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19 Phil. 524

[ G. R. No. 5508, August 14, 1911 ]




This  is an appeal by the plaintiff from a  judgment of the Court of First Instance of the city of Manila, the Hon. A. S. Crossfield presiding, foreclosing a second mortgage upon the property of the  defendant Francisco Reyes y Mijares, subject, however, to the  lien of a first mortgage held by the defendant  bank, and declaring  that there  had not been paid on said first mortgage the sum of P96,781.75, as claimed by the plaintiff, and that said  first mortgage  had not been fully paid and satisfied.

This is an action by the plaintiff as the holder of an alleged second lien upon certain  real  and  personal property to have declared fully satisfied and discharged the first  lien held by defendant bank and to have plaintiff's lien foreclosed.  The complaint contains two counts.  In the  first appear  allegations showing  the  second mortgage  to  the plaintiff, the prior mortgage of the same property  to  the defendant bank to  secure  a  specific  debt, and alleging  the subsequent payment of said debt in full.   The second  alleges the pledge of the personal property to the defendant bank to secure the same debt, the subsequent  pledge thereof, or of such part thereof as might remain after the payment of the bank's lien, to the plaintiff, the payment to the defendant bank in full of the debt secured by said pledge, and  that a portion of said  personal  property  remained unexpended after the payment of the debt aforesaid.  The complaint then asks for a foreclosure of the lien of the plaintiff and prays  that the defendant bank render an account of all property remaining after the payment of its debt and of all moneys realized over and above the amount of the debt and interest, and that the same be delivered to the plaintiff for the purpose of said foreclosure.

The defendants answered  denying that the debt of the defendant bank secured by the mortgage and lien had been paid and alleging that the greater part thereof remained unpaid.

The cause was submitted to  the trial court for decision upon  an agreed statement of facts and  a judgment was rendered which decreed foreclosure in favor of the plaintiff, subjecting  such foreclosure,  however, to the first lien of the defendant bank upon the real and personal property described in the mortgage and pledge, upon which there still remained due and unpaid the sum of P75,427.88.

The attorney for the appellant  states  the  facts and the case in his brief as follows:
"The facts involved in this contention are not disputed, but are all set forth in an express stipulation, certified as true by the parties litigant.  It appears that on March 4, 1905, Francisco Reyes was indebted to the Banco Espanol-Filipino  in  the  sum  of P84,415.38; to  the Hongkong & Shanghai Bank in the sum of P141,702; and to the plaintiff in the  sum  of P45,286.  (Agreed statement Pars. I, II, and VII.)   On  that date the Banco  Espanol-Filipino advanced Reyes  the money to pay the  Hongkong &  Shanghai Bank, thus becoming his creditor in the sum total of P226,117.38. Reyes  thereupon  executed  (Exhibit A)  a first mortgage upon certain specified real property, to secure the payment of said debt of P226,117.38  (agreed statement Par. Ill) and naught else.   The indenture  (Exhibit A) provides:

"'15. Francisco Reyes y Mijares, in addition to the securities above  stated as mortgaged and pledged, likewise charges with the complete payment  of his obligation in favor of the Banco  Espanol-Filipino, his other assets, present and future, particularly the balance to which he is this date entitled in and to the credits  against the Government  of Spain originally due him or acquired later, and the commission upon the collection of those entrusted to him, which said balance he obligates  himself to pay into the hands  of the said creditor bank when collected, if the obligation which is the subject of this indenture has not yet been completely satisfied and

"'18. Francisco Reyes y Mijares obligates himself to give account to the creditor bank whenever the latter  desires, of the condition  of  his business  affairs, displaying to  it the books, documents and other data which may be necessary for the investigation which  it desires to  make concerning the status and progress of his business affairs in which he grants to  the creditor  a direct participation and obligates himself to follow its  directions.'

"Thereafter, on May 4, 1905, the bank made a  further advance of P62,000  to Reyes,  to  secure  which the latter executed a pledge  (Exhibit B) of certain specified items of personal  property, other  than the items referred to  in Exhibit A.

"Thereafter, on May 12, 1905, to secure the payment of the amount due to plaintiff, Reyes executed a second mortgage and pledge in favor of plaintiff (Exhibit C) upon the same real and  personal property described and referred to in Exhibit A.

"All of the properties hereinabove referred to passed into the custody and control of the defendant bank.  Portions of the same  were disposed of from time  to time and the proceeds were  credited to  the account of Reyes.  This account, the sole and  only account kept with Reyes  by the bank, opened  with a debit of the  P226,117.38 which was secured by this mortgage.

"The total amount  thus credited to this, account of Reyes was P297,418.27, made up as follows:

(a) From the proceeds  of a portion of the  securities    covered  by  Exhibit A.......................
(b) From   the proceeds  of a portion of the  securities covered by Exhibit   B........................
(c) From the proceeds of   properties not  hypothecated in Exhibits A or B,
but subsequently   pledged to the bank to secure  a total of  P25,627.25.........................

(d) An   erroneous credit  counterbalanced by  an equal   debit.............................................
(e) Amounts paid to the bank by Reyes from  time to time obtained from  
assets and  credits other than those covered by  Exhibits A or  B  
or  the special  pledges above referred to................................................................


"From time to time the bank cashed checks for Reyes and  paid  drafts  and other obligations in favor of  third persons.   Sometimes these advances were secured by specific pledges of assets, other than  those covered  by the Exhibits A and  B.  For the most part, however,  these moneys were  paid  to  Reyes or  to  third  persons  for his account, without any security whatever.   (A. S. Par. XI.)

"Upon this  state of facts the  plaintiff contends that the first mortgage (Exhibit A)  is wholly paid and satisfied by the payment of the  following sums, to wit:

(a) The proceeds of the mortgage securities  expressly covered  
by Exhibit A..............................................

(b) The   proceeds of the property  not mortgaged to the bank
by  Exhibits  A   and B but  subsequently  pledged  at
least to the  extent of the  excess    thereof  over  and
above the  amount  of the pledges...................
    25,627.25 12,112.50
(c) The amounts paid to the bank   by Reyes  from other sources...........................  96,781.75

"Wherefore plaintiff contends that the mortgaged properties referred to in Exhibit A which still remain undisposed of are released therefrom  and the second mortgage thereon contained in Exhibit C, is now equivalent to  a first mortgage thereon, to be foreclosed and satisfied without  regard to any independent  indebtedness of Reyes to the bank.

"The defendants'  contention is twofold.   In their answers they seek to maintain that the original mortgage  (Exhibit A), legally secures any and all amounts which may be owing by Reyes to the bank, and that the entire indebtedness of Reyes to the bank is secured  thereby.  In their arguments, defendants contend that the amounts paid  in by Reyes are now applicable to the satisfaction of any part of the latter's indebtedness, and as they choose to apply  the  same to the satisfaction of the unsecured advances, the mortgage debt, or a large part thereof, still  remains unsatisfied.

"The opinion of the lower court is in favor of the plaintiff so far as concerns the proceeds of  the mortgaged  property and the excess obtained from the special pledges, but holds that the 96,781.75 paid  into the  bank from independent sources  is not legally applicable to the satisfaction  of the mortgage debt."
As is  seen from appellant's own statement, the only question before us for determination is  whether or not the sum of P96,781.75 should have been applied by the trial court to the payment of the debt, P226,l17.38.

In taking the  affirmative of this question counsel for the appellant asserts that said sum "must be" so "applied as the parties have expressly agreed" to do so.  To the establishment of this proposition counsel, for the purpose of demonstrating the agreement referred to,  divides the payments made by Reyes to the bank into three classes, saying:
"In the presentation of this point, the various payments made by Reyes are necessarily  to be divided into three classes and each class considered separately.

"(a)  The first class embraces the proceeds of that part of the  mortgaged  property  which was converted  into cash and paid into the bank. These proceeds amount to P145,646.15.  Since the lower  court  has expressly  ruled that the payment of this  amount was a satisfaction pro tanto of the mortgage (Exhibit A) and the defendants are prosecuting no exception to this ruling, there is no need to justify the latter by argument and authority.

"(b) The second class embraces the excess  proceeds  of specially pledged property over the amounts secured by such pledges.   By this is meant that after  the execution of the mortgage (Exhibit A) the bank advanced various sums  of money to Reyes from time to  time and took  as security therefor pledges of certain assets of Reyes which were not covered  by  the mortgage  Exhibit A.  The total  amount thus advanced and secured by these  special pledges was P25,627.25.   The property  thus pledged Was subsequently disposed of  and the proceeds, paid into the bank, amounted to P37,739.75.   The excess proceeds of the pledges over the total amount of the advances was thus P12,112.50.  This latter amount the lower court applies in pro tanto satisfaction of the  mortgage, and  for like reasons as before, it is wholly unnecessary to justify this ruling.

"(c) The third class embraces the unencumbered residue of Reyes' assets, neither mortgaged nor pledged unto the bank, but paid in from time to time to the aggregate total of P96,781.75.  The  plaintiff contends that this  amount must be legally considered as paid in satisfaction pro  tanto of the mortgage debt and  appeals from the failure of the lower court  so to do."
Counsel then  says that the express  agreement  referred to is found  in paragraph 15  of the bank's mortgage and pledge, Exhibit A, in which, he  asserts, "the parties stipulated that in addition to the securities therein  constituted, the mortgagor obligated all of  his property, present and future, to the payment  of  the mortgage debt,  and agreed to pay its proceeds into the bank so long as that mortgage debt, was not  wholly  liquidated."   The  paragraph  from which he draws this conclusion  reads as follows:
"Don Francisco Reyes y Mijares, in addition to the properties above mentioned  as mortgaged and  pledged, also charges as security for the payment of said obligation in favor of the bank his other property; present  and future, especially those debts which are now due him or which may hereafter become due him, and also the commission to which he is entitled or becomes entitled for the collection of claims against the Spanish Government which have been entrusted to him for collection, which said debts he obligates himself to turn over to the bank upon  receiving them, if the debt which is the basis of this obligation has not been fully paid."
In answering this proposition of plaintiff's counsel, these points should be noted:

The  provision just quoted, in so far as it seeks to mortgage or pledge the property mentioned therein, is wholly without force or effect.   The property sought to be pledged is not described or identified.  We do not know, from the terms of the clause or from any other source, that any of it really existed at the time of the execution of the clause. As a pledge or personally it is  wholly ineffective, not only for indefiniteness but also for the reason that the property pledged, if any, was not delivered.   As a mortgage of realty it is equally ineffective for the reason that, to be valid under the provisions of the Civil Code  and the Mortgage Law, the mortgage  must describe  the  property mortgaged so that it is clearly identified and identifiable.  Sanchez Roman, in his work on the Civil Law  (vol. 3, pp. 828, 829) correctly states the law as to mortgages.  He says:
"A logical consequence of the plan of publicity of mortgages is the disappearance from our legal system of general mortgages, with the consequent  repeal of all laws prescribing and authorizing them;  and the  stipulation of general mortgage  which may hereafter  be placed  in contracts between private parties will signify nothing, as in fact it has signified nothing since the  establishment of the mortgage office (contaduria  de hipotecas).  Even though limited to the property existing at  the  time, and not, as was  usual, extending to the property  which might thereafter be acquired,  a  general  mortgage involves lack  of publicity in the mortgage,  because it  can be called public just as soon as it is inscribed in the  registro with  a detailed statement of the estate affected and  of the extent of the guarantee. A definite statement of  the property mortgaged is an essential element of the publicity.

"Even aside from this consideration, which is conclusive in the  plan adopted, general mortgages would not have gone unabolished, since their very extension renders them invalid.  Because of the very fact that they  include all the present and future property of the debtor, he has to remain free to  alienate it;  and if he does alienate all of it, the guarantee disappears, without recourse against the purchaser, thus bringing about actual nullification of the right to the thing, because a mortgage that does not go with the estate, whoever may be its owner, does not deserve the name of mortgage."
This paragraph being entirely ineffective and valueless as a mortgage or pledge, the agreement to pay the proceeds of any portion  of the property or credits therein mentioned upon the mortgage debt would be equally ineffective  and valueless, as such an agreement is purely subsidiary to the agreement of mortgage and pledge, and is wholly dependent upon it. The latter failing for illegality, or at least, invalidity, the dependent agreement falls with it.   Moreover, even though we are wrong in our assertion that said paragraph 15  is wholly futile for the purpose for which it is relied upon by the plaintiff, nevertheless, the stipulation  of facts prevents plaintiff from  taking the position which  counsel takes in this connection.   Paragraph X of said stipulation reads:
"That from the 4th day of March, 1905, to the 31st day of December; 1907, the account of the defendant Reyes with the defendant bank has been credited from time to time, as shown  by  Exhibit D,  hereunto attached,  with   various amounts aggregating the sum total of P297,418.27,  derived from the following sources, to wit:

Amounts realized from time to time upon  the securities    given by
instrument of  March 4, 1905  (Exhibit   A).....................

Amounts realized   from time to time upon  the securities given by 
instrument  of  May   4, 1905  (Exhibit B)........................ 

Amounts realized from time to time upon  additional pledges of  
merchandise other  than those enumerated in
Exhibits A  and   B...........................................

NOTE. - This   sum of P37,739.75, realized  by the bank from special pledges of  merchandise,    resulted from  advances  made to Reyes upon   such  special pledges  as   follows: 


April 13, 1905........................ P2,960.00
April   29, 1905........................  9,800.32
May 13,   1905.........................   2,483.34
May 27, 1905   ...........:............   1,999.91
June 10,   1905........................ .   695.04
July 17, 1905   .....:..................  1,490.00
July 20,   1905.........................  6,198.64

Amounts  erroneously credited to account  of  defendant Reyes and  
corrected  by  cross entries to his debit........................      

Amounts  paid  to  the bank from time  to  time by   defendant Reyes, 
realized  by  him from sources and credits other   than  those set out in Exhibits 
A  and  B  or  subject of the    special pledges referred 
to in par. C   above..................................................... 

NOTE. - This   P96,781.75 includes the  sum of  P2,039.14  standing  to Reyes'  credit   on  the  books  of the bank  on  March  1, 1905, and deducted from    his  indebtedness of P226,117.38 on March 4,  1905, as shown by   Exhibit D."
By this paragraph of the stipulation of facts it is clear that the sum of P96,781.75 was received by Reyes  "from sources and  credits other than those set out in Exhibits A and B or subject to  the special pledges  referred to in paragraph C above."  But paragraph 15 to which plaintiff s counsel refers as giving a right to plaintiff to require that said sum of  P96,781.75  be applied on the mortgage debt, said paragraph, asserts plaintiff's counsel,  covering all of the other property of Reyes  beyond that described in the other paragraphs of said exhibit and making its proceeds applicable to the payment of the mortgage  debt, is  a paragraph of Exhibit A; and for that reason  the property therein described is excluded as the source of said sum of P96,781.75 by express stipulation of subdivision  (c)  of Paragraph X of the stipulation of facts,  which agrees, as we  have seen, that said sum came "from sources and credits other than those set out in Exhibits A and  B."  If we  exclude this stipulation of fact  from consideration we are left without facts to sustain plaintiff's contention.  There would be then in the whole case not a  word of evidence as to the  origin and  source of said sum of P96,781.75.   Its origin or  source being unknown, there is no means of determining the express agreement of the parties as to its application, their express agreements relating only to sums  whose  sources are fully known and plainly set forth.

Finally, we can not overlook the fact  that  said sum of P96,781.75 is referred to by plaintiff's counsel in his brief as having been  derived from "independent sources," as is seen from the quotation from his brief, above  (p. 9).

These  facts and  observations entirely  dispose of  appellant's first proposition, that there was an express agreement between the parties to Exhijbit A that the P96,781.75 should be applied to  the payment of the debt to the defendant bank.

The second proposition presented by  the appellant  to which we direct our attention is:
"That  in any  event the payments made by the mortgage debtor to the mortgage creditor are legally applicable to the satisfaction of the mortgage debt."
He then proceeds to  discuss the law governing the application of payment, asserting that the proper rule to be applied to this case "is that furnished by article 1174 of the Civil Code, which makes these payments applicable to the more onerous of the two debts.  As between the mortgage debt and the unsecured advances there can be no doubt that the former was the more onerous.   By virtue of the mortgage debt, all of Reyes' real estate and a large portion of his personal property was in the control of the bank; he was obliged to lay open his business affairs, his books, accounts and other documents to  the bank;  he was obliged to allow the bank to intervene in his business affairs and to implicitly obey the bank's directions therein;  he was  obliged to turn over his entire income to the bank; he was the obligee of a score of covenants all set forth in the instrument of mortgage.   By virtue of the unsecured  advances, on the other hand, Reyes was a simple  debtor for the amount thereof. It imports nothing that  Reyes, in his present insolvent indifference, at the dictates of the bank, may voice a preference for the payment of one debtor or the other.  The rule of law makes the payment applicable, not to the debt chosen by the debtor, but to that which is the more onerous in fact." Counsel's discussion of  this point goes,  as it  necessarily must, upon the assumption that  said sum  of  P96,781.75 was in fact a payment and not a deposit.   That assumption is based on two grounds: One.   That there was an express agreement that all money  from the source whence  came said sum should  be turned  over to the bank as payments. The other.  That said sum is  found credited to Reyes in the only account kept by the  bank  between it and Reyes, and that such credit is an application of said sum to the payment of the debt which, having once been made, can not be  recalled.  The first ground, as  we have  already  seen, is untenable.  There was no such express agreement.  The second ground we will discuss  along with the proposition whether or not said sum was really a payment at all.

We have already twice said  that there was no express agreement that the proceeds of all of Reyes' property other than that specifically described in Exhibit A should be applied in payment of the bank's debt.   Not only is this so, but we may go farther and say that it was not even agreed that all the rents and incomes of the property specifically described in Exhibit A  should be so applied.  It  should be remembered that Reyes was to continue in  business.  The bank distinctly recognized that.   Paragraph 18 of Exhibit A, translated, provides:
"18. Don Francisco Reyes y Mijares hereby  agrees to render an account to the bank whenever deemed  necessary by the latter of all of his business transactions, and to permit the bank  to examine the books, documents and other papers which may be necessary in connection with any investigation which the bank may  desire to make  as to the condition of the business, in which said matters the debtor hereby secures to his  creditor a direct intervention, and hereby promises to follow its instructions and suggestions."
It is obvious that Reyes could not run a business without using money to do so.  If he were obliged to pay  upon said mortgage debt every dollar which came to him, from whatever source, the provision permitting him  to continue in business  would be farcical.   A business  can not  be run if the money received in  the  course thereof must  instantly be withdrawn  and paid to the  discharge  of obligations wholly apart from  the business  itself.  In the  meantime he must have  something for the  support  and maintenance of his family.   To meet this situation, in part, paragraph 13 was inserted in Exhibit A.  Translated it reads as follows:
"13. The total amount of the proceeds of the  securities given for the payment of this obligation shall be  deposited by Don Francisco Reyes y Mijares in the vaults of the bank, the same to be applied  to the payment of this obligation. The debtor likewise agrees to do the same with the proceeds of the rents and dividends accruing to his real estate, securities, credits and shares as they are received by him, reserving  to himself,  however, only such portions as the parties by  mutual agreement may determine to  be necessary to meet the expenses of his commercial  business and those of his family."
Particular attention is  called to the last clause, giving Reyes the right to the rents  and income of the property, real and personal, to assist in the conduct of his business and the maintenance of his family and himself, as far as such rents and incomes were sufficient  for that purpose. Take this fact in  connection  with another.  It is obvious that Reyes could not continue in business without banking facilities.  He must have a bank in which to make deposits and upon which to draw checks and upon which drafts could be drawn.  What more natural than to use the bank that had already befriended him?  From these facts  we can readily see that not every peso delivered to the bank by Reyes was necessarily to be applied to the payment of the mortgage debt, even though said peso came by way of rents and income from the property actually included  by specific description in  Exhibit A.  Moreover, Reyes had a large amount of property not included in the bank's mortgage and pledge. This property was entirely unencumbered and was free to be used by him in his business conducted after the execution of the mortgage and  pledge to the bank.  It  is the admitted evidence in the case that  he actually did use substantially all  of said property  in that way.  As a  result,  such  property, converted into cash or used as security, was delivered to the bank to that end.  Witness to this fact not only said P96,781.75  but also Exhibit  B  and  numerous  succeeding pledges.   Here again we see moneys delivered to the bank which were not necessarily to be applied  to the payment of the debt secured by the mortgage and pledge of the  bank. Desiring to continue his  business, Reyes was  confronted with a stern necessity.  He must have money to  run that business  and he must have a  bank in which to  put it. If every dollar which he could muster and deposit in the bank had to be applied to the payment of an old obligation by the very fact of that deposit, his business was in a sorry plight. The stipulation between him and the bank  that he should continue such business  would, under such conditions, lose all significance.  It is thus clear that it is at least possible that there was some money delivered at different times to the bank which, strictly speaking, was  not be used in reduction of said original debt.  It is, as we have seen, conceded that said sum of P96,781.75 is composed of such moneys.

At this point, however, we are met with the contention of plaintiff strongly and insistently urged by its counsel, that Reyes and the bank can not be held to have had any other intention with respect to said sum of P96,781.75  than to apply  it to the payment of said  original  debt,  because it was actually so applied on the books of the bank. Meeting this contention it should be noticed:
  1. That, as  we have seen, there was, prior to the delivery of said sum to the bank, no express agreement that it was to be applied to said original debt.

  2. That it nowhere appears that there was any implied agreement to do so.  Plaintiff does not assert any such implied  agreement.   Counsel  rests his contention  upon  (a) an express agreement to apply, (b) operation of law, and (c)  the fact of actual application on the books of the bank.

  3.  That at the  time  of the delivery of said sum to the bank, the original debt was not yet due.
Take this fact  in connection with the fact already discussed, that Reyes was to continue in business,  that, as a necessary result, he had to have banking facilities, that he must make deposits and draw checks, and that it would be impossible to continue his business if all the money dedicated by him to its continuance had to be paid upon the old obligation, and it is evident that it could not be assumed, presumed or implied that  moneys so delivered  to the bank were intended by Reyes to be applied on the old obligation.  It is certain that the bank, without the consent of Reyes, had no right whatever so to apply them, for the reason that the debt was not yet due and the only agreement between the parties as to the application of. money of Reyes delivered by him to the bank related solely and exclusively to the proceeds of the sale of the property specifically described in the mortgage and pledge, of which said sum of P96,781.75 was concededly no part.   Reyes was under no legal obligation to pay any part of the indebtedness secured by the mortgage and pledge to the bank until June 4,1905 (clause 10, Exhibit A), unless he sold some of the property described therein. In such case the proceeds of the sale must be applied to the payment of the debt.  But the bank had absolutely no right, before the debt was due, to  apply  to  its  payment moneys deposited  by Reyes  which had been obtained from  other sources.   There was no agreement to which Reyes was a party that he should apply all of his assets to the payment of the said debt, especially before it was due.  He was not obliged to pay any portion of it before it was due. Under the agreement  the bank could  not  oblige Reyes before the debt was due to dispose of any of the property described in the mortgage and pledge of the bank, nor could it do so itself.  He had the right to dispose of  any of said property before the debt was due and apply the proceeds; but he was not obliged to do so.   The bank could foreclose only "in the event that the  debt  stated, with the interest thereon, had not been paid at the time and to the amount hereinafter to be fixed."   While this clause relates to real estate only, the agreement was the same relative to the personal property. (See par.  12, Exhibit A.)  By what process of reasoning, then,  can the  conclusion  be justified that said  sum  of P96,781.75 was applied to the payment of the debt by operation of law, particularly when we have in mind the fact that said debt was not yet due?

No more can it be concluded that such application was made with the consent of Reyes.

Let  us  notice the conditions existing  at the time  the various sums constituting the total  of said P96,781.75 were delivered  to the bank by Reyes.

We  have already seen the  necessity of  Reyes having banking facilities, with  the right to deposit and check, as a prerequisite to the conduct of his business.   We have also seen the impossibility of conducting his business if every deposit in bank was to be applied, perforce, to the payment of the original mortgage debt.  It has also been made evident that such application could not have been within the intention of the parties as it would have been entirely at variance with their intentions  and purposes when they inserted in the  mortgage and  pledge paragraph  18, already  quoted. That instrument must be interpreted as a whole  and, if possible,  effect given to every part.  While a term in a contract may be,  in effect, abrogated by the subsequent acts of the  parties showing an  intention  so  to do, to accomplish such result such acts must be so  inconsistent with the abrogated term as to make such a result necessary.   The mutual acts of parties are always presumed to be in fulfillment of their express  agreements, and not in violation thereof, unless  the  contrary clearly and necessarily appears.

From these observations alone it might be safely assumed that the  mere fact  of crediting the said sum on Reyes' account on the books of the bank and the consequent apparent reduction of his general indebtedness  (of all kinds)  to the bank, did not show an intention that said sum should be withdrawn from the uses of his business and dedicated to the payment of a different obligation.

But  reliance is not  placed wholly on those observations. There  are  other facts  and circumstances, even  stronger, which  show that the parties could not have intended such result.

First.  During the time that the sums constituting said sum of P96,781.75 were being deposited in the bank, Reyes had  drawn checks on  the bank and the bank  had honored drafts  and obligations of Reyes to an amount exceeding P160,000.  In other words,  during said time Reyes had drawn money from the bank so much faster  than he had deposited it that he had not only consumed the said sum of P96,781.75, but  had overdrawn  his current account  more than P50,000.  This was the situation on May  4th.  On that date, probably on the demand of the bank that he make good the overdraft, Reyes executed another pledge to the bank (Exhibit B),  the main features of which were: (a) Reyes  acknowledged that the bank had granted him an amplification amounting to P62,426.21 of the credit given him by the said banking establishment on  March 4th last (Exhibit B); (b) to secure this sum Reyes pledged to the bank personal property described in said instrument; (c) it was  agreed that in case the property pledged should not realize a sum sufficient to pay the amount  pledged, the property mortgaged and  pledged by the  instrument of March 4 (Exhibit A) should be held liable to respond for the deficiency, and that the propefty pledged by the present instrument should likewise respond for any deficiency arising under  the instrument of March 4; (d)  the time fixed by the instrument for the payment of said sum  was one month, thereby bringing the indebtedness under both pledges due at the  same  time, June 4,  1905.  The transactions between Reyes and the bank leading up to the result just noted are significant.  From the very beginning deposits were made by Reyes and checks drawn by him against them as a matter of course, as would naturally be  expected from the  fact that Reyes was continuing his business and the necessities. already noted, which such continuance laid upon him.  During all the month of March  and until toward the middle of April, the deposits were slightly in excess of the withdrawals.  On April 13, two checks were drawn upon the bank by Reye  one of P464.15 and another of P9,975.90. On the same day he seems to have been required .to  give security by way of pledge  in the sum of P2,960.  On April 24 Reyes drew on the bank for nearly P30,000, and on the 26th and 29th other withdrawals were made.   On May 2 and 3 checks were drawn amounting to nearly P40,000.  On the 4th of May, as we have seen, the pledge to secure P62,426.21 was required and given.  These facts seem  to indicate that Reyes  and the  bank treated the checking account as a thing quite different from the pledge account of P226,117.38. While it is true that the bank permitted Reyes to overdraw his checking account to the extent of more  than P130,000, this was undoubtedly done under the  belief,  clearly  well founded, that the  pledges which the bank  held on the property of  Reyes  could  be continued and extended  to secure the payment of said overdraft.

Second. In the pledge of May 4 (Exhibit B), given eight days before the execution of the plaintiff's mortgage, it is stated that the sum secured by the pledge was to be credited  to Reyes' "account  current  with the bank."   This phrase, under the circumstances, and  particularly in view of the fact  that checks  were immediately drawn  against it, clearly imports a check and deposit account.  To give one a credit in a "current account" with a bank is to give him a checking credit.  No other meaning is possible.  That money was  delivered  to the bank and that checks were drawn against it is unquestioned.  That this was repeated almost daily, and frequently many times a day, month after month, for more than two years, is admitted.  If this does not make a check and deposit  account, nothing can.  The method of bookkeeping is not decisive.  It does not change the essential nature of the  transaction.  What the parties actually did and what they understood they  were doing is the important thing.  The  intention of the parties governs. It was clearly not the intention of Reyes, in delivering money to be checked against, that it should go in satisfaction of the original debt.   If it were so applied, it could not be checked against, as it legally ceased to  exist as soon as applied to such payment.   It borders on the  absurd to say that one would deposit money to create a checking account with  the intention that  said account should be instantly destroyed by the application of  the sum deposited  to the satisfaction  of  another  obligation.  Under  such circumstances no check account could possibly be created till the obligation was fully paid.  But this would defeat the very object of the deposit.  The purpose and intention of Reyes and the bank were to provide means and facilities by which Reyes could continue his business.   To do this he must have resources, banking facilities, must make deposits and draw checks.  But if, by the application of his deposits instantly to the payment of an outside obligation, it was impossible to create a check account, what would he draw against?  He could  not  draw  against the original  debt, as that was  a debt and not  a credit.  He  could not draw  against the deposit, as that had been destroyed by its application to the  debt.  There is nothing which a check can be drawn against except a checking account.  That can be created only by actual deposit of money or by a credit extended by the  bank.   The  account  in the  present case  was created by a combination of both methods.  Reyes made deposits and the bank  gave him a checking credit by permitting him to overdraw.  Certainly Reyes could not ask for more generous treatment; nor could  anyone who occupied his shoes then or thereafter.  He could not have had the hardihood to ask the bank to credit all  his deposits on the secured debt, thereby releasing pro tanto the property mortgaged and pledged to secure that debt, and still permit him to have the  same checking  credit which  he would  have had if the deposits had not been  so applied.   Such a  method would speedily have transformed the secured debt of the bank into an unsecured one  of precisely the same amount.  To illustrate:  The  secured  debt  was,  in  round  numbers, P226,000.  Let us suppose that, during the first week after securing the debt, Reyes had deposited in  cash  P100,000, and  during the second week P126,000, also in cash, said sums being  from sources entirely independent of the property mortgaged and pledged to secure the debt.  Let us suppose, as plaintiff contends  they were,  that these two  sums had been credited on the secured  debt.  The debt  would have been fully paid and the mortgage and pledge given to secure it fully discharged.   Suppose, further, that during said two weeks  Reyes  had drawn checks for P226,000 in the aggregate, which the bank had honored.  What would have been the result?  By this method, the bank's secured  debt, in two short weeks, would have been changed into  one  entirely unsecured. This is exactly what the  plaintiff claims actually happened in the case  at bar, substituting the real amounts for the partly fictitious ones given in  the illustration.  Under this theory the  bank would be the worse  off  the  more deposits it received, and Reyes the "better  off the more he overdrew.  Every check would be an overdraft.

Moreover, that the delivery of said sum of P96,781.75 was not  intended  as  a payment but,  rather, as a deposit,  is shown by  the struggle which  Reyes made to maintain a checking account in the bank.   We have already referred to this.  He was almost continuously  hard  up.   He was always struggling to get money to pay his current expenses. To meet these he pledged and mortgaged and overdrew,  In spite of it  all  his head was almost continually under water. Under such conditions is it reasonable to say that,  after all that struggle and worry, he obtained money to deposit only to  have it used to some other purpose?  On  the  other hand, is it  a fair interpretation of the situation to conclude that, after  all  its endeavor to keep Reyes from overdrawing, the bank, nevertheless, not only permitted the very  thing it sought to avoid, namely,  the overdrafts, but also perpetrated the  absurdity of voluntarily exchanging a  debt perfectly secured for such overdrafts, entirely unsecured?  Is it reasonable  to conclude that  it was the intention of the bank thus to throw away the very security which it had been at so much  pains to secure?  Whatever the form in which the books were kept, the parties acted and dealt precisely as if Reyes had not only a secured debt account but also a current account for checking and general  banking purposes.   The sum in dispute here was deposited and wholly drawn out by Reyes, by general banking operations, before June 4,  1905, the date on which the mortgage and pledges of the bank, Exhibits A and B, matured. The debt of P226,117.38 not having  been due when the  P96,781.75  was deposited and withdrawn, and there having been no express agreement for its application to the payment of said debt, said sum could not have been  so  applied without the consent of Reyes, express or implied.  We do not believe that  such consent is shown merely by the method of bookkeeping pursued by the bank, particularly in  view  of the incessant  struggle  and endeavor put forth by Reyes to create a check  account.   We do not think such intention is sufficiently shown on the part of the bank, in view of the strikingly pernicious effect that such application would have had upon the interests of the bank itself, namely, the exchange of a debt perfectly secured for one not secured, with no  consideration whatever for such exchange.

Again, there was no necessity which  called for the application of  said'sum as a payment on the original debt.  It was secured by property worth more than P400,000, according to the value put upon it by the parties themselves.   This was, so far  as appears, sufficient security.  There existed, therefore, no  particular or pressing reason why the bank should desire payments upon the debt so  secured, especially before it was  due.  This becomes more apparent when we recall, again,  the extremely pressing heed  of Reyes  for money for current uses and the very injurious  results to the bank which would  result from  such  application.

In most cases the account itself distinguishes between the money delivered to the bank by Reyes for checking purposes and for payment purposes,  referring by the latter phrase to money obtained from the sale of some of the mortgaged or pledged property.  In the one case it always refers to the money as a  deposit, "ingreso",  and  in the others it is  generally entered  thus: "Recibido del mismo para amortizar su credito, importe de 78 acciones de la Electricista."  Or: "Recibidas  para  amortizar  s.  credito medte. entrega del mismo del P. No. 421 de Minas de  Carb6n de Batan."   Or "Recibido para amortizar s. credito medte. entrega al mismo del P. 413  de San Nicolas Iron".   Or  "Su ingreso para amortizar s. credito mediante entrega al mismo del P. No. 417 de la Vda. de M. Soler".  Or "Su ing.o para amortizar s. credito por  cobro P. de Pons & Co."

The only question we are asked to decide being whether or not the said sum of P96,781.75 ought to have been applied as a payment on the original debt instead of being regarded as a deposit in a check account, we are not called upon to determine the  amount actually  due on said debt except to affirm the finding made by the trial court.   Nevertheless' in closing, we desire to refer to,a subject which touches the question of the amount due  indirectly.  We have already said that, so far as the personality described in the mortgage and pledge of defendant bank is  Concerned,  the plaintiff took absolutely nothing by  its second mortgage and pledge (Exhibit C).  The pledge was wholly without  virtue or effect  as to the property itself.   That this  is  so is  due, among other things, to the  fact that there was no delivery by the pledgor to the pledgee of the property  sought to be pledged.  (Civil Code, art. 1863.)  Property held in lawful pledge by one  can not legally be pledged  to another while the first pledge subsists.  (Civil Code,  art. 1866; Manresa, in his discussion  of that article, vol.  12.)  Moreover, the defendant bank had the right to extend the pledge created by Exhibit A until every other  obligation  which Reyes contracted with said bank subsequently thereto and which was due before the complete liquidation  of the first debt should be fully satisfied.  (Art. 1866, Civil Code; Manresa, in his discussion of this article, vol. 12.)  Plaintiff's  Exhibit C, its alleged second mortgage and pledge, must, therefore,  be construed  as nothing more than a  mortgage on the real  estate covered by the first mortgage.  It does not touch,  by way of lien, any of the personal property involved in this suit.  It is,  in law,  simply  a mortgage. on; the real estate  described therein. This,  taken  in  connection with the other effect above set forth, that  all of the personal property described in the bank's first pledge (Exhibit A) could be held by said bank  under said  pledge for the payment not only of the mortgage-pledge debt but also of  any other debt contracted by Reyes and due before the mortgage-pledge debt was  fully paid,  may  carry  some important consequences in determining how much is  due, when taken in connection with the facts  now to  be stated.   It should be noted that,  from the terms of  Exhibit A, primarily,  the real estate is charged with the payment of a specified portion  of the mortgage-pledge  debt,  namely, P88,000;  and the personal property with ¥138,117.38.   While it is provided in Exhibit A that the real estate shall  respond for the deficiency  should the  personal property not produce P138,117.38, and, vice versa, the  personal property shall respond should the real estate not produce P88,000, nevertheless, that can not be required until all of the property dedicated to its particular  purpose has been actually  put thereto.  In  other words, the real estate can  not be  used to pay any part of the P138,117.38 until all of the personal property has been used toward paying that sum.  Nor can any portion  of the personal property be used to pay  any part of the P88,000 until  all of the real estate has been applied to such payment.   It appears from Exhibit E that by far the greater part'of the real estate yet remains unsold and has been in no  way applied to the  reduction  of the P88,000.  There has been  received from the  proceeds of the real estate  (and from the income, the amount of which we do not know) only the  sum of P19,070.23.   It is manifest, therefore,  that  no part Of the personal  property or the income  therefrom,  if any, could have been applied to relieve the real  estate from its share of the  burden of the debt  during the time  included within the  scope of  this action.  On  the  other  hand, a considerable part of  the charge  imposed upon the  personal property still remains unpaid, a portion of said  property still  remaining in the hands of the bank  unsold and unused for the reduction of said debt.  There has been realized from the  personal property the sum of P126,575.92.  Its share of the burden  was P138,117.38.  With interest added, there would remain a considerable balance  due from the  personal property.

These facts are important for the reason  that inasmuch as plaintiff's Exhibit C touches by  way of lien nothing but the real estate,  it is  evident that its mortgage is effective as a lien only to the extent, at the very  utmost, to which the real estate has been relieved of its burden of P88,000.

We are of the opinion that,  from every point of view, regarding the  case from  the  standpoint of its separate elements and as a whole, it is clear  that the intention of the parties, Reyes and the bank, was that the said sum of P96,781.75 should be considered as a deposit instead of a payment, and we so hold.  No prejudice  to the plaintiff having been shown as a result of the carrying out of such intention, there is no need of further discussion.

The  judgment  of  the  court  below is affirmed, without special finding as to costs.  So ordered.

Torres, Johnson, Carson, and Trent, JJ., concur.