Yangco v. Cruz Herrera
REITERATIONFacts
The Antecedents: On March 16, 1904, Arsenio Cruz Herrera borrowed P10,000 from Luis R. Yangco. This was subsequently increased by two loans to a total of P25,000. As security, Herrera mortgaged two parcels of real estate in Manila, with P23,000 charged on the larger property and P2,000 on the smaller. The mortgages contained a clause fixing the value of the property at P45,000 Philippine pesos, which sum was to serve as the tipo (upset price) for the only auction to be held in case the creditor was obliged to enforce his claim, with a waiver of any other valuation or action to that end. Procedural History: The defendant Serafin Wy Piaco was included in the foreclosure as a subsequent purchaser of the smaller parcel. The judge of the Court of First Instance of Manila ordered the foreclosure of the mortgages and the sale of the real estate without reference to the clause fixing the tipo. The Petition: The defendants appealed the decision, arguing the effect of the clause fixing the tipo or upset price.
Issue(s)
Whether the clause fixing the upset price (tipo) in the mortgage contract is valid and enforceable. Whether the parties to a mortgage can stipulate on matters of court procedure.
Ruling
The Supreme Court affirmed the judgment of the Court of First Instance, holding that the clause fixing the upset price (tipo) in the mortgage contract is unenforceable as it contravenes the provisions of the Code of Civil Procedure.
Ratio Decidendi
On whether the clause fixing the upset price (tipo) in the mortgage contract is valid and enforceable: The Court held that the clause fixing the tipo is ineffective and cannot be enforced. This stipulation essentially varies the procedure laid down in the Code of Civil Procedure. Specifically, it appears to provide for only one auction, whereas the code allows for vacating a sale and ordering a resale. Furthermore, the provision for a single auction contravenes the statutory direction that the property shall be sold to the highest bidder. The Court reasoned that if the mortgagee did not covenant to bid up to the tipo, the result would be either a resale under the new practice (violating rights of other bidders), a resale with an abatement of the price (reducing the tipo), or a blockade of procedure, none of which are compatible with the Code of Civil Procedure's requirement for a final disposition of the property. The Court reiterated the principle from El Banco Español-Filipino vs. Donaldson Sim and Co. et al. that such clauses in regard to real estate mortgages are ineffective. On whether the parties to a mortgage can stipulate on matters of court procedure: The Court concluded that private individuals cannot stipulate on matters of adjective rights or court procedure, as these are already regulated by law and lie beyond their control. While parties can agree on their substantive rights, their covenants regarding procedural methods are beyond their power to alter. The Court clarified that this does not mean parties cannot agree that the mortgagee shall make good any difference between an agreed valuation and the sale price, or that the mortgagee cannot personally obligate himself to bid a stipulated price. However, such contracts cannot interfere with the procedure of the courts. The Court found that the stipulation in question attempted to interfere with the court's procedure, rendering it unenforceable.
Main Doctrine
Parties to a mortgage contract cannot stipulate on matters of adjective rights or court procedure, as these are governed by law and beyond their control. Such stipulations, even if they appear to be part of the contract, are unenforceable if they contravene the mandatory provisions of the Code of Civil Procedure.