36980037 Chattel Mortgage Digest

G.R. No. 34385

September 21, 1931

ALEJANDRA TORRES, ET AL. vs. FRANCISCO LIMJAP FACTS : A chattel mortgage was executed in favor of the plaintiff. Plaintiff alleged that the defendant violated the terms and that, in consequence thereof they became entitled to the possession of the chattels and to foreclose their mortgages thereon. After filing of the petition and the necessary bonds, the court issued in each case an order directing the sheriff of the City of Manila to take immediate possession of said drug stores. After hearing the evidence the trial court arrived at the conclusion (a) that the defendant defaulted in the payment of interest on the loans secured by the mortgages, in violation of the terms thereof; (b) that by reason of said failure said mortgages became due, and (c) that the plaintiffs, as mortgagees, were entitled to the possession of the drug stores. Accordingly, a judgment was rendered in favor of the plaintiffs and against the defendant, confirming the attachment of said drug stores by the sheriff of the City of Manila and the delivery thereof to the plaintiffs. ISSUE : Whether or not the stipulation in the chattel mortgages in question, extending their effect to after-acquired property, is valid and binding? RULINGNS : A stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and binding — . . . where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc. (11 C.J., p. 436.) Cobbey, a well-known authority on Chattel Mortgages, recognizes the validity of stipulations relating to after-acquired and substituted chattels. His views are based on the decisions of the supreme courts of several states of the Union. He says: "A mortgage may, by express stipulations, be drawn to cover goods put in stock in place of others sold out from time to time. A mortgage may be made to include future acquisitions of goods to be added to the original stock mortgaged, but the mortgage must expressly provide that such future acquisitions shall be held as included in the mortgage. ... Where a mortgage covering the stock in trade, furniture, and fixtures in the mortgagor's store provides that "all goods, stock in trade, furniture, and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage," the mortgage covers all after-acquired property of the classes mentioned, and, upon foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed." (Vol. I, Cobbey on Chattel Mortgages, sec. 361, pp. 474, 475.) In harmony with the foregoing, we are of the opinion (a) that the provision of the last paragraph of section 7 of Act No. 1508 is not applicable to drug stores, bazaars and all other stores in the nature of a revolving and floating business; (b) that the stipulation in the chattel mortgages in question, extending their effect to after-acquired property, is valid and binding; and (c) that the lower court committed no error in not permitting the defendant-appellant to introduce evidence tending to show that the goods seized by the sheriff were in the nature of after-acquired property. G.R. No. 103576 August 22, 1996 ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs CA.

FACTS : Petitioner executed a chattel mortgage in favor of Producers Bank of the Philippines by way of security for petitioner’s corporate loan. In due time, the loan was paid by the petitioner. In 1984, the bank extended to petitioner a loan covered by four promissory notes but due to financial constraints, the loan was not settled at maturity. Respondent bank thereupon applied for an extra judicial foreclosure of the chattel mortgage with the Sheriff prompting petitioner corporation to file an action for injunction before the Regional Trial Court. Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations of the chattel mortgage. Petitioner corporation appealed to the Court of Appeals which affirmed, "in all respects," the decision of the court a quo. The motion for reconsideration was denied. ISSUE : Whether or not it is valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred? RULINGS : Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal debt or is secured by the personal commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property — in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit — upon the essential condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation, but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory character of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and void. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons acting in good faith), the fact, however, that the statute has provided that the parties to the contract must execute an oath that —

. . . (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud. 13

makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., 14 the Court said — . . . A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage. 15

G.R. No. L-14475

May 30, 1961

SOUTHERN MOTORS, INC. vs.ANGELO MOSCOSO FACTS : On June 6, 1957, plaintiff-appellee Southern Motors, Inc. sold to defendant-appellant Angel Moscoso one Chevrolet truck, on installment basis, for P6,445.00. Upon making a down payment, the defendant executed a promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price (Annex A, complaint), to secure the payment of which, a chattel mortgage was constituted on the truck in favor of the plaintiff (Annex B). Of said account of P4,915.00, the defendant had paid a total of P550.00, of which P110.00 was applied to the interest up to August 15, 1957, and P400.00 to the principal, thus leaving an unpaid balance of P4,475.00. The defendant failed to pay 3 installments on the balance of the purchase price. Plaintiff filed a complaint to recover the unpaid balance of the promissory note. Upon plaintiff's petition, embodied in the complaint, a writ of attachment was issued by the lower court on the properties of the defendant. After attachment and before the trial of the case on the merits, acting upon the plaintiff's motion dated December 23, 1957, for the immediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo on January 2, 1958, sold the truck at public auction in which plaintiff itself was the only bidder for P1,000.00. The case had not been set for hearing, then. The trial court on March 27, 1958, condemned the defendant to pay the plaintiff the amount of P4,475.00 with interest at the rate of 12% per annum from August 16, 1957, until fully paid, plus 10% thereof as attorneys fees and costs against which defendant interposed the present appeal. ISSUE : Whether or not the attachment caused to be levied on the truck and its immediate sale at public auction, was tantamount to the foreclosure of the chattel mortgage? RULINGS : We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged truck itself. Since herein appellee has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the judgment that may be favorably rendered hereon, on all personal and real properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest that the attachment was merely an incident to an ordinary civil action. (Sections 1 & 11, Rule 59; Sec. 16, Rule 39). The mortgage creditor may recover judgment on the mortgage debt and cause an execution on the mortgaged property and may cause an attachment to be issued and levied on such property, upon beginning his civil action.

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; . (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not have instituted this case in court; it would not have caused the chattel to be attached under Rule 59, and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the house and lot of the appellant at San Jose, Antique. G.R. No. L-24772

May 27, 1968

RUPERTO G. CRUZ, ET AL. vs. FILIPINAS INVESTMENT and FINANCE CORP. FACTS : Plaintiff purchased on installment from Far East Motor Corp. (FEMC) one unit of Isuzu Diesel Bus and executed and delivered a negotiable promissory note to FEMC. To secure the payment of the promissory note, plaintiff executed a chattel mortgage over the said motor vehicle. Due to non payment of down payment FEMC required the plaintiff to give additional security for his obligation besides the chattel mortgage and that said additional security was given by plaintiff Felicidad Vda. de Reyes in the form of SECOND MORTGAGE on a parcel of land owned by her, together with the building. FEMC indorsed the promissory note and assigned all its rights and interest in the Deeds Mortgage to the defendant with due notice of such assignment to the plaintiffs. That plaintiff Cruz defaulted in the payment of the promisory note and notwithstanding defendant's demands, Cruz made no payment on any of the installments stipulated in the promissory note; That by reason of Cruz's default, defendant took steps to foreclose the chattel mortgage on the bus. That at the foreclosure the defendant was the highest bidder. That the proceeds of the sale of the bus were not sufficient to cover the expenses of sale, the principal obligation, interests, and attorney's fees, i.e., they were not sufficient to discharge fully the indebtedness of plaintiff Cruz to the defendant. Preparatory to foreclosing its real estate mortgage on Mrs. Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to the Development Bank of the Philippines. That pursuant to a provision in the real estate mortgage contract, authorizing the mortgagee to foreclose the mortgage judicially or extra-judicially requested the Provincial Sheriff of Bulacan to take possession of, and sell, the land subject of the Real Estate Mortgage to satisfy the total outstanding obligation of the plaintiffs to the defendant. Plaintiff Reyes through counsel, wrote a letter to the defendant asking for the cancellation of the real estate mortgage on her land, but defendant did not comply with such demand as it was of the belief that plaintiff's request was without any legal basis; ISSUE : whether or not defendant, which has already extrajudicially foreclosed the chattel mortgage executed by the buyer may also extrajudicially foreclose the real estate mortgage for the payment of the balance of obligation?

RULINGS : There is no controversy that, involving as it does a sale of personal property on installments, the pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines, which reads: ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. The aforequoted provision is clear and simple: should the vendee or purchaser of a personal property default in the payment of two or more of the agreed installments, the vendor or seller has the option to avail of any one of these three remedies — either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. These remedies have been recognized as alternative, not cumulative, that the exercise of one would bar the exercise of the others. It may also be stated that the established rule is to the effect that the foreclosure and actual sale of a mortgaged chattel bars further recovery by the vendor of any balance on the purchaser's outstanding obligation not so satisfied by the sale.