Redemption of Mortgage
plant would be to drill out or destroy the concrete floor, the reason why all
Case#1: MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs. WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents. [G.R. No. L-58469. May 16, 1983.]
FACTS: In order to obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent Wearever
Textile Mills, Inc., discounted and assigned several receivables with the
Makati Leasing under a Receivable Purchase Agreement.
* To secure the collection of the receivables assigned, Wearever executed a
Chattel Mortgage over certain raw materials inventory as well as a machinery
described as an Artos Aero Dryer Stentering Range.
* Upon Wearever's default, Makati Leasing filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into Wearever's
premises and was not able to effect the seizure of the aforedescribed
machinery. This led to Makati Leasing to file a complaint for judicial
foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as
Civil Case No. 36040, the case before the lower court.
LOWER COURT RULING: Acting on Makati Leasing's application for
replevin, the lower court issued a writ of seizure, the enforcement of which
was however subsequently restrained upon Wearever's filing of a motion for
reconsideration. After several incidents, the lower court finally issued on
February 11, 1981, an order lifting the restraining order for the enforcement
of the writ of seizure and an order to break open the premises of private
respondent to enforce said writ. The lower court reaffirmed its stand upon
Wearever's filing of a further motion for reconsideration.
* On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of Wearever and removed the main drive motor of the subject
machinery.
CA RULING: Acting on certiorari and prohibition proceedings subsequently
filed by herein private respondent, set aside the Orders of the lower court
and ordered the return of the drive motor seized by the sheriff pursuant to
said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property
pursuant to Article 415 of the new Civil Code, the same being attached to the
ground by means of bolts and the only way to remove it from respondent's
that the sheriff could do to enforce the writ was to take the main drive motor
of said machinery. The appellate court rejected petitioner's argument that
private respondent is estopped from claiming that the machine is real
property by constituting a chattel mortgage thereon.
RESPONDENT'S ARGUMENT: The instant petition was rendered moot and
academic by petitioner's act of returning the subject motor drive of
respondent's machinery after the Court of Appeals' decision was
promulgated.
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgation August 27, 1981 in CA- G.R. No.
SP-12731, setting aside certain Orders later specified herein, of Judge
Ricardo J. Francisco, as Presiding Judge of the Court of First Instance of
Rizal, Branch VI, issued in Civil Case No. 36040, as well as the resolution
dated September 22, 1981 of the said appellate court, denying petitioner's
motion for reconsideration.
ISSUE: Whether or not the subject machinery as chattel was treated as
personal property?
HELD: YES. It must be pointed out that the characterization of the subject
machinery as chattel by the private respondent is indicative of intention and
impresses upon the property the character determined by the parties. As
stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property, as long as no interest
of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it
had never represented nor agreed that the machinery in suit be considered
as personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the
subject machinery as movable or immovable was never placed in issue
before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover,
even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract
voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
1
proper action in court. There is nothing on record to show that the mortgage
has been annulled. Neither is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by petitioner and again not refuted
by respondent, the latter has indubitably benefited from said contract. Equity
dictates that one should not benefit at the expense of another. Private
respondent could not now therefore, be allowed to impugn the efficacy of the
chattel mortgage after it has benefited therefrom.
From what has been said above, the error of the appellate court in ruling that
the questioned machinery is real, not personal property, becomes very
apparent.
DISPOSITIVE PORTION: SC reversed and sets aside the questioned
decision and resolution of the Court of Appeals, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
Case#2 Alejandra Torres et al v. Francisco Limjap (administrator of the
deceased Jose Henson)
G.R. No. 34385, September 21, 1931
Facts:
Two actions were commenced in CFI of Manila for the purpose of securing
from the defendant the possession of two drug stores located in the City of
Manila, covered by two chattel mortgages executed by the deceased Jose B.
Henson in favor of the plaintiffs.
In the first case, Jose Henson executed a chattel mortgage in favor of the
plaintiffs to secure a loan of P7,000, although it was made to appear in the
instrument that the loan was for P20,000.
In the second case, the plaintiffs alleged that they were the heirs of the late
Don Florentino Torres; and that Jose B. Henson, in his lifetime, executed in
favor of Don Florentino Torres a chattel mortgage on his three drug stores
known as Henson's Pharmacy, Farmacia Henson and Botica Hensonina, to
secure a loan of P50,000, which was later reduced to P26,000, and for
which, Henson's Pharmacy at Nos. 71-73 Escolta, remained as the only
security by agreement of the parties.
In both cases the plaintiffs alleged that the defendant violated the terms of
the mortgage and that, in consequence thereof they became entitled to the
possession of the chattels and to foreclose their mortgages thereon.
Thereafter, the court issued in each case an order directing the sheriff of the
City of Manila to take immediate possession of said drug stores.
Defendant denied generally and specifically the plaintiffs' allegations.
Judgment was rendered in favor of the plaintiffs and against the defendant,
confirming the attachment of said drug stores by the sheriff and delivery to
the plaintiffs
Hence, this appeal. Defendant-appellant insists that a stipulation authorizing
the disposal and substitution of the chattels mortgaged does not operate to
extend the mortgage to after-acquired property, and that such stipulation is in
contravention of the express provision of the last paragraph of section 7 Act
No. 1508, which reads as follows:
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 depository as the
property originally mortgaged, anything in the mortgage to the
contrary notwithstanding.
Issue:
Whether or not the provision in the chattel mortgage law that extends
coverage to after-acquired property is valid and binding?
Held:
No. 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.
Case#3 ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA
PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and
REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
FACTS
2
Petitioner Chua Pac, the president and general manager of co-petitioner
"Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for
and in behalf of the company, a chattel mortgage in favor of private
respondent Producers Bank of the Philippines. The mortgage stood by way
of security for petitioner's corporate loan of three million pesos
(P3,000,000.00). A provision in the chattel mortgage agreement includes a
provision that this mortgage shall also stand as security for said obligations
and any and all other obligations of the MORTGAGOR to the MORTGAGEE
of whatever kind and nature, whether such obligations have been contracted
before, during or after the constitution of this mortgage. This P3M loan was
paid by petitioner.
On 10 and 11 January 1984, the bank yet again extended to petitioner
corporation a loan of one million pesos (P1,000,000.00) covered by four
promissory notes for P250,000.00 each. Due to financial constraints, the loan
was not settled at maturity. 3 Respondent bank thereupon applied for an
extra judicial foreclosure of the chattel mortgage, herein before cited, with the
Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an
action for injunction, with damages and a prayer for a writ of preliminary
injunction, before the Regional Trial Court of Caloocan City (Civil Case No.
C-12081).
RTC: Dismissed the complaint and ordered the foreclosure of the chattel
mortgage. It held petitioner corporation bound by the stipulations,
aforequoted, of the chattel mortgage.
CA: Affirmed RTC.
ISSUE:
Would it be 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?
HELD:
NO.
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 12),
the fact, however, that the statute has provided that the parties to the
contract must execute an oath that 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., 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.
The significance of the ruling to the instant problem would be that
since the 1978 chattel mortgage had ceased to exist coincidentally
with the full payment of the P3,000,000.00 loan, there no longer was
any chattel mortgage that could cover the new loans that were
concluded thereafter.
Case #4: Servicewide Specialist vs CA
Dec. 10, 1999
FACTS: This controversy is between a mortgagor who alienated the
mortgaged property without the consent of the mortgagee, on the one hand,
3
and the assignee of the mortgagee to whom the latter assigned his credit
without notice to the mortgagor, on the other hand.
Sometime in 1975, respondent spouses Atty. Jesus and Elizabeth Ponce
bought on installment a Holden Torana vehicle from C. R. Tecson
Enterprises. They executed a promissory note and a chattel mortgage on
the vehicle dated December 24, 1975 in favor of the C. R. Tecson
Enterprises to secure payment of the note. The mortgage was registered
both in the Registry of Deeds and the Land Transportation Office. On the
same date, C.R. Tecson Enterprises, in turn, executed a deed of
assignment of said promissory note and chattel mortgage in favor of
Filinvest Credit Corporation with the conformity of respondent
spouses. The latter were aware of the endorsement of the note and the
mortgage to Filinvest as they in fact availed of its financing services to
pay for the car. In 1976, respondent spouses transferred and delivered
the vehicle to Conrado R. Tecson by way of sale with assumption of
mortgage. Subsequently, Filinvest assigned all its rights and interest
over the same promissory note and chattel mortgage to petitioner
Servicewide Specialists Inc. without notice to respondent spouses. Due
to the failure of respondent spouses to pay the installments under the
promissory note from October 1977 to March 1978, and despite
demands to pay the same or to return the vehicle, petitioner was
constrained to file before the Regional Trial Court of Manila on May 22,
1978 a complaint for replevin with damages against them, docketed as
Civil Case No. 115567. In their answer, respondent spouses denied any
liability claiming they had already returned the car to Conrado Tecson
pursuant to the Deed of Sale with Assumption of Mortgage. Thus, they
filed a third party complaint against Conrado Tecson praying that in case
they are adjudged liable to petitioner, Conrado Tecson should reimburse
them.
RTC= JOINT AND SOLIDARILY LIABLE
ISSUE: Is the consent of the creditor-mortgagee necessary when the debtor-
mortgagor alienates the property to a third person?
RULING: NO. Only notice to the debtor of the assignment of credit is
required. His consent is not required. In contrast, consent of the
creditor-mortgagee to the alienation of the mortgaged property is
necessary in order to bind said creditor. To evade liability, respondent
spouses invoked Article 1626 of the Civil Code which provides that the
debtor who, before having knowledge of the assignment, pays his
creditor shall be released from the obligation. They argue that they were
not notified of the assignment made to petitioner. This provision,
however, is applicable only where the debtor pays the creditor prior to
acquiring knowledge of the latters assignment of his credit. It does not
apply, nor is it relevant, to cases of non-payment after the debtor came
to know of the assignment of credit. This is precisely so since the debtor
did not make any payment after the assignment. In the case at bar, what
is relevant is not the assignment of credit between petitioner and its
assignor, but the knowledge or consent of the creditors assignee to the
debtor-mortgagors sale of the property to another.
Case #5: PAMECA Wood Treatment Plant, Herminio Teves, Victoria
Teves, and Hiram Pulido v. CA and DBP (1999)
FACTS:
PAMECA loaned P2M from DBP and executed a promissory note, secured
by its inventory of furniture and equipment. A month before the mortgage
contract, its supposed market value was P2.5M. They defaulted so DBP
extrajudicially foreclosed on the chattels. It was the only bidder so it was able
to buy it for around P322,000. Then for the deficiency, it filed a complaint
against PAMECA and its solidary debtors (Teveses and Pulido) according to
the promissory note it signed. The agreement was to have PAMECAs
properties in Dumaguete (inventories, furniture, equipment) to be undergo a
Chattel mortgage. On 1984 PAMECA failed to pay so DBP and the being the
sole bidder and bought it for P322,000. After which, DBP filed a complaint for
collection of the balance of around P4M. A Complaint filed against PAMECA
and Herminio Teves and Victoria Teves as solidary debtors with PAMECA
under the promissory note. RTC-Makati: ordered PAMECA to pay the P4mil.
CA affirmed. CA ruling are as follows;
1. To disregard documents (inventory dated March 1980) for failure
to present them in evidence, or allude to them before the LC and
said that it is not unlikely that the chattels deteriorated as
thereby fetching a low price at the auction sale.
2. Did not find anything fraudulent in the circumstance that DBP
was the sole bidder, as all legal procedures for the conduct of a
foreclosure sale were complied with, thus giving rise to the
presumption of regularity in the performance of public duties.
4
Petition in SC, PAMECA files petition:
a. Public auction sale were tainted with fraud. Claims the chattels were
bought by DBP as sole bidder in only 1/6 of the market value, hence
unconscionable and inequitable, and so it is null and void. (claims
the market value was for more than P2M) --- evidenced from an
inventory dated March 1980 (valued at around P2.5M), in
accordance with the terms of the chattel mortgage contract that
required that the inventories "be maintained at a level no less than
P2M.
b. NCC 1484 and 2115 should be applied by analogy reading the spirit
of the law, and taking into consideration that the contract of loan was
a contract of adhesion.
c. Teves, Teves, and Pulido were not solidarily liable with PAMECA
because the intention was that the loan is only for the Corps benefit.
Issues:
1. Can an action be instituted for deficiency of a debt after foreclosure
of the chattel mortgage.
2. W/N NCC 1484 and 2115 should be applied by analogy PAMECA
invokes the equity jurisdiction of the SC to preclude the recovery of
the deficiency.
3. W/N public auction was tainted with fraud.
4. W/N Teves, Teves, Pulido are solidarily liable with PAMECA.
Held:
First issue:
1. Yes, NCC 2115 in relation to the Chattel Mortgage Law: they are
INCONSISTENT
In Ablaza vs. Ignacios case, LC dismissed the complaint for collection of
deficiency in view of NCC 2141, which provides that the provisions of the
Civil Code on pledge shall also apply to chattel mortgages, insofar as they
are not in conflict with the Chattel Mortgage Law. It was the LCs opinion that,
by virtue of NCC 2141, the provisions of NCC 2115 (which deny the creditor-
pledgee the right to recover deficiency in case the proceeds of the
foreclosure sale are less than the amount of the principal obligation) will
apply SC reversed LC and held that the provisions of the Chattel Mortgage
Law regarding the effects of foreclosure of chattel mortgage, being contrary
to the provisions of NCC 2115, 2115, in relation to 2141, may NOT be
applied. It is clear from Sec 14 of the Chattel Mortgage Law that the effects
of foreclosure run inconsistent with those of pledge under NCC 2115.
In pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor may no longer recover proceeds of the sale
in excess of the amount of the principal obligation
Sec 14 of the Chattel Mortgage Law expressly ENTITLES the mortgagor
(debtor) to the balance of the proceeds, upon satisfaction of the principal
obligation and costs. Since the Chattel Mortgage Law bars the creditor-
mortgagee from retaining the excess of the sale proceeds there is a corollary
obligation on the part of the debtor-mortgagee to pay the deficiency in case
of a reduction in the price at public auction.
Manila Trading v. Tamaraw Plantation cited in Ablaza v. Ignacio:
Sec 3 provides that "a chattel mortgage is a conditional sale", it further
provides that it "is a conditional sale of personal property as security for the
payment of a debt, or for the performance of some other obligation." The LC
overlooked that the chattels included in the mortgage are only given as
security and not as a payment of the debt, in case of a failure. Theory of the
LC would lead to the absurdity that if the chattels given as security should
sell for more than the indebtedness, that the creditor would be entitled to the
full amount for which it was sold, even though that amount was greatly in
excess of the indebtedness. Such a result was not contemplated by the
legislature when it adopted the law. The value of the chattels changes greatly
from time to time, and sometimes very rapidly. If for example, the chattels
should increase in value and a sale under that condition should result in
largely overpaying the indebtedness, and if the creditor is not permitted to
retain the excess, then the same would require the debtor to pay the
deficiency in case of a reduction in the price of the chattels between the date
of the contract and a breach of the condition.
Second issue:
SC unable to find merit that the public auction sale is void on grounds of
fraud and inadequacy of price.
PAMECA never assailed the validity of the sale in the RTC, only in the CA.
Basic is the rule that parties may not bring on appeal issues that were not
raised on trial. In any case, inventory and chattel mortgage document do not
prove that the mortgaged properties had a market value of at least P2mil on
5
Jan 1984, the date of the foreclosure sale. At best, the chattel mortgage
contract only indicates the obligation of the mortgagor-debtor to maintain the
inventory at a value of at least P2M.
The inventory was as of March 1980, or even prior to April 1980, the date of
the contracts of loan and chattel mortgage. It is far from being an accurate
estimate of the market value of the properties. The mere fact that DBP was
the sole bidder does not warrant the conclusion that the transaction was
attended with fraud.
Fraud is a serious allegation that requires full and convincing evidence, and
may not be inferred from the lone circumstance that it was only DBP that bid.
The sparseness of evidence leaves the SC no discretion but to uphold the
presumption of regularity in the conduct of the public sale.
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."
Decision is AFFIRMED.

Third issue:

Affirm the Teveses liability with PAMECA in the loan. As found by the TC
and CA, the terms of the promissory note unmistakably set forth the solidary
nature of the Teveses commitment: we hereby bind ourselves, jointly and
severally, to make partial payments as follows in case of default in the
payment of any installment above, we bind ourselves to pay DBP for
advances bind ourselves to pay additional interest and penalty charges on
loan amortizations or portion thereof in arrears as follows bind ourselves to
pay for bank advances for insurance premiums, taxes bind ourselves to
reimburse DBP on a pro-rata basis for all costs incurred by DBP on the
foreign currency borrowings from where the loan shall be drawn jointly and
severally bind ourselves to pay for attorney's fees as provided for in the
mortgage contract and the promissory note was signed: PAMECA by:
(followed by the) sgd. Teveses and Pulido.

Clear that Teveses intended to bind themselves solidarily with PAMECA in

the loan. They are not made to answer for the corporate act of PAMECA, but
are made liable because they made themselves co-makers with PAMECA
under the promissory note.

Petition denied

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.