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[ GR No. 25235, Dec 09, 1926 ]



49 Phil. 703

[ G. R. No. 25235, December 09, 1926 ]




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 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.

 JOHNS, J., dissenting in part:

There are  two statements made  in  the  carefully prepared and well written opinion of Justice  Johnson, with which I cannot agree.  First, on page 3 (p. 707, ante),  it is said:
"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.)"
Again on pages 16 and 17 (p. 719, ante), it is said:
"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 record is conclusive that plaintiff's mortgage is prior in both time and right to the one in favor of the "hospital." Assuming and conceding that to be true,  without being registered, the mortgage of the "hospital" is a legal and valid  mortgage as between the mortgagor and the mortgagee, and  third  parties who have actual  notice  of the existence of the mortgage.

Article 1875 of the Civil Code is as follows:
"In addition to the requisites  mentioned in article 1857, it shall be indispensable, in order that a mortgage may be validly  constituted,  that  the instrument by which it is created be recorded in  the registry  of  deeds."
Under this  section, a number of decisions of this court are cited, the  first of which is the United States vs. Mendezona (1 Phil, 696, 703), and the last Legarda and Prieto vs. Saleeby (31 Phil., 590, 601).

In the Preface to the Civil Code it is said that:
"In May, 1889, the Civil Code was promulgated in Spain. In July of the same year, by Royal Decree, it was extended to the Philippines.   The Code was published in the Manila Gazette and took effect  as a law on December  8, 1889."
With one exception,  those decisions  hold in legal  effect that an unregistered mortgage  is void  as to third parties, and in the final analysis and upon the facts therein stated, that is all they do  hold.  That is  good  law, but in the instant case, we are dealing with the legal force  and  effect of an  unregistered mortgage as  between the mortgagor and the mortgagee, and third persons with actual notice of the mortgage.

This  court has never held that an  unregistered  mortgage is void as between the mortgagor  and the mortgagee, or third parties  with  actual  notice.

In the case of Obras Pias vs. Devera Ignacio (17  Phil., 45), published on September 16, 1910, this court, speaking through Justice  Johnson,  in the  syllabus of  the  opinion, says:
"The effect of actual  notice of the existence of said  mortgage is equivalent to the registration  of the  same  under the provisions  of the Mortgage  Law."
And, on page 47 of the opinion, says:
"The purpose  of registering  an instrument relating to land, annuities, mortgages, liens, or any other  class of real rights  is to give notice to persons interested of the  existence of these various liens against the property.  If the parties interested  have actual  notice  of the  existence  of such liens, then the necessity for registration does not exist. Neither can one who has actual notice  of existing liens acquire any rights  in such property free from such  liens  by the mere fact that such liens have not been recorded."
That is also good law, and it is  sustained by all standard text writers  and the unanimous decisions of at least all of American courts.

In the case of Patterson vs. De la Ronde (19 Law. ed., 417), the Supreme Court of the United States says:
"Besides, the  object of all  registry laws is to impart information to parties  dealing with property  respecting its transfers and incumbrances, and thus to protect them from the prior secret conveyances and liens.  It is to the registry, therefore, that purchasers, or other desirous of ascertaining the condition of  the  property  must  look, and  if not otherwise informed, they can rely upon the knowledge there obtained.   But if they have notice of the existence  of unregistered  conveyances and mortgages,  they cannot, in truth, complain  that  they are, in any respect,  prejudiced by  the want of registry.  In equity,  and in this country generally  at law, they are not permitted to  defeat,  under such circumstances, the rights of prior grantees or incumbrancers,  but are required to take the title or security in subordination to their rights.  The general doctrine is that knowledge of an existing conveyance or mortgage  is, in legal effect, the  equivalent to notice  by the registry.  And such is the law of Louisiana as expounded by the decisions of her highest court.  Thus, in Robinett vs. Compton, 2 La. Ann., 854, that  court said:  The doctrine is  now well settled, that  the actual knowledge by a purchaser of an existing mortgage or title is  equivalent to a notice resulting from the  registry.  The formality of  recording is for the benefit of the public,  and  for the purpose of giving  notice to individuals.   But if a party have knowledge 6f that of which it is the purpose of the law to notify him by causing an  act, instrument or lien to be recorded, the effect is the same, and he is as much bound by his personal knowledge as if his  information was derived  from  an  inspection of the record.' "
In the instant case, it is admitted  that on the 17th of June, 1920, the "hospital" took its mortgage to the office of the register of deeds for the purpose of having it registered as a first mortgage on the property, and that  it was not registered as such, because it appeared from the records in that office that  plaintiff's  mortgage was registered  on the 16th of June, 1920.  The register of deeds declined to register the  "hospital" mortgage as a first mortgage, and the "hospital" declined to have it registered  as  a  second mortgage,  and it was for  that reason only that the "hospital" mortgage was not registered.  That is an undisputed fact.

During the trial of the case, Tiburcio Lutero admitted the execution of the mortgage to  the "hospital,"  and that instrument is in the record.  It is duly signed,  witnessed and acknowledged before a notary public, and, as between the parties, recites, and shows  upon its face that in both form and substance it is a real mortgage on the property in question.   Lutero and his  wife do not seek to have the mortgage as to them declared  void for want of registration. In fact they admit that it is a good  and valid mortgage without registration.

The only issue between the plaintiff and the "hospital" is as to the priority of the two mortgages, and  upon that point this  court holds that the mortgage of  the plaintiff is prior in both time  and  right to the mortgage in favor of the  "hospital."   Assuming that to be true, the fact that the mortgage of the "hospital" was not registered becomes wholly immaterial  as  between the plaintiff and the "hospital."  That is to  say, the question of the validity of  an unrecorded mortgage between the parties is not raised  or presented by  any pleading or by any assignment of error by any party to this action, and the real parties in interest admit the execution of the mortgage to the "hospital" and its  validity without registration.

Hence, as to all of that portion of the opinion above quoted, we vigorously dissent.

Under all of the authorities, as between  the mortgagor and the mortgagee  and third  parties with actual notice,  an unrecorded mortgage is valid.

As the Supreme Court of the United States says:
"The general doctrine is that knowledge of an existing conveyance or mortgage is, in legal  effect, the equivalent to notice by the registry."
In other words, that  as  between the mortgagor and the mortgagee, the mortgage  is "validly constituted" within the meaning of article  1875  of  the Civil  Code,  and the same thing is true as to third parties with actual notice.

When a person executes  a mortgage, he has actual, personal knowledge of that fact, and is estopped to deny or assert that he signed the mortgage.  As to him, the record of that mortgage would be notice only of a fact which he personally knew when he signed  the mortgage.

Under all of the authorities, the same  principle applies to third parties with actual  notice, and as to all of such parties, the mortgage from  Lutero  and  his wife to the "hospital"  is a good  and  valid mortgage, and as such  it ought to be recognized and enforced.

It will be noted that the present Civil  Code took effect on December 8, 1889, and that the opinion of this court by Justice Johnson above quoted was rendered on September 16, 1910.  That is to say at the time that opinion was written, article  1875 of the Civil Code  had  been a law for more than  twenty years.

Within the meaning of that article, and  upon the facts shown  in  the record, the  mortgage from Lutero and his wife was a "validly constituted" mortgage as between them and the "hospital," and it was also a valid mortgage as to third parties with actual  notice.   In legal effect, that  is the decision of this court in Obras Pias vs. Devera Ignacio.

For  such reasons, we vigorously dissent from that portion  of the opinion which  says that the  mortgage of the "hospital"  "cannot be considered a mortgage," and that "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."  In all other respects, we agree with the opinion  of  the  court as written.

[1] By P. C. Fisher.

AVANCE√ĎA. J.,  with whom concurs STREET, J.,  dissenting:

Even though  the decision  of the majority contains  a detailed exposition of  the facts, I shall  refer,  however, to those that are pertinent to my point of view.

The defendants  spouses, Tiburcio Lutero  and Asuncion Magalona, executed a  first mortgage in favor of  the National Bank, on the lands which are the subject of this action, in the sum of P9,500.   On April 15, 1920,  while this mortgage was  still in force, the defendants applied and obtained a loan of P12,000  from the plaintiff  Lim Julian, with  a second mortgage on the  same  lands  (Exhibit A).  Subsequently, the defendants obtained another loan of  P22,400 from the St. Paul's Hospital of Iloilo, with a first mortgage on the same lands.  A part of this money  loaned by  the St. Paul's Hospital  was used to pay the  loan and cancel the mortgage in favor of the National Bank..  Before  obtaining this loan  from St.  Paul's Hospital, the  plaintiff, according to the defendants, consented to a first mortgage on the lands in favor of the hospital after the  cancellation of the mortgage in favor of the  National  Bank.  While the plaintiff denied having given such  consent,  yet, it is true,  at least, that at  that time he had knowledge of  the mortgage in favor of  the hospital.  The plaintiff  did  not register the mortgage in his favor until after the mortgage in favor of the National Bank had been cancelled, that is, on June 16, 1920.   The following day, the 17th,  the mortgage deed was executed in favor of St. Paul's Hospital, and when this institution  attempted to register it as a first mortgage, the register of deeds refused to do so in view of the fact  that the  mortgage in  favor of the plaintiff had already been registered.

It also  appears  that prior to April 15, 1920,  when  the mortgage in favor of the plaintiff  was executed,  the  defendants  already  owed him the  sum of  P5,008.04; that from April 15,  1920 to October 22d of the same year,  the defendants  received a  loan of P12,000 from the plaintiff; that from October 22, 1920, to May 31, 1921, the defendants  borrowed other  sums  from the  plaintiff  which, together with the sums previously  received and the corresponding interest, amounted to P36,964.27.  Up  to  June 21, ,1921, the defendants paid the plaintiff, in cash and in sugar, the amount  of P14,157.18, leaving a  balance of P22,807.09.

I dissent from the majority opinion where it finds that, in  accordance with the contract (Exhibit A)  between the defendants  and the plaintiff,  the mortgage  which the former executed on the lands  in question, it includes all the amounts borrowed by them from the plaintiff.  In my opinion,  this  mortgage  was made for  the sum  of  only P12,000.  As this question depends  upon the interpretation of  the contract entered  into between  the  defendants and the plaintiff, I deem it wise to quote the same, which,  eliminating paragraph 1 which refers to the statement of the ownership of  the mortgage land, reads as follows:

*       *      *      *     *     *     *
"II. That said mortgagors have applied and obtained from  the said Lim Julian a loan of twelve thousand pesos (P12,000), with interest at twelve per cent per annum (12%),  under  the following conditions: That said loan is to be used by the mortgagors in the cultivation and care of the sugar-cane plantations above mentioned, for the milling and  production of sugar from said sugar-cane plantations,  and for  the  purchase  of  work, animals  and  all expenses  necessary for the activities  of  said  sugar-cane plantations.

"III. That  said mortgagors may draw upon  the mortgagee  at the  rate  of one thousand  five  hundred  pesos (P1,500),  Philippine currency,  a month,  until the  total amount of the loan is  received, and interest thereon  shall be earned only from the date or dates that appear on the chit or receipt to be issued by the mortgagors in each  case, said mortgagors being under the  obligation to issue the same whenever they receive said monthly payment.

"IV. That the sugar produced by the mortgagors from said sugar-cane plantations must be shipped, as it is produced, for their account  and risk to the mortgagee in the City of Iloilo, in order that the latter might sell it at the current market price, or store it in foreign warehouses in the City of Iloilo or in his  own warehouses in said city, as he may deem best for the interests of the mortgagors,  and the quedans, in case of storage, shall be issued in the name of the mortgagors  who shall immediately endorse the same in favor of the mortgagee.  The mortgagee shall receive said sugar and take care of it with the diligence of a good father of a family, endeavoring to obtain for it  the best market price in each instance, or, at least the current market price of Iloilo, said mortgagee being further authorized to receive and collect the  value of said sugar.

"V., The mortgagee is hereby authorized  to  purchase said sugar for himself,  with preference, all things being equal.

"VI.  The mortgagee, for his services of receiving, caring and procuring a good price for said  sugar, shall receive, as  compensation, whether  the  sugar  is sold or bought by himself, two per cent  (2%) of the  gross value of  said sugar.

"VII. The mortgagee is  also hereby authorized to  retain from the value of said sugar, such amount or amounts as he may deem proper in order to obtain the payment of the said two  per cent (2%)  compensation and of said  loan and interest thereon.

"VIII. The mortgagors hereby bind themselves to keep, take  care of and protect  said sugar-cane plantations as good agriculturists, and to gather  the cane in due season and without delay.

"IX. The mortgagors also bind themselves to pay the mortgagee a sum not less than two thousand pesos  (P2,000) by way of  damages and penalty, in  case the mortgagors or any one of them should infringe any of the conditions hereof and compel the  mortgagee to engage  the services of a lawyer, or to apply to the courts of justice for the enforcement of  said obligation."
*       *       *      *       *      *       *

According to the clauses just quoted,  the  loan applied for and granted the defendants  by the plaintiff,  was for P12,000 and no more, and  as  the lands in question were mortgaged only to  secure the fulfillment  of the obligation which the defendants contracted by virtue of said contract (Exhibit A),  no liability can be enforced upon this mortgage in excess of the sum of P12,000.  Any amount which the plaintiff might  have given the defendants in  excess thereof was not within the terms of the contract and constitutes a mere  ordinary loan which cannot be considered as secured by the mortgage.

But  it is said that, according to the tenth clause which follows,  the loan granted the  defendants  by  the  plaintiff was not only for the sum of P12,000, but for any  other amount in excess thereof, and, consequently, all the  amounts received by the  defendants must be considered as secured by the mortgage.  The tenth clause reads as follows:
"That all of the  obligations  of the mortgagors and the conditions  herein stipulated must  and shall  be complied with on or before the thirtieth  day of April, nineteen hundred and twenty-one, the date  when said  sugar-cane plantations must be  harvested or milled into sugar and sent to the mortgagee,  and the loan,  together with  the  interest thereon above-mentioned and such other amount as the defendants might  be owing to  the mortgagee, must  be fully paid."
It may be noted at a glance that this clause does not state that the defendants were granted an amount in excess of the P12,000.   There is nothing in this clause which might be construed as creating an obligation on the part of the plaintiff to grant the defendants more than the P12,000. If, after having paid the defendants the loan of P12,000 the plaintiff should refuse to pay them any more, and the defendants should try to force him to do so, invoking this clause of the contract, I do not believe there is anyone who would contend that they had any reason for doing so.   The tenth clause alone cannot be interpreted as evidencing a contract between the defendants and the plaintiff for a future loan of any amount in excess of the P12,000.  If such had been their intention they  would have  expressed  it instead  of referring  only and specifically to the  P12,000.  However general the terms of a contract may be, it shall not be construed as  including things and cases different from those with  respect to  which  the  persons  interested  intended  to contract.   (Art.  1283, Civil Code.)   If there was no such contract there can be no mortgage in regard to this excess. A mortgage is an accessory contract  which cannot  exist without the principal one  (art. 1857, Civil Code).  If the plaintiff, however,  paid the defendants other  amounts  in excess of the loan of P12,000, -it was not done by virtue  of the contract Exhibit A, and, consequently,  said amounts cannot be  considered as secured by the mortgage, which was executed by the  defendants to assure only their obligation which  they  incurred in accordance with said contract.

Attention is called to the fact that mention is made  in the tenth clause not only of the loan  (P12,000)  but also  of such  other amount as the defendants might be owing the plaintiff at the expiration of the  contract; and it is said that this cannot  be accounted for except by the fact that there was  an understanding between the parties that the defendants could borrow more than the P12,000 from the plaintiff.   This  inference is not necessary if  it is  taken into consideration that, before the contract was  entered into,  the defendants  already owed the plaintiff P5,008.04 which, at most,  might  be the  amount referred to  in the tenth clause, since the  same might not be paid, but in no way any other amount in excess of the P12,000 which the parties, upon entering into the contract, did not think the defendants might borrow.,

This  is not the  only interpretation that the  contract permits of, but  is the very one given by the plaintiff, in his brief.  The plaintiff does not claim that the mortgage secures the payment  of more than  P12,000.   His only contention in this instance  is that the defendants having received P36,964.27 in all,  notwithstanding the  payment of P14,157.18 made by them, and  still owing P22,807.09, the mortgage  must be considered as still subsisting as to P12,000 of the P22,807.09, because that payment must not necessarily be applied to the mortgage loan.  That is why the plaintiff,  in his brief, only prays for judgment against the defendants for the payment of the P12,000,  as a mortgage debt, and for the balance of the P22,807.09, as an  ordinary debt.   The least that can  be said about the tenth clause of the contract, to which reference is here made, is that it is very vaguely worded.  Hence, it is the duty of the court to interpret it in accordance with the intention of the contracting parties.  However, notwithstanding the fact that the parties, in their  briefs, are agreed that the mortgage covers only the amount of P12,000, the majority of  this court insist that there was  another intention in executing the contract,  and that the mortgage includes all of  the  amounts borrowed.   Plaintiff's brief says:

*     *       *       *       *       *       *
"If at the time the defendants made their advance, payments they had stated that the payments should be applied to  the  secured  debt, this could would never have come into the courts.   (P. 26.)

*     *       *       *       *       *       *

"He (the plaintiff) knew that his mortgage was for only P12,000, with interest, and that he would  have to take  a chance on the balance that was not secured.  (P. 30.)

"While it is true that the mortgage, Exhibit A, does not contain any provision relative to  a continuous loan, there can be no doubt that  the parties, by their conduct, considered their agreement thus, and that Exhibit A must be considered as amended  in this sense.   (P. 31.)

*     *       *       *       *       *       *

"The judgment must be set aside  and one  entered in favor  of  the plaintiff in the  foreclosure of the mortgage for the sum of P12,000, accumulated interest, penalty, and for the balance of the debt."  (P. 48.)
At any rate, even supposing that the interpretation given to the  contract by the majority is correct, in the sense that the defendants mortgaged the lands to secure the payment of not only the loan  of P12,000 specifically granted them, but also any other indefinite amount that they might borrow in excess thereof,  this mortgage  is  worthless and of no effect.  A mortgage  may secure a future obligation, but it cannot benefit or prejudice a third party until the  obligation is in fact contracted.   (Art. 1861,  Civil Code and art. 142, Mortgage  Law.)   And it must be so inasmuch as the mortgage, as an accessory contract, cannot come into existence before  the  principal  obligation,  the  fulfillment of which  is secured by it, because then it would have no  object.

This is clearer  in a contract of loan, as the one now before us, which, being  real  in its  nature, does  not come into existence until the delivery of the thing, but, it  is  not enough that the obligation be in fact contracted, or  that it is carried into effect, in order that the mortgage may be effective,  but it is also necessary that it be noted  in  the registry.   (Art.  143, Mortgage  Law).   This  is likewise clear.   If there can  be no  mortgage  without  a principal obligation (art. 1857, Civil Code) and  registration being necessary, in accordance with  the  Mortgage Law, for the efficacy of the mortgage, the act that gives life and  reality to the principal obligation must be recorded and noted.  No notation was made in the registry that the defendants had borrowed any amount in excess of the P12,000 from the plaintiff, and, for this reason, the mortgage to secure the payment of this excess is not, by any means, effective.

My conclusion is that  the lands in question  can be considered mortgaged only  to secure the amount of P12,000 owed by the defendants to the plaintiff and that any amount in excess thereof must be considered as an ordinary debt only.

This being so the only question would be that upon which the trial court based its finding, viz: To what part of the defendants' debt must the payment of P14,157.18 be applied?

The  plaintiff's loan being partly a mortgage and partly an ordinary loan, and the application of this payment not having been stated, the same must be deemed to have been made on account of the most burdensome debt  (art. 1174, Civil Code),  that is, the mortgage loan.   This payment being in excess of the mortgage loan of P12,000, the same should be cancelled, without prejudice to rendering judgment against the defendants for  the balance of  an ordinary debt.

After  the  mortgage in favor of the plaintiff is cancelled,  the intervenor, St. Paul's Hospital, has  the right to register the mortgage in its  favor as a  first mortgage.

According to the dissenting opinion of Mr. Justice Johns, the mortgage, though not registered, is valid between the parties and even as to third parties who have actual knowledge thereof.  If this opinion is correct, the  mortgage in favor of St. Paul's Hospital is valid even as to the plaintiff inasmuch as  the latter  had knowledge  of it.  I  do not, however,  base my dissent upon  that If Mr. Justice Johns, because, I believe, with  all  due  respect to  him,  that it is erroneous. Article 1875 of the Civil Code  clearly requires the registration of a mortgage in order to insure its validity.  The doctrine enunciated by this court in the case of Obras  Pias  vs.  Devera   Ignacio  (17 Phil.,  45), to  the effect that the actual knowledge of the existence of the mortgage is  equivalent  to its  registration in accordance with the  Mortgage Law, is not applicable to the present case.  That case involved a mortgage made on August 16, 1861, before the Civil Code was in force, and which must be  governed only by the Mortgage  Law.  But  the Civil Code,  which went into  effect later, requires registration as an indispensable requisite for the validity of a mortgage. Commenting on this question, Manresa  (vol. 12, p.  494, 1911 ed.)  says:
"It is enough to compare this provision with that of article 146 of the Mortgage Law, to understand that a very great  difference exists between the two.   The Mortgage Law requires this requisite of registration in order  that the mortgage may prejudice a third party.   The Civil Code establishes it as an indispensable requisite for the validity of the act which goes a little farther, because, without the registration the mortgage is null,  even as  between  the parties."
The contract  in question must be governed by the Civil Code in this respect inasmuch as it was entered into when said Code was in force.

But, at  any rate, even considering that the mortgage in favor of St. Paul's Hospital is not valid as such mortgage, it is, nevertheless, valid as a contract by which St.  Paul's Hospital can compel the defendants to register the mortgage in order to make it valid..   (Art.  1279,  Civil Code.)

In my opinion, the judgment appealed  from  must be affirmed.