DOJ Opinion No. 227, s. 1939

DOJ OPINION NO. 227 , s. 1939 December 22, 1939 The General Manager Agricultural and Industrial Bank Manila Sir : This is in reply to yours to the 2nd instant wherein you request my opinion as to whether the investment of the Agricultural and Industrial Bank on the property covered by Transfer Certificate of Title No. 30874 of the land records of Occidental Negros, issued in the name of Aida Jalandoni, "would be within the authority established by Commonwealth Act No. 459", if the money is released, considering the various annotations appearing on the back of the title. It appears that the loan application has already been approved by the Board of Directors and the corresponding Deed of Mortgage executed and annotated on the back of the Transfer Certificate of Title. Granting that the annotations on the back of the Title in favor of the Central Azucarera de la Carlota and Margarita Nicolao are encumbrances on the property, I am of the opinion that the loan would still be within the letter of the provisions of Commonwealth Act No. 459 because the Act does not require that loans may only be granted on the security of unencumbered real estate. The only limitation prescribed by the charter (Section 7, Com. Act 459) of the Bank is that its loans shall not exceed sixty per centum of the appraised value of the securities. Furthermore, its investment on the loan should be taken from its assets other than trust funds administered by it pursuant to the provisions of section 10 of Commonwealth Act No. 459 and section 38 of the By-laws. These trust funds may not be invested on loans on the security of encumbered real estate. As to the annotation in favor of the Central Azucarera de la Carlota, it is the usual milling contract which is always appurtenant to every sugar cane producing plantation. Far from being a liability, it is an asset which benefits not only the Central but also whoever is entitled to the crops, be it the owner, lessee or any other person because the milling of the sugar cane produced is essential for a profitable marketing of the same. According to the 14th clause, page 8, of the milling contract, the Central acquires the right to work the property, or even sell or lease the same, upon recommendation and approval of the Planters' Committee, created under milling contract, if and when the planter concerned violates any of the provisions thereof. In effect, this provision protects the present quota of sugar allotted to the hacienda and prevents the owner from being subjected to the penalties prescribed by the Philippine Sugar Order No. 10 for deficiency in his allowances and allotments. Thus, the said stipulations likewise protect the Bank in view of the fact that the loan, as approved, includes as security the sugar quota of the hacienda. As to the contingency of the Central impairing the rights of the Bank by selling the hacienda in case Aida Jalandoni violates the milling contract, I am of the opinion that the Central cannot do so without the consent of the Bank, because the Central, under the terms of the milling contract, is constituted a mere agent of Aida Jalandoni . Since it is an elementary rule of a agency that an agent cannot do more than what his principal may do, it follows that the Central can not sell the property without the consent of the Bank because Aida Jalandoni, under the stipulations of the mortgage, cannot do so without such consent. It is suggested, however, that it be made a condition of the mortgage contract that, upon violation by the mortgagor of any of the stipulations contained in the milling contract with the Central Azucarera de La Carlota, or of any of the provisions of Philippine Sugar Order No. 10, dated May 5, 1938, such violation would be considered a cause for foreclosure of the mortgage. It is likewise suggested that, for the better protection of the Bank, the Central Azucarera de la Carlota be required to sign a deed of conformity acknowledging the mortgage in favor of the Bank as a first mortgage and prior to any lien which they may have thereon. This need not be done, however, if the Bank is satisfied that its interest will be adequately protected even if its lien does not become a prior lien. With respect to the usufructuary right of Margarita Nicolao, the Bank has to respect the same during her lifetime unless she is made a party to the contract of mortgage. Its existence, however, in case she is not made a party to the mortgage, does not impair the legality of the loan. The lease of the hacienda to Ramon Lopez need not be considered because the same expires with the 1939-1940 season. Very respectfully, JOSE A. SANTOS Secretary of Justice