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ARTICLE 22

VILLALVA VS. RCBC SAVINGS BANK


Facts: Petitioner spouses issued 48 checks totalling P547 392 to cover instalment
payment due on promissory notes executed in favor of Toyota, Quezon Avenue for
the purpose of a Toyota Corolla. The promissory notes were secured by a chattel
mortgage executed by the petitioner spouses on the vehicle in favor of TQA. Under
the deed of chattel mortgage, petitioner spouses were to insure the vehicle against
loss or damage by accident, theft and fire, and endorse and deliver polices to the
mortgagor.
Thereafter, the promissory notes and chattel mortgage were assigned to RCBC.
They were later assigned to the RCBC Savings Bank. The 48 checks were encashed
by the respondent RCBC Savings Bank.
Evidence shows that petitioner spouses faithfully complied with the obligation to
insure the mortgaged vehicle from 1993 until 1996. For a period of 1996 to 1997,
petitioner spouses procured the necessary insurance but wasnt able to deliver it on
time. As a consequence, respondent had the mortgaged vehicle insured for the
period 1996-1997 and paid 14 523.36 insurance premium. The insurance policy
obtained by the respondent was later cancelled due to the insurance policy secured
by petitioners over the mortgaged vehicle. The insurance policy secured by
petitioner spouses over the mortgaged vehicle was reimbursed to the respondent
bank that amounts to P10 939.86 by the Malayan Insurance Company. The premium
paid by the respondent bank exceeded the reimbursed amount.
The bank sent a letter of demand allegedly representing the unpaid obligations of
the petitioners. Should they fail to comply, the bank orders for the spouses to
surrender the corolla. The spouses ignored the demand letter.
Respondent issued filed a complaint for Recovery of Possession with Replevin with
the MTC, and so respondent recovered the possession of the mortgaged vehicle.
Spouses filed their Answer with the Compulsory Counterclaim for moral damages,
exemplary damages, and attorneys fees. The MTC ruled in favor of the petitioners
and the CA affirmed the decision of the MTC.
Issue: whether the petitioners failed to comply with their obligation to insure the
subject vehicle under the Deed of Chattel Mortgage (1) requires the petitioner to
secure the necessary insurance and 2) deliver the policies so endorsed to the
respondent on the day of the execution of this mortage)
Ruling: Due to the mortgagees failure to notify the mortgagors prior to application
of the latters payment to the insurance premiums, this court held that the
mortgagors had not defaulted on their obligation to secure insurance over the
mortgaged vehicle. Petitioner spouses were not enriched when respondent obtained

insurance coverage for the mortgaged vehicle as the spouses had already obtained
the required insurance coverage for the vehicle from 1996-1997.
Notes: Presence of quasi contractual obligations in the New Civil Code.
Enrichment consists of every patrimonial, physical or moral advantage, so long as it
is appreciable money. It may also take form of avoidance of expenses and other
indispensable reductions in the patrimony of a person. May include prevention of
loss or injury.

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