of deeds of the Province of Iloilo should cancel the mortgage lien in favor of the plaintiff, which fact should be noted upon the certificate of title No. 6667; (d) that the mortgage executed and delivered by Tiburcio Lutero and Asuncion Magalona on the 17th day of June, 1920, in favor of the “Hospital de San Pablo” should be registered in the registry of property of the Province of Iloilo as the first lien upon the real property in question; and (e) that the mortgage executed in favor of the “Hospital de San Pablo” on the 17th day of June, 1920, should take preference over the mortgage executed by said mortgagors to the plaintiff herein on the 15th day of April, 1920. From that judgment the plaintiff appealed. In discussing the rights of the respective parties to the present action we are of the opinion that we should discuss the rights of the original parties first and then the rights of the intervenor. The plaintiff-appellant alleged in his first assignment of error that the lower court committed an error (a) in holding that his mortgage was paid, (b) in ordering its cancellation and (c) in dismissing the complaint against Rafael Lutero., In order to fully understand that assignment of error a full statement of the entire transaction between the mortgagors and the plaintiff becomes necessary. The defendants Tiburcio Lutero and Asuncion Magalona executed the mortgage in question covering the property described in the complaint, with the following pertinent provisions: (1) That the said parcels of land were subject to a first mortgage in favor of the Philippine National Bank for the sum of P9,500, payable with interest at 8 per cent per annum for the period of ten years, payable by annual instalments ; (2) That the said mortgagors have applied to and obtained from Lim Julian a credit of P12,000, Philippine currency, with interest at 12 per cent per annum upon the following conditions: (a) That said credit is given to the mortgagors exclusively for the purpose of being employed in the cultivation and care of the sugar plantations aforementioned, in the milling and production of sugar from said sugar plantations and in the purchase of animals for the work in connection therewith, and all expenses that may be necessary for the work concerning said sugar plantations; that said credit may be taken by the mortgagors little by little from the creditor or mortgagee at the rate of P1,500, Philippine currency, per month, until the sum is totally taken, and shall earn interest only from the date or dates when the amounts are taken, as shown by the vales or receipts which shall be executed in each case by the mortgagors, who must execute the same every time that they take the monthly amounts; (b) that the sugar to be produced from the sugar-cane plantations, and as it is produced by the mortgagors, shall be shipped by the latter for their account and risk to the mortgagee, to the city of Iloilo, in order that the latter may sell the same at the current price in the market or deposit the same in the warehouses of foreign firms in the City of Manila, or in his warehouses, that is, in the warehouses of the mortgagee in this city, Iloilo, as he may deem suitable to the interest of the mortgagors, and the quedans of which, in case of deposit, shall be issued.in the name of the mortgagors, and the latter shall immediately indorse the same to the mortgagee; that the mortgagee shall receive said sugar cane arid take care thereof with the diligence of a good father of a family, trying his best to obtain the best price in the market or at least the price in the Iloilo market; that said mortgagee is authorized to receive or collect the value of said sugar; that the mortgagee is authorized to purchase the sugar for himself with preference in case of equal price and conditions; that the mortgagee shall, on account of his work in receiving, taking care of, and trying to obtain a good price for, said sugar, receive as compensation for that work, whether the sugar is sold or purchased by him, 2 per cent of the gross value of said sugar. The mortgagee was also authorized to retain such part of the value of said sugar as may be deemed fit in order that he may make payment to himself of the 2 per cent compensation and of said credit and the interest therein. Immediately upon the execution of said mortgage, with the foregoing conditions and even before its execution, the plaintiff began to make advancements for the purpose mentioned in said mortgage to the defendants, as appears from Exhibit B, of both money and effects or supplies. All of the parties agree that Exhibit B is a true and correct statement of all advancements of money, effects or merchandise paid and delivered by the plaintiff to the defendants between the 11th day of March, 1920 and the 19th day of May, 1921, including the interest on the various advancements during said period. They also agree that said Exhibit B, with some exceptions perhaps, shows the true and exact amount of sugar and cash delivered and paid by the defendants to the plaintiff between the 16th day of March, 1920, and the 27th day of June, 1921. By reference to Exhibit B it will be found that the plaintiff and the defendants have agreed that the advancements, merchandise and accrued interest account during the period amount to P36,964.27 while the sugar delivered and the payments made by the defendants to the plaintiff amounted to P14,157,18, leaving a balance due in favor of the plaintiff in the sum ofP22,807.09. Said amount represents the amount claimed in the present action with 12 per cent from the 27th day of June, 1921, together with the sum of P2,000 as a penalty for the failure of the defendants to comply with their contract. The mortgagors contend that the mortgage was for the sum of P12,000 with interest only; that inasmuch as they have paid more than P14,000, the mortgage debt has been paid and that they are therefore not liable for any other amount on said mortgage; that whatever other amount of indebtedness exists against them is an ordinary indebtedness and cannot be recovered in an action to foreclose the mortgage; that they are entitled to have said mortgage cancelled. In making that contention the mortgagors have evidently overlooked paragraph 10 of their mortgage, which provides “that all the obligations of the mortgagors and all the conditions stipulated in this document must and shall be fulfilled on or before the 30th day of April, 1921, the date when said sugar plantations are to be harvested or converted into sugar and shipped to the mortgagee, and the credit and its interest aforementioned, and such other amounts as may be then due from the mortgagors to the mortgagee shall be totally paid by the mortgagors.” By reference to paragraph 12 of the mortgage it will be seen that if the mortgagors, their heirs, assigns and successors in interest shall fail to fulfill all the conditions and obligations of said mortgage, that the same shall remain in full force and effect and may be enforcible in accordance with law. If it had been the intention of the parties to said mortgage to make it a mortgage for the security of the payment of P12,000 given for “future advancements” only, and no more, with interest and damages, then what was the occasion or purpose of adding in said paragraph 10 “and such other amounts as may be then due?” If P12,000 was the limit of the obligation incurred by the obligors, and no more, then what did the parties to the contract have in mind when they said “and such other amounts as may be then due from the mortgagors to the mortgagee?” Is it not a reasonable presumption that the parties had in mind that, for some reason or other, the mortgagors might need more money during the year to be employed directly or indirectly in the cultivation and care of the sugar plantations covered by the mortgage, or that more money might be necessary for the proper milling and production of sugar from said sugar plantations and in the purchase of animals for work in connection with the cultivation of said plantations, or for expenses that might be necessary for the proper working and cultivation of said sugar plantations? Contracts for future advancements (mortgages) like the present were known at Common Law. They are very common not only in the Philippine Islands but elsewhere in agricultural countries. Contracts for the advancement of money to assist agriculturists for the cultivation and harvesting of crops are well known in all agricultural countries. Under such contracts of “advancements” the agriculturist is permitted to take the money as it is needed and thus avoid the necessity of paying interest until the necessity for its use actually arises. It is not uncommon that said contracts are executed for a larger amount than is necessary and sometimes they are executed for a less amount than is found to be necessary for the economic and efficient cultivation of the land. In the present case the mortgagors evidently believed that P1,500 per month would be sufficient to supply all of their demands for the efficient and economic cultivation of their hacienda for the year 1920-1921. They were to receive the money little by little until the P12,000 was taken. If some favorable condition had arisen during the year so that the sum of P1,500 was unnecessary, we cannot bring ourselves to believe that the mortgagee could have compelled them to have received during the year the full P12,000. In that event could the mortgagee have insisted upon a foreclosure of the mortgage for P12,000? Such a result would have been unconscionable. The courts would not have permitted the foreclosure of a mortgage for P12,00.0 when, for example, but P6,000 had been actually delivered to the mortgagors. Upon the other hand, it is well known that in contracts of “advancements” many conditions may arise during the agricultural year which would necessitate, for the efficient and economic cultivation of the crops, the use of more money than either of the parties to the contract had contemplated; such as floods, storm, disease among animals which might decimate them, all of which conditions would make it necessary to use more money than the parties had contemplated. Conditions might arise during the year which would render absolutely useless the expenditure of the amount of money mentioned in the contract of advancements unless additional amounts are expended. The best proof in the present case, that the mortgagors needed more money for the efficient and economic cultivation of their hacienda than they had contemplated at the time of making said mortgage, is found in Exhibit B. Under Exhibit A they were only entitled to receive P1,500 per month. By reference to Exhibit B, it will be seen that during the very first month after the execution of said contract, or between the 15th day of April, 1920 and 18th day of May, 1920, they received the sum of P2,500 in cash instead of P1,500. The same condition is shown in other months. It is admitted that during the year the mortgagors received in cash and effects the sum of P34,245.29. They admit that the plaintiff had no other security for the payment of the difference between the P34,245.29 plus the interest, and the P12,000 unless said difference was covered by the mortgage. The appellant contends that the phrase in paragraph 10 “and such other amounts as may be then due” (in addition to the P12,000) was inserted in said mortgage for the very purpose of covering any amount or amounts received by the mortgagors over and above the P12,000. It is also admitted’ that by Exhibit B there is still due the amount of P22,807:09. Whether or not that amount should be reduced by payments represented by Exhibits 1, 2, and 3 will be discussed later. This action was not begun until nearly one year after the termination of the contract, and yet the mortgagors admit that they continued to receive advancements during that period. They admit that they never called the attention of the mortgagee to the fact that the advancements received by them, over and above the P12,000, were not covered by the mortgage. They admit that they did not ask for a cancellation of the mortgage at the time the amounts paid equalled P12,000. They admit that they made no claim nor representation to the mortgagee that the mortgage had been paid, until nearly four years after the action had been commenced. Their only excuse for not making that representation to the mortgagee was the fear that they would not received more advancements. In other words the mortgagors were trying to deceive the mortgagee and to increase their indebtedness to him believing that he had no security for advancements amounting to more than P22,000. The rule, of course, is well settled that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. The exact amount, however, for which the mortgage is given need not always be specifically named. The amount for which the mortgage is given may be stated in definite or general terms, as is frequently the case in mortgages to secure future advancements. The amount named in the mortgage does not limit the amount for which it may stand as security, if, from the four corners of the document, the intent to secure future indebtedness or future advancements is apparent. Where the plain terms, of the mortgage, evidence such an intent, they will control as against a contention of the mortgagor that it was the understanding of the parties that the mortgage was security only for the specific amount named. (Citizens’ Savings Bank vs. Kock, 117 Mich., 225.) In that case the amount mentioned in the mortgage was $7,000. The mortgage, however, contained a provision that “the mortgagors agree to pay said mortgagee any sum of money which they may now or hereafter owe said mortgagee.” At the time the action of foreclosure was brought the mortgagors owed the mortgagee the sum of P21,522. The defendants contended that the amount to be recovered in an action to foreclose should be limited to the amount named in the mortgage. The court held that the amount named as consideration for the mortgage did not limit the amount for which the mortgage stood as security, if, from the whole instrument the intent to secure future indebtedness could be gathered. The court held that a mortgage to cover future advances is valid. (Michigan Insurance Co. vs. Brown, 11 Mich., 265; Jones on Mortgages, 1, sec. 373; Keyes vs. Bump’s Administrator, 59 Vt., 391; Fisher vs. Otis, 3 Pin., 78; Brown vs. Kiefer, 71 N. Y., 610; Douglas vs. Reynolds, 7 Peters [U. S.], 113; Shores vs. Doherty, 65 Wis., 153.) Literal accuracy in describing the amount due, secured by a mortgage, is not required, but the description of the debt must be correct and full enough to direct attention to the sources of correct information in regard to it, and be such as not to mislead or deceive as to the amount of it, by the language used. Reading the mortgage before us from its four corners, we find that the description of the debt is full enough to give information concerning the amount due. The mortgage recites that it is given to secure the sum of P12,000, interest, commissions, damages, and all other amounts which may be found to be due at maturity. The terms of the contract are sufficiently clear to put all parties who may have occasion to deal with the property mortgaged upon inquiry. The parties themselves from the very terms of the mortgage could not be in ignorance at any time of the amount of their obligation and the security held to guarantee the payment. When a mortgage is given for future advancements and the money is paid to the mortgagor “little by little” and repayments are made from time to time, the advancements and the repayments must be considered together for the purpose of ascertaining the amount due upon the mortgage at maturity. Courts of equity will not permit the consideration of the repayments only for the purpose of determining the balance due upon the mortgage. (Luengo & Martinez vs. Moreno, 26 Phil., 111.) The mere fact that in contract of advancements the repayments at any one time exceeds the specific amount mentioned in the mortgage, will not have the effect of discharging the mortgage when the advancements at that particular time are greatly in excess of the repayments; especially is this true when the contract of advancement or mortgage contains a specific provision that the mortgage shall cover all “such other amounts as may be then due.” Such a provision is added to the contract of advancements or mortgage for the express purpose of covering advancements in excess of the amount mentioned in the mortgage. (Luengo & Martinez vs. Moreno, supra.) The sum found to be owing by the debtor at the termination of the contract of advancements between him and the mortgagee,, during continuing credit, is still secured by the mortgage on the debtor’s property, and the mortgagee is entitled to bring the proper action for the collection of the amounts still due and to request the sale of the property covered by the mortgage. (Luengo & Martinez vs. Moreno, supra; Russell vs. Davey, 7 Grant Ch., 13; Patterson First National Bank vs. Byard, 26 N. J. Equity, 225.) Under a mortgage to secure the payment of future advancements, the mere fact that the repayments on a particular day equal the amount of the mortgage will not discharge the mortgage before maturity so long as advancements may be demanded and are being received. (Luengo & Martinez vs. Moreno, supra.) We now come to the questions (a) What was the real amount of the mortgage given to secure the “advancements” and (b) What amount or amounts have been paid and the balance due, if any? The appellant contends that the advancements including the interest secured by the mortgage amounts to P36,964.27. The mortgagors admit that the advancements including the interest was equal to that amount. They also admit that the payments amounted to P14,157.18. They admit that there is a balance due from them to the appellant in the sum of P22,807.09. They contend, however, that the mortgage only secures the repayment of the sum of P12,000 and interest and damages. They also contend that the payments already made have been more than sufficient to pay the full amount of the mortgage. Contracts must be interpreted from their four corners. It will be observed from what has been said above, that the contract of advancements was given to secure the payment of (a) P12,000, interest, commissions and damages, etc., and (b) “such other amounts as may be then due” (at the termination of the contract), from the mortgagors to the mortgagee. In our judgment the contract of advancements (Exhibit A) therefore not only covers the P12,000, etc., but also all “such other amounts as may be then due” at the termination of the contract. It has been settled by a long line of decisions that mortgages given to secure future advancements are valid and legal contract; that the amounts named as consideration in said contracts of mortgage do not limit the amount for which the mortgage may stand as security, if, from the whole instrument, the intent to secure future and other indebtedness can be gathered. (Michigan Insurance Co. vs. Brown, 11 Mich., 265; Keyes vs. Bump’s Administrator, 59 Vt., 391; Citizens’ Savings Bank vs. Kock, 117 Mich., 225; Jones on Mortgages, sees. 364-378; 27 Cyc, pp. 1069-1073 and cases cited; Fisher vs. Otis, 3 Pin., 78; Brown vs. Kiefer, 71 N. Y., 610; Hellyer vs. Briggs, 55 Iowa, 185.) It has been decided in many cases that the consideration named in a mortgage for future advancements does not limit the amount for which such contract may stand as security, if, from the four corners of the document, the intent to secure future indebtedness is apparent. Where, by the plain terms of the contract, such an intent is evident, it will control as against the contention of the mortgagor that it was the intention of the parties that the mortgage was secured only for the consideration expressly named. (Citizens’ Savings Bank vs. Kock, supra.) And it has been held also that oral proof may be adduced for the purpose of showing the real intent of the parties in contracts of advancements. In the case of the Citizens Savings Bank vs. Kock the original contract for future advancements was for the sum of $7,000. The contract, however, contained the provision “that said mortgagors agree to pay said mortgagee any sum of money which they may now or hereafter owe.” An action was brought upon said contract. At the time the action was brought there had been advanced to the mortgagors more than $21,000. The mortgagors contended that but $7,000 could be collected. The court held that, by the terms of the mortgage, the mortgagors, were liable for the $21,000 and rendered a judgment in accordance with that conclusion. (Newkirk vs. Newkirk, 56 Mich., 525; Reed vs. Rochford, 62 N. J. Equity, 186; Bowen vs. Ratcliff, 140 Ind., 393.) A mortgage given to secure advancements is a continuing security and is not discharged by repayment.of the amount named in the bond or mortgage until the full amount of the advancements are paid. (Shores vs. Doherty, 65 Wis., 153.) From a full consideration of the terms of the contract or mortgage for advancements and the law applicable to such contracts, we must conclude that the said mortgage not only covers the P12,000 with interest, commissions and damages, but also all the advancements which had been made thereunder. From that conclusion it must follow from the admission of the parties themselves that there is still due and unpaid upon said mortgage, due to the advancements, the sum of P22,807.09. That amount, however, may be modified when we come to a consideration of Exhibits 1, 2, and 3. That conclusion disposes of the first assignment of error. We now come to a discussion of the second assignment of error. The appellant contends that the lower court committed an error in giving priority to the mortgage executed and delivered in favor of the “Hospital de San Pablo de Iloilo.” (Exhibit AA.) In the first place it may be noted that the alleged mortgage claimed by said hospital was not executed until long after the mortgage was executed in favor of the appellant and was never registered. It is not a mortgage at all and could not, by any possibility, therefore be given priority over a former mortgage legally executed and recorded. The contention of the hospital would, of course, therefore be given but little consideration except for the fact that it claims that it was given priority over the mortgage held by the appellant by virtue of an oral agreement or understanding. The facts are not disputed that the plaintiff’s mortgage was executed on the 15th day of April, 1920, and presented to the registrar of deeds on the 20th day of April, 1920, and actually registered on the 16th day of June, 1920, while the mortgage in favor of the Hospital was not executed until the 17th day of June, 1920. With reference to the alleged oral agreement between a representative of the appellant and the attorneys for the hospital, it may be said that the lower court committed an error in allowing oral evidence upon that question. But even though the evidence admitted may be considered, yet in our opinion it is too indefinite and uncertain to justify the conclusion that the appellant did consent to waive the priority of the lien which he held. We are of the opinion that, aside from the question of the admissibility of such proof, it is not sufficient to justify the conclusion that the appellant waived the priority of his lien. The proof is not sufficient to show that the alleged representative of the appellant was authorized to act for him in the month of June, 1920. What we have said in relation to the second assignment of error constitutes an answer to the third and fourth assignments of error. Our conclusions upon this branch of the case are: First. That the alleged oral agreement did not give the alleged second mortgage of the “Hospital de San Pablo de Iloilo” a priority over the mortgage of the plaintiff. Second. That whatever may be the rule in other jurisdictions, in this jurisdiction it is an indispensable statutory requirement, in order that a mortgage may be validly constituted, that the instrument by which it is created be recorded in the registry of deeds. (Art.. 1875 of the Civil Code; Tobias vs. Enrico, 22 Phil., 394, 396; Lozano vs. Tan Suico, 23 Phil., 16; Borcelis vs. Golingco, 27 Phil., 560.) In this case (Borcelis vs. Golingco) the late Chief Justice Arellano said: “This Supreme Court has repeatedly declared that to make a mortgage valid it is necessary that the document constituting it be inscribed in the property registry.” Such documents, however, are valid subsisting obligations between the parties thereto and may be used as evidence or proof of such obligations. They do not, however, constitute a mortgage in this jurisdiction. We now come to a discussion of the mortgage in favor of the Philippine National Bank for the sum of P9,500 for the purpose of determining whether or not said mortgage takes priority over the mortgage of the plaintiff., It will be remembered that the mortgage of the plaintiff was taken with the express understanding that it was subject to a first mortgage in favor of the Philippine National Bank for the sum of P9,500 with interest at 8 per cent per annum for the period of ten years, payable by annual installments. The plaintiff thus recognized the existence of said mortgage as a prior lien. The record shows that the said mortgage of the Philippine National Bank was paid by the intervenor, the “Hospital de San Pablo de Iloilo,” with its money. The intervenor, the “Hospital de San Pablo de Iloilo” therefore stands in the shoes of the Philippine National Bank and has a right to be paid by the plaintiff out of the proceeds of the foreclosure whatever sum or sums it paid to the Philippine National Bank, with interest thereon at 8 per cent from the date of payment until paid. We find upon an examination of the record three Exhibits (1, 2, and 3) representing payments amounting to P11,088.68 made by the defendant Tiburcio Lutero to the plaintiff Lim Julian. Exhibit 1 represents a payment of P6,306.64 for 709.07 picos of sugar. This payment was made on the 24th day of January, 1921, or more than a year before the commencement of the present action. Exhibit 2 represents a payment of P4,000 for 469.55 picos of sugar. This payment was made on the 20th day of August, 1924, during the pendency of the present action. Exhibit 3 represents a payment of P782.04 made by Lutero to the plaintiff to apply on his debt of a larger sum. No reference is made to such exhibits in Exhibit B. The appellee Tiburcio Lutero and his wife made no claim either in the court below or in this court that the payments represented by Exhibits 1, 2, and 3 should be applied to the reduction of their total indebtedness in the sum of P22,807.09. The record furnishes no explanation for their failure to insist upon the application of said payments to the reduction of the total indebtedness. Their failure so to do cannot be understood, if in fact said exhibits do represent payments made in liquidation of their indebtedness in the sum of P11,088.68. If in fact said payments were made to apply on the indebtedness then they should be applied for the purpose of reducing the total amount due of principal, interest, commission and damages. The mortgagors make no point with reference to the said payments. In the interest of justice, however, and to the end that a final determination of the question between the parties hereto may be reached, we deem it necessary to take note of the payments represented by Exhibits 1, 2, and 3. After a careful examination of the entire record and the issues presented we have arrived at the following conclusions : First. That the mortgage (Exhibit A) executed by Tiburcio Lutero and Asuncion Magalona, his wife, to the plaintiff constitutes a lien upon the property mortgaged and is a prior lien over the alleged mortgage executed by the same parties to the “Hospital de San Pablo de Iloilo,” provided, however, that the “Hospital de San Pablo de Iloilo” shall have a lien prior to that of the plaintiff in whatever sum or sums it paid, together with 8 per cent interest on the mortgage held by the Philippine National Bank. Second. That there is still due and unpaid on said mortgage the sum of P22,807.09, which amount perhaps may be reduced by the payments made and represented by Exhibits 1, 2, and 3. Third. That the cause is remanded to the court whence it came for the purpose of having determined by the lower court whether or not such payments should be applied to the liquidation of the said sum of P22,807.09. Fourth. That the cause be remanded to the lower court for the purpose of determining the amount paid by the “Hospital de San Pablo de Iloilo” for the mortgage held by the Philippine National Bank. Subject to the conditions herein stated, it is hereby ordered and decreed (a) that the judgment of the lower court be and is hereby revoked; (b) that a judgment be rendered in favor of the plaintiff and against the defendants Tiburcio Lutero and Asuncion Magalona for the sum of P22,807.09, with interest until paid; (c) that the record be returned to the court whence it came for the purpose of having finally determined whether or not said sum (P22,807.09) should be reduced by the payments made by the defendants to the plaintiff, represented by Exhibits 1, 2, and 3. If the lower court shall find, upon such investigation, that said payments should be applied to said sum (P22,807.09) then and in that case it is hereby ordered that a judgment be rendered for whatever balance may be due; (d) that a judgment be entered in favor of the “Hospital de San Pablo de Iloilo,” giving it a prior lien on the property in question over that held by the plaintiff for whatever sum or sums it paid for the mortgage held by the Philippine National Bank, with interest; (e) that the record be returned to the lower court for the purpose of determining the amount paid by the “Hospital de San Pablo de Iloilo” for said mortgage, and when that amount is determined, let a judgment be entered by the lower court for the sum as a prior lien upon the property in question to that held by the plaintiff; (f) that after the lower court has complied with the conditions herein imposed, that a judgment be entered requiring the defendants Tiburcio Lutero and Asuncion Magalona to deposit with the clerk of the Court of First Instance of the Province of Iloilo whatever sum or sums may be found to be still due the plaintiff within a period of 90 days, and in default of compliance therewith, that an order be issued, that the property mortgaged be sold, subject to the prior lien in favor of the “Hospital de San Pablo de Iloilo.” In case, however, that the property is sold free from said lien then and in that case the “Hospital de San Pablo de Iloilo” shall receive whatever sum or sums with interest at 8 per cent which it paid or caused to be paid for the mortgage in favor of the Philippine National Bank, before any payments are made out of the proceeds to the plaintiff. There being nothing in the record to show any liability on the part of Rafael Lutero, he is hereby absolved from all liability under the complaint. Let a judgment be entered in accordance herewith, without any finding as to costs. So ordered. Villamor, Romualdez, and Villa-Real, JJ., concur. Ostrand, J., concurs in the result.