Chattel Mortgage

1|Page Chattel Morgage – Earl Louie Masacayan Makati Leasing and Finance vs. Wearever Textile Mills. Facts: Wearever Textile Mills executed a Chattel Mortgage with Makati Leasing over certain raw materials inventory and a certain machinery to secure the collections of the receivables assigned to the former. Wearever failed to pay the obligation which made Makati Leasing to file application for replevin that was approved by the RTC. The sheriff enforced the order and took away the drive motor of the subject machinery. CA set aside the order ruling that the machinery that is attached to ground by means of bolts can’t be subject of a Chattel Mortgage because it is considered a real property as the Article 415 of the Civil Code provides. Issue: Whether or not the subject machinery can be a subject of the chattel mortgage. Held: Yes. Parties may contract that a real property be subjected to a Chattel Mortgage as long as no third persons will be prejudiced thereby.

Filipinas Marble vs. IAC Facts: Filipinas Marble (petitioner) applied for a loan with DBP to develop the fun potentials of its mining claims and deposits particularly financing the acquisitions of machinery, equipment and spare parts. DPB granted the loan subject to sixty onerous conditions including a security via chattel mortgage which is not registered and that instead of helping petitioner get back on its feet, DBP completely abandoned the petitioner's project and proceeded to foreclose the properties mortgaged to it by petitioner without previous demand or notice. The petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP because it is petitioner's contention that there was no loan at all to secure since what DBP lent to petitioner with its right hand, it also got back with its left hand; and that, there was failure of consideration with regard to the execution of said deeds as the loan was never delivered to the petitioner. The petitioner also prayed that the trial court immediately issue a restraining order and then a writ of preliminary injunction against the sheriffs to enjoin the latter from proceeding with the foreclosure and sale of the petitioner's properties. DBP opposed the issuance of a writ of preliminary injunction stating that under PD 385, DBP's right to foreclose is mandatory. Trail court ruled that PD 385 is applicable and that it cannot enjoin the defendant Development Bank of the Philippines from complying with the mandatory provisions of the said Presidential Decree. CA upheld the previous decision.

Issue: Whether or not the non-registration of the chattel mortgage affects its validity. Held: No. Article 2125 of the Civil Code provides that it is indispensable, in order that a mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.

Allied Banking Corporation vs. Salas Facts: General Bank and Trust Company granted Gencor Marketing a time loan evidenced by a Promissory Note executed by the latter through its President. For security purposes, a Deed of Chattel Mortgage was executed by Gencor Marketing in favor of General Bank and Trust Company involving a number of properties and that was recorded. Gencor failed to pay its obligations on time and the mortgages was extrajudicial foreclosed. However, prior to that, MBTC filed a collection of money with preliminary attachment against the president of Gencor and Jesus Yujuico for the failure of the latter to fail their debt to the former. The properties that are attached are those properties that are subject to the chattel mortgage. MBTC filed an urgent motion to enjoin the sheriff from foreclosing and selling the subject properties as well as rd filing 3 party complaint. The Motion was granted. Issue: Whether or not the enjoining of the foreclosure of the subject properties is proper. Held: No. The chattel mortgage lien attaches to the property wherever it may be. Thus, private respondent as attaching creditor acquired the properties in question subject to petitioner's mortgage lien as it existed thereon at the time of the attachment. The lien of petitioner's chattel mortgage over the mortgaged properties in question superior to the levy on attachment made on the same by private respondent as creditor of chattel mortgagor Clarencio Yujuico. What may be attached by private respondent as creditor of said chattel mortgagor is only the equity or right of redemption of the mortgagor.

Servicewise Specialist, Inc. Vs. IAC Facts: Siton purchased a car from Car Traders and paid the down payment. Promissory note was executed in favor of Car Trader as well as Chattel Mortgage over the subject motor vehicle for more security. The credit covered by the PN and the ChM war first assigned by Car Traders in favor of Filinvest then

2|Page Chattel Morgage – Earl Louie Masacayan subsequently reassigned to Servicewide; Siton was informed of the assignments. De Dumo bought the subject car from Siton and the former took possession but the car remained registered to the latter upon the advice of Filinvest which also said that verbal notice is sufficient. When there was default, Servicewide Specialist filed an action for sum of money against Siton and de Dumo. RTC and CA ruled that the two defendants are solidary liable to Servicewide and there was a valid sale.

Facts: Whether or not the creditor mortgagee may file an action to collect deficiency of the foreclosure proceeds. Held: Yes. When a loan, saving those applicable to the Recto law, is secured by a chattel mortgage, the deficiency of the proceeds from the foreclosure may be claimed by the mortgagee. The Recto law cannot be applicable in this case for it only applies on the sale of a personal property payable by instalments which is not the case at bar.

Issue: Whether or not the sale of item subject to the mortgage is valid. Held: Yes. The mortgagor can sell the item subject to the mortgage even if the mortgage agreement prohibits it because the mortgagor remains the owner of the item.

Bicol Savings and Loan Association vs. Guinhana Facts: Depositario and Guinhana, acting as solidary co-maker, contracted a loan from BISLA with a chattel mortgage by Depositario as security that was foreclosed because of default but there’s a deficiency. BISLA sued Depositario and Guinhana for collection of sum of money because of the deficiency. Depositario was dropped from the case because his whereabouts was unkown wherein summons could not be served. The court ruled that Guinhana should pay as solidary debtor but the CA reversed the ruling. Issue: Whether or not a solidary co-maker who is not party to the chattel mortgage can be liable in the deficiency of the foreclosure. Held: Yes. When a loan, saving those applicable to the Recto law, is secured by a chattel mortgage, the deficiency of the proceeds from the foreclosure may be claimed both form the principal debtor and the solidary co-maker via an independent action.

Pameca Wood Treatment Plant vs. CA Facts: Pameca Wood obtained a loan from DBP and the former, through its president, executed a promissory note payable in instalment with a chattel mortgage as security that was foreclosed due to the failure to comply with the obligation. DBP filed a complaint for the collection of the deficiency which was granted and affirmed as well by the CA. The petitioners invoked the Recto law as their defense.

BA Finance vs. CA Facts: Spouses Cuady obtained from Supercars a credit which covered the cost of one unit of a Ford Escort 1300, four-door sedan and a promissory note was executed payable in instalments secured by a chattel mortgage. Supercars, then after, assigned the promissory note, together with the chattel mortgage, to B.A. Finance who renewed the insurance coverage of the vehicle wherein the terms provides that any loss shall be paid to BA Finance. The subject car was engaged in accident then Cuady spouses asked BA Finance to claim from the insurer the insurance proceeds and apply the same to the payment of their remaining balance but BA Finance refused and instead had the car repaired. It came in time that the car rendered irreparable but BA finance still refused to enforce the insurance then the spouses stopped paying the remaining balances. Hence, BA Finance filed an action for recovery of the balance but the claim was dismissed by both RTC and CA. The case was brought to SC with the petitioner claiming that the circumstances obtaining in the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment of obligations while the spouses contend that due to the failure to enforce the total loss provision in the insurance policy, B.A. Finance Corporation lost not only its opportunity to collect the insurance proceeds on the mortgaged motor vehicle in its capacity as the assignee of the said insurance proceeds pursuant to the memorandum in the insurance policy. Issue: Whether or not the BA Finance has waived its rights to collect the unpaid balance due to its ignorance of total lost provision of the insurance policy. Held: Yes. Under the established facts and circumstances, it is unjust, unfair and inequitable to require the chattel mortgagors to still pay the unpaid balance of their mortgage debt on the said car, the non-payment of which account was due to the stubborn refusal and failure of appellant mortgagee to avail of the insurance money which became due and demandable after the insured motor vehicle was badly damaged in a vehicular accident covered by the insurance risk.

3|Page Chattel Morgage – Earl Louie Masacayan Cerna vs. CA Delgado borrowed money from Leviste evidenced by a promissory note and secured by a chattel mortgage over a jeep owned by the former and a car owned by Cerna, acting as an attorney-in-fact, however, Delgado, who is already dead at that time, failed to comply with the obligation that prompted Leviste to file a collection suit against Delgado and Cerna as solidary debtors. Cerna moved to dismiss the case contending that the claim should be filed in the settlement of Delgado’s estate and collection from the note bars the foreclosure of the mortgage which was denied by the trial court and affirmed by CA. Issue: Whether or not Cerna is solidary liable and Leviste can still foreclose the mortgage considering that he opted to collect on the note.

Held: No. In the instant case, it was not the sheriff or any other proper officer of the trial court who implemented the writ of replevin. Because it was aware that no other person can implement the writ, Filinvest asked the trial court to appoint a special sheriff. Yet, it used its own employees who misrepresented themselves as deputy sheriffs to seize the truck without having been authorized by the court to do so. Replevin is, of course, the appropriate action to recover possession preliminary to the extrajudicial foreclosure of a chattel mortgage. Filinvest did in fact institute such an action and obtained a writ of replevin. And, by filing it, Filinvest admitted that it cannot acquire possession of the mortgaged vehicle in an orderly or peaceful manner. Accordingly, it should have left the enforcement of the writ in accordance with Rule 60 of the Rules of Court which it had voluntarily invoked.

Held: No. Leviste, having chosen to file the collection suit, could not now run after petitioner for the satisfaction of the debt. This is even truer in this case because of the death of the principal debtor, Delgado. Leviste was pursuing a money claim against a deceased person. The Special Power of Attorney did not make petitioner a mortgagor. All it did was to authorize Delgado to mortgage certain properties belonging to petitioner. Granting, however, that petitioner was obligated under the mortgage contract to answer for Delgado's indebtedness, under the circumstances, petitioner could not be held liable because the complaint was for recovery of a sum of money, and not for the foreclosure of the security. We agree with petitioner that the filing of collection suit barred the foreclosure of the mortgage.

Acme vs. CA

Filinvest vs. CA

Issue: Whether or not a promise expressed in a chattel mortgage to include debts that are yet to be contracted is a binding commitment that can be compelled upon.

Spouses Tadiaman bought an Isuzu truck form Jordan Enterprises evidenced by a PN payable in instalments secured by chattel mortgage over the motor vehicle purchased which was later on assigned to Filinvest. The spouses therein failed to comply with the obligation that prompted Filinvest to file an action for damages and replevin which was granted. The truck was seized by employees of the Filinvest who introduced themselves as special sheriffs. The spouses filed a counterbond and the court ordered to return the truck. Delaying tactics was employed by Filinvest and when the spouses finally recovered the truck, the same was cannibalized that prompted the spouses to file a counterclaim. Issue: Whether or not the seizure made by Filinvest is proper.

Facts: Chua Pac, the president and general manager of Acme, executed, for and in behalf of the company, a chattel mortgage in favor of Producers Bank to secure a certain loan. In contained a stipulation that about the extention of coverage of the mortgage. In due time, the loan was paid by Acme then, it obtained from the bank additional financial accommodations which were also fully paid. The bank yet again extended to Acme a loan covered by four PN’s but the loan was not settled at maturity. Respondent bank thereupon applied for an extra judicial foreclosure of the chattel mortgage prompting Acme to forthwith file an action for injunction before the RTC which was dismissed and the court ordered the foreclosure of the chattel mortgage. CA affirmed. SC denied the petition as well as the first MR.

Held: Yes. 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

4|Page Chattel Morgage – Earl Louie Masacayan 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.

Cebu International vs. CA Facts: Dy executed a Special Power of Attorney in favor of Tay, authorizing the latter to sell the cargo vessel Owned by Dy and christened LCT Asiatic. Tay sold the subject vessel to Ong which as paid by issuing three checks. Since the payment was not made in cash, it is expressly stipulated that the vessel cannot be transferred or registered to Ong until full payment is fulfilled. Afterwards, Ong obtained possession of the subject vessel and obtained copies of the unnotarized deed of sale allegedly to be shown to the banks to enable him to acquire a loan to replenish his capital. However, the stipulation about transfer of name which was present in the original deed, handwritten, does not appear in Ong’s copies. Without the knowledge of Ang Tay, Ong had his copies of the deed of sale notarized and presented it to Philippine Coast Guard which subsequently issued him a Certificate of Ownership and a Certificate of Philippine Register over the subject vessel and changed the name to LCT Orient Hope. Ong acquired a loan from Cebu International evidenced by a promissory note payable in instalments secured by a chattel mortgage over the subject vessel. Ong defaulted in the payment of the monthly instalments that prompted Cebu international to send him a letter demanding delivery of the mortgaged vessel for foreclosure or in the alternative to pay the remaining balance. Meanwhile, the two checks paid by Ong to Tay for the purchase of the subject vessel bounced. A subsequent investigation and inquiry with the Office of the Coast Guard revealed that the subject vessel was already in the name of Ong which prompted Tay and Jacinto Dy to file a civil case for rescission and replevin with damages against Ong and his wife with the RTC. The trial court issued a writ of replevin and the subject vessel was seized and subsequently delivered to Ang Tay. Cebu internation then filed a motion for intervention but withdrew the same to file a separate case for replevin and damages against Ong and Ang Tay with the same trial court. The trial court granted petitioner's prayer for replevin. The vessel was seized and placed in the custody of the trial court. However, Ang Tay posted a counterbond and the vessel was returned to his possession. On the case initiated by Tay and Dy, the trial court rendered a decision in favor of them. The sale of the subject vessel was rescinded; the registration of the vessel with the Office of the Coast Guard and other government agencies in Ong's name nullified and the vessel's registration in Dy's name revived which the CA had affirmed. In the separate case initiated by Cebu international, the RTC ruled that the mortgage is null and void which the CA also affirmed.

Issue: Whether or not the ChM is valid even if the mortgagor is not the real owner of the subject vessel. Held: Yes. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of or does not have a valid title to the mortgaged property, the mortgagee or transferee in good faith is nonetheless entitled to protection. Although this rule generally pertains to real property, particularly registered land, it may also be applied by analogy to personal property, in this case specifically, since ship owners are, likewise, required by law to register their vessels with the Philippine Coast Guard.

Nicol vs. Blanca Facts: Nicol and her husband obtained a loan from RFC and defaulted then secured the loan by ChM over their mini-bus then she pledged the mini-bus to Engineer Rito. They again defaulted on their payments to RFC and their chattel was threatened to be foreclosed. Nicol went to the RFC office to request the non-foreclosure of their mortgage and met Blanca who was introduced by RFC's manager as its sheriff. Blanca visited Nicol’s office and told her that he would desist from the foreclosure if she would give him 5000 pesos but she refused to give but instead offered 1000 peso check which Blanco accepted then suspended the foreclosure. Blanca once again went to her office and told her that he would issue the notice of auction sale if she would not pay him. Again, she gave him a check worth P2000 and respondent did not proceed with the auction sale. After a month, however, she received a notice of auction sale signed by Blanca and went to the situs of the sale on the scheduled date, but nobody was there and no sale took place. She inquired from the Clerk of Court regarding the auction sale, and was advised to ask respondent. Respondent informed her that Jose Bragais won in the bidding. She checked with RFC and got the information that it was RFC that won in the bidding. She went to the office of RFC to arrange for the redemption of the mini-bus and met respondent there. This time, Blanco told Nicol that it was Elbert Vibal who won in the bidding and not RFC. Nicol then filed a letter-complaint with the Ombudsman but Blanca denied Nicol’s allegations contending that the two checks he received from Salvacion Nicol were loans. He maintained that he conducted an auction sale. The RFC filed the petition for extra-judicial foreclosure and he found the mini-bus in the possession of Engineer Rito. He sent RFC and the complainants a notice of auction sale and was conducted later on. He opined that the charge was filed against him when he failed to accommodate Bragais who was recommended by Salvacion Nicol to participate in the bidding.

5|Page Chattel Morgage – Earl Louie Masacayan On rebuttal, Salvacion Nicol alleged that she could not have given respondent any loan since she was financially distressed at that time. For failing to meet her various financial obligations, she was charged with estafa and violation of B.P. 22. She maintained that the auction sale never took place on the scheduled dated and place. She also claimed that respondent never gave her the excess of the bid price. Nicol furnished the OCA with copies of two criminal informations for Direct Bribery filed by the Office of the Deputy Ombudsman for Luzon against Blanca. The criminal informations accused respondent of taking advantage of his office as Sheriff by demanding and receiving a sum of money from complainants Nicol spouses for and in consideration of discontinuing the auction sale of the latter's motor vehicle. Blanca averred that the amount received from the complainants is a loan he obtained prior to the time he acted upon the petition for extrajudicial foreclosure of the mini-bus. On recommendation of the OCA, SC referred the complaint to Executive Judge Santelices for investigation, report and recommendation. Judge Santelices submitted his Report and Recommendation. He recommended that respondent be suspended for six months without pay.

cash and apply such proceeds "to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to the mortgagor or person holding under him on demand." Respondent Abordaje admitted that he did not receive the remaining amount from the winning bidder, Sugarland Motor Sales. He demanded the amount from Sugarland Motor Sales but was told that the amount was applied to cover other charges which complainant 10 had with Sugarland. This is not authorized under the law. Besides, respondent Abordaje did not reflect these facts and circumstances in his minutes of auction sale. Neither can respondent Villanueva, Jr. escape responsibility for his failure to supervise Sheriff Abordaje in the performance of the latter's duties. Clerk of Court Villanueva Jr. issued a certificate of sale without ascertaining that the balance due from winning bidder Sugarland Motor Sales was duly turned over and accounted to the mortgagor.

Tsai vs. CA Issue: Whether or not Blanca is grave misconduct and of gross negligence in the performance of his duties. Held: Yes. The Officer who conducted the foreclosure must demand and actually receive the cash proceeds of the auction sale from the highest bidder and turnover the balance to the mortgagee. It was therefore irregular for the sheriff not to demand and receive the entire bid price in cash from the winning bidder, or at the very least, to demand the excess amount and turnover to the mortgagor. Neeland vs. Villanueva Facts: Neeland executed a ChM over a Toyota Sedan in favor of Daewoo which was later assigned to Sugarland. Failure to comply with the obligation prompted Sugarland to file with the city sheriff a request the foreclosure of the mortgage and sale at public auction which was granted and proceeded. But, because the sheriff Abordaje did not remaining amount from the winning bidder who despite demand applied the amount to cover the charges which Neeland had with Sugarland, therefore, the remaining balance between the sum at which the vehicle was sold and the obligation sought to be satisfied and expenses of the sale, was not turned over to Neeland. Issue: Whether or not the sheriff’s failure to turn over the mortgagor the excess of the bid price constituted if not dishonesty, gross misconduct prejudicial to the best interest of the service. Held: Yes. Under the Chattel Mortgage Law, the sheriff conducting the auction sale must receive the winning bid in

Facts: Evertextile Mills contracted two loans from Philippine Bank of Communication in two different events. The first loan was secured by a Deed of Real and Chattel Mortgage over a lot where the factory of Evertex stands and chattels enumerated therein while the second loan, on the other hand was secured by a Chattel mortgage on personal properties enumerated in the list attached thereto. Subsequent to the execution of the second mortgage, Evertex bought various machineries and equipments. However, due to business overturns, Evertex was declared insolvent with all its assets taken by the insolvency court together with the collateral to the two mortgages. Due to the failure of Evertex to comply with its obligation, PBCom commenced the extrajudicial foreclosure proceedings with the latter to be the highest bidder. Thereafter, PBCom consolidated its ownership over the lot and all the properties in it. PBCom leased the entire factory premises to petitioner Ruby L. Tsai and sold the factory, lock, stock and barrel to him, including the contested machineries. Evertex question the sale and filed a complaint with the RTC that found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold auction sale since these were not included in the schedules attached to the mortgage contracts which CA affirmed. Issue: Whether or not the inclusion of the questioned properties in the foreclosed properties is proper and the sale of these properties to petitioner Ruby Tsai is valid. Held: No. A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same

6|Page Chattel Morgage – Earl Louie Masacayan depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding. And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages. As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.

Nordic Asia Limited vs. CA Facts: Sextant Maritime contracted loan with Nordic Asia and executed a first preferred mortgage over the vessel M/V Fylyppa that was purchased by means of the money borrowed from Nordic Asia. Sextant defaulted that prompted Nordic to foreclose extra judicially the mortgage. On the same day, respondents Nam Ung Marine Co, manning agent of the vessel, and twenty-seven crew members filed a collection case before the RTC. The object of the suit was to claim their preferred maritime liens under the Code of Commerce and P.D. 1521. Impleaded defendants were M/V "Fylyppa" (the vessel), Maritime (the registered owner of the vessel), P.V. Christensen Lines (time-charterer of the vessel), Theil Bolvinkel Shipping, A.S. (ship manager) and Jibfair Shipping (the alleged local ship agent of the vessel). After filing the complaint, the manning agent and the crewmen were able to cause the arrest of the vessel. Upon learning of the collection case, Nordic Asia filed with the RTC a motion for leave to intervene in the collection case which was granted then petitioners were able to discharge the attachment over vessel by putting up a counterbond. Jibfair Shipping filed a motion to dismiss, while all the other defendants failed to file responsive pleadings. As a result, the RTC declared all the defendants, except Jibfair Shipping, in default and directed respondents to present their evidence exparte. Respondents presented their evidence in four separate hearings while the petitioners, who were admitted as intervenors, did not attend any of the four hearings. Afterwards, petitioners took up the cudgels for the defaulting defendants by filing a motion to lift order of default and. The RTC favoured the manning agent, ordering the defendants to pay, among others, the wages of the crewmen and Nam Ung Marine Ltd.'s agency fees and other expenses incurred for manning the vessel during its last voyage. It further ordered the counterbond posted by petitioners to answer for all the awards. CA affirmed. Issue: Whether or not the claimant or the creditor is allowed to intervene.

Held: No. A cursory reading of petitioners complaint-inintervention plainly shows that petitioners intention in intervening in the collection case was not to enforce their maritime lien against the defendants therein, it already being enforced through extrajudicial foreclosure proceedings, but solely to oppose the claims of respondents. The reason is obvious. The higher the claims awarded to respondents in the collection case, which would be recovered from the attached vessel, the lesser the amount petitioners can obtain from their extrajudicial foreclosure proceedings given that respondents lien is superior to petitioners mortgage lien. In the case at bar, the complaint-in-intervention merely alleged that petitioners possess a mortgage lien and that petitioners are so situated as to be adversely affected by respondents collection case. Putting things in perspective, petitioners mortgage lien only gives rise to a connection between them and the defendants, the vessel M/V Fylyppa and Sextant Maritime, S.A. Being just a mortgagee, the cause of action lies with the vessel and mortgagor, and not with a co-claimant. However, as aforestated, petitioners did not intervene to make a claim against the defendants, respondents herein, but merely to oppose their claims. Petitioners were unable to allege what specific act or omission can be attributed to respondents, which violated petitioners rights. Petitioners simply made a conclusionary statement that, by reason of their mortgage lien, they are so situated as to be adversely affected by the collection case. The complaint-in-intervention, therefore, failed to state a cause of action.

Philip Brothers vs. CA To follow

Poland Industrial vs. NDC To follow

Spouses Rosario vs. PCI Leasing and Finance Spouses Rosario purchased an Isuzu Elf Pick-up Utility vehicle from CarMerchants, Inc, which was covered by a Purchase Agreement whereby the spouses undertook to make a downpayment of the total purchase price. The spouses then applied for a loan with PCI Leasing to pay for the remaining balance secured by a Promissory Note payable in monthly installments and a Chattel Mortgage over the Isuzu Elf 4BD1. The motor vehicle was delivered to the spouses and it was

7|Page Chattel Morgage – Earl Louie Masacayan registered in their names. Despite demands, the spouses Rosario failed to pay the amortizations on their loan to PCI Leasing that prompted the latter to file a Complaint against the spouses Rosario in the RTC for “Sum of Money with Damages with a Prayer for a Writ of Replevin.” The RTC issued an Order for the issuance of a writ of replevin. The Sheriff seized the motor vehicle, and after five days, without the court issuing an order discharging the writ, the Sheriff turned over the possession of the vehicle to PCI Leasing. The spouses Rosario alleged that the chattel mortgage they executed in favor of PCI Leasing covering the motor vehicle was in effect a contract of sale of personal property, payable in installments to be governed by the Recto law and further alleged that since PCI Leasing, as an assignee of CarMerchants, opted to foreclose the chattel mortgage, it was barred from collecting the balance of their account under the promissory note and chattel mortgage. The trial court rendered judgment in favor of PCI Leasing. CA affirmed. Issue: Whether or not the PCI is barred from making a claim for specific performance against the spouses by the mere fact that the former was already able to secure a writ of replevin. Held: No. First of all, PCI leasing is not an assignee of CarMerchants and therefore the Recto law shall not apply to the former. Recto law cannot be applied to a mortgagee who is not a vendor of the property mortgaged. Even assuming that the respondent is the assignee of CarMerchants, Inc. and that Recto law is applicable, it is not proscribed from suing the petitioners for their unpaid balance. The fact of the matter is that the respondent did not foreclose the chattel mortgage, but opted to sue the petitioners for the balance of their account under the promissory note, with a plea for a writ of replevin. By securing a writ of replevin, the respondent did not thereby foreclose the chattel mortgage.

Chieng vs. Spouses Santos To Follow

Industrial Finance Corporation vs. Castor Tobias Tobias bought on installment through a promissory note a Dodge truck from Lelin Motors secured by a ChM on said truck. The promissory and the ChM were assigned to Industrial Finance. Tobias failed to pay the obligation of more than two installments that prompted Industrial Finance to demand via a letter from the former the remaining payment or surrender the Dodge truck for foreclosure. In response therein, Tobias

willfully surrendered the truck for it has been in the custody of Lenin Motors ever since it met an accident and upon learning the accident, Industrial Finance desisted in claiming the truck then filed in CFI an action to recover the unpaid balance against Tobias which was denied and affirmed by the CA. Issue: Whether or not Industrial Finance is not barred from recovering the unpaid balance after it has demanded the return of the personal property. Held: Yes. Here, petitioner has not cancelled the sale, nor has it exercised the remedy of foreclosure. Foreclosure, judicial or extra-judicial, presupposes something more than a mere demand to surrender possession of the object of the mortgage. Since the petitioner has not availed itself of the remedy of cancelling the sale of the truck in question or of foreclosing the chattel mortgage on said truck, petitioner is still free to avail of the remedy of exacting fulfilment of the obligation of respondent Tobias, the vendee of the truck in question.

Filinvest vs. Philippines Acetylene Facts: Philippine Acetylene bought a Chevrolet from Lim paying the down payment with the balance payable in installments secured by a ChM over the said car and thereafter assigned by the latter to Filinvest. Philippine Acetylene failed to pay the nine successive installments than prompted the demand by Filinvest to pay the balance or return the car and the former have the chosen the option of return. Filinvest offered to deliver back the car but Philippine Acetylene refused to accept the prompted Filinvest to file a collection of sum of money with damages. The Appelant used the defense of Dation en Pago. Issue: Whether or not the return of the mortgage property may extinguish the entire obligation. Held: No. The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation.

8|Page Chattel Morgage – Earl Louie Masacayan Zayas vs. Luneta Motor Facts: Zayas bought a motor vehicle from Escano Enterprises, dealer of Luneta Motors, on installment basis via a promissory note secured by ChM on the said vehicle. Zayas, after paying some installments, failed to pay further that made Luneta Motor to foreclose the mortgage selling the vehicle in public auction wherein the proceeds were not enough to cover the total amount prompting the latter to file a collection of the deficiency with the RTC. Zayas’ answer posits that the situation was covered by the Recto law while Luneta Motor’s reply contends that it was just an ordinary loan secured by a ChM. Issue: Whether or not Luneta Motors is barred from collecting the deficiency after the ChM has been foreclosed. Held: Yes. 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. This amendment (Recto Law) prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness. Under this amendment the vendor of personal property, the purchase price of which is payable in installments, has the right to cancel the sale or foreclose the mortgage if one has been given on the property. Whichever right the vendor elects he need not return to the purchaser the amount of the installments already paid, ‘if there be an agreement to that effect’. Furthermore, if the vendor avails himself of the right to foreclose the mortgage this amendment prohibits him from bringing an action against the purchaser for the unpaid balance.

Ridad vs. Filipinas Investment and Finance Facts: The spouses Ridad bought from the Supreme Sales a 2 Ford Consuls being payable in 24 equal monthly instalments secured by a promissory note and a chattel mortgage not only on the 2 vehicles purchased but also on another car and their franchise or certificate of public convenience granted for the operation of a taxi fleet which were assigned to Filipinas Investment. An unfortunate failure of payment prompted the foreclosure by the Filipinas Investment of the ChM selling the 2 purchased cars at public auction and as well as the other properties mortgaged on a different date because the proceeds of the first auction sale was not to cover the obligation. The spouses filed and action for annulment of contract before the

CFI which declared the ChM over the used car and the franchise null and void. Issue: Whether or the ChM over the used Chevrolet car and the franchise was valid. Held. No. The chattel mortgage in question is a nullity insofar as the taxicab franchise and the used Chevrolet car of the Ridads are concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the present case. There, the same situation occurred wherein the vendees offered as security for the payment of the purchase price not only the motor vehicles which were bought on installment, but also a residential lot and a house of strong materials. This Court sustained the pronouncement made by the lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with the proceeds of the sale at the public auction of the chattels which were sold on installment and mortgaged to him, and having chosen the remedy of foreclosure, he cannot nor should he be allowed to insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ of execution against them concerning other properties which are separate and distinct from those which were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of the law, limiting the vendor’s right to foreclose the chattel mortgage only on the thing sold.

Esguerra vs. CA Facts: Lagmay and Masilungan purchased a cargo truck from GAMI and the said truck was resold by the former to Esguerra assuming the unpaid purchase price secured by a promissory note and a ChM over the truck in favor of GAMI. Failure of payment prompted GAMI to seize and appropriate as payment the truck from the petitioner with his consent; the former did not foreclose ChM. Issue: Whether or not GAMI is required to foreclose the ChM. Held. Yes. Appropriating the truck as payment is illegal and tantamount to pactum commissorium which is expressly prohibited by Article 2088 of the Civil Code. GAME should foreclose the ChM.

9|Page Chattel Morgage – Earl Louie Masacayan Borbon II vs. Servicewide Specialist

Agustin vs. CA

Facts: Borbons intended to buy a jeepney type Izusu K.C. Cab from Pangasinan Auto Mart but was what delivered was Isuzu crew cab because of miscommunication and the latter was not able to replace until the delivered vehicle was seized due to court order for not paying the promissory note and the effect of the ChM over the subject vehicle which were assigned to Filinvest then further reassigned to Servicewide. The RTC, affirmed by CA, ordered the payment of liquidated damages to Servicewide. The petitioner appealed to SC to remove the award of liquidated damages.

Facts: Agustin purchased an Isuzu diesel truck from ERM in instalment basis secured by a promissory note and ChM over the subject vehicle which was later assigned to Filinvest. Failure to pay prompted Filinvest to demand the whole balance or surrender the subject vehicle; neither of the options was done by the petitioner. Filinvest thereafter filed a complaint with the RTC praying the issuance of writ of replevin or payment of the amount. Filinvest hereinafter possessed the subject vehicle but subsequently filed a supplemental complaint for reimbursement of the expenses incurred. Agustin raised the defense of Recto law.

Issue: Whether or not the award of liquidated damages is improper. Held: Yes. The remedies under Article 1484 of the Civil Code are not cumulative but alternative and exclusive. In ordinary alternative obligations, a mere choice categorically and unequivocally made and then communicated by the person entitled to exercise the option concludes the parties. The creditor may not thereafter exercise any other option, unless the chosen alternative proves to be ineffectual or unavailing due to no fault on his part. This rule, in essence, is the difference between alternative obligations, on the one hand, and alternative remedies, upon the other hand, where, in the latter case, the choice generally becomes conclusive only upon the exercise of the remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil Code, it is only when there has been a foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the case is one for specific performance, even when this action is selected after the vendee has refused to surrender the mortgaged property to permit an extrajudicial foreclosure, that property may still be levied on execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the judgment credit. So, also, a mere demand to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure, but the repossession thereof by the vendormortgagee would have the effect of foreclosure The parties here concede that the action for replevin has been instituted for the foreclosure of the vehicle in question (now in the possession of private respondent). The sole issue raised before us in this appeal is focused on the legal propriety of the affirmance by the appellate court of the awards made by the court a quo of liquidated damages and attorney's fees to private respondent. Petitioners hold that under Article 1484 of the Civil Code, aforequoted, the vendor-mortgagee or its assignees loses any right "to recover any unpaid balance of the price" and any "agreement to the contrary (would be) void."

Issue: Whether or not Filinvest is barred from claiming for reimbursement as allegedly contemplated in the Recto law. Held. No. The award for reimbursement is proper. The court made an exception that when an action for replevin is made, the plaintiff will necessarily incur expenses and it is logical to claim for reimbursement which is not part of the purchase price.

10 | P a g e Chattel Morgage – Earl Louie Masacayan Philipp Brothers Oceanic vs. CA Facts: A contract was entered into between Philbro H.K. and Sagramco whereby Sagramco agreed to sell and ship to Philbro H.K chrome ore secured by a letter of credit, under which Sagramco would be allowed to withdraw advances to be charged against Sagramcos future deliveries of chrome ore. Philbro H.K. opened the aforestated letter of credit with the Bank of the BPI and the full amount was drawn by Sagramco and to secure the advances, Sagramco executed a chattel mortgage in favor of Philbro H.K. over four personal properties. Aside from the dollar advance obtained from Philbro H.K., Sagramco separately received peso advances from Philbro Oceanic, Philbro H.K.s Principal Corporation. Sagramco and its corporate officers, the Spouses de Gracia obtain two loans from BPI secured by real estate mortgages a Deed of Assignment assigning to BPI the proceeds of the letter of credit which Philbro H.K. opened with BPI, and trust receipts and quedans over the 1,800 metric tons of chrome ore already produced and stockpiled in the warehouse of Philbro Oceanic. Philbro H.K. then assigned to Philbro Oceanic all its rights from Sagramco arising from said contract and from the deed of chattel mortgage securing the same. Of the funds, advanced to Sagramo, some funds were liquidated through the first delivery of chrome ore shipped to Philbro H.K. But some chrome ore remained stockpiled inside the warehouse of Philbro Oceanic. Later on, BPI sought to take possession stockpiled chrome ore by filing with the RTC of Misamis a complaint against Sagramco for delivery of personal property with writ of replevin alleging by virtue of the trust receipts, it is the owner of that of chrome ore stockpiled held in trust by Sagramco. A writ of replevin was issued by the RTC. When the branch sheriff attempted to enforce the writ, Philbro Oceanic filed a third party-claim alleging that it is the rightful owner of the 1,800 metric tons of chrome ore. In another case, Philbro Oceanic filed for injunction against Sagramco, with the same branch of the RTC in order to prevent the removal of the chrome ore from its warehouse. By agreement of the parties, those two cases were jointly tried. The RTC also ordered the chrome ore to be sold at public auction to prevent its further deterioration. Oceanic also filed a third complaint against Sagramco, for judicial foreclosure of chattel mortgage, with the RTC of Makati City. BPI also th instituted a separate action (4 case) for judicial foreclosure of real estate mortgage against the Spouses de Gracia. BPI alleged that the two promissory notes remained unpaid, thus giving BPI the right to foreclose on the security. The foreclosure case was filed with the RTC of Misamis. RTC, rendered judgement in favour of Philbro Oceanic and ordered to foreclose the chattel mortgage. CA set aside the RTC decision. Issue: Whether or not there should be foreclosure. Held. No. There is no disputing the fact that the chattel mortgage was a security arrangement between Philbro H.K. and

Sagramco. It was constituted to guarantee Sagramcos payment of the dollar advance obtained from Philbro H.K. Philbro Oceanic, however, maintains that the same chattel mortgage also secured its own peso advance. In the same manner that the principle of relativity of contracts bars Philbro Oceanic from applying the provisions of the Contract, Philbro Oceanic is likewise prevented from making use of the chattel mortgage, entered into exclusively by Philbro H.K. and Sagramco, to secure its peso advance. Philbro Oceanic did not participate in the execution of the chattel mortgage in its own right and was not an assignee of the chattel mortgage. Being a third party to the security arrangement, Philbro Oceanic cannot avail of the chattel mortgage to remedy the absence of any security for the peso advance. Hence, the chattel mortgage can only secure dollar advance obtained from Philbro H.K. and cannot be extended to guarantee the payment of peso advance owed to another entity. The chattel mortgage is a mere accessory contract. Hence, it should be deemed automatically extinguished upon the satisfaction of the principal obligation. In the case at bar, the delivery of the chrome ore to Philbro Oceanic has fully satisfied the principal obligation, and even resulted in an excess payment. Since there is no more balance due on the dollar advance, there can no longer exist a mortgage to foreclose upon. To allow a foreclosure upon the chattels, even after Philbro Oceanic has been declared the owner of the chrome ore, would result in double indemnity and an unjust enrichment for Philbro Oceanic.

Poliand Industrial vs. NDC Asian Hardwood extended credit accommodations in favor of GALLEON. To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders. GALLEON and DBP executed a Deed of Undertaking whereby DBP guaranteed the on time payment of GALLEON’s loans from the Japanese lenders secured by mortgage on the five new vessels and on the second-hand vessels in favor of DBP. In the interim, President Marcos issued a LOI directing NDC to get hold of the entire shareholdings of GALLEON for the amount originally contributed by its shareholders payable in 5 years without interest cost to the government. In the same LOI, DBP was to advance to GALLEON within three years from its effectivity the principal amount and the interest thereon of GALLEON’s maturing obligations. Then, GALLEON and NDC agreed, in a MOA, to execute a share purchase agreement within sixty days for the transfer of GALLEON’s shareholdings. Subsequently, NDC assumed the management and operations of GALLEON. NDC paid Asian Hardwood partial settlement of GALLEON’s obligations. Another LOI was issued directing the foreclosure of

11 | P a g e Chattel Morgage – Earl Louie Masacayan the mortgage on the five vessels. For failure of GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially foreclosed on and acquired by DBP then subsequently sold the vessels to NDC. Asian Hardwood then assigned its rights over the outstanding obligation of GALLEON World Universal embodied in a Deed of Assignment then later on, assigned to POLIAND. President Aquino, through an administrative order, directed NDC and Philippine Export and Foreign Loan Guarantee Corporation to transfer some of their assets to the National Government, through the APT for disposition which includes the five GALLEON vessels sold at the foreclosure. POLIAND then made written demands on GALLEON, NDC, and DBP for the satisfaction of the outstanding balance which are not paid that prompted POLIAND to institute a collection suit against NDC, DBP and GALLEON. POLIAND claimed that under first LOI and the MOA between GALLEON and NDC, defendants GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to GALLEON. POLIAND also claimed that it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEON’s vessels mortgaged by NDC to DBP. DBP denied being a party to any of the alleged loan transactions arguing that POLIAND’s complaint stated no cause of action against DBP or was barred by the Statute of Frauds because DBP did not sign any memorandum to act as guarantor for the alleged credit advances/loan accommodations in favor of POLIAND. DBP countered that it was unaware of the maritime lien on the five vessels mortgaged in its favor and that as far as GALLEON’s foreign borrowings are concerned, DBP agreed to act as guarantor thereof only under the conditions laid down under the Deed of Undertaking. NDC denied any participation in the execution of the loan accommodations/credit advances and acquisition of ownership of GALLEON, emphasizing that it acted only as manager of GALLEON. NDC also denied having agreed to the assumption of GALLEON’s liabilities because no purchase and sale agreement was executed and the delivery of the required shares of stock of GALLEON did not take place. Upon motion by POLIAND, the trial court dropped GALLEON as a defendant. RTC rendered a decision in favor of POLIAND. The trial court also ruled that POLIAND had preference to the maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEON’s vessels since the loan advances/credit accommodations utilized for the payment of expenses on the vessels were obtained prior to the constitution of the mortgage in favor of DBP. CA had a modified judgment, absolving DBP of any liability in view of POLIAND’s failure to clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising from

the credit advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely assumed control over its management and operations. However, NDC was held liable to POLIAND for the payment of the preferred maritime lien. In the SC, NDC cites Articles 578 and 580 of the Code of Commerce to strengthen its argument that the foreclosure of the vessels extinguished all claims against the vessels including POLIAND’s claim. Issue: Whether or not Articles 578 and 580 of CoC are applicable as cited by NDC. Held: No. Article 578 of the Code of Commerce is not relevant to the facts of the instant case because it governs the sale of vessels in a foreign port. Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by the pertinent provisions of P.D. 1521. In particular, Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall be satisfied in the order specified therein. On the other hand, Section 17 of P.D. 1521 also provides that in the judicial or extrajudicial sale of a vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the mortgagee.

Chieng vs. Spouses Santos Antonio Chieng extended a loan to Spouses Santos secured by an REM. The Spouses issued checks and some of them are dishonored that prompted Chieng to file a criminal case of BP 22. There was a compromise agreement that terminated the case but the spouses failed to comply with it. Chieng tried to foreclose the REM. Issue: Whether or not the filing of BP 22 bars the mortgagee to foreclose the REM. Held. Yes. The filing of BP 22 is equivalent to collection suit. Following the rule on alternative remedies, it is obvious that the mortgagee is barred from foreclosing the REM thereof.