[42] PEOPLE'S BANK AND TRUST COMPANY v. ODOM o The other building, "Edward J. Nell Co.
o The other building, "Edward J. Nell Co. Building" was then under
64 Phil. 126 | February 25, 1937 | Imperial, J.
Plaintiff-Appellee: PEOPLE'S BANK AND TRUST COMPANY
Defendant-Appellant: W.J. ODOM
Topic: Assignment by Way of Security
SUMMARY
Odom became indebted to People's Bank and Trust Company so he assigned in favor
of the latter, by way of guaranty, his rights in the contracts of lease of two buildings
and on the land on which the buildings are constructed. Odom continued to incur a
balance, thus, PBTC filed an action in court to recover the balance and to foreclose
the mortgage of the properties that guaranteed Odom's obligation. The CFI ruled in
favor of PBTC and ordered Odom to pay the balance, and should he fail to pay the
principal and interests within 3 months, the mortgaged properties shall be sold at
public auction and the proceeds shall be applied to his indebtedness. Odom appealed
to the SC and argued, among others, that the contracts did not intend to mortgage the
subject properties, but rather, they are contracts of assignment.
The Court ruled that the contracts were one of mortgage and not of assignment. They
were executed to guarantee the principal obligations of the defendant consisting of
the overdrafts of indebtedness. An assignment to guarantee an obligation is in effect
a mortgage and not an absolute conveyance of title which confers ownership on the
assignee. In this case, the contracts provide that should defendant Odom comply with
all the conditions of the contracts and should pay his indebtedness (+ interests), the
assignments would become null and void, otherwise, they would remain in full force.
If the intention was to absolutely assign the properties to PBTC, then this stipulation
would not have been made.
DOCTRINE
An assignment to guarantee an obligation is in effect a mortgage and not an absolute
conveyance of title which confers ownership on the assignee.
FACTS
 On January 12, 1927, Odom entered into a contract with A.D. Gibbs whereby
Gibbs authorized Odom to construct buildings upon his land in Binondo,
Manila.
o On that date, the "Sugar News Co. Building" was completely
constructed. Its first floor was occupied by plaintiff People's Bank
and Trust Company (PBTC).
construction.
 Under the same contract, Gibbs assigned to Odom the rents which the Sugar
News Co. Building and Edward J. Nell Co. Building may produce. Odom shall
however bear the expenses, including the expenses of construction of
Edward Nell Building.
 Odom entered into contracts with PBTC where he eventually incurred
overdrafts.
o At first, Odom had an overdraft of P110,000. To secure this
overdraft, Odom assigned to PBTC his rights, title, and interests in
the lease contracts with the tenants of the Sugar News Company
Building and also the rights, title and interest he had acquired in the
land on which the said building was constructed pursuant to the
contract which he had with Gibbs. Odom also assigned in this
contract an insurance policy. [FIRST CONTRACT]
o The overdraft increased to P150,000. To secure this, Odom
executed a contract whereby he assigned to PBTC also by way of
guaranty the same securities which he had given for the overdraft
of P110,000. [SECOND CONTRACT]
o On January 20, 1931, the overdraft increased to P165,000. To
guarantee the payment, Odom assigned to PBTC his rights, title,
and interest in the contracts of lease involving the various portions
of the Edward Nell Bldg. and his rights, title, and interest which he
had in the land occupied by the building pursuant to Odom's
contract with Gibbs. [THIRD CONTRACT]
 On the same day, Odom and PBTC executed a contract
whereby Odom assigned to PBTC his right to collect rents
of the Edward Nell Bldg. to secure the overdraft of
P165,000.
 By January 4, 1934, Odom still had a balance of P138,403.68 for his
overdrafts with PBTC.
 PBTC brought an action to recover from Odom the balance and to foreclose
the mortgage of the properties to guarantee his obligation.
o The CFI Manila ordered Odom to pay the balance with 9% interest
per annum. The judgment also decreed that the principal and
interest should be paid within 3 months, otherwise, the mortgaged
properties (rights, title, and interest on the 2 buildings + on the land
on which the buildings are constructed) will be sold at public
auction, the proceeds of which shall be applied to the payment of
the amount of the judgment.
 Odom appealed to the SC and argued that:
o The contract assigning Odom's rights to the contracts of lease with
the Edward Nell Bldg. shall be considered to have replaced the
earlier contracts 1) which secured the overdraft when it was still
 only P110,000 and 2) which secured the overdraft when was still
only to P150,000. (Recall that both these earlier contracts secure
the overdraft by assigning to PBTC, among others, Odom's rights in
the lease contracts with tenants of the Sugar News Company
Building)
o The obligation contracted by Odom was with a term and the parties
not having fixed the date of payment, the plaintiff should have first
brought an action to fix said date based on Art. 1128, Civil Code.
o None of the contracts is one of mortgage, but an assignment of
rights.
ISSUES, HELD, RATIO
 The contents of the latest (or third) contract reveal that the parties did not
intend to set aside the earlier contracts or substitute them with the latest
one.
 In the third contract, it was stated that it was executed as a result of the 1)
increase of the overdraft to P165,000 and 2) the assignment by way of
guaranty of Odom of his rights in the contracts of lease of the Edward J. Nell
Company Building as additional guaranty.
 The third contract also expressly incorporated the second contract and
provided that the same shall also guaranty the payment of the P165,000.
(Recall that same properties were used as security in the first and second
contract. This explains why the third contract only mentioned the
incorporation of the second contract)

[RELEVANT] W/N the three contracts with PBTC are one of assignment, not of W/N the contract was one with a term and therefore Art. 1128 of the Civil Code shall
mortgage – NO. The contracts of Odom with PBTC are contracts of mortgage, not apply – NO
assignment.
 In the first and second contract, it was provided that the obligation shall
 Odom argues that none of the three contracts is one of mortgage, but they expire and be due upon demand of PBTC. Since the second contract was
are assignments of rights because in none of the said contracts did the incorporated in the third contract it is plain that the obligation was without a
parties intend to constitute a mortgage. term. Further, since PBTC has required the payment of the obligation, the
 The Court, after careful examination of the documents, ruled that the same is already due and demandable.
contracts are mortgage contracts.
RULING
o They were executed to guarantee the principal obligations of the
defendant consisting of the overdrafts of indebtedness.
In view of the foregoing, we affirm the appealed judgment, except that part ordering
 An assignment to guarantee an obligation is in effect a
the public sale of the mortgaged rights, with costs to the defendant and appellant.
mortgage and not an absolute conveyance of title which
The plaintiff is ordered to account to the defendant for the rents received from two
confers ownership on the assignee.
buildings which have not been included in its liquidation, Exhibit G-4, and within ten
 IN THIS CASE
days from notice of this judgment by the court of origin, it shall file a written
o The contracts (specifically the latter two) stipulated that if
liquidation showing the final state of the account of the defendant. So ordered.
defendant Odom should comply with all the conditions of the
contracts and should pay his indebtedness (+ interests), the
NOTES
assignments would become null and void, otherwise, they would
remain in full force.
 If the intention was to absolutely assign the properties to
PBTC, then this stipulation would not have been made.
 Following the above conclusion, Odom's argument that his civil liabilities had
ceased after he made the "assignments". As found by the Court, Odom's
contracts with PBTC are one of mortgage, not of assignment. Further,
plaintiff had established that Odom has not paid his total overdraft.

OTHER ISSUES:

W/N the third contract of Odom with PBTC ('assigning' his rights on the contracts of
lease in the Edward Nell Bldg.) merely replaced the earlier contracts ('assigning'
Odom's rights in the contracts of lease in the Sugar News Co. Bldg) – NO