People v. Mendezona
REITERATIONFacts
The Antecedents: The case concerns allegations of estafa against Secundino Mendezona, the manager of Mendezona & Co. The Spanish-Philippine Bank accused Mendezona of defrauding them by receiving two loans totaling $600,000 in January and February 1900, offering the Franciscan Friars' procuration building as security. Mendezona allegedly delayed executing the mortgage deed, eventually selling the property on August 6, 1902, for $400,000, declaring it free from encumbrances, to the bank's damage. Procedural History: A complaint for estafa was filed, and a preliminary investigation was conducted by the Court of First Instance. The investigation revealed that Mendezona had entered into a verbal contract to purchase the procuration building in November 1899 for $190,000, with the sum to be held on deposit by his firm. He took possession and began alterations. The deed of sale was executed on July 21, 1900. The court found no evidence of deceitful intent at the time of the loans or the offer of security, noting that the delay in executing the mortgage was not attributable to Mendezona and that the property was not legally encumbered until a formal mortgage deed was executed and recorded, which did not occur. The court concluded that the mere non-performance of the promise to mortgage did not constitute estafa. The Petition: The complainant, the United States (representing the Spanish-Philippine Bank), appealed the decision of the Court of First Instance, which had dismissed the estafa charges. The appeal argued that Mendezona committed estafa by failing to execute the promised mortgage and by selling the property as unencumbered. The appellant sought the application of specific articles of the Penal Code (535, section 1, and 537, and 541). The Supreme Court, however, affirmed the lower court's decision, finding that the preliminary investigation did not establish the necessary elements of deceit and fraudulent intent antecedent to the contractual obligations, nor did it prove that Mendezona was not the owner or that the property was legally encumbered at the time of the sale.
Issue(s)
Whether the failure to execute a promised mortgage constitutes estafa. Whether selling a property declared as security, after it was sold by the accused, constitutes estafa. Whether a mortgage is legally constituted without compliance with statutory formalities and registration.
Ruling
The Supreme Court affirmed the appealed order, holding that the acts charged did not constitute the crime of estafa. The Court found that it did not appear from the record that the accused had committed the acts charged as constituting estafa.
Ratio Decidendi
On Whether the failure to execute a promised mortgage constitutes estafa: The Court held that the mere non-performance of a promise to give a mortgage does not constitute estafa or any other crime, unless the party bound acted fraudulently and in bad faith at the time of contracting the principal obligation and making the promise to give security. Article 1862 of the Civil Code provides that a promise to mortgage only produces a personal action. Criminal liability attaches only if the promisor defrauds another by offering encumbered property as unencumbered or by pretending ownership of property that does not belong to him. In this case, Mendezona had a right to offer the building as security as it was not the property of another nor was it encumbered at the time of the offer. The subsequent sale of the property did not constitute estafa because there was no evidence of deceitful intent at the time the loan was made and the security was offered. The obligations contracted were merely personal. On Whether selling a property declared as security, after it was sold by the accused, constitutes estafa: The Court ruled that selling the property which had been promised as security did not constitute estafa because Mendezona was in possession of the property as owner when he offered it as security. He did not act in bad faith or practice deceit at that time. The deceit, in cases of fraud, must be antecedent to the obligation and be the cause of it, not supervenient. The property was unencumbered when sold by Mendezona on August 6, 1900, as the promise to mortgage did not create a legal encumbrance. The subsequent sale to the Augustinian Friars, while making it impossible to mortgage the property to the bank, did not retroactively establish deceit at the time of the loan. On Whether a mortgage is legally constituted without compliance with statutory formalities and registration: The Court emphasized that for a mortgage to be legally constituted and produce legal effects, it is indispensable to comply with the formalities prescribed by articles 1857 and 1874 et seq. of the Civil Code and articles 105 et seq. of the Mortgage Law. The Supreme Court of Spain's doctrine, applicable here, holds that the simple promise to constitute a mortgage does not fall within the precepts of the Penal Code because it is not the same as performing the act promised. For the provisions of Article 537 of the Penal Code (equivalent to Article 550 of the Spanish Code) to apply, the encumbrance must be legally constituted by means of the essential formalities prescribed by law. Otherwise, the promise results in a mere personal obligation. Consequently, unless real property is mortgaged by a public instrument recorded in the Property Register, the gravamen referred to by Article 537 of the Penal Code cannot be considered as existent. The preliminary investigation did not show that Mendezona was not the owner or did not have the right to dispose of the property when he offered it as security or sold it. He had purchased it more than a month prior and was in possession by virtue of a valid verbal contract.
Main Doctrine
The mere non-performance of a promise to mortgage property does not constitute estafa unless deceit and fraudulent intent were present at the inception of the principal obligation. Furthermore, a mortgage is not legally constituted, and thus does not create a legal encumbrance, without compliance with the formalities prescribed by law, including registration.