CHATTEL MORTGAGE

BUENAVENTURA T. SALDANA, plaintiff-appellant, vs. PHILIPPINE GUARANTY COMPANY, INC., et al., defendants-appellees. Gatchalian & Padilla for Emiliano Tabasondra for appellee Company.Teodoro Padilla for the other appellees. REYES, J.B.L., J.: This case arose from a complaint for damages filed by Buenaventura Saldana (docketed as Civil Case No. 32703 of the Court of First Instance of Manila) that was dismissed by order of the Court dated August 20, 1957, for lack of sufficient cause of action. In another order of September 30, 1957 of the same court, plaintiff's motion for reconsideration was denied, and the case was appealed to this Court. The facts are that on May 8, 1953, in order to secure an indebtedness of P15,000.00, Josefina Vda. de Aleazar executed in favor of the plaintiff-appellant Buenaventura Saldana a chattel mortgage covering properties described as follows: A building of strong materials, used for restaurant business, located in front of the San Juan de Dios Hospital at Dewey Boulevard, Pasay City, and the following personal properties therein contained: 1 Radio, Zenith, cabinet type. 1 Cooler. 1 Electric range, stateside, 4 burners. 1 Frigidaire, 8 cubic feet. 1 G.E. Deepfreezer. 8 Tables, stateside. 32 Chromium chairs, stateside. 1 Sala set upholstered, 6 pieces. 1 Bedroom set, 6 pieces. And all other furniture's, fixtures or equipment found in the said premises. Subsequent to the execution of said mortgage and while the same was still in force, the defendant Hospital de San Juan de Dios, Inc. obtained, in Civil Case No. 1930 of the Municipal Court of Pasay City, a judgment was duly Josewfina Vda. de Eleazar. A writ of execution was duly issued and, on appellant.

January 28, 1957, the same was served on the judgment debtor by the sheriff of Pasay City; whereupon the following properties of Josefina Eleazar were levied upon: 8 Tables with 4 (upholstered) chairs each. 1 Table with 4 (wooden) chairs. 1 Table (large) with 5 chairs. 1 Radio-phono (Zenith, 8 tubes). 2 Showcases (big, with mirrors). 1 Rattan sala set with 4 chairs, 1 table and 3 sidetables . 1 Wooden drawer. 1 Tocador (brown with mirror). 1 Aparador . 2 Beds (single type). 1 Freezer (deep freeze). 1 Gas range (magic chef, with 4 burners). 1 Freezer (G.E.). On January 31, 1957, the plaintiff-appellant Saldana filed a third-party claim asserting that the above-described properties levied are subject to his chattel mortgage of May 8, 1953. In virtue thereof, the sheriff released only some of the property originally included in the levy of January 28, 1957, to wit: 1 Radio, Zenith, cabinet type. 8 Tables, stateside. 32 Chromiun chairs, stateside. 1 G.E. Deep freezer. To proceed with the execution sale of the rest of the properties still under levy, the defendantsappellees Hospital de San Juan de Dios, Inc. and the Philippine Guaranty Co., Inc., executed an indemnity bond to answer for any damages that plaintiff might suffer. Accordingly, on February 13, 1957, the said properties were sold to the defendant hospital as the highest bidder, for P1,500.00. Appellants claims that the phrase in the chattel mortgage contract — "and all other furnitures, fixtures and equipment found in the said premises", validly and sufficiently covered within its terms

the personal properties disposed of in the auction sale, as to warrant an action for damages by the plaintiff mortgagee. There is merit in appellant's contention. Section 7 of Act No. 1508, commonly and better known as the Chattel Mortgage Law, does not demand a minute and specific description of every chattel mortgaged in the deal of mortgage but only requires that the description of the properties be such "as to enable the parties in the mortgage, or any other person, after reasonable inquiry and investigation to identify the same". Gauged by this standard, general description have been held by this Court. (See Stockholder vs. Ramirez, 44 Phil., 993; Pedro de Jesus vs. Guam Bee Co., Inc., 72 Phil., 464). A similar rule obtains in the United States courts and decisions there have repeatedly upheld clauses of general import in mortgages of chattels other than goods for trade, and containing expressions similar to that of the contract now before us. Thus, "and all other stones belonging to me and all other goods and chattels" (Russel vs. Winne, 97 Am. Dec. 755); "all of the property of the said W.W. Allen used or situated upon the leased premises" (Dorman vs. Crooks State Bank, 64 A.L.R. 614); "all goods in the store where they are doing business in E. City, N.C." (Davis vs. Turner, 120 Fed. 605); "all and singular the goods, wares, stock, iron tools manufactured articles and property of every description, being situated in or about the shop or building now occupied by me in Howley Stree" (Winslow vs. Merchants Ins. Co., 38 Am. Dec. 368,) were held sufficient description, on the theory that parol evidence could supplement it to render identification rule is expressed in Walker vs. Johnson (Mont.) 1254 A.L.R. 937: The courts and textbook writers have developed several rules for determination of the sufficiency of the description in a chattel mortgage. The rules are general in nature and are different where the controversy is between the parties to the mortgage from the situation where third parties with out actual notice come in. In 11 C.J. 457, it is said: "Ad against third persons the description in the mortgage must point out its subject matter so that such person may identify the chattels observed, but it is not essential that the description be so specific that the property may be identified by it alone, if such description or means of identification which, if pursued will disclose the property conveyed." In 5 R.C.L. 423 the rule is stated that a description which will enable a third person, aided by inquires which the instrument itself suggest to identify the property is sufficiently definite." In 1 Jones on Chattel Mortgages and Conditional Sales, Bowers Edition, at page 95 the writer says: "As to them (third persons), the description is sufficient if it points to evidence whereby the precise thing mortgaged may be ascertained with certainty." Here there is nothing in the description "873 head of sheep" from which anyone, the mortgagee or third persons, could ascertain with any certainty what chattels were covered by the mortgage. In many instances the courts have held the description good where, though otherwise faulty, the mortgage explicity states that the property is in the possession of the mortgagor, and especially where it is the only property of that kind owned by him. The specifications in the chattel mortgage contract in the instant case, we believe, in substantial compliance with the "reasonable description rule" fixed by the chattel Mortgage Act. We may notice in the agreement, moreover, that the phrase in question is found after an enumeration of other specific articles. It can thus be reasonably inferred therefrom that the "furnitures, fixture and equipment" referred to are properties of like nature, similarly situated or similarly used in the restaurant of the mortgagor located in front of the San Juan de Dos Hospital at Dewey Boulevard, Pasay City, which articles can be definitely pointed out or ascertain by simple inquiry at or about the premises. Note that the limitation found in the last paragraph of section 7 of the Chattel Mortgage Law1 on "like or subsituated properties" make reference to those "thereafter acquired by the

p. JR. 1983. the orders appealed from are set aside and the case remanded to the lower court for further proceedings. the petitioner alleged in substance that it applied for a loan in . not to those already existing and originally included at the date of the constitution of the chattel mortgage. for there.N. Jureidini Bros. DEVELOPMENT BANK OF THE PHILIPPINES (DBP). LIM. Here. Sheriff NORVELL R.. respondents. effects. 220) — Moreover. 219. The case of Giberson vs. FILIPINAS MABLE CORPORATION. THE HONORABLE CANDIDO VILLANUEVA. 52 Off. EUGENIO PALILEO.. We find that the ground for the appealed order (lack of cause of action) does not appear so indubitable as to warrant a dismissal of the action without inquiry into the merits and without the description in the deed of mortgage (Nico vs. 144. cannot be likened to the case at bar. ALVARO TORIO. On January 19. PARDO.. wares. GUTIERREZ. 81 Phil. thereby making any particular or definite identification either impractical or impossible under the circumstances. JOSE T.: This petition for review seeks to annul the decision and resolution of the appellate court which upheld the trial court's decision denying the petitioner's prayer to enjoin the respondent from foreclosing on its properties. 44 Phil. MENDOZA. petitioner Filipinas Marble Corporation filed an action for nullification of deeds and damages with prayer for a restraining order and a writ of preliminary injunction against the private respondents. Jesus A. CASIMERO TANEDO. vs.. A contrary view would unduly impose a more rigid condition than what the law prescribes. petitioner. RTC. Blanco. INC. (Bancom). A. The rule in the Jureidini case is further weakened by the court's observation that (44 Phil. which appears inconsistent with the definitive character of the rulings invoked. what were sought to be mortgaged included two stores wit all its merchandise. Abreau.. Makati. SIMON A.. or at least permanently situated or used in the premises of the mortgagor's restaurant. Abad for respondents. DON FERRY. 216. Costs against appellee. Vicente Millora for petitioner. they should be treshed out in the insolvency proceedings. 3592). cited by the appellees and the lower court. which is that the description be only such as to enable identification after a reasonable inquiry and investigation. Avencena and Bonifacio M. Presiding Judge of Br. BANCOM SYSTEMS CONTROL. the properties deemed overed were more or less fixed. Zobel vs. ROLANDO ATIENZA. J. if there should exist any doubts on the questions we have just discussed. 213.mortgagor and placed in the same depository as the property originally mortgaged". THE HONORABLE INTERMEDIATE APPELLATE COURT. Gaz. In its complaint. and other bazar goods which were being constantly disposed of and replaced with new supplies in connection with the business. Wherefore.

the amount of $5,000,000.00 with respondent Development Bank of the Philippines (DBP) in its desire to develop the fun potentials of its mining claims and deposits; that DBP granted the loan subject, however, to sixty onerous conditions, among which are: (a) petitioner shall have to enter into a management contract with respondent Bancom Systems Control, Inc. [Bancom]; (b) DBP shall be represented by no less than six (6) regular directors, three (3) to be nominated by Bancom and three (3) by DBP, in Filipinos Marble's board, one of whom shall continue to be the chairman of the board; (c) the key officers/executives [the President and the officers for finance, marketing and purchasing] to be chosen by Bancom for the corporation shall be appointed only with DBP's prior approval and all these officers are to be made directly responsible to DBP; DBP shall immediately designate Mr. Alvaro Torio, Assistant Manager of DBP's Accounting Department as DBP's Comptroller in the firm whose compensation shall be borne by Filipinas Marble; and (d) the $5 Million loan shall be secured by: 1) a final mortgage on the following assets with a total approved value of P48,630,756.00 ... ; 2) the joint and several signatures with Filipinas Marble of Mr. Pelagio M. Villegas, Sr., Trinidad Villegas, and Jose E. Montelibano and 3) assignment to DBP of the borrower firm's right over its mining claims; that pursuant to these above- mentioned and other "take it or leave it" conditions, the petitioner entered into a management contract with Bancom whereby the latter agreed to manage the plaintiff company for a period of three years; that under the management agreement, the affairs of the petitioner were placed under the complete control of DBP and Bancom including the disposition and disbursement of the $5,000,000 or P37,600,000 loan; that the respondents and their directors/officers mismanaged and misspent the loan, after which Bancom resigned with the approval of DBP even before the expiration date of the management contract, leaving petitioner desolate and devastated; that among the acts and omissions of the respondents are the following. (a) failure to purchase all the necessary machinery and equipment needed by the petitioner's project for which the approved loan was intended; (b) failure to construct a processing plant; (c) abandonment of imported machinery and equipment at the pier, (d) purchase of unsuitable lot for the processing plant at Binan; (e) failure to develop even a square meter of the quarries in Romblon or Cebu; and (f) nearly causing the loss of petitioner's rights over its Cebu claims; 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. In essence, the petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP in order to secure the $5,000,000.00 loan 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 further prayed that pending the trial on the merits of the case, 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 in Metro Manila and in Romblon. Respondent DBP opposed the issuance of a writ of preliminary injunction stating that under Presidential Decree No. 385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to P123,801,265.82 as against its total obligation of P151,957,641.72; that under the same decree, no court can issue any restraining order or injunction against it to stop the foreclosure since Filipinas Marble's arrearages had already reached at least twenty percent of its total obligations; that the alleged non-receipt of the loan proceeds by the petitioner could, at best, be accepted only in a technical sense because the money was received by the officers of the petitioner acting in such capacity and, therefore, irrespective of whoever is responsible for placing them in their positions, their receipt of the money was receipt by the petitioner corporation and that the complaint does not raise any substantial controversy as to the amount due under the mortgage as the issues raised therein refer to the propriety of the manner by which the proceeds of the loan were expended

by the petitioner's management, the allegedly precipitate manner with which DBP proceeded with the foreclosure, and the capacity of the DBP to be an assignee of the mining lease rights. After a hearing on the preliminary injunction, the trial court issued an order stating: The Court has carefully gone over the evidence presented by both parties, and while it sympathizes with the plight of the plaintiff and of the pitiful condition it now has found itself, it cannot but adhere to the mandatory provisions of P.D. 385. While the evidence so far presented by the plaintiff corporation appears to be persuasive, the same may be considered material and relevant to the case. Hence, despite the impressive testimony of the plaintiff's witnesses, the Court believes that it cannot enjoin the defendant Development Bank of the Philippines from complying with the mandatory provisions of the said Presidential Decree. It having been shown that plaintiff's outstanding obligation as of December 31, 1982 amounted to P151,957,641.72 and with arrearages reaching up to 81 % against said total obligation, the Court finds the provisions of P.D. 385 applicable to the instant case. It is a settled rule that when the statute is clear and unambiguous, there is no room for interpretation, and all that it has to do is to apply the same. On appeal, the Intermediate Appellate Court upheld the trial court's decision and held: While petitioner concedes 'that Presidential Decree No. 385 applies only where it is clear that there was a loan or where the loan is not denied' (p. 14-petition), it disclaims receipt of the $5 million loan nor benefits derived therefrom and bewails the onerous conditions imposed by DBP Resolution No. 385 dated December 7, 1977, which allegedly placed the petitioner under the complete control of the private respondents DBP and Bancom Systems Control Inc. (Bancom, for short). The plausibility of petitioner's statement that it did Dot receive the $5 million loan is more apparent than real. At the hearing for injunction before the counsel for DBP stressed that $2,625,316.83 of the $5 million loan was earmarked to finance the acquisition of machinery, equipment and spare parts for petitioner's Diamond gangsaw which machineries were actually imported by petitioner Filipinas Marble Corporation and arrived in the Philippines. Indeed, a summary of releases to petitioner covering the period June 1978 to October 1979 (Exh. 2, Injunction) showed disbursements amounting to millions of pesos for working capital and opening of letter of credits for the acquisition of its machineries and equipment. Petitioner does not dispute that releases were made for the purchase of machineries and equipment but claims that such imported machineries were left to the mercy of the elements as they were never delivered to it. xxxxxxxxx Apart from the foregoing, petitioner is patently not entitled to a writ of preliminary injunction for it has not demonstrated that at least 20% of its outstanding arrearages has been paid after the foreclosure proceedings were initiated. Nowhere in the record is it shown or alleged that petitioner has paid in order that it may fall within the exception prescribed on Section 2, Presidential Decree No. 385. Dissatisfied with the appellate court's decision, the petitioner filed this instant petition with the following assignments of errors:

1. There being 'persuasive' evidence that the $5 million proceeds of the loan were not received and did not benefit the petitioner per finding of the lower court which should not be disturbed unless there is grave abuse of discretion, it must follow that PD 385 does not and cannot apply; 2. If there was no valid loan contract for failure of consideration, the mortgage cannot exist or stand by itself being a mere accessory contract. Additionally, the chattel mortgage has not been registered. Therefore, the same is null and void under Article 2125 of the New Civil Code; and 3. PD 385 is unconstitutional as a 'class legislation', and violative of the due process clause. With regard to the first assignment of error, the petitioner maintains that since the trial court found "persuasive evidence" that there might have been a failure of consideration on the contract of loan due to the manner in which the amount of $5 million was spent, said court committed grave abuse of discretion in holding that it had no recourse but to apply P.D. 385 because the application of this decree requires the existence of a valid loan which, however, is not present in petitioner's case. It likewise faults the appellate court for upholding the applicability of the said decree. Sections 1 and 2 of P.D. No. 385 respectively provide: Section 1. It shall be mandatory for government financial institutions after the lapse of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty (20%) of the total outstanding obligations, including interest and other charges, as appearing in the book of accounts and/or related records of the financial institution concerned. This shall be without prejudice to the exercise by the government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to foreclose on loans, credits, accommodations, and/or guarantees on which the arrearages are less than twenty percent (20%). Section 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower, and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. Presidential Decree No. 385 was issued primarily to see to it that government financial institutions are not denied substantial cash inflows, which are necessary to finance development projects all over the country, by large borrowers who, when they become delinquent, resort to court actions in order to prevent or delay the government's collection of their debts and loans. The government, however, is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government lending institutions who take over the management of a borrower corporation, lead that corporation

(Penacio vs. even if only in part.to bankruptcy through mismanagement or misappropriation of its funds. Court of Appeals. then the foreclosure of the petitioner's properties under the provisions of P. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan.000.000. to develop the projects of the corporation. P. 385 to satisfy the whole amount of the loan would be a gross mistake.D. 385 will have to await the presentation of evidence in a trial on the merits.00 loan was actually granted and released to the petitioner corporation and whatever the composition of the management which received the loan is of no moment because this management was acting in behalf of the corporation. In the case at bar. We cannot. Consequently. Therefore. The respondents also argue that since the loan was extended to the corporation. 110 SCRA 46 [1981]. . that is. as there was no debt yet because Island Savings Bank had not made any release on the loan. xxxxxxxxx The fact that when Sulpicio M. the respondents try to impress upon this Court that the $5. The designated officers of the government financing institution cannot simply walk away and then state that since the loans were obtained in the corporation's name. then P. 5253. As we have ruled in the case of Central Bank of the Philippines vs. use the mandatory provisions of the decree to avoid the consequences of their misdeeds.00 loan agreement on April 28.D. the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P. after ruining it. no consideration was then in existence. 56): When Island Savings Bank and Sulpicio M. Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not. there was failure on the part of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed. (1 39 SCRA 46. This matter should rightfully be litigated below in the main action.D. Precisely. they undertook reciprocal obligations. for the benefit of the petitioner be determined.. 385 must be peremptorily applied and that there is no way the borrower corporation can prevent the automatic foreclosure of the mortgage on its properties once the arrearages reach twenty percent (20%) of the total obligation no matter who was responsible. The petitioner does not question the authority under which the loan was delivered but stresses that it is precisely this authority which enabled the DBP and Bancom people to misspend and misappropriate the proceeds of the loan thereby defeating its very purpose. conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent. its employees and their families. Tolentino entered into an P80. It would unduly prejudice the petitioner. the releases had to be made to the then officers of that borrower corporation. Ruaya. the obligation or promise of each party is the consideration for that of the othe. does not make the real est ..D. what the petitioner is trying to point out is that the DBP and Bancom people who managed Filipinas Marble misspent the proceeds of the loan by taking advantage of the positions that they were occupying in the corporation which resulted in the latter's devastation instead of its rehabilitation. Pending the outcome of such litigation. at this point.000. it is as if the loan was never delivered to it and thus. 1965. Tolentino executed his real estate mortgage. and who.

Inc. 1975.. "has still an independent legal remedy" against the mortgagor for the recovery of the unpaid balance of the price. etc. Luneta Motor Company. respondents.. For that pragmatic reason. Honesto Ong's contention that Northern Motors. being recorded. . as chattel mortgagee. Rule 39 of the Rules of Court is not correct. whereas. XI Enciclopedia Juridica Española 294) or a lien which. Inc.. in its motion for the partial reconsideration of the same August 29 resolution.. — Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged taxicabs. The registration of the chattel mortgage is an effective and binding notice to him of its existence (Ong Liong Tiak vs.000. 1. et al. CORPORATION. Inc. Northern Motors. To require him to do so would be a nullification of his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his credit. That contention is not a justification for setting aside the holding that Ong had no right to levy upon the mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of redemption. it was constrained to enter into a compromise with Honesto Ong by agreeing to pay him P145. it was held that the lien of Northern Motors.. Inc.. (See art. petitioner. Inc. the assignee of a portion of the chattel mortgage credit. Manila Yellow Taxicab Co. Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage should not affect him because he is not privy of such contract is untenable. the assignee of the unsecured judgment creditor of the chattel mortgagor. Inc. He contends that his only recourse was to levy upon the taxicabs which were in the possession of the judgment debtor. follows the chattel wherever it goes. The mortgage creates a real right (derecho real. Manila Yellow Taxicab Co. jus in re or jus ad rem. COQUIA.. In that resolution. as the "ransom" for the taxicabs levied upon by the sheriff at the behest of Honesto Ong.: Respondent Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration of this Court's resolution of August 29. On the other hand. The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor. intervenor. prayed for the reversal of the lower court's orders cancelling the bond filed by Filwriters Guaranty Assurance Corporation. Civil Code). J. realized that to vindicate its claim by independent action would be illusory. Inc. as unpaid seller and mortgagee. That amount was characterized by Northern Motors. further prayed that the sheriff should be required to deliver to it the proceeds of the execution sale of the mortgaged taxicabs without deducting the expenses of execution. The mortgagee is not obligated to file an "independent action" for the enforcement of his credit. JORGE R. Inc. It is relevant to note that intervenor Filinvest Credit Corporation. was negligent because it did not sue the sheriff within the 120-day period provided for in section 17.NORTHERN vs. HON. RESOLUTION MOTORS. over certain taxicabs is superior to the levy made on the said cabs by Honesto Ong. 2087. Respondents' motion for reconsideration. Northern Motors.. FILINVEST CREDIT AQUINO. 66 Phil 459). INC. Northern Motors.

That argument is not clear. cannot be sustained.. Inc. Inc. Inc. The other arguments of Honesto Ong in his motion may be boiled down to the proposition that the levy made by mortgagor's judgment creditor against the chattel mortgagor should prevail over the chattel mortgage credit. 1975 in the Court of First Instance of Rizal. Civil Case No. in Civil Case No. vs. which was enforced against the seven taxicabs (whose sale at public auction was stopped) should have precedence over the mortgage lien. instead of Honesto Ong. 196.. should have alerted the purchasers to the risk which they were taking when they took part in the auction sale. to Northern Motors. Manila Yellow Taxicab Co. The sale did not extinguish the pre-existing mortgage lien (See sec.Such action was filed on April 14. That contention is not well-taken. To uphold that contention is to destroy the essence of chattel mortgage as a paramount encumbrance on the mortgaged chattel.. that matter should be raised by Manila Yellow Taxicab Co. However. Inc. 8 SCRA 103).. Moreover. Leyte Autobus Co. If that is the point which Ong is trying to put across. 1975 by Filwriters Guaranty Assurance Corporation for Tropical Commercial Co. as explained in the resolution under reconsideration. at an execution sale the buyers acquire only the right of the judgment debtor which in this case was a mere right or equity of redemption. We already held that the cancellation of the bonds constituted a grave abuse of discretion but we previously denied petitioner's prayer for the reinstatement of the bonds because Northern Motors . That might explain his unawareness of the pendency of such action. — The lower court in its order of January 3. 21065 entitled "Northern Motors. entitled "Northern Motors. Inc. Lara vs. in the replevin case. 2. May 30. Rule 39. L-7907. then. Inc. Pasig Branch XIII. That proposition is devoid of any legal sanction and is glaringly contrary to the nature of a chattel mortgage. "only to such extent as has exceeded the amount paid by respondent Manila Yellow Taxicab to" Northern Motors. et al. et al. Some arguments adduced by Honesto Ong in his motion were intended to protect the interests of the mortgagor. 20536 of the Court of First Instance of Rizal. Ong probably means that the installments already paid by Manila Yellow Taxicab Co. Respondent Ong admits "that the mortgagee's right to the mortgaged property is superior to that of the judgment creditor". He reasons out they were not parties to the mortgage and that they acquired the cars prior to the mortgagee's assertion of its rights thereto. Inc." Ong's contention. Inc. Tropical Commercial Corporation. Dineros and Provincial Sheriff of Rizal. 951. was impleaded as a defendant therein. as third-party claimant.".. The bonds were cancelled without notice to Northern Motors. 25.. Pasig Branch VI. which was held on December 18. 97 Phil. Inc. versus Manila Yellow Taxicab Co. 1975 cancelled the indemnity bonds for P480. Potenciano vs. which he erroneously characterized as a "respondent" (it is not a respondent in this case). Petitioners motion for partial reconsideration. Bayona. and it is something which does not directly affect him. The third-party claim filed by Northern Motors. Filwriters Guaranty Assurance Corporation. Inc... Hacbang vs. But he contends that the rights of the purchasers of the cars at the execution sale should be respected. his assignor. Rules of Court. Inc. The motion for reconsideration of Ong and the sheriff should be denied. 1963. 1974. should be deducted from the proceeds of the execution sale. Inc.000 filed on December 18. should be delivered to Northern Motors. the levy thereon was wrongful. Ong argues that the proceeds of the execution sale. that the writ of execution. Inc. Those cabs cannot be sold at an execution sale because. 97 Phil.

in that case prayed that the surety be ordered to pay to it damages in the event that the eight taxicabs could not be surrendered to the mortgagee. .000 (No. Annex B of motion). 1975 was filed). Branch 43.". Baco River Plantation Co. vs. Presiding Judge of Regional Trial Court of Manila. the proceeds of the execution sale may be regarded as a partial substitute for the unrecovarable cabs (See arts. Hence. Hon. 1975 against the surety. vs. Rule 39 of the Rules of Court. page 4. The resolution of August 29. It may also be noted that in a prior case. Civil Code. Civil Case No. Northern Motors.. 12. Inc. entitled "Northern Motors.. 1975). It argues that Honesto Ong or Manila Yellow Taxicab Co. If the said bond is not reinstated or if the lower court's orders cancelling it are allowed to stand. Urmeneta & Associates for petitioner.000 (as reaffirmed in its order of January 17. Northern Motors. was impleaded as a defendant by reason of its bond for P240. should shoulder such expenses of execution. COURT OF APPEALS. the sheriff and the judgment creditor in Civil Case No. 21065 of the Court of First Instance of Rizal. 20536 of the Court of First Instance of Rizal at Pasig. HON. Those cabs should not have been levied upon and sold at public auction to satisfy the judgment credit which was inferior to the chattel mortgage. our resolution of August 29. 1974 for the eight taxicabs which were mortgaged to that firm. 26 Phil. Inc. in its instant motion for partial reconsideration. respondents. 0032 posted on December 18. are set aside. the surety. petitioner. Valera. SO ORDERED. WHEREFORE.. Filwriters Guaranty Assurance Corporation. as mortgagee.. cancelling the indemnity bond for P240. The said indemnity bond for P240. Urrutia & Co. The action involves the indemnity bond for P240. We already held that the execution was not justified and that Northern Motors. the aforementioned Civil Cases Nos. Northern Motors.000.. Inc. Inc. MANUEL CUADY and LILIA CUADY. Inc. 1975 is modified in the sense that the lower court's orders of January 3 and 6.Inc. further prays for the reconsideration of that portion of our resolution allowing the sheriff to deduct expenses from the proceeds of the execution sale for the eight taxicabs which sale was held on December 18. should be reconsidered. Since the cabs could no longer be recovered because apparently they had been transferred to persons whose addresses are unknown (see par. 632). BA FINANCE CORPORATION.. That injustice should be corrected. insofar as it did not disturb the lower court's orders cancelling the indemnity bonds. 1975. 1975. Manila Yellow Taxicab Co. Inc. 1974). 20536 and 21065 would be baseless or futile actions against the surety. is entitled to the entire proceeds without deduction of the expenses of execution. the truth is that such an action for damages was filed on April 14. Inc.000 is regarded as in full force and Respondent Sheriff of Manila is further directed to deliver to Northern Motors. Inc. a replevin case (where an amended complaint dated January 15. the entire proceeds of the execution sale held on December 18. had given the impression that it had not filed any action for damages against the sheriff within the one hundred twenty-day period contemplated in Section 17. Northern Motors. As already noted above. reiterates its petition for the reinstatement of the bond filed by Filwriters Guaranty Assurance Corporation. was entitled to the possession of the eight taxicabs. Inc. et al. 1974. vs. 1189[2] and 1269. Pasig Branch XIII. private respondents' motion for reconsideration is denied and petitioner's motion for partial reconsideration is granted.

Said obligation was evidenced by a promissory note executed by private respondents in favor of Supercars. pp.A. which amount covered the cost of one unit of Ford Escort 1300." affirming the decision of the Regional Trial Court of Manila. 1). when the Cuadys failed to renew said insurance coverage themselves. private respondents Manuel Cuady and Lilia Cuady obtained from Supercars. Zenith Insurance Corporation. thus leaving an unpaid balance of P2. in view of the failure of the Cuadys to pay the remaining installments on the note.A. as the assignee of the mortgage lien obtained the renewal of the insurance coverage over the aforementioned motor vehicle for the year 1980 with Zenith Insurance Corporation.A. Finance Corporation prevailed upon the former to just have the car repaired. B. PARAS. any loss under the policy shall be payable to the B. No. Supercars.00 starting August 16. In addition thereto. assigned the promissory note. 1977. There was also stipulated a penalty of P10. 1980. four-door sedan. if any. To secure the faithful and prompt compliance of the obligation under the said promissory note. obligating themselves to pay the latter or order the sum of P39.A.80. and (2) the resolution dated February 9.A. But instead of heeding the request of the Cuadys.00 for every month of late installment payment. Finance Corporation. Finance Corporation and to the insurer. When B. Bautista for private respondents. Finance Corporation. payable on monthly installments of P1. J. the car bogged down. 82-10478.65 as of July 18. 45). The Cuadys asked the B.A. pp. Inc.A. .. 1988 denying petitioner's motion for reconsideration. and on the 16th day of the next 35 months from September 16.00 representing penalties or surcharges for tardy monthly installments (Rollo. On April 18. a credit of P39. The unfortunate happening was reported to the B.80. B. 1977 until full payment thereof.R. Defendants-Appellees.574. CV-06522 entitled "B. On June 29. pp. vs.A. to B. the Cuadys owe B. the B. Inc. The Cuadys wrote B.A. together with the chattel mortgage. the aforementioned motor vehicle figured in an accident and was badly damaged. Finance Corporation requesting the latter to pursue their prior instruction of enforcing the total loss provision in the insurance coverage. Under the terms and conditions of the said insurance coverage. the Cuady spouses constituted a chattel mortage on the aforementioned motor vehicle. Plaintiff-Appellant.A. the Cuadys stopped paying their monthly installments on the promissory note (Ibid.574. Not long thereafter. which dismissed the complaint in Civil Case No. Finance Corporation P460. for the recovery of the said remaining installments (Memorandum for the Petitioner.15 to the B. 3-4). Finance Corporation. Finance Corporation to consider the same as a total loss. 1982. 1977. Parenthetically. however.098.:p This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the Court of Appeals dated July 21. Finance Corporation did not respond favorably to their request. Finance Corporation (Memorandum for Private Respondents. 1977.730. Finance Corporation. Inc.Pompeyo L. As gathered from the records. On July 25.. inclusive of interest at 14% per annum. Branch 43. Finance Corporation sued them in the Regional Trial Court of Manila. and to claim from the insurer the face value of the car insurance policy and apply the same to the payment of their remaining account and give them the surplus thereof.A. 1987 in CA-G. 1980. The Cuadys paid a total of P36. 27-29). Manuel Cuady and Lilia Cuady. the facts are as follows: On July 15. Branch 43.A. p.344.

1984. B. in compliance with the provision of Section 13. considering that the circumstances . this Court gave due course to the petition and required the parties to submit their respective memoranda.A. The decretal portion of the said decision reads as follows: WHEREFORE. the case was submitted for decision.. Atty. On July 11.. the dispositive portion of which reads as follows: IN VIEW WHEREOF. 1988 (Ibid. Said motion was granted in an order dated September 26. p. 38). SO ORDERED. 1984. Atty. 1984. but the motion was denied by the respondent appellate court in a resolution dated February 9. denied by the trial court on August 10. the case was set for trial on the merits on April 25. never complied with the above-mentioned order. 1985. 1990. Ferdinand Macibay was temporarily assigned in Cebu City and would not be back until after August 15. 1984. It is the contention of B. after consultation among the undersigned members of this Division. 1984. the reason being that the "handling" counsel. paving the way for the trial court to render its decision on January 18. On August 15.After the termination of the pre-trial conference. 1-2). B. Finance Corporation moved for the reconsideration of the above decision. p. thus: The Court grants plaintiff's motion for reconsideration dated August 22.A.A. 1984. 1984. the same is hereby AFFIRMED. this present recourse. Finance Corporation filed a motion for reconsideration of the order of the trial court denying its motion for postponement. On August 7. (Ibid. Article VIII of the Constitution. B.A. The real issue to be resolved in the case at bar is whether or not B. Finance Corporation. The parties having complied with the submission of their memoranda. Finance Corporation's evidence was presented on even date and the presentation of Cuady's evidence was set on August 15. Hence.1984. without any pronouncement as to costs. Said motion was. (Rollo. in the sense that plaintiff is allowed to adduce evidence in the form of counter-affidavits of its witnesses. the trial court allowed private respondents to adduce evidence ex-parte in the form of an affidavit to be sworn to before any authorized officer.A. pp. p. counsel for the petitioner. 143) On appeal. and finding no reversible error in the judgment appealed from. said failure does not operate to extinguish the unpaid balance on the promissory note.A. however. the respondent appellate court * affirmed the decision of the trial court. however. (Ibid. Finance Corporation has waived its right to collect the unpaid balance of the Cuady spouses on the promissory note for failure of the former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the chattel mortgage.. to be sworn to before any person authorized to administer oaths. within ten days from notice hereof. Noel Ebarle. Finance Corporation that even if it failed to enforce the total loss provision in the insurance policy of the motor vehicle subject of the chattel mortgage. the date of hearing. filed a motion for postponement. the Court DISMISSES the complaint without costs. 33) B.

receipts and documents to the Insurance Company as may be necessary to prove the claim. On the other hand. Inc. the principal in the case at bar.A.obtaining in the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment of obligations (Memorandum for the Petitioner. the Cuadys. the Cuady spouses created in the former's favor an agency. Finance Corporation is bound by the terms and conditions of the chattel mortgage executed between the Cuadys and Supercars. 16-17). Under the established facts and circumstances. the auto repair shop chosen by the insurer itself to repair the aforementioned motor vehicle. Under the deed of chattel mortgage. misrepaired and rendered it completely useless and unserviceable (Ibid. Thus. the Cuadys insist that owing to its failure to enforce the total loss provision in the insurance policy. to still pay the unpaid balance of their mortgage debt on the said car. not to mention the amount equivalent to the unpaid balance on the promissory note. when B. may suffer.) On the allegation that the respondent court's findings that B. In this connection. Finance Corporation was deemed subrogated to the rights and obligations of Supercars. 91) but also the remaining balance on the promissory note (Memorandum for the Respondents. Consequently. under Article 1884 of the Civil Code of the Philippines. B.. Finance Corporation is bound by its acceptance to carry out the agency. Thus..A. Unquestionably.. . p. to sign execute and deliver the corresponding papers. pp. The petition is devoid of merit. 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 which states that the "LOSS: IF ANY. under this policy shall be payable to BA FINANCE CORP. prosecute. Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the payment of a clearly valid insurance claim. together with the chattel mortgage constituted on the motor vehicle in question in favor of the former. (Ibid.. appellees herein. B. Accordingly. in the event that the mortgaged car suffers any loss or damage (Rollo. 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. Finance Corporation was constituted attorney-in-fact with full power and authority to file.A. and continued to ignore the yearning of the Cuadys to enforce the total loss provision in the insurance policy. when the latter assigned the promissory note. follow-up. p. p.A. Finance Corporation failed to claim for the damage to the car was not supported by evidence. .A. it is unjust.A. and is liable for damages which. 11). B. the Court of Appeals said: . the petitioner insisted on just having the motor vehicle repaired. through its non-performance.. In granting B. the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in question. unfair and inequitable to require the chattel mortgagors.A.. As heretofore mentioned. the records show that instead of acting on the instruction of the Cuadys to enforce the total loss provision in the insurance policy. and to collect from the latter the proceeds of insurance to the extent of its interests. p. Inc. Finance Corporation the aforementioned powers and prerogatives. the said vehicle bogged down shortly thereafter. B. there is no reason to depart from the ruling set down by the respondent appellate court. B. as their respective rights and interest may appear" (Rollo.A. the repair shop chosen was not able to restore the aforementioned motor vehicle to its condition prior to the accident. compromise or settle insurance claims. to which private respondents reluctantly acceded. 89). 31). despite the undeniable fact that Rea Auto Center.

4-5). 153 SCRA 712 [1987]. Court of Appeals. This. cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play. The doctrine is. Finance Corporation would have this Court review and reverse the factual findings of the respondent appellate court. when in truth and in fact. 10). B.A. A review of the records of the case shows that B. 2. 176 SCRA 483 [1989]). to be sure. This Court does not have to unduly dwell on this issue which was only raised by B.. Finance Corporation to file a claim for total loss with the insurer fell on deaf ears. et al. It is axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court. Court of Appeals. when it seriously considered the evidence adduced ex-parte by the Cuadys.A. second. 140 SCRA 44 [1985]). v. the Court cannot and will not generally do.: This is a Petition for Certiorari with a prayer for a writ of preliminary injunction filed by Urbano Jaca and Bonifacio Jaca against the Davao Lumber Company and Honorable Manases Reyes as Judge of the Court of First Instance of Davao seeking the following relief: WHEREFORE. Polo. and heavily relied thereon. Ramos v. et al. That a writ of Preliminary Injunction be immediately issued restraining the respondent Judge from carrying out or enforcing the Orders [Annexes "Z" and "FF"] complained of pending the hearing of the merits of the instant petition. Davao Lumber FERNANDEZ. 157 SCRA 425 [1988]. prompting the Cuadys to stop paying the remaining balance on the promissory note (Memorandum for the Respondents.A. subject to certain specific exceptions none of which. SO ORDERED. let alone in the Court of Appeals. when it denied the petitioner's motion for reconsideration praying that the counsel be allowed to cross-examine the affiant. Moreover. De la Santa v. and the decision appealed from is AFFIRMED. Intermediate Appellate Court. of course. however. the same was not formally admitted as part of the evidence for the private respondents (Memorandum for the Petitioner. petitioners pray: 1. issues not raised and/or ventilated in the trial court. 175 SCRA 70 [1989].A. pp. Finance Corporation failed to directly raise or ventilate in the trial court nor in the respondent appellate court the validity of the evidence adduced ex-parte by private respondents. J. JACA vs. Finally. As ruled by this Court in a long line of cases. B. justice and due process (Galicia v. PREMISES CONSIDERED. It was only when the petitioner filed the instant petition with this Court that it later raised the aforementioned issue.A. Dulos Realty & Development Corporation v. Finance Corporation contends that respondent trial court committed grave abuses of discretion in two instances: First. that this Honorable Court annuls and sets aside the complained Orders [Annexes "Z" and "FF"]. After due hearing. Dihiansan. 179 SCRA 375 [1989]. and. Finance Corporation for the first time on appeal. p. et al. obtains in the instant case (Luzon Brokerage Corporation v.. Court of Appeals. the instant petition is DENIED. .The subsequent request of the Cuadys for the B. Court of Appeals.

the plaintiffs had been faithfully delivering all their log production to the defendant for export or domestic purposes. that the defendant is a business corporation with which plaintiffs had business dealings covering the sale and/or exportation of their logs. orders were secured by plaintiffs. which according to the latter had long been overdue. the current prices. as aforementioned. by way of advances. plaintiffs were never furnished but that as far as they can recollect the primary conditions of such chattel mortgage were that plaintiffs would turn over to defendant corporation all the logs they may produce from the aforesaid concession the same to be priced either as export or domestic and their value to be applied by defendant to. to effect such formal accounting. that while the aforesaid business relationship between the parties was subsisting. Philippines.Petitioners further pray for all other reliefs which are just and equitable in the premises. that during this whole period of time. that the payment of such account was to be made either in cash and/or by plaintiff's turning over all the logs that they produce in the aforesaid concession to the defendant. either export or domestic. and be credited for. a copy of which instrument. from the defendant. that in pursuance to the agreement. there would still . materials or equipment's. and made integral parts of this complaint] that plaintiffs are no longer indebted to the defendant. engaged in the logging business of producing timber and logs for export and/or domestic purposes. and further that in case of need. plaintiffs may secure. of the logs at the time of their delivery was to be considered. either cash. Return of Price Differentials and Damages against the Davao Lumber Company. plaintiffs received letters of demand from the defendant in which they were requested to pay their accounts in favor of defendant. and/or equipment from the defendant corporation. in order that the latter may be able to use. that before the filing of this complaint. 1966. herein parties-litigants entered into an agreement whereby plaintiffs may secure. the plaintiff made repeated demands on the defendant for a formal accounting of their business relationship from 1954 up to August. and still fails and refuses. however. by way of advances. Bonifacio Jaca. from 1954 up to sometime in August. either cash or materials. foodstuffs. it is their belief that. that sometime on October 30. and still is. by way of advances. but that the defendant failed and refused. Davao City. The complaint alleges that the plaintiff Urbano Jaca has been. February 5. 1963. the said letters of credit for bank negotiations of the former in the exportation of logs. a licensee of a logging concession located in the City of Davao and together with his co-plaintiff. Urbano Jaca and Bonifacio Jaca filed with the Court of First Instance of Davao. 1963. a complaint for Accounting. defendant made plaintiff Urbano Jaca execute in its favor a chattel mortgage. [copies of such letters are hereto attached marked as Annexes "A" and "B". 4189. and in the latter case. In November. foodstuffs. that under the aforementioned "open credit account" relationship between the plaintiffs and defendant. and as a matter of fact. asserting that it had no time as yet to examine into all the details of the accounting. The case was docketed as Civil Case No. as aforestated. that sometime in 1954. plaintiff Urbano Jaca executed assignments of letters of credit in favor of the defendant. much to their surprise. liquidating those old accounts and keeping all accounts current. 1963. the account of plaintiff's indebtedness. 1963. this to be paid by them with plaintiffs' production from their concession. as defendant corporation did in fact use. if a formal accounting be made. that the plaintiffs and the defendant had this business relationship. under an "open credit account".

000. and that further.appear a claim in their favor in the amount of P250.00. it is difficult for plaintiffs to ascertain with accuracy the ledger balance between the parties. there was a deliberate fraud practiced by the defendant on them. the respondent Judge rendered a Decision. 1965.52 is overdue and unpaid despite repeated formal demands for settlement thereof made by defendant. judgment is hereby rendered in favor of defendant and against the plaintiff. 2. damages and attorney's fees amounting to at least P20. unless a detailed examination of the matter is had.651. 3. there were many errors committed in the monthly statements submitted to the plaintiffs arising from the fact that there were charges of cash.651. and still further that the proceeds of the letter of credit were not fully applied and/or credited to the account of plaintiffs. constituting accountants be judicially appointed for the purpose of examining all the books. the plaintiff Urbano Jaca executed a chattel mortgage in favor of the defendant to secure the payment of any and all obligations contracted by him in favor of the defendant covering several chattels valued at P532. the dispositive portion of which reads: CONSIDERING THE FOREGOING. and that they have thereby suffered damages in the sum of Twenty Thousand Pesos [P20. that further.52 with legal interest from the date of the filing of the counterclaim. that plaintiffs have thereby been constrained to file this case in Court in order to compel defendant to have a formal accounting between them. materials and foodstuffs in said statements never ordered and/or received by the plaintiffs.236. up to the present.52 and P91. Ordering Urbano Jaca. return of price differentials and damages filed by plaintiffs Urbano Jaca and Bonifacio Jaca versus defendant Davao Lumber Company is dismissed. three commissioners. [3] In its counterclaim.00] by way of attorney's fees. as it is hereby dismissed. pertinent papers and documents and all other data in relation with their business transaction. 1963. Ordering plaintiff Bonifacio Jaca to pay defendant the amount of P91. The complaint for accounting.000.236. [2] In December. vouchers. that defendant has. ordering that: 1. that in order to protect their interest and to litigate this case. equipment. and that it is the desire of plaintiffs that pending the formal hearing of this case. the Davao Lumber Company alleged that Plaintiffs Urbano Jaca and Bonifacio Jaca are the ones indebted to the defendant in the sum of P756. that on January 24.000.00 with legal interest.97. especially in defendant's undergrading and/or reclassification of logs delivered to it by plaintiffs. the plaintiffs were compelled to secure and retain the services of attorneys. respectively. 1961.00 more or less. 1963. the Davao Lumber Company filed its Answer with Affirmative Defenses and Counterclaim. . that the action brought by the plaintiffs is purely baseless and malicious for which the plaintiffs should be required to pay defendant.00. that said obligation of Urbano Jaca totalling P756. to pay defendant the amount of P756. receipts.000. denied the plaintiffs the benefits of a formal accounting and inasmuch as the invoices.236. [4] In June. requisition slips and other pertinent papers and document of their business transactions are in the possession of defendant. representing the price differentials of logs which they delivered to the defendant from 1954 up to August.

Execution pending appeal. on this 11th day of June. ." but plaintiffs did not. 1965. 1965. but up this date.000. Section 2 of the Rules of Court. which provides: Sec. [b] Defendant's counsel filed a "Motion to Implement Order ordering Urbano Jaca to deliver Chattels to Receiver" dated July 28. Alagon of Davao City on February 12. [c] That there are various reports from the receiver. 5. [a] In this same civil case. A copy of the letter-complaint addressed by defendant's counsel to the City Fiscal of Davao. 1962 for P10.On motion of the prevailing party with notice to the adverse party the court may. chattels and equipment covered by the Chattel Mortgage." but up to this date. 2. the court issued an Order dated November 17. the motion and the special order shall be included therein. time to appeal. the court in its Order of September 1. a wrecker. If a record on appeal is filed thereafter. stating that the Receiver has not taken custody of the mortgaged chattels due to the refusal or inability to mortgagor Urbano Jaca to deliver the same to him.000. in its discretion. there has been consistent refusal or failure to comply with said order of delivery. 1965. comply with said Order of November 17.00 as attorney's fees in favor of defendant. upon good reasons to be stated in a special order. 1964 directing the plaintiffs "to deliver to the receiver all the properties. 6. plaintiffs have not complied with said Order. Ordering plaintiffs to pay jointly and severally P20. be foreclosed as it is hereby foreclosed.00. to Teodoro M. [5] In September. Given at Davao City. With cost against plaintiffs. 1965. SO ORDERED. 1964. 1964. [d] Despite the long lapse of time from the Order of November 17. the Davao Lumber Company filed a motion for execution pending appeal on the following grounds: [1] There are good reasons to authorize an order of execution pending appeal pursuant to Rule 39. dated February 5. . 1964 "fifteen (15) days upon receipt of this Order. the delivery to be made within thirty (30) days. Section 2] is the fact that plaintiff Urbano Jaca. for he has sold some of the mortgaged properties to third persons. the mortgagor in the deed of chattel mortgage dated January 24. has violated Article 319 of the Revised Penal Code. order execution to issue before the expiration of the. Ordering that the chattel mortgage executed by Urbano Jaca in favor of defendant Exhibit "3". one of them dated April 19. [2] Another good reason for execution pending appeal [Rule 39. 1961. particularly. 1964 is attached hereto and made an integral part of this Motion as Annex "A".4. directed said mortgagor Urbano Jaca to comply forthwith with the Order dated November 17. 1965.

which amounts to principal items of P756. 72 Phil. Rule 15 of the Rules of Court] and the Order sought to be obtained and that no other grounds can be entertained.[3] Moreover. 1965. the respondent Judge acted in excess of jurisdiction when he considered. or a total of P867. 1965. [6] The respondent judge granted the motion for execution pending appeal in an order dated November 29. passed upon and considered by the court over the objection of the adverse party. but plaintiffs have no properties or assets with which to satisfy the judgment of this Honorable Court. Part II.326.651. [7] Urbano Jaca and Bonifacio Jaca filed a motion for reconsideration of the order granting execution pending appeal in December. 1963 ed. 285: Ledesma vs. plaintiffs have not only failed to comply with the Order of the Honorable Court for the delivery of the properties under receivership to the Receiver [par. [2] the respondent judge acted with grave abuse of discretion equivalent to lack of jurisdiction in finding that there exists special or good reasons for execution pending appeal because discretionary execution under Section 2. P91. 4 of this Motion].000. Barrios. [9] Petitioners Urbano Jaca and Bonifacio Jaca contend that the respondent Judge acted in excess of jurisdiction and/or with grave abuse of discretion in issuing the order granting execution pending appeal and the order denying the motion for reconsideration of the order granting execution pending appeal because said orders were issued in complete disregard of the applicable provisions of the Rules of Court.00. Teodoro. 784.. [4] Obviously. 1954. and the settled decisions of the Honorable Supreme Court. the laws. Petitioners assail the order granting execution pending appeal and the order denying the motion for execution pending appeal on the following grounds: [1] granting that execution pending appeal will issue in a foreclosure proceedings. et al. wife of petitioner. et al. since this matter is not among the grounds stated in the motion for execution pending appeal [Annex "X"] neither has it been brought out during the hearing of said motion. Sept. De Leon. Urbano Jaca of the two [2] chevrolet trucks which were not part of the mortgaged chattels to Atty. 3 of this Motion] and in fact has violated the Chattel Mortgage contract [Par. Comments on the Rules of Court. in the motion for reconsideration of the Order granting premature execution [Annex "AA"] the alleged sale by Florentina Perez. Rule 39 of the Rules of Court will only issue if there are superior circumstances demanding urgency which outweigh the injury or damage that the losing party may suffer upon securing a reversal of the judgment on appeal considering the merits of his appeal [Moran. over the objection of petitioners.. 52 O. Vol. 239 and p. [8] but the same was denied in an order dated January 10. Soriano. vs.00 and P20.G.887. 242. 2. nor is it one of the reasons stated in the Order of Execution Pending Appeal [Annex "Z"] which is the Order sought to be reconsidered and it is a cardinal rule in pleadings that a motion should state the grounds upon which it is based [Section 3. so that when the Decision correctly rendered by this Honorable Court should be affirmed on appeal the judgment will become nugatory. the appeal interposed by the plaintiffs is to delay the enforcement and/or execution of the decision rendered by this Honorable Court. L-7684. 1966. City of . Raul Nengasca as a reason for execution pending appeal in his Order [Annex "FF"] denying the motion for reconsideration.52.52. p. 17. et al. citing Aguilos vs.

and in the instant case. as it does not supply at all any element of a superior circumstance requiring urgency of execution for there is. Alagon is alleged to have been made yet on February 12. in fact. and in the instant case. furthermore. said period is suspended and is not revived until the judgment is affirmed by the appellate court and the case returned to the trial court. [b] the second reason regarding the sale of the two chevrolet trucks [not alleged to be a part of the mortgaged chattels to the respondent Davao Lumber Company] to Atty. [2] that the petitioners have challenged the Counterclaim. as null and void ab initio and that no cause of action can arise therefrom. [3] that the petitioners have challenged the chattel mortgage. Raul Nengasca does not refer to the property of either of the petitioners. neither does it refer to a sale made by anyone of them. 1962. Rule 68 of the Rules of Court is a substantive right granted to the mortgagor-debtor which may not be omitted and that upon taking an appeal. good reasons for not allowing execution pending appeal considering: [1] that the amount involved in the judgment is huge. 55 O.Bacolod vs. the reasons ultimately relied upon by the respondent Judge in granting execution pending appeal as stated in the Order [Annex "FF"]. [c] the third and last reason that the orders of the court directing petitioner Urbano Jaca to deliver all the mortgaged chattels to the receiver are valid and must be complied with could not even be considered any reason at all for immediate execution. Enriquez. under which the judgment sought to be executed is rendered. and such sale would not show a fraudulent design on the part of petitioner Urbano Jaca to defeat the judgment against him by disposing of the mortgaged chattels and thus would demand urgency of execution of the judgment. rather. evidence of said respondent on its Counterclaim and upon which the judgment sought to be executed is based. if not in fact the sole. are not such superior circumstances demanding urgency of execution because: [a] the first reason that petitioner Urbano Jaca sold a wrecker to Teodoro M. the respondent judge acted in excess of jurisdiction in allowing execution . denying petitioners motion for reconsideration of the Order granting execution. p. it refers to a sale made by Florentina Perez [wife of petitioner Urbano Jaca].G. for lack of cause of action. under which the judgment of foreclosure has been rendered. can issue on foreclosure proceedings because the ninety-day period provided in Section 2. or about over one and half years prior to the filing of the instant case on November 22. 1963. and that the amount involved in the judgment is huge. in fact. [4] no execution pending appeal. regarding her own property. [3] That there are. who is not a party to the action. no legal connection whatsoever in the validity of such Orders and their compliance with the propriety of an immediate execution of the judgment pending appeal. 10545]. [4] that the petitioners have challenged the Commissioner's Report to be null and void which is the primary. in fact. the appeal of petitioners are based on good grounds and could never be said to be intended merely for delay.

that the foreclosure proceedings is only against petitioner Urbano Jaca as mortgagor. which is false. 44(b) of the Petition. execution pending appeal can be issued pursuant to Sec. 2 of Rule 39. because said petitioner. the mortgagor in the deed of chattel mortgage dated January 24. has violated Article 319 of the Revised Penal Code in selling the said mortgaged property. and denies the statement that such sale would not show a fraudulent design on his part to defeat the judgment against him. Alagon on February 12. was correct in ordering the issuance of a writ of execution [Annex "1"].pending appeal when the Counterclaim under which the judgment sought to be executed is rendered. and states that the respondent Judge correctly acted in accordance with Sec. It further denies the other misleading statements alleged therein. 44(a) of the Petition. Furthermore. 1961. Rules of Court. [b] Respondent denies the erroneous conclusion that the respondent Judge acted with grave abuse of discretion. The respondent Judge. equivalent to lack of jurisdiction' as alleged in par. in fact. Sec. [a] Respondent denies the erroneous and gratuitous conclusion of alleged 'excess of jurisdiction' as alleged in par. [10] The private respondent maintains that the respondent judge acted in full compliance with the Rules of Court. the truth of the matter being the grounds enumerated in the Motion for Execution Pending Appeal [Annex "X"] and the reasons mentioned in the Order [Annex "Z"] granting said motion. therefore. arguendo. 2].887. but the action against petitioner Bonifacio Jaca is for a collection of a sum of money. [5] granting. petitioners should have filed a supersedeas bond in accordance with Sec. 1962 for P10. there is no showing of any reason at all anywhere in the records of the case. . the law and applicable decisions of this Honorable Court because: [1] The present case is an action for accounting and not a foreclosure proceeding.52 plus other items stated in the Decision. the respondent Judge acted with grave abuse of discretion equivalent to lack of jurisdiction in allowing execution pending appeal as against said petitioner Bonifacio Jaca because in so far as said petitioner is concerned there is no showing of any special or good reasons. including the Orders complained of.000. Moreover.00. is for a foreclosure of chattel mortgage and that petitioners have taken an appeal to the judgment rendered against them. petitioners have no properties or assets with which to satisfy the judgment of P867. as a basis for which discretionary execution may be issued against him. Therefore. because the good and valid reasons relied upon by the respondent Judge are those stated in his Order [Annex "Z"] granting the Motion for Execution Pending Appeal [Annex "X"]: [1] Respondent admits the allegation that petitioner Urbano Jaca sold a wrecker to Teodoro M. 2. It further denies the misleading statement therein that the reasons ultimately relied upon by the respondent Judge are those stated in the Order [Annex "FF"]. to stay execution. This provision of the Rules of Court applies in the present case for there are good and valid reasons for the issuance of a writ of execution pending appeal as stated in respondents' Motion [Annex "X"]. It further alleges that it is one of the good and valid reasons for execution pending appeal [Rule 39. Rule 39 of the Rules of Court. 3 of Rule 3.

[c] There are goods reasons for allowing execution pending appeal considering that: [1] the amount involved in the judgment in favor of respondent Davao Lumber Company is P867. [6] the judgment sought to be executed pending appeal sentences petitioner Urbano Jaca to pay respondent Davao Lumber Company the amount of P756.[2] The misleading allegations contained in subparagraphs 2 and 3 of par.00 with legal interest. Section 2. Respondent further states that they are not the original and valid reasons given by the respondent Judge in his Order [Annex "Z"]. and consequently.000. for they are matters that arose in the petitioners' Motion for Reconsideration of the Order granting execution pending appeal.236. 2 of Rule 39.52 plus attorney's fees of P20. and the petitioners admitted at the hearing of the Motion for Execution Pending Appeal that they are insolvent [See Order. which is an ordinary civil action for accounting and not primarily a foreclosure of chattel mortgage the respondent Judge. in allowing execution pending appeal. acted in full compliance with the law and jurisprudence in allowing execution pending appeal.887. 44(b) of the Petition are false. If a record on appeal is filed thereafter. jointly and severally. In fact. [3] the petitioners failed to present any evidence challenging the chattel mortgage under which the counterclaim for foreclosure has been rendered. the said judgment was rendered after hearing on the merits of its action for accounting. orders the Chattel Mortgage executed by Urbano Jaca in favor of said respondent foreclosed. they failed to present their own evidence before the Commissioner which might tend to controvert the undisputed documentary evidence of respondent Davao Lumber Company.00. [5] execution pending appeal was properly issued in the present case. orders petitioners to pay. the amount of P20.651. upon good reasons to be stated in a special order. therefore. therefore. The . the provisions of the Rules of Court on foreclosure proceeding invoked by petitioners do not find any application in the case at bar. the respondent Judge was correct in ordering the execution thereof as against both petitioners who have no properties or assets to satisfy the judgment in favor of respondent company. [11] The basic issue in this case is whether or not there are good reasons justifying the issuance of an order granting premature execution. [4] the petitioners have not disproved the Commissioner's Report [Annex "K"].00 as attorney's fees and costs. sentences petitioner Bonifacio Jaca to pay said respondent the amount of P91.52 with legal interest. precisely acted in full compliance with Sec. [7] as above pointed out. Annex "Z"]. the judgment rendered in this case is joint and several. which is not a proceeding for foreclosure of chattel mortgage. Rule 39 of the Rules of Court provides that on motion of the prevailing party with notice to the adverse party the court may. the respondent Judge. order execution to issue even before the expiration of the time to appeal. the motion and the special order shall be included therein.000. in its discretion. [2] the petitioners have never challenged the Counterclaim of respondent Davao Lumber Company during the hearing on the merits.

copy of which letter is attached hereto. That on August 22. Section 3. pertinent portions of which reads as follows: and. deprived Plaintiffs' their constitutional right to their day in court. Kindly have our records ready. 4189 requires petitioners to pay the enormous amount of P867. Thus. the commissioner appointed by the court. [14] The decision in Civil Case No. execution of the decision in Civil Case No. as ordered by the Court.887.discretionary power of the Court of First Instance to grant or deny a motion for execution before the expiration of the time to appeal will not be interfered with by the appellate court.cralaw . 1964. I will be dropping at your office on August 25. In other words. unless it be shown that there has been an abuse thereof or a subsequent change of conditions. Rule 39 of the New Rules of Court. therefore. premature execution of said decision wig result in irreparable damage to petitioners as the collection of said amount may be enforced through the seizure of money and/or sale of properties used in the logging business of petitioners. the existence of good reasons is what confers discretionary power on a court of first instance to issue a writ of execution pending appeal. According to petitioners. without the proper notice to their respective counsels. The findings of the respondent judge that the petitioners are indebted to the respondent Davao Lumber Company are based solely on the report submitted by Estanislao R. I am now to proceed. This report was assailed by the petitioners as null and void in a motion to strike out the report from the records of the case. marked Annex "A" In compliance to the above order. [13] The reasons allowing execution must constitute superior circumstances demanding urgency which will outweigh the injury or damage should the losing party secure a reversal of the judgment on appeal. [12] As provided in Sec. Rule 33 of Rules of Court. 2. the report is null and void because the so-called 'findings of the Commissioner in his report filed before this Honorable Court is the result of the exercise of certain highly irregular function not contemplated by the Rules of Court and.cralaw ARGUMENTS: 1. to examine your books of accounts and other records for the year 1962 and 1963.52. provides: Section 3: Subject to the specifications and limitations stated in the order the commissioner has and shall exercise the power to regulate the proceedings in every hearing before him and to do all act and take measures necessary or proper for the efficient performance of his duties under the order. 4189 may result in the termination of petitioner's business. That among other things. 2. 1964.The trial or hearing before him shall proceed in all respect as though the same had been had before the Court.cralaw The facts of record show that the petitioner's appeal is not frivolous and not intended for delay. Lagman. forming an integral part in this Opposition. Clearly. the Plaintiffs received the following letter from the Commissioner. any damage to the petitioners brought about by the premature execution of the decision will be justified only upon a finding that the appeal is being taken only for the purpose of delay and of rendering the judgment nugatory.

1964. Under Section 10 of Rule 33. [18] It is obvious that the refusal of the respondent judge to order a hearing before the commissioner was in clear violation of Section 3.3. the plaintiffs' counsel refused to have said records examined in such manner. the commissioner shall forthwith set a time and place for the first meeting of the parties or their attorneys to be held within ten [10] days after the date of reference. Revised Rules of Court. their counsels and. a hearing and/or proceedings be conducted in the presence of all parties. other than objections to the findings and conclusions therein set forth. 1964 already after said date when it was too late for them to comply with the order of appearance. [17] Notwithstanding the reasonable explanation of their absence in the hearing of October 12. 6. their witnesses and. Rule 33. their position that they are denied their day in court is clearly untenable. That report is void in law. as said accounts being one controversial and contested in issues. That on August 25. that." Pertinent also is Section 10 of Rule 33 which provides that "Objections to the report based upon grounds which were available to the parties during the proceedings before the commissioner. the Commissioner went to Plaintiff's' office and asked to see the Books. explaining that their failure to appear was due to the fact that they received the order requiring them to appear on October 12. shall not be considered by the court unless they were made before the commissioner." [16] Petitioners filed their motion for reconsideration of the order approving the commissioner's report in November. 1964." For this purpose. the respondent judge denied the motion for reconsideration in an order dated December 4. That the Counsel for the Plaintiffs reminded the Commissioner on many occasions that. the respondent judge approved the commissioners' report in toto As to the allegation of the plaintiff that they were denied their day in court. 1964. the hearing be conducted as if it were taken before the court of justice. unless otherwise provided therein. Objections to the report which were available to the parties during the proceedings refer to objections to the admissibility or . 1964. and therefore. that in pursuance of said mandate. Sala of Branch 11. and if possible to bring the same with him to his office. which specifically provides "that the trial or hearing before a commissioner shall proceed in all respects as though the same had been had before the court. the respondent judge stated that "plaintiffs deliberately ignored to comply with the lawful order of the court directing them to present the pertinent books of accounts on the 12th day of October. That said commissioner refused to conduct said hearing in accordance to law. objections to the report based upon grounds which were available to the parties during the proceedings before the commissioner other than objections to the findings and conclusions therein set forth shall not be considered by the court. Rule 33 was fatal to the cause of the petitioners. 1964. 1964.M. unless they were made before the commissioner. Section 5 of the same Rule provides that "upon receipt of the order of reference. the examination of books and records of Accounts should be done in a manner provided for under the Rules of Court and." The respondent judge's refusal to order the commissioner to conduct a hearing in accordance with Section 5. at 2:00 P. 4. 5. [15] In an order dated November 17.

they failed to question the failure of the commissioner to include in his examination the price quotations of the logs which. 17.41 [b] From July 2. marked Scheduled 4 . the claim of petitioners that respondent Davao Lumber Company is indebted to them was not also considered. 1960 to Oct. MR. 16.857..770. 1963. 1963 which Urbano Jaca replaced with four (4) BPI Checks Nos. as claimed in the complaint. may be deducted from the total amount if Urbano Jaca can show proof that the account has been paid. from Urbano Jaca . 3. 30.00 each as alleged by DLC .cralaw The records show that respondent Davao Lumber Company was able to prove its claim against petitioners because respondent judge refused to order the commissioner to hold a hearing as required by the rules.69 . objections which petitioners may have against the claims of respondent were never considered. equipment. 1963 Urbano Jaca obtained cash advances or vales per attached statement. were never received by them. 3.73 [c] Old vales or cash advances prior to July 25. marked schedule 2 .27 [e] From Nov.00 [d] From Nov. Since no meeting was held before the commissioner.P200. under Davao Lumber Co. of DLC per attached statement. marked schedule 5 .P57.'s guaranty P2.000. BONIFACIO JACAS ACCOUNTS: [a] From Nov. were underclassified and undergraded. URBANO LACAS ACCOUNTS: [a] From Feb. petitioners never had the opportunity to object to the admissibility of evidence of cash. Dept.523.P39.45 [g] Purchase of gasoline made by Urbano Jaca from Shell Co.07 [f] From July 25.. The Commissioner limited his examination to the following: MR. Urbano Jaca purchased on accounts from the Sawmill Dept. per attached statement. of Davao Lumber Co. Thus.523.53 The amount of P2.P758. 1963 to Sept. In the same manner.459. various goods. Urbano Jaca purchased on account from the Merchandise Dept. Urbano Jaca purchased on account from the Sawmill Dept. 1961 to Oct. 31.075. 30. 1963 Bonifacio Jaca purchased on account various goods from the Sawmill Dept. materials and foodstuff.000. marked Schedule 3 .P164. 8. Urbano Jaca purchased from the Mds. per attached statement. 1963. 1962.60 due Shell Co. Also. 1962 to Aug. marked schedule 1 .P190:010. 3. which they alleged in their complaint. 1962.60 Total amount due Davao Lumber Co.P75. per statement attached.P68. 31. 1962 to Aug. of Davao Lumber Co. D-236619 to D-236622 P50. of DLC various goods.844.999. per statement hereto attached. marked schedule 6 . 1962 to Aug.non-admissibility of evidence to be considered by the commissioner.

8.12. 1963 Bonifacio Jaca purchased on account from the Mdse. If the judgment is executed now.P5. Bonifacio Jaca obtained cash advances or vales.08 [c] Purchases of gasoline from Shell Co.252. guaranteed by Davao Lumber Co. this Court held: 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 [11 CJ. the deed of chattel mortgage executed by Urbano Jaca in favor of the Davao Lumber . 1963. There was not even an attempt to examine receipts of payments made by petitioners. [23] The Davao Lumber Company's proof of interest in the property is the deed of chattel mortgage executed by Urbano Jaca in favor of Davao Lumber Company on January 24. Bonifacio Jaca P96.09. Where the statute provides that the parties to a chattel mortgage must make oath that the debt is a just debt. The first reason stated in the order was the consistent refusal of petitioner to deliver the mortgaged chattels to the receiver. the respondents stated in paragraph 4 of its answer to the complaint that the plaintiffs stopped delivering logs in August. honestly due and owing from the mortgagor to the mortgagee. the petitioners had delivered logs to the Davao Lumber Company. Dept. 1963 to Aug. [21] The reasons stated in the order of execution pending appeal are not well founded. It is hard to believe that the petitioners had not paid any amount for the advances made to them. and on appeal the same is reversed. 448. In fact. [11 CJ. 1963.P48.20 Total amount due Davao Lumber Co. [26] As already discussed.904. per attached statement marked schedule 7 . it is obvious that a valid mortgage cannot be made to secure a debt to be thereafter contracted.319. the years included in the report of the commissioner.[b] From Feb. Magallanes Press. [24] In the case of Belgian Catholic Missionaries vs. 4. There is doubt that petitioners are really indebted to respondent Davao Lumber Company in such a big amount as found by the trial court. [19] Clearly. [d] From Aug. [25] The second reason stated was the fact that petitioner Urbano Jaca violated Article 319 of the Revised Penal Code by selling to a certain Teodoro Alagon some of the mortgaged properties. from Mr. the examination was only made on advances made to petitioners. [22] The records disclose that respondent Davao Lumber Company is not even entitled to the appointment of a receiver. although there are provisions for restitution. The appeal of the petitioner appears to be meritorious. 1963 to Aug. damages incurred by petitioners can not be fully compensated. The fear of respondent that the judgment of the trial court might not be satisfied if not executed at once is not well founded. This deed of chattel mortgage is void because it provides that the security stated therein is for the payment of any and all obligations herein before contracted and which may hereafter be contracted by the Mortgagor in favor of the Mortgagee. 1961.P3. . [20] indicating that from 1962 to 1963. various goods. 23. 6.333. 448]. 5 RCL 420-421]. per attached statement marked schedule 8 . It is an established rule that the applicant for receivership must have an actual and existing interest in the property for which a receiver is sought to be appointed.

[27] The basis of respondent judge's conclusion that petitioners do not have sufficient assets is an unsubstantiated allegation in the motion for execution pending appeal of respondent lumber company.52. The cash needed for the counterbound may be utilized for the continuance of the business or to increase business profits. and the same trucks were in fact sold by her. to dismiss the petition on the ground that petitioner has already availed of the remedy of appeal will only aggravate the patent injustice already inflicted on petitioners. speedy and sufficient. Although Section 1. Rule 65 of the Rules of Court provides that the special civil action of certiorari may only be invoked when "there is no appeal. in its opposition to the motion for reconsideration of the order of execution pending appeal. The reasons stated in the order granting execution pending appeal are not sufficient. The same reason applies to their failure to file a counterbound.887. [28] To rectify this omission. . the respondent Davao Lumber Company has not successfully refuted the allegation of the petitioners that the sale of the wrecker to Teodoro Alagon was exclusively negotiated by the lumber company's managing partner. As has been repeatedly observed. or the need to be directed to more profitable endeavor. The sale may have been prompted by the need for more modern equipment on account of obsolescence. Raul Nengasca does not totally indicate insolvency. respondent lumber company. [30] respondent lumber company contends that petitioners. are barred from filing a petition for certiorari. The trucks alleged to be sold are not properties of petitioner Urbano Jaca They are paraphernal properties of his wife. And even if said trucks were owned by Urbano Jaca.not the mere absence . Moreover. Tian Se. [31] It is the inadequacy . tried to point out that the sale of two chevrolet trucks by Urbano Jaca and their failure to file a counterbond indicate that they are without sufficient assets. Sale of property used in business does not establish insolvency. the acts of petitioner cannot always be interpreted as signs of insolvency but may also indicate sound business judgment prompted by the need to have liquid reserve of cash. The third reason stated is the fact that petitioners have no properties and assets to satisfy the judgment. petitioner Urbano Jaca is engaged in business. that must usually determine the propriety of certiorari.Company is void. their sale to Atty.cralaw In its answer to the petition.cralaw In the case at bar. In short. The availability of the ordinary course of appeal does not constitute sufficient ground to prevent a party from making use of the extraordinary remedy of certiorari where the appeal is not an adequate remedy or equally beneficial. the remedy of appeal is inadequate. It will not immediately relieve petitioners from the injurious effect of the order granting execution. Florentina Perez. Moreover. having availed of the remedy of appeal. nor any plain speedy and adequate remedy in the course of law.of all other legal remedies and the danger of failure of justice without the writ. Hence." this rule is not without exception. [29] This later attempt to substantiate a baseless allegation in the motion for execution pending appeal is futile. petitioner Urbano Jaca could not have violated Article 319 of the Revised Penal Code. and that the latter caused Urbano Jaca to sign the deed of sale because he was the owner of the wrecker. The slow and inexpensive remedy of appeal will not prevent respondent Judge from executing his decision requiring petitioners to pay the huge amount of P867.

TEVES and HIRAM DIDAY R. INC. as solidary debtors with PAMECA under the promissory note. this Petition. to cover the whole value of the loan. 1965 and the order denying the motion for reconsideration of the order granting execution pending appeal dated January 10. On June 29. plus 21% interest per annum and other charges from April 1. petitioner PAMECA.366.366. furniture and equipment. Inc.: Before Us for review on certiorari is the decision of the respondent Court of Appeals in CA G. On January 18. 27861. promising to pay the loan by installment.332. 1984 until the whole amount is fully paid and (2) the costs of the suit. VICTORIA V. HERMINIO G. As security for the said loan.000.WHEREFORE.[1] affirmingin toto the decision of the Regional Trial Court of Makati[2] to award respondent bank‟s deficiency claim. 1966 are nullified and set aside. and upon petitioner PAMECA‟s failure to pay. CV No. vs. without pronouncement as to costs. DECISION GONZAGA-REYES. purchased the foreclosed properties for a sum of P322. Teves. J. 1984. 1984. SO ORDERED.cralaw SO ORDERED.332. consisting of inventories. executed a promissory note for the said amount. 1984.881.46 representing the deficiency claim of the latter as of March 31. respondent bank extrajudicially foreclosed the chattel mortgage. petitioner Herminio C.R. By virtue of this loan. promulgated on April 23. 1980. judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1) sum of P4.46[3] with Branch 132 of the Regional Trial Court of Makati City against petitioner PAMECA and private petitioners herein. or the equivalent of P2.”[4] The Court of Appeals affirmed the RTC decision. Hence. . as sole bidder in the public auction. through its President. HON. the petition for writ of certiorari is granted and the orders granting execution pending appeal dated November 29.67. the RTC of Makati rendered a decision on the case. 1990. and.respondents.000. respondent bank filed a complaint for the collection of the balance of P4. PAMECA WOOD TREATMENT PLANT. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES.00 from respondent Bank. On February 8. TEVES. (PAMECA) obtained a loan of US$267. 1992. The antecedents of the case are as follows: On April 17.00. petitioners. the dispositive portion of which we reproduce as follows: “WHEREFORE. a chattel mortgage was also executed over PAMECA‟s properties in Dumaguete City.. PULIDO. petitioner PAMECA Wood Treatment Plant.350. arising from a loan secured by chattel mortgage.

00.000. as the chattels of the said petitioner were bought by private respondent as sole bidder in only 1/6 of the market value of the property. and taking into consideration the fact that the contract of loan was a contract of adhesion. officers and stockholders of petitioner PAMECA. liable with PAMECA for the obligation under the loan obtained from respondent bank. To this. 1980[5].00 at which respondent bank bid for and purchased the mortgaged properties was unconscionable and inequitable considering that. in accordance with the terms of the chattel mortgage contract[6] between the parties that required that the inventories “be maintained at a level no less than P2 million”.350. 2. to hold private petitioners. or to even allude to them in their testimonies before the lower court. The appellate court gravely erred in holding the petitioners Herminio Teves. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the spirit of the law. 3.00. in turn.350. Inc. contrary to the doctrine of separate and distinct corporate personality.000.518.The petition raises the following grounds: “1. Respondent appellate court gravely erred in not reversing the decision of the trial court.[11] Private petitioners contend that they became signatories to the promissory note “only as a matter of practice by the respondent bank”. unconscionable and inequitable.[9] Neither did respondent court find anything irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale. petitioners contend that the amount of P322.” Relative to the first ground. Pulido solidarily liable with PAMECA Wood Treatment Plant. According to petitioners. and therefore null and void. disregarded these documents for petitioners‟ failure to present them in evidence.[8] Instead. at the time of the public sale.[7] The Court of Appeals.[10] Petitioners also question the ruling of respondent court. and constitutes sufficient ground for the annulment of the auction sale. hence unconscionable and inequitable.00 or only about 1/6 of their actual value in a public sale in which it was the sole bidder was fraudulent. the mortgaged properties had a total value of more than P2. that the promissory note . this is evident from an inventory dated March 31. Petitioners argue that respondent bank‟s act of bidding and purchasing the mortgaged properties for P322. as all the legal procedures for the conduct of a foreclosure sale have been complied with. which valued the properties at P2.621. respondent court declared that it is not at all unlikely for the chattels to have sufficiently deteriorated as to have fetched such a low price at the time of the auction sale. respondent bank contends that the above-cited inventory and chattel mortgage contract were not in fact submitted as evidence before the RTC of Makati. Victoria Teves and Hiram Diday R. and that these documents were first produced by petitioners only when the case was brought to the Court of Appeals. thus giving rise to the presumption of regularity in the performance of public duties. when the intention of the parties was that the loan is only for the corporation‟s benefit. affirming the RTC. and in not holding that the public auction sale of petitioner PAMECA‟s chattels were tainted with fraud.

in pledge. PAMECA. The proceeds of such sale shall be applied to the payment. shall be paid to the mortgagor or persons holding under him on demand.[15] Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattel mortgage. Ignacio[16]. may not be applied to the case. and the fees of the Register of Deeds for registering the officer‟s return sh all be taxed as a part of the costs of sale. such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation. Article 2115 in relation to Article 2141. after paying the mortgage. as amended. The fees of the officer for selling the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety. In the leading case of Ablaza vs. and the amendments thereto. It was the lower court‟s opinion that. and then to the payment of the demand or obligation secured by such mortgage. ” (Emphasis supplied) It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Article 2115. or the Chattel Mortgage Law. which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages. first. petitioners submit that Articles 1484[13] and 2115[14] of the Civil Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim. and the balance. Section 14 of Act No. states: “x x x The officer making the sale shall. The return shall particularly describe the articles sold. insofar as they are not in conflict with the Chattel Mortgage Law. and that the loan was for the benefit of the corporation. within thirty days thereafter. and state the amount received for each article. by virtue of Article 2141. and the Register of Deeds shall record the same.[12] Lastly. which the officer shall pay to the Register of Deeds. and the residue shall be paid to persons holding subsequent mortgages in their order. invoking the equity jurisdiction of the Supreme Court.was in the nature of a contract of adhesion. being contrary to the provisions of Article 2115. of the costs and expenses of keeping and sale. make in writing a return of his doings and file the same in the office of the Registry of Deeds where the mortgage is recorded. will apply. . and shall operate as a discharge of the lien thereon created by the mortgage. the sale of the thing pledged extinguishes the entire principal obligation. 1508. alone. This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage. the lower court dismissed the complaint for collection of deficiency judgment in view of Article 2141 of the Civil Code. Whereas. the provisions of Article 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.

supra: “While it is true that section 3 of Act No. As explained in Manila Trading and Supply Co. in case of a failure of payment. If. that the creditor would be entitled to the full amount for which it might be sold. then the same token 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. have said. Ignacio. if any should occur. Justice Kent. pro tanto. Ignacio. of course. that „in case of a sale under a foreclosure of a chattel mortgage. 1508. Tamaraw Plantation Co. and if the creditor is not permitted to retain the excess.[17]. Such a result certainly was not contemplated by the legislature when it adopted Act No. for example.” We find no reason to disturb the ruling in Ablaza vs. upon satisfaction of the principal obligation and costs. There seems to be no reason supporting that theory under the provision of the law. such sale is not. a satisfaction of the debt. it further provides that it „is a conditional sale of personal property as security for the payment of a debt. is only a payment. in the 12th Edition of his Commentaries. vs. The value of the chattels changes greatly from time to time. and sometimes very rapidly. in fact. 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. Mr.Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds. 1508 provides that „a chattel mortgage is a conditional sale‟. 1508 permits a private sale. always requiring good faith and honesty in the sale. even though that amount was greatly in excess of the indebtedness. Although Article 1484. cited in Ablaza vs. should sell for more than the amount of the indebtedness secured. and the cases reiterating it[18] Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case.‟ The lower court overlooked the fact that the chattels incl uded in the chattel mortgage are only given as security and not as a payment of the debt.‟ And the fact that Act No. paragraph (3) expressly bars any further action against the purchaser to recover an . to any greater extent than the value of the property at the time of the sale. or for the performance of some other obligation specified therein. The amount received at the time of the sale. and an action may be maintained for a deficiency in the debt. As correctly pointed out by the trial court. as well as other authors on the question of chattel mortgages. given as security. The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage. there is no question that the mortgagee or creditor may maintain an action for the deficiency. the said article applies clearly and solely to the sale of personal property the price of which is payable in installments. the chattels should greatly increase in value and a sale under that condition should result in largely overpaying the indebtedness.

likewise attached to their Petition before this Court. and never against. We are not convinced that they effectively prove that the mortgaged properties had a market value of at least P2. this provision is specifically applicable to a sale on installments. As found by the trial court and the Court of Appeals. PAMECA WOOD TREATMENT PLANT.. 1980. the principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS (US$ 267. but does not evidence compliance therewith.000. Petitioners never assailed the validity of the sale in the RTC. the date when the parties entered into the contracts of loan and chattel mortgage. The sparseness of petitioners‟ evidence in this regard leaves Us no discretion but to uphold the presumption of regularity in the conduct of the public sale. Basic is the rule that parties may not bring on appeal issues that were not raised on trial. Having nonetheless examined the inventory and chattel mortgage document as part of the records. Fraud is a serious allegation that requires full and convincing evidence. and is far from being an accurate estimate of the market value of the properties at the time of the foreclosure sale four years thereafter. 1980. Furthermore. the terms of the promissory note unmistakably set forth the solidary nature of private petitioners‟ commitment. even assuming that the inventory and chattel mortgage contract were duly submitted as evidence before the trial court.000. where the vendor opts to foreclose the chattel mortgage on the thing sold. the mere fact that respondent bank was the sole bidder for the mortgaged properties in the public sale does not warrant the conclusion that the transaction was attended with fraud. 1980.[20] and may not be inferred from the lone circumstance that it was only respondent bank that bid in the sale of the foreclosed properties. San Juan. for value received.. or even prior to April 17. At best. with principal office at 304 El Hogar Filipina Building. We likewise affirm private petitioners‟ joint and several liability with petitioner corporation in the loan. INC. the “Open-End Mortgage on Inventory” and inventory dated March 31. a corporation organized and existing under the laws of the Philippines. i. is applied only in the absence of. it is clear that they cannot suffice to substantiate petitioners‟ allegation of inadequacy of price.881. the date of the foreclosure sale. should the vendee‟s failure to pay cover two or more installments. 1984. Metro Manila.[19] We are also unable to find merit in petitioners‟ submission that the public auction sale is void on grounds of fraud and inadequacy of price. Thus. Before the . The inventory.000. 1980. and ignore the language and intent of the Chattel Mortgage Law. and only in the Court of Appeals did they attempt to prove inadequacy of price through the documents.00. the chattel mortgage contract only indicates the obligation of the mortgagor to maintain the inventory at a value of at least P2.e. statutory law or judicial rules of procedure. To accommodate petitioners‟ prayer even on the basis of equity would be to expand the application of the provisions of Article 1484 to situations beyond its specific purview. Makati. in turn.00 on January 18. Thus: “On or before May 12. which has been aptly described as “justice outside legality”.67) with interest at the rate of three per cent (3%) per annum over DBP‟s borrowing rate for these funds.unpaid balance of the price. Manila. was as of March 31. promise to pay to the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner Buendia and Makati Avenues.000. Equity.

jointly and severally. to make partial payments as follows:” xxx “In case of default in the payment of any installment above. or any other amount or amounts due on account of this note. we hereby bind ourselves. in addition to the legal fees and other incidental expenses.date of maturity. INC. and if. we bind ourselves to pay DBP for advances xxx “ xxx “We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows:” xxx "In addition to the above.” (Emphasis supplied)[21] The promissory note was signed by private petitioners in the following manner: “PAMECA WOOD TREATMENT PLANT. if any. the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its attorneys. we also bind ourselves to pay for bank advances for insurance premiums. the entire obligation shall become due and demandable. TEVES . we further bind ourselves jointly and severally to pay the deficiency. when due. By: (Sgd) HERMINIO G. taxes xxx “ xxx "We further 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 xxx “ xxx “In case of non-payment of the amount of this note or any portion of it on demand. for the enforcement of the payment thereof. we jointly and severally bind ourselves to pay for attorney’s fees as provided for in the mortgage contract. In the event of foreclosure of the mortgage securing this note.

but are made liable because they made themselves co-makers with PAMECA under the promissory note. petitioner sent demand letters.080. When the latter failed to pay the due installments.(For himself & as President of above-named corporation) (Sgd) HIRAM DIDAY PULIDO (Sgd) VICTORIA V."[3] The decisions of both the appellate court and the court a quo are based on a like finding of the facts hereinafter briefly narrated. CV No. petitioner. IN VIEW OF THE FOREGOING.6 GL. filed a complaint for replevin with damages against the spouses. SO ORDERED. Plaintiff having failed to show the liability of defendant John Doe in the person of Roberto M. Reyes.R. the case against defendant-spouses (sic) Reynaldo Manahan is hereby dismissed without prejudice. CV No. REYES. DECISION VITUG. The petition for review on certiorari assails the decision of the Court of Appeals[1] in CA. the amount of P83. Inc. the Manahan spouses executed a deed of chattel mortgage[5] over a motor vehicle. a promissory note[4] binding themselves to pay Carmasters.: The case at bar is a suit for replevin and damages. 27861 is hereby AFFIRMED. Costs against petitioners. plaintiff is hereby directed to return the vehicle seized by virtue of the order of seizure issued by this Court with all its accessories to the said Roberto M. 1992 in CA G. The demands not having been heeded.[2] which has disposed of its Civil Case No. for failure to prosecute. the Petition is DENIED and the Decision of the Court of Appeals dated April 23. petitioner vs.G. J. The spouses Reynaldo and Florencia Manahan executed. COURT OF APPEALS and ROBERTO M. 87-42270 in this wise: "WHEREFORE. a Ford Cortina 1. BA FINANCE CORPORATION. on 02 October 1987. on 15 May 1980.. it is clear that private petitioners intended to bind themselves solidarily with petitioner PAMECA in the loan.R. Moreover. To secure payment. As correctly submitted by respondent bank. private petitioners are not made to answer for the corporate act of petitioner PAMECA. as well as against a John .00 in thirty-six monthly installments commencing 01 July 1980.respondents. the case against the latter should likewise be dismissed. Branch XX. HON. Carmasters later assigned[6] the promissory note and the chattel mortgage to petitioner BA Finance Corporation with the conformity of the Manahans. Reyes. TEVES”[22] From the foregoing. 23605 affirming that of the Regional Trial Court of Manila. with motor and serial number CUBFWE801010.

cautioned petitioner that should summons be not served on the defendants within thirty (30) days from the writ's issuance. stated: "Perusal of the record shows that an order for the seizure of personal property was issued on October 20. on 02 March 1988. Alleging possession in good faith. A few months later. plaintiff failing to heed the Order dated October 13. the lower court came out with an order of seizure. there is no showing that the principal defendants were served with summons inspite of the lapse of four (4) months. the above-entitled case is hereby ordered DISMISSED for failure to prosecute and further ordering the plaintiff to return the property seized with all its accessories to defendant John Doe in the person of Roberto M. the case would be dismissed for failure to prosecute."[8] The service of summons upon the spouses Manahan was caused to be served by petitioner at No. of the Rules of Court. petitioner. under Section 1. The court granted the motion. 35 Lantana St. before service of Summons and Answer. 1987 in pursuance to a previous order of the Court dated October 13.161. or on 18 February 1988. Branch 20.. Reyes. particularly second paragraph thereof. merely noted the notice of dismissal and denied the motion to withdraw the replevin bond considering that the writ of replevin had meanwhile been implemented. on 14 October 1987.[11] On 20 October 1987. "SO ORDERED.00. Reyes. Sorsogon. Upon petitioner's motion and the filing of a bond in the amount of P169. Reyes indicating that he received. The court. 1987. a motion for an extension of time within which to file his answer and/or a motion for intervention. Quezon City. Santiago. the court issued an order which.[14] . issued a certification to the effect that it had received from Orson R.Doe. the deputy sheriff of the Regional Trial Court of Manila. the lower court issued a writ of replevin. "Considering.[7] The warning was based on what the court perceived to be the deplorable practice of some mortgagees of "freezing (the) foreclosure or replevin cases" which they would so "conveniently utilize as a leverage for the collection of unpaid installments on mortgaged chattels. the court. petitioner filed a notice of dismissal of the case "without prejudice and without pronouncement as to costs. The original of the summons had the name and the signature of private respondent Roberto M."[13] It also sought in another motion the withdrawal of the replevin bond. to date."[12] On 26 February 1988. praying for the recovery of the vehicle with an alternative prayer for the payment of a sum of money should the vehicle not be returned. private respondent filed.[9] Forthwith. In view of the earlier dismissal of the case (for petitioner's failure to prosecute). Rule 17. the John Doe referred to in the complaint. in part. Danilo E. this is a replevin case and to forestall the evils that arise from this practice. the Ford Cortina seized from private respondent Roberto M.[10] in Sorsogon. Solano. through its Legal Assistant. however. a copy of the summons and the complaint. 1987. on 26 October 1987. Cubao. However.

Reyes herein before referred to as defendant John Doe. the latter holding that"x x x. On 27 February 1989. or other form of remedy (Sandejas vs. Robles. petitioner has asserted that a suit for replevin aimed at the foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the principal obligors as long as the court does not render any personal judgment against them.On 09 March 1988. petitioner filed a motion to declare private respondent in default. the trial court rendered a decision dismissing the complaint against the Manahans for failure of petitioner to prosecute the case against them. set aside the order dismissing the case. The court ratiocinated: "x x x. it must necessarily follow that the plaintiff has no cause of action against said Roberto M. In action quasi in rem an individual is named as defendant and the purpose of the proceeding is to subject his interest therein to the obligation or lien burdening the property. on 14 March 1988. This argument did not persuade the appellate court. (b) the order to return the vehicle to private respondent was a departure from jurisprudence recognizing the right of the mortgagor to foreclose the property to respond to the unpaid obligation secured by the chattel mortgage. Reyes. private respondent filed a motion praying that petitioner be directed to comply with the court order requiring petitioner to return the vehicle to him. whether by attachment. In turn. Under the circumstances. In the case at bar. A few months later. such as proceedings having for their sole object the sale or disposition of the property of the defendant. Rule 117. submitted the promissory note. of the Rules of Court. Petitioner."[18] In its appeal to the Court of Appeals. ex parte. and (c) there were no legal and factual bases for the court's view that the filing of the replevin case was "characterized (by) evil practices. the court granted petitioner's motion for reconsideration and accordingly recalled the order directing the return of the vehicle to private respondent. under Section 3."[15] On 20 April 1988. Roberto M. the deed of chattel mortgage. 421). a statement of account in the name of Florencia Manahan and two demand letters. of evidence. the deed of assignment. The defendant spouses Manahan being the principal debtor(s) and as there is no showing that the latter has been brought before the jurisdiction of this court. The court granted the motion on that same day and declared private respondent "in default for his failure to file the x x x answer within the reglementary period. or on 02 August 1988. Reyes is merely ancillary debtor in this case. petitioner filed. it is incumbent upon the plaintiff to return the seized vehicle unto the said Roberto M. directed petitioner "to cause the service of summons together with a copy of the complaint on the principal defendants within five (5) days from receipt"[16] thereof at petitioner's expense. the chattel mortgage and the deed of assignment. 81 Phil. thereupon. . It also dismissed the case against private respondent for failure of petitioner to show any legal basis for said respondent's liability. and ordered private respondent to answer the complaint."[17] The court likewise granted petitioner's motion to set the case for the presentation. a motion for the reconsideration of the orders of 18 February 1988 and 02 March 1988 contending that: (a) the dismissal of the case was tantamount to adjudication on the merits that thereby deprived it with the remedy to enforce the promissory note. foreclosure.

"It is an undisputed fact that the subject motor vehicle was taken from the possession of said Roberto M. Thus. that good faith is always presumed. and in personam as regards to damages involved. et al. being partly in rem and partly in personam-in rem insofar as the recovery of specific property is concerned.. petitioner insists that a mortgagee can maintain an action for replevin against any possessor of the object of a chattel mortgage even if the latter were not a party to the mortgage. if rendered. 527. As an "action in rem. etc. or to the provisional remedy that would allow the plaintiff to retain the thing during the pendency of the action and hold it pendente lite."[19] The appellate court. Honrado. Kapunan.. Reyes. and in ordering the return of the subject chattel to him. Reyes. "The Civil Code expressly provides that every possessor has a right to be respected in his possession (Art. New Civil Code). 99 SCRA 237).e. and John Doe. to regain the possession of personal chattels being wrongfully detained from the plaintiff by another. broadly understood. the trial court did not err in holding that the complaint does not state any cause of action against Roberto M. is both a form of principal remedy and of a provisional relief. ibid. the person in possession of the property sought to be replevied is ordinarily the proper and only necessary party defendant. That judgment.the court cannot render any judgment binding on the defendants spouses for having allegedly violated the terms and conditions of the promissory note and the contract of chattel mortgage on the ground that the court has no jurisdiction over their persons. subsequently. 559. "We cannot agree. et al. 110. whose right to possession is dubious if not totally non-existent." the gist of the replevin action is the right of the plaintiff to obtain possession of specific personal property by reason of his being the owner or of his having a special interest therein.). It may refer either to the action itself. Hon. Replevin. ibid.). it has been held that a possessor in good faith is entitled to be respected and protected in his possession as if he were the true owner thereof until a competent court rules otherwise (Chus Hai vs. nevertheless. 157). it is the former which has the superior right of possession. Yatco. denied petitioner's motion for reconsideration. Replevin is so usually described as a mixed action. a third person with respect to the contract of chattel mortgage between the appellant and the defendants spouses Manahan. one who has lost any movable or has been unlawfully deprived thereof. In the case at bar. may recover it from the person in possession of the same (Art. affecting one's person or property (Macabingkil vs. 539. and the plaintiff is not required to so join as defendants other persons .[21] Consequently. and that the possession of movable property acquired in good faith is equivalent to a title. as mortgagee. and upon him who alleges bad faith on the part of a possessor rests the burden of proof (Art. is void for having denied the defendants spouses due process of law which contemplates notice and opportunity to be heard before judgment is rendered.. i. Yu. "It is next contended by appellant that as between appellant. vs.[20] The action is primarily possessory in nature and generally determines nothing more than the right of possession. In the instant appeal. no summons having been served on them. 26 SCRA 150. 104 Phil.

For instance.. "The answer has to be in the affirmative."[23] In effect then. Where the right of the plaintiff to the possession of the specific property is so conceded or evident. may maintain an action for replevin therefor. vs. the action need only be maintained against him who so possesses the property. he may maintain an action to recover possession of the mortgaged chattels from the mortgagor or from any person in whose hands he may find them. i. The plaintiff need not be the owner so long as he is able to specify his right to the possession of the property and his legal basis therefor. that the defendant is not privy to the chattel mortgage should be inconsequential.[22] the Court has said: "There can be no question that persons having a special right of property in the goods the recovery of which is sought. in its present petition for review on certiorari. In Northern Motors. a clear right of possession must be established. It is here assumed that the plaintiff's right to possess the thing is not or cannot be disputed. et semper adversus eum est qui rem possidet. In a suit for replevin. upon the mortgagor's default. Accordingly. to apply for a writ of replevin if it can be shown that he is `the owner of the property claimed x x x or is entitled to the possession thereof. "Rule 60 of the Rules of Court allows a plaintiff. for seeking such interim possession. Court of Appeals.claiming a right on the property but not in possession thereof. Inc. Herrera. A foreclosure under a chattel mortgage may properly be commenced only once there is . a clear title thereto. the mortgagee.e. In rem actio est per quam rem nostram quae ab alio possidetur petimus.. In case the right of possession on the part of the plaintiff. however. is whether or not the plaintiff (herein petitioner) who has predicated his right on being the mortgagee of a chattel mortgage should implead the mortgagor in his complaint that seeks to recover possession of the encumbered property in order to effect its foreclosure. this Court ruled: "While. Inc. No. one properly can be a defendant in an action for replevin. the crucial issue still remains. 103301.R. it could become essential to have other persons involved and accordingly impleaded for a complete determination and resolution of the controversy. to be whether or not an action filed by the mortgagee for replevin to effect a foreclosure of the property covered by the chattel mortgage would require that the mortgagor be so impleaded as an indispensable party thereto. insofar as the matter finds relation to the instant case. is put to great doubt (a contending party might contest the legal bases for plaintiff's cause of action or an adverse and independent claim of ownership or right of possession is raised by that party). By the fact that the object of replevin is traced to his possession. The question then. et al. Where the mortgage authorizes the mortgagee to take possession of the property on default.. vs. G. is constituted an attorney-in-fact of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Rule 60 of the Rules of Court allows an application for the immediate possession of the property but the plaintiff must show that he has a good legal basis. Servicewide has raised a number of points. such as a chattel mortgagee. in an action for the recovery of possession of personal property. 08 December 1995. or his authority to claim such possession or that of his principal. in Servicewide Specialists.

default on the part of the mortgagor of his obligation secured by the mortgage. The replevin in the instant case has been sought to pave the way for the foreclosure of the object covered by the chattel mortgage. The conditions essential for that foreclosure would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of the mortgagor. These requirements must be established since the validity of the plaintiff's exercise of the right of foreclosure are inevitably dependent thereon. It would thus seem, considering particularly an adverse and independent claim of ownership by private respondent, that the lower court acted improvidently when it granted the dismissal of the complaint against Dollente, albeit on petitioner's (then plaintiff) plea, on the ground that the ‘non-service of summons upon Ernesto Dollente (would) only delay the determination of the merits of the case, to the prejudice of the parties' In Imson v. Court of Appeals, we have explained: ‘“x x x. An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other parties that his legal presence as a party to the proceeding is an absolute necessity. In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable. `Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court. He is not indispensable if his presence would merely permit complete relief between him and those already parties to the action or will simply avoid multiple litigation.' "Without the presence of indispensable parties to a suit or proceeding, a judgment of a court cannot attain real finality." (Footnotes omitted.) A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to, the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the property. The burden to establish a valid justification for that action lies with the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin. The appellate court, accordingly, acted well in arriving at its now questioned judgment. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. No costs. SO ORDERED.

JOSE MOVIDO, plaintiff-appellant, vs. REHABILITATION FINANCE CORPORATION and THE PROVINCIAL SHERIFF OF SAMAR, defendantsappellees. Francisco Astilla for appellant. Jesus A. Avanceña, Ricardo V. Garcia and Lydia Florendo-Veloso for appellee RFC. Office of the Solicitor General Ambrosio Padilla and Solicitor Frine C. Zaballero for appellee Provincial Sheriff of Samar. PADILLA, J.: On 1 July 1946 the Vet. Bros. & Company, Inc. mortgaged to Jose S. Movido its rights, title, interest and participation "in a complete sawmill in barrio Mauo, Allen, Samar, with all its machineries, tools and equipment in good running condition" to secure the payment of a loan of P15,000 and interest at the rate of 12% per annum obtained by the former from the latter (Exhibits A; 1-B, Sabarre; 1-B, RFC). On 28 February 1947 the chattel mortgage was registered in the Office of the Registrar of Deeds in and for the province of Samar (Exhibit A-1). On 28 July 1948 Jose S. Movido brought an action against Vet. Bros. & Company, Inc. in the Court of First Instance of Leyte to recover the sum of P13,494.35 with the interest at the rate of 12% per annum from 1 July 1948 until the principal is fully paid and P2,000 by way of damages and expenses of litigation (civil No. 441; Exhibits 1; Exhibits 1-A, Sabarre; 1-A, RFC). On 7 February 1949 the parties thereto, assisted by their respective counsel, entered into and submitted to the Court a compromise agreement terminating their dispute and renouncing their respective claims for damages and for any other claim in connection with the subject matter of the case which was approved and the court rendered judgment in accordance therewith (Exhibits 1-C, Sabarre; 1-C, RFC; 1-D, Sabarre; 1-D, RFC). On 3 March 1949, by an instrument duly executed, Vet Bros. & Company, Inc. and the spouses Simeon G. Toribio and Maximiana Escobar de Toribio mortgaged the real estate and chattels therein enumerated and described in favor of the Rehabilitation finance Corporation to secure the payment of a loan of P46,000 (Exhibit 8, RFC), and on 17 May 1949 on "addendum to chattel mortgage" describing the machinery and logging equipment purchased out of the proceeds of the loan was duly executed by the mortgagors (Exhibit 9, RFC). On 4 March 1949 and 18 May 1949 the chattel mortgages were registered in the registry of deeds for the province of Samar (Exhibit 9, RFC). On 14 April 1953, upon petition of the Rehabilitation Finance Corporation, the provincial sheriff of Samar advertized a public auction sale to be held on 14 May 1953 from (9:00 o'clock in the morning to 4:00 o'clock in the afternoon at the municipal building of Allen, Samar, under the provisions of Act No. 3135, as amended by Act No. 4118, of the chattels enumerated and described in Exhibits 8, RFC and 9, RFC "to apply the proceeds of the sale to the payment of the amount of P31,165.12 computed as of January 20, 1953, including interest thereon up to the date of the sale, plus P3,451.59 thereafter, plus 10% of said amount as attorney's fees, and plus the sheriff fees and incidental expenses:" (Exhibit G-1). On 24 April 1953 Jose S. Movido filed with the Sheriff a third party claim on the chattels advertised for

sale at public auction asserting a prior and superior right in them because of his chattel mortgage recorded before that of the Rehabilitation Finance Corporation and by virtue of a judgment in his favor rendered by the Court of First Instance of Leyte in civil case No. 441 (Exhibit B). Despite such claim the Sheriff proceeded to carry out the sale and on 11 June 1953, after the sale had been successively postponed to 14 May and 28 May, sold the chattels, except those expressly excluded from the public auction sale, to the successful bidders. The proceeds of the sale in the amount of P10,794 was turned over to the Rehabilitation Finance Corporation (Exhibit C). On 26 June 1953, or 15 days after the auction sale, a writ of execution was issued in civil case No. 441 (Exhibits 1-F, Sabarre and 1-F, RFC). On 1 March 1955 Jose S. Movido brought in the Court of First Instance of Leyte an action against the Rehabilitation Finance Corporation and the Provincial Sheriff of Samar charging the latter with having unlawfully, fraudulently and maliciously disregarded his third party claim on the chattels and sold them at public auction on 11 June 1953, upon the request and for the benefit of the former, thereby causing him actual damages in the sum of P5,000 in addition to the expense of P2,000 for attorney's fee. He prayed that the Rehabilitation Finance Corporation be ordered to indemnify him for actual and moral damages and for attorney's fee; and the Sheriff to indemnify him for any and whatever liability he had incurred by reason of the extrajudicial foreclosure of the mortgage made at the instance and for the benefit of his co-defendants, and both, to pay costs (Civil No. 1896). The defendants filed separate answers. The Rehabilitation Finance Corporation set up the defense that by filing a complaint against the Vet Bros & Company, Inc. in the Court of First Instance of Leyte (civil No. 441), to recover the sum due from it, the plaintiff waived his right to foreclose the mortgage and for that reason abandoned his mortgage lien on the chattels; that the plaintiff's third party claim was not valid and sufficient in form and substance to stop and frustrate the public auction sale in question, it being a mere claim for preference in the distribution of the proceeds of the public auction sale; that the alleged chattel mortgage of the plaintiff was invalid and did not bind the chattels; that its mortgage lien in the real estate and chattels was prior, preferred and superior to that of the plaintiff's; and that it had not done or caused to be done any actionable wrong or harm to the plaintiff to make it liable for damages claimed to have been sustained by the plaintiff. It prayed that the complaint be dismissed with cost against the plaintiff and that he be ordered to pay it the sum of P2,000 as damages suffered because of the bringing of an unfounded suit. The Sheriff answered that he did not require the Rehabilitation Finance Corporation to file an indemnity bond and proceeded with the auction sale, because the plaintiff's third party claim on the chattels to be sold did not show sufficient basis for the plaintiff's claim that his lien on the chattels was prior, preferred and superior to that of the Rehabilitation Finance Corporation, and because upon the strength of the judgment rendered by the Court of First Instance of Leyte in civil case No. 441 no writ of execution was presented by him, and prayed that the complaint be dismissed with costs against the plaintiff; that he be ordered to pay him a reasonable amount for moral and exemplary damages; and that he be granted other just and equitable relief. The plaintiff replied to the answer of the Rehabilitation Finance Corporation and controverted its counterclaim.

Valdez.R.45 every 19th day of each month beginning July 1980 until maturity on June 19.494. on 8 September 1955 the Court rendered judgment holding that the compromise agreement entered into by and between the parties in civil case No. PARAS. the appellant had no longer any lien on the chattels. 1-F. The rule in Tizon vs. with cost against the appellant.. relied upon by the appellants...622. Sabarre. supra. or fifteen days after the public auction sale had been carried out. vs. and the spouses Simeon G. Paras. therefore. . C. Mariano for private respondent. Inc.After trial. J. PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE OF CAMARINES SUR (10th JUDICIAL DISTRICT). Toribio and Maximiana Escobar de Toribio mortgaged to the Rehabilitation Finance Corporation the same chattels and other properties enumerated in Exhibits 8. 1982.35 from the Vet. took a loan from petitioner Bicol Savings and Loan Association (BISLA for brevity) in the sum of P10. Hence this appeal originally to the Court of Appeals but certified to this Court on the ground that only questions of law are involved. San Jose. Bros. Montemayor. A mortgage who sues and obtains a personal judgment against a mortgagor upon his credit waives thereby his right to enforce the mortgage securing it. RFC).00. A. the appellant abandoned his mortgage lien in the chattels in question. Bengzon. Victorio Depositario together with private respondent Jaime Guinhawa. concur. 48 Phil. Reyes.J. Moreover. Bautista Angelo. 39510.. BICOL SAVINGS & LOAN ASSOCIATION. acting as solidary co-maker. on 28 July 1948 and by securing a judgment in his favor upon the compromise agreement entered into by and between him and the defendant therein on 7 February 1949. JAIME GUINHAWA and THE HON. has been abandoned inBachrach Motor Company vs. and dismissing the plaintiff's complaint with costs against him but without awarding damages to the defendants. RFC and 9. and the spouses Simeon G. Contreras & Associates for petitioner. the appellant secured a writ of execution of the judgment rendered in civil case No. BRANCH III. Concepcion and Endencia. Vet.1 By instituting civil case No. RFC. 1980. 441 on 26 June 1953 only (Exhibits 1-F. RFC to the appellee.: Sometime on June 19. Labrador. 910 andMatienzo vs. Inc. JJ. 441 and the judgment rendered by the Court pursuant thereto novated the plaintiff's credit secured by the chattel mortgage. Inc. the plaintiff's lien on the chattels no longer existed. Company. The judgment appealed from is affirmed. No. When on 3 March 1949 and on 17 May 1949. Bros & Company. Tirso P.. 16 June 1934. Icarañgal. Bros & Company. payable at P535. 441 in the Court of First Instance of Leyte to recover the sum of P13. and that when the Vet. petitioner. RFC 9. Toribio and Maximiana Escobar de Toribio mortgaged the chattels and other properties described in Exhibit 8. G. His motion and amended motion for new trial and motion for reconsideration were denied. respondents.

. That after the plaintiff foreclosed the chattel mortgage executed by defendant Victorio Depositario there remains a deficiency which is now the subject of this case. (pp. however. Said stipulation of facts reads: 1) That defendant admits that after the foreclosure of the chattel mortgage executed by defendant Victorio Depositario. 6 SCRA 1026). They agreed to drop Depositario. 3-4. as security for the payment of the loan. both parties agree to submit this case for decision based on the foregoing stipulation of facts. Eventually. ruling in part: It is undisputed that the obligation of both defendants under the promissory note they executed in favor of the plaintiff is joint and several. however. under the promissory note he jointly and severally promised with Victorio Depositario to pay plaintiff the said loan. As a result of the foreclosure. 8. plaintiff has the right to proceed against any of the herein defendants who are solidary debtors or to both of them simultaneously.06 as of July 31. as quoted by the plaintiff in its memorandum. plaintiff will pay the defendant the same amount of attorney's fees that defendant would have paid if decision is in favor of the plaintiff. there is left a deficiency in the sum of P5.06 as of July 31. Thus. on August 6. The right of the plaintiff to claim for the deficiency resulting between the price obtained in the sale of the property and the outstanding obligation at the time of the foreclosure is clear.158. that he is not a party to the chattel mortgage. Branch II. 1981. 1216 of the Civil Code. the City Court rendered a decision 1 in favor of the petitioner. (Philippine Bank of Commerce vs. there was a deficiency in the amount of P5. the principal debtor. 8-9. Petition.158. be in favor of the defendant. Said motorcycle was eventually foreclosed by reason of the failure of Depositario and private respondent Guinhawa to pay the loan. and for the latter also to pay the costs. where BISLA made a demand to pay the same. 2) That defendant is only a co-maker in the aforementioned loan but that. Under Art. pp. 1981. Should the decision.To secure the payment of the foregoing loan obligation. 1981. Said article further provides that a demand made against anyone of the solidary debtors shall not be an obstacle to those which may later on be directed against the others. 5) That should decision be in favor of the plaintiff the defendant agrees to pay plaintiff not only the sums mentioned in paragraph I hereof but an additional amount equivalent to 10% of the aggregate amount due the plaintiff as attorney's fees and to pay the costs. De Vera. Rollo). 4) That in view thereof. 3) That both parties agree that the only issue to be resolved is whether defendant herein is liable to pay plaintiff the sums mentioned in paragraph 1 hereof. aside from the agreed interest thereon at 17% per annum compounded monthly. the principal borrower Victorio Depositario put up as security a chattel mortgage which was a Yamaha Motorcycle. as "his whereabouts being unknown now and he could not be served with summons" (p. a stipulation of facts was entered into between BISLA and Guinhawa. and that the same was foreclosed without notice to him. 1981. petitioner BISLA (plaintiff therein) filed in the City Court of Naga. Rollo) On December 4. a complaint for the recovery of a sum of money constituting the deficiency after foreclosure of the chattel mortgage put up by the principal borrower Depositario against the latter and his solidary comaker Guinhawa (herein private respondent) as defendants.

this petition.) The case of Pascual. the plaintiff first foreclosed the mortgage put up by defendant Depositario but since the debt was not fully paid out of the proceeds of the sale it is now proceeding against any or both of the defendants herein. an independent civil action may be instituted for the recovery of said deficiency. it simply means that the creditor chose to collect from Depositario.. Inc. the herein appellee. In the present case. Universal Motors. it rendered a decision reversing the said lower court's decision. cannot be held answerable anymore for the deficiency.. If there is any deficiency in payment. 20. the appellant herein can not evade or ignore the collection if the creditor sued upon the promissory note. Manila Trading & Supply Co. Rollo) Hence. the creditor. executed by the principal debtor. If the mortgagee has foreclosed the mortgage judicially. how can the herein appellant be made to assume the deficiency since the appellee creditor choose to foreclose and collect through the mortgage of which the appellant in the first place was not a party to the said mortgage• It is not disputed that a creditor can exact or collect payment of the indebtedness from any of the solidary debtors in a promissory note of which a co-maker assumes a character of one. is not applicable in this instant case because it was a case of sale on installment. We already held that if in an extrajudicial foreclosure of a chattel mortgage a deficiency exists.. ruling in part: It is true that the assumed obligation by a co-maker is solidary in nature with respect to the principal debtor but when the creditor chose to foreclose the mortgage. In a number of cases. To deny to the mortgagee the right to maintain an action to recover the deficiency after foreclosure of the chattel mortgage would be to overlook the fact that the chattel mortgage is only given as a security and not as payment for the debt in case of failure of payment. 47 Phil. the obligation contracted by the principal debtor (Depositario) with a solidary comaker (private respondent herein). 61 SCRA 121). Branch III. it was held that foreclosure of mortgage precludes any further action against the debtor and his guarantor (Pascual vs.so long as the debt has not been fully paid or collected. the debt not being fully paid (PNB vs. as cited by the respondent court. he may ask for the execution of the judgment against any other property of the mortgagor for the payment of the balance. Tamaraw Plantation Co. Article 1216 of the Civil Code gives the plaintiff in this case the option who among the defendants as solidary debtors. Concepcion Mining Co. But what did the creditor do? Instead of proceeding upon the promissory note of which the appealing co-maker stands as solidary debtor. and not a sale where the price is payable on installments and where a chattel .. In a case of Identical setting. 47 Phil. (Bank of the Philippine Islands vn Olutanga Lumber Co.000. The conclusion therefore reached by the lower court was erroneous because in the case at bar. 71. 513. the appellee chose the chattel mortgage and collect therefrom of which mortgage the appellant was never a party and having a deficiency therein. one of the solidary debtors and not the appellant. Rollo) On appeal to the respondent Court of First Instance of Camarines Sur. should be sued. v. (pp. (p. 5 SCRA 745). would like to collect from the promissory note. where after foreclosure of the units the plaintiff guarantors who had likewise executed a real estate mortgage of up to P50. was one of loan secured by a chattel mortgage. 35-36. The petition is impressed with merit.

WHEREFORE. Francisco Carreon & Renato E. the obligation to pay the installments having been guaranteed by another. Tañada for defendant-appellant. defendant-appellant. further. C. Peralejo for plaintiffs-appellees. Costs against the private respondent. 1981 is hereby REINSTATED. And therefore. the bringing of another action to compel the surety to fulfill his obligation under the agreement.:p In the lower court the parties entered into the following stipulation of facts: . and does not preclude. the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. Private respondent as solidary co. SO ORDERED. Cesar C. so long as the debt has not been fully collected.mortgage on the thing sold was constituted by the buyer and. the appealed decision dated October 12. he may be proceeded against by the principal debtor. Article 2080 2 of the Civil Code which is relied on by private respondent has no application to the case at bar since his liability here is as a surety not as a guarantor. LORENZO PASCUAL and LEONILA TORRES. the bringing of an action against the principal debtor to enforce the payment of the obligation is not inconsistent with. 2047) and that under the law. UNIVERSAL MOTORS CORPORATION.maker is also a surety (Art. Under Article 1216 of the Civil Code. where the private respondent binds himself solidarily with the principal debtor to pay the latter's debt. Private respondent Guinhawa contends that he was not a party to the chattel mortgage executed by Depositario but merely a co-maker on the promissory note executed by the latter and therefore cannot be held liable for the deficiency.J. MAKALINTAL. vs. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. 1982 is hereby REVERSED and SET ASIDE and the decision of the City Court dated December 4. plaintiffs-appellees.

the Court of First Instance of Manila docketed as Civil Case No.506. 60201 with a petition for a writ of Replevin. Inc. resulting in the sale of the trucks at public auction.1.69 including interest due as of February 8. 1960. the defendant Universal Motors Corporation filed a complaint against PDP Transit. for the purchase of five (5) units of Mercedez Benz trucks under invoices Nos. including the five (5) units guaranteed by the subject real estate mortgage. 1965. 2837.506. before. is further secured by separate deeds of chattel mortgages on the Mercedez Benz units covered by the aforementioned invoices in favor of the defendant Universal Motors Corporation. In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its suit (C. thus leaving a balance of P68. 1960 to secure the payment of the indebtedness of PDP Transit. Inc.50 but plaintiffs' guarantee is not to exceed P50. 1961 with reference to the three units. the real estate mortgagors.91. the spouses Lorenzo Pascual and Leonila Torres. including the five (5) units guaranteed under the subject Real (Estate) Mortgage.50 was to bear interest at 1% a month from December 14. 1961 with reference to the two units mentioned above and as of May 22. and to foreclose all the chattel mortgages constituted thereon. 8189) for the . 2839 and 2840 with a total purchase price or principal obligation of P152.C. That as of April 5. 3.000. filed an action in the Court of First Instance of Quezon City (Civil Case No. to collect the balance due under the Chattel Mortgages and to repossess all the units to sold to plaintiffs' principal PDP Transit. 2836.00 which is the value of the mortgage. 1965.. subject of this action. That the principal obligation of P152. No. Inc. 2.964. 2838.641. Inc. 60201) against the PDP Transit. plaintiffs' principal. 4. 5. had paid to the defendant Universal Motors Corporation the sum of P92. With the foregoing background. That the aforementioned obligation guaranteed by the plaintiffs under the Real Estate Mortgage. PDP Transit. That the plaintiffs executed the real estate mortgage subject matter of this complaint on December 14. it was able to repossess all the units sold to the latter. That on March 19. Inc.

Inc. the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. was payable in installments and that the purchaser had failed to pay two or more installments. 1484 2 of the New Civil Code may be applied in relation to a chattel mortgage constituted upon personal property on the installment basis (as in the present case) precluding the mortgagee to maintain any further action against the debtor for the purpose of recovering whatever balance of the debt secured. 1968." The appellant now disputes the applicability of Article 1484 of the Civil Code to the case at bar on the ground that there is no evidence on record that the purchase by PDP Transit. A similar argument has been answered by this Court in this wise: "(T)o sustain appellant's argument is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price. but not a recourse against the security put up by a third party. . and directed the defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500. Filipinas Investment & Finance Corporation. of the five (5) trucks. The appellant also contends that in any event what article 1484 prohibits is for the vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the chattel mortgage on the thing sold. The next contention is that what article 1484 withholds from the vendor is the right to recover any deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party to guarantee the purchaser's performance of his obligation. The first involves an issue of fact: whether or not the sale was one on installments. The court rendered judgment for the plaintiffs. and that there was failure to pay two or more installments. and even adding that any agreement to the contrary shall be null and void. so that ultimately. Both arguments are without merit. the protection given by Article 1484 would be indirectly subverted.. to the extent of P50. and public policy overturned. 2066. defendant interposed the present appeal. there does not seem to be any doubt that Art. May 27. Thus. Unsatisfied with the decision.cancellation of the mortgage they constituted on two (2) parcels of land 1 in favor of the Universal Motors Corporation to guarantee the obligation of PDP Transit. In rendering judgment for the plaintiffs the lower court said in part: ". Civil Code). and on this issue the lower court found that it was.000." (Cruz vs.. it will be the vendee who will be made to bear the payment of the balance of the price. This finding is not subject to review by this Court. Inc. L-24772. ordered the cancellation of the mortgage. 23 SCRA 791). The appellant's bare allegation to the contrary cannot be considered at this stage of the case.00. despite the earlier foreclosure of the chattel mortgage given by him. the payment of the price of which was partly guaranteed by the real estate mortgage in question.

1925. widow and resident of the sitio of Jimamanay. resident of the municipality of Estancia. PLEDGE EULOGIO BETITA. the certificates of registration of said animals being Nos. (Marked). This document is a new one or a renewal of our former document because the first carabaos mortgaged died and were substituted for by the newly branded ones. Eulogio Betita. The plaintiff herein. Eulogio Betita. municipality of Balasan. the facts are as follows: On May 15. Briefly stated. Under this judgment the defendant Ganzon. SIMEON GANZON. Tiburcia Buhatan. May 6. Philippine Islands. and was so indebted since the year 1922. Province of Iloilo. Philippine Islands. 4670521 and 4670522.: This action is brought to recover the possession of four carabaos with damages in the sum of P200. 1924. 1924. Philippine currency. The document upon which the plaintiff bases his cause of action is in the Visayan dialect and in translation reads as follows: I. and CLEMENTE PEDRENA. but the sheriff proceeded with the sale of the animals at public auction where they were purchased by the defendant Clemente Perdena for the sum of P200. 2832851. Padilla. do hereby execute this document extrajudicially and state that I am indebted to Mr. Eulogio Betita. which I delivered to said Mr. Mr. I hereby promise to pay said debt in the coming month of February. 1924. presented a third party claim (terceria) alleging that the carabaos had been mortgaged to him and as evidence thereof presented a document dated May 6. J. Trenas Varela and Ybiernas for appellee. TIBURCIA BUHAYAN and Magalona for appellants. Estancia. the defendant Alejo de la Flor recovered a judgment against Tiburcia Buhayan for the sum of P140 with costs. OSTRAND. in case I will not be able to pay.The decision appealed from is affirmed. ALEJO DE LA FLOR. and this action was thereupon brought. of age. vs. 4670520. . in the sum of P470. plaintiff-appellee. as sheriff levied execution on the carabaos in question which were found in the possession of one Simon Jacinto but registered in the name of Tiburcia Buhayan. and as a security to my creditor I hereby offer four head of carabaos belonging to me exclusively (three females and one male)." In testimony whereof and not knowing how to sign my name. with costs against the defendant-appellant. Province of Iloilo. Eulogio Betita may dispose of the carabaos given as security for said debt. defendants-appellants. I caused my name to be written and marked same with my right thumb.

A. in commenting on article 1865. From this judgment the defendants appeal. 1865. Benedicto de Tarrosa vs. and that it therefore fulfills the requirements of article 1865. that the filing of the document with the sheriff had that effect. for. it is easily understood that. for the effectiveness of the pledge. without this warranty demanded by law. but it is suggested that its filing with the sheriff in connection with the terceria gave in the effect of a public instrument and served to fix the date of the pledge. This article. 1508). Assuming. 753). the case may happen wherein a debtor in bad faith from the moment that he sees his movable property in danger of execution may attempt to withdraw the same from the action of justice and the reach of his creditors by simulating. due to the difficulty to be encountered in seeking those before whom it was executed. Neither did the document constitute a sufficient pledge of the property valid against third parties.. through criminal confabulations. in the same way and for the identical reasons that were taken into account by the mortgage law in order to suppress the implied and legal mortgages which produce so much instability in real property. That it is not a sufficient chattel mortgage is evident. has not been recorded and. it does not meet the requirements of section 5 of the Chattel Mortgage Law (Act No. N. M. and Provincial Sheriff of Occidental Negros. is consequently of no effect as against third parties (Williams vs.Signed in the presence of: MIGUEL MERCURIO TIRZO ZEPEDA The court below held that inasmuch as this document was prior in date to the judgment under which the execution was levied. Considering the effects of a contract of pledge. without conceding. without damages and without costs. 17 Phil. almost all the foreign writers advise that. even in cases in which it is executed before witnesses.. article 1227). 408. Giberson vs. McMicking. with the object of avoiding or preventing such abuses. . Manresa. 44 Phi. and.. Jureidini Bros. anterior and fraudulent alterations in his possession by means of feigned contracts of this nature. considered as a chattel mortgage. F. it seems nevertheless obvious that the pledge only became effective as against the plaintiff in execution from the date of the filing and did not rise superior to the execution attachment previously levied (see Civil Code.. it be demanded as a precise condition that in every case the contract be executed in a public writing. it was a preferred credit and judgment was rendered in favor of the plaintiff for the possession of the carabaos. The judgment must be reversed unless the document above quoted can be considered either a chattel mortgage or else a pledge. says: ART. A pledge will not be valid against a third party if the certainty of the date is not expressed in a public instrument. Yap Tico & Co." The document in question is not public. the determination of its date will be rendered difficult and its proof more so. 216. the precept of which did not exist in our old law. 46 Phil. Article 1865 of the Civil Code provides that "no pledge shall be effective as against third parties unless evidence of its date appears in a public instrument. otherwise. answers the necessity for not disturbing the relationship or the status of the ownership of things with hidden or simulated contracts of pledge.

The three young ones did not get into his hands. Perez & Co. whenever the amount of the presentation of one or of the two contracting parties exceeds 1. (See also Ocejo. ed. Testifying as a witness for the plaintiff. Yes. Sometimes they were in the hands of Betita and at other times in the hands of Buhayan. Article 1863 of the Civil Code reads as follows: . and that the tenant's possession was the possession of his landlord. This testimony is substantially in accord with that of the defendant sheriff to the effect that he found the animals at the place where Tiburcia Buhayan was living.. vs. and. from the evidence that though not legally married. that the plaintiff pledgee never had actual possession of the property within the meaning of article 1863 of the Civil Code. It appears. 37 Phil. isn't that so? — A. the purpose of the provisions of article 1865 as explained by Manresa clearly be defeated. Australia & China.. 631 and Tec Bi & Co. p. When I worked they were in my hands. Chartered Bank of India. But it is argued that at the time of the levy the animals in question were in the possession of one Simon Jacinto.. Q. Q. it should be subjected to the general rule. according to which all contracts not included in the foregoing cases of the said article should be made in writing even though it be private. but only that the certainty of the date be expressed in the first of the said class of instruments in order that it may be valid against a third party. But the caraballas in question had never been in possession of Eulogio Betita? — A. And the four carabaos now in question had never been in possession of Betita. Such could not have been the intention of the authors of the Code. for it does not demand in express terms that in all cases the pledge be constituted or formalized in a public writing. Yes. in default of any express provision of law.Our code has not gone so far. and especially to that established in the last paragraph of article 1280.500 pesetas. Those are the caraballas which formerly were mortgaged by Buhayan to Betita. Do you mean to say that from the possession of Tiburcia Buhayan the animals passed immediately into your possession? — A. nor even in private document. Tiburcia Buhayan? — A.) If the mere filing of a private document with the sheriff after the levy of execution can create a lien of pledge superior to the attachment. however. Q. (Vol. Yes sir. sir. And the others? — A. that Jacinto was the plaintiff's tenant. sir. but were in your possession? — A. Jacinto on cross-examination made the following statements: Q. namely. 41 Phil. Q. in the cases where no agreement requiring the execution in a public writing exists. 421. these caraballas were in possession of your mistress. 596. And before you worked. Q. Simon Jacinto and Tiburcia Buhayan were living together as husband and wife and had been so living for many years. 12.International Banking Corporation.) The alleged pledge is also ineffective for another reason.

in order to constitute the contract of pledge. plaintiff pledged the M/S Surigao. of course. existed. There was therefore in reality no change in possession. it shall be necessary. R. Exhibit "A" & "1Bank". valued at P109. but it appears that a part of the products was to be applied towards the payment of Tiburcia Buhayan's debt to the plaintiff. doubtful if any tenancy. plaintiff-appellant. In the present case the animals in question were in the possession of Tiburcia Buhayan and Simon Jacinto before the alleged pledge was entered into and apparently remained with them until the execution was levied. for Tomas Besa. executed on the same day and duly registered with the office of the Collector of Customs for the Port of Cebu.: Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels. and operated the FS203. J.500 and the balance of the purchase price was payable at P50. vs. which was purchased by him from the Philippine Shipping Commission.78 and the M/S Don Dino.00.In addition to the requisites mentioned in article 1857. B. evident that the delivery of possession referred to in article 1863 implies a change in the actual possession of the property pledged and that a mere symbolic delivery is not sufficient. The remaining balance was renewed by the execution of two (2) promissory notes in the bank's favor. PHILIPPINE NATIONAL BANK (Cebu Branch). as evidenced by the pledge contract. de los Reyes and C. properly speaking. 1943. due on or before the end of the current year. So ordered. Lumontad. . BENGZON. 3 Subsequently. and there was no actual delivery of possession to the plaintiff himself. precisely. defendant-appellee. (P. Cebu Branch. it is indispensable that the aforesaid delivery take place .000. DIOSDADO YULIONGSIU. namely: The M/S Surigao. supra.P. plaintiff effected partial payment of the loan in the sum of P20. plaintiff-appellant. E.925.672. . Without costs. J. To guarantee its payment. 1947. M/S Don Dino and its equity in the FS-203 to the defendant bank. . The land cultivated by Jacinto was not the property of the plaintiff.. 2 On June 30. .000. Medina for defendant-appellee. plaintiff had paid to the Philippine Shipping Commission only the sum of P76. in order that the contract of pledge may be complete. valued at P63.) It is.000 a year. Jacinto states that he was not a tenant until after the pledge was made. perhaps. As of January or February. Vicente Jaime. In his commentary on this article Manresa says: This requisite is most essential and is characteristic of a pledge without which the contract cannot be regarded as entered into or completed. From what has been said it follows that the judgment appealed from must be reversed and it is ordered and adjudged that the plaintiff take nothing by his action. 411. in this delivery lies the security of the pledge.000 from the defendant Philippine National Bank. valued at P210. by installment or on account. plaintiff obtained a loan of P50. Therefore. It may further be noted that the alleged relation of landlord and tenant between the plaintiff and Simon Jacinto is somewhat obscure and it is. Sr. that the pledge be placed in the possession of the creditor or of a third person appointed by common consent.24. because. Regino Hermosisima & E.

After issues were joined. 6 The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping Commission which rescinded the sale to plaintiff on September 8. The drawer thereof — one of the co-accused — had no funds in the drawee bank. in connivance with one employee of defendant bank. or set-off these sums against the indemnity which plaintiff was ordered to pay to it in the criminal cases. 1947. deposited with defendant bank. the amount involved being more than P200.000. the Cebu Branch Manager of defendant bank. and on April 29. the conviction was affirmed by the Court of Appeals on October 31. with a counterclaim for P202.042. 4 On April 6. plaintiff brought the appeal to Us. The corresponding writ of execution issued to implement the order for indemnification was returned unsatisfied as plaintiff was totally insolvent. plaintiff-appellant would have this Court hold that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the creditor defendant could not take possession of the chattels object thereof until after there has been default. Plaintiff and his co-accused were convicted by the trial court and sentenced to indemnify the defendant bank in the sum of P184. Exhibit "A" & "1-Bank" and the law.The first note. These two notes were never paid at all by plaintiff on their respective due dates. 1948. transferring the two pledged vessels and plaintiff's equity in FS-203. reciting most of the facts abovenarrated. However. The latter filed its answer. 1948. as his remaining account balance.000. Exhibit "4".000.000. 1950. On appeal. for P20. seven Bank of the Philippine Islands checks totalling P184. and (c) that the defendant bank should pay to plaintiff the sums of P1. 1948.99 and P8. after the first note fell due and was not paid.00 was extended to the plaintiff by the defendant Bank. 1948. as last indorsee. and in .000. the M/S Surigao and the M/S Don Dino were sold by defendant bank to third parties on March 15. together with the institution of the criminal action.000. was due on April 16. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract — 3. was due on June 25. During the course of the trial. 1960 ruling: (a) that the bank's taking of physical possession of the vessels on April 6. 5 Meanwhile. 1948. 1951. The submission is without merit. 1948.153. On July 19. plaintiff commenced action in the Court of First Instance of Cebu to recover the three vessels or their value and damages from defendant bank.00. 8 but increasing its alleged damages to P35. dated February 26.72.000. a pretrial was held resulting in a partial stipulation of facts dated October 2. plaintiff was able to withdraw the amount credited to him before the discovery of the defraudation on April 2. 1948 while the second. defendant bank took physical possession of three pledged vessels while they were at the Port of Cebu. and the plaintiff obtained and received from the said Bank the sum of P50. to defendant bank for P30.000 damages.000 to P8. dated December 18. That a credit line of P50.000. for failure to pay the remaining installments on the purchase price thereof. the bank filed criminal charges against plaintiff and two other accused for estafa thru falsification of commercial documents. When his motion for reconsideration and new trial was denied. executed a document of sale. The lower court rendered its decision on February 13. 1948. defendant amended its answer reducing its claim from P202. 1948.000.01. (b) that the private sale of the pledged vessels by defendant bank to itself without notice to the plaintiff-pledgor as stipulated in the pledge contract was likewise valid. for P10. 1948 was justified by the pledge contract.00. from March 11 to March 31. because plaintiff had. 7 The other two boats.846. 1958.000 plus P5. acting as attorney-in-fact of plaintiff pursuant to the terms of the pledge contract. In support of the first assignment of error.

87 which ruled that there has to be actual delivery of the chattels pledged. Nor was it unjustified considering that plaintiff had just defrauded the defendant bank in the huge sum of P184. 7 Phil. convinieron que continuaran los coches en poder del deudor para no suspender el trafico. In Betita v. como ha sucedido en el caso de autos. The stand We have taken is not without precedent. Peterson. An examination of the peculiar nature of the things pledged in the two cases will readily dispel the apparent contradiction between the two rulings. Its taking of the vessels therefore on April 6. the pledgor is regarded as holding the pledged property merely as trustee for the pledgee. his possession was expressly made "subject to the order of the pledgee. y estas no reclaman perjuicios no se infringio. the objects pledged — carabaos — were easily capable of actual. 409 ruling that symbolic delivery would suffice. in full control of the vessels thru the plaintiff. In other words. Exhibit "A" & Exhibit "1Bank". for purposes of showing the transfer of control to the pledgee. 1947. Without any showing that this was made thru palpable mistake." Considering the circumstances of this case and the nature of the objects pledged. i. Ganzon. But then there is also Banco Español-Filipino v. In the second assignment of error imputed to the lower court plaintiff-appellant attacks the validity of the private sale of the pledged vessels in favor of the defendant bank itself. such delivery is sufficient. the former could take actual possession at any time during the life of the pledge to make more effective its security. The Supreme Court of Spain. 49 Phil.. manual delivery in the sense that it was impractical as a whole for the particular transaction and would have been an unreasonable requirement.ñët Necessarily. in a similar case involving Art. In such a case. vessels used in maritime business. 12 Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make pledge effective. o sean acreedor. was executed and duly registered with the Office of the Collector of Customs for the Port of Cebu on the date appearing therein. deudor y Sociedad. 1863 of the old Civil Code. es lo cierto que todas las partes interesadas. delivery to him of the keys to the warehouse sufficed. the objects pledged — goods contained in a warehouse — were hardly capable of actual. no amount of rationalization can offset it. Since the defendant bank was. y el de dejar la cosa bajo su responsabilidad al acreedor. the type of delivery will depend upon the nature and the peculiar circumstances of each case. 9 The defendant bank as pledgee was therefore entitled to the actual possession of the vessels. entre otros este articulo. 13 has ruled: 14 Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder del acreedor o de un tercero y no quedar en la del deudor. He points to Betita v. Thus." 10 The provision of Art. the pledge contract. (Emphasis supplied) 1äwphï1. Ganzon. y ambos convinieron por creerlo util para las partes contratantes. On the other hand. pursuant to the terms of pledge contract. that the cases holding that the statutory requirements as to public sales with prior . The parties here agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said property subject to the order of the pledgee. In Banco Español-Filipino v. Peterson. y el derecho de no uso de la prenda pertenence al deudor.e. manual delivery unto the pledgee. While it is true that plaintiff continued operating the vessels after the pledge contract was entered into. It is contended first. was not unlawful.000. there is an authority supporting the proposition that the pledgee can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge. 1948.order to guarantee the payment of this loan. this judicial admission binds the plaintiff. 2110 of the present Civil Code 11being new — cannot apply to the pledge contract here which was entered into on June 30.

J.000 fraudulently taken by him from defendant bank.respondents. DURAN and ANTERO S. that the charter of defendant bank does not allow it to buy the property object of foreclosure in case of private sales. This law refers only. which reads as follows: (1) the complaint of the plaintiffs (herein petitioners) is hereby DISMISSED.notice in connection with foreclosure proceedings are waivable. the mortgagor or pledgor could redeem the property. it was only to protect its interests after plaintiff had defaulted in the payment of the first promissory note. RELOVA. petitioners. 178 are still authoritative despite the passage of Act 3135. as pointed out by the lower court. We cannot say the lower court erred in disposing of the case as it did." This even argues against plaintiff's case since the import thereof is this if the sale were private and the bank became the purchaser. to foreclosure of real estate mortgages. There is no merit in the claims. De Poli. plaintiff could have recovered the vessels by exercising this right of redemption. as amended. Regarding the bank's authority to be the purchaser in the foreclosure sale. second. and is limited. Plaintiffappellant was not all-too-innocent as he would have Us believe. INTERMEDIATE APPELLATE COURT. He did not avail of this. 763 and El Hogar Filipino v. The last assignment of error has to do with the damages allegedly suffered by plaintiffappellant by virtue of the taking of the vessels. the bank could purchase the whole or part of the property sold " free from any right of redemption on the part of the mortgagor or pledgor. The rulings in Philippine National Bank v. as it is hereby. On the whole. CIRCE S. Regarding the third contention. ERLINDA B. MARCELO TIANGCO and RESTITUTO TIANGCO. So ordered. WHEREFORE. If the latter countered with the seizure and sale of the pledged vessels pursuant to the pledge contract. Moreover. 15 So. 33 of Act 2612. as amended by Acts 2747 and 2938 only states that if the sale is public. are no longer authoritative in view of the passage of Act 3135. Hence. . affirmed. But in view of the results reached above. Costs against plaintiffappellant. plaintiff's remedy was to have set aside the sale. Paredes. whatever formalities there are in Act 3135 do not apply to pledge. He is the only one to blame for not doing so. modifying the decision of the then Court of First Instance of Rizal. that the price obtained at the sale is unconscionable. 44 Phil. vs. Plaintiff-appellant did not come to court with clean hands. Sec. the appealed judgment is. GASPAR. 45 Phil. there is no more need to discuss the same.: The respondent then Court of Appeals rendered judgment. on the assumption that the purchase price was unconscionable. and third. plaintiff had at the time an obligation to return the P184. He did defraud the defendant bank first.

the mortgage made by Fe S. Fe S. in the cross-claim. When petitioner Circe S. On May 13. it is essential that the mortgagor be the absolute owner of the property mortgaged. not her new one. Meanwhile. and the sum of Twenty-Five Thousand Pesos (P25. and cross-claim. Duran who. still it is Our opinion that the Deed of Mortgage is VALID. Duran came to know about the mortgage made by her mother. and in the Sheriff's Certificate of Sale. Duran in favor of private respondent is valid. She should have presented her old passport. in the counterclaim. (4) the plaintiffs-appellants and the defendant-appellee Fe S. (3) the plaintiffs-appellants and the defendant-appellee Fe S. with respect to the mortgagees. Duran claims that the Deed of Sale in favor of her mother Fe S. Duran. (5) the plaintiffs-appellants and defendant-appellee Fe S. Duran is a forgery. Marcelo Tiangco and. mortgaged the same property to private respondent Erlinda B. Psd 32780) covered by Transfer Certificate of Title No. Petitioner Circe S. consequently. subject matter of the complaint. failed to redeem the mortgage properties. Duran. Duran in the said Deed are genuine and. it was the daughter who . she returned to the Philippines. She left the Philippines in June 1954 and returned in May 1966. respondent appellate court held the same to be genuine because there is the presumption of regularity in the case of a public document and "the fact that Circe has not been able to satisfactorily prove that she was in the United States at the time the deed was executed in 1963. But even if the signatures were a forgery. on December 3. and that she did not leave shortly after 1963. a Deed of Sale of the two lots mentioned above was made in favor of Circe's mother. 1972 until delivery of possession of the properties in question to said Tiangco spouses. (pp. representing rentals collected by plaintiffs-appellants and defendant. she wrote the Register of Deeds of Caloocan City informing the latter that she had not given her mother any authority to sell or mortgage any of her properties in the Philippines. Her return in 1966 does not prove she was not here also in 1963. ultimately. and while as between the daughter and the mother. Duran are hereby ordered to deliver to (the Tiangcos) the two parcels of land and all the improvements thereon including the 12-door apartment thereon. Fe S. saying that at the time of its execution in 1963 she was in the United States. when her mother. Block A.(2) the defendants-appellants spouses Erlinda B. foreclosure proceedings were initiated by private respondent Erlinda B. 1963.000) as damages for attorney's fees. Failing to get an answer from the registrar. 1965. Duran owned two (2) parcels of land (Lots 5 and 6. Duran are hereby ordered to pay solidarily to the Tiangcos the sum of Two Thousand Four Hundred Pesos (P2. 149-150.appellee Fe S. Duran are hereby ordered to pay solidarily to the spouses Tiangco the sum of Twenty Thousand Pesos (P20. Marcelo Tiangco and Restituto Tiangco (herein private respondents) are hereby declared the lawful owners of the two (2) parcels of land and all the improvements thereon including the 12-door apartment thereon described in the complaint. 1647 of the Register of Deeds of Caloocan City which she had purchased from the Moja Estate. With respect to the issue as to whether the signature of petitioner Circe S. and in the Sheriff's Certificate of Sale. and the sale would be regarded as void.000) for moral damages. Rollo) The antecedent facts showed that petitioner Circe S. Marcelo-Tiangco. On the other hand. Duran in the Deed of Sale is a forgery or not. the adverse party alleges that the signatures of Circe S. 2085 of the Civil Code. the defendants-appellants. While it is true that under Art. the sale by the sheriff and the issuance of Certificate of Sale in favor of the latter.400) a month from May 16. counterclaim. and the costs.

148). he could have discovered . The fact that at the time of the foreclosure sale proceedings (1970-72) the mortgagees may have already known of the plaintiffs' claim is immaterial. In the case at bar. Legare et al. good faith consists in the possessor's belief that the person from whom he received the thing was the owner of the same and could convey his title (Arriola vs. 27. requires a well-founded belief that the person from whom title was received was himself the owner of the land. If the rule were otherwise. with the right to convey it (Santiago vs. in effect and substance. 144. 625. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. see also Sec. this is contrary to the evident purpose of the law.. 7 SCRA 351. in good faith relied on the certificate of title in the name of Fe S. Duran to be the owner. Nov. 2418 and 2419). the Land Registration Act). A mortgagee has the right to rely on what appears in the certificate of title and. 41. in the absence of anything to excite suspicion. This was testified to by Circe herself (tsn.. 146-147. p. Antero Gaspar. Nano et al. 14 Phil. raised only one issue and that is whether private respondent Erlinda B. v." (p. Duran (pp. private respondents. Indeed." In elevating the judgment of the respondent appellate court to Us for review. What is important is that at the time the mortgage was executed. the mortgagees in good faith actually believed Fe S. Marcelo-Tiangco was a buyer in good faith and for value. The doctrine to follow is simple enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the name of the true owner to the name of the forger or the name indicated by the forger. Rollo) Thus. Rollo). Guided by previous decisions of this Court. good faith is the opposite of fraud and it refers to the state of mind which is manifested by the acts of the individual concerned.still owned the lots. Cruz. Likewise. Duran) inasmuch as she had already become the registered owner (Transfer Certificates of Title Nos. and did not have to inquire further. Duran and as aptly stated by respondent appellate court "[e]ven on the supposition that the sale was void. Fule et al. he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. v. otherwise everyone dealing with property registered under the torrens system would have to inquire in every instance as to whether the title had been regularly or irregularly issued by the court. was in the Philippines in 1964 to construct the apartment on the disputed lots. the general rule that the direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot rise higher than its source) cannot apply here for We are confronted with the functionings of the Torrens System of Registration. 61 Phil. the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title. 1973). an innocent purchaser for value relying on a torrens title issued is protected. husband of Circe. Gomez dela Serna. 35 Phil. the efficacy and conclusiveness of Torrens Certificate of Titles would be futile and nugatory. 147. In the process of construction. Legare. 55 of Act No. where innocent third persons relying on the correctness of the certificate of title issued. petitioners discussed questions of law which. STILL insofar as innocent third persons are concerned the owner was already the mother (Fe S. specifically in the matter of obtaining a building permit. Otherwise stated. The mortgagee had the right to rely upon what appeared in the certificate of title. We take note of the finding and observation of respondent appellate court in that petitioners were guilty of estoppel by laches "in not bringing the case to court within a reasonable period. There is good faith where there is an honest intention to abstain from taking any unconscientious advantage from another (Fule vs.. 496. 7 SCRA 351). Good faith. acquire rights over the property. 19 Phil. as evidenced by the registration of the property in the name of said Fe S. Stated differently. 627). Thus the rule is simple: the fraudulent and forged document of sale may become the root of a valid title if the certificate has already been transferred from the name of the true owner to the name indicated by the forger (See De la Cruz v. Fable. while it is always to be presumed in the absence of proof to the contrary. Blondeau et al.

as assignee. executed and delivered to the International Banking Corporation." a promissory note. Duran).000. plaintiff partnership presented. Kincaid and Thomas L. They kept silent until almost the last moment when they finally decided. should have been stored in the Calle Toneleros warehouse. but the buyer refused to make payment. Circe's mother. Perez and Co. 148. the plaintiff partnership Ocejo. its account for the purchase price of the sugar. Muelle de la Industria. It appears from the evidence. and that Chua Teng Chong continued to retain the sugar in his possession and control. 5. 1914. that the bank did not take possession of it when the document was executed and delivered. Lawrence. when it discovered that the amount of sugar stored in the said warehouse was much less than the 5. and 5. The bank made no effort to exercise any active ownership over said merchandise until the 16th of April. although it is stated therein that it was executed for value received. 119. and put up to the present time the sellers have been unable to collect the purchase price of the merchandise in question. Manila. 1963 (the building permit needed an application by the apparent owner of the land.. and which. On April 17. We find the petition without merit and hereby AFFIRMED in toto the decision of respondent appellate court promulgated on August 12. FRANCISCO CHUA SECO.that the deed of sale sought to be set aside had been executed on May 13. 1914. Binondo. as therein stated.000 piculs were delivered by plaintiff to Chua Teng Chong. plaintiffs-appellees. Attached to this note was another private document. Calle Toneleros. in which it was stated that he had deposited with the bank. Clearly. which in said document were said to be stored in a warehouse situated at No 1008. vs. J. 1914.. THE INTERNATIONAL BANKING CORPORATION.000 piculs mentioned in the contract. The bank's representative then discovered that the amount of sugar in that warehouse and and appellant. Chua Teng Chong of Manila. namely. the plaintiffs can be faulted for their estoppel by laches. assuming that the sugar was in the warehouse on that date. OCEJO. signed by Chua Teng Chong. intervener-appellant. FISHER." (p.000 piculs of sugar were delivered into the warehouse on Muelle de la Industria. On the 24th day of March. and the sugar was stored in the buyer's warehouse situated at No. for the sum of P20. PEREZ & CO. It appears that this sugar was brought to Manila by a steamer in the month of April. as security for the said note. the sugar to be weighed in the buyer's warehouse. payable one month after date. . And then again both plaintiffs could have intervened in the foreclosure suit but they did not. 1981. Fe S.000 piculs of sugar. It was agreed that delivery should be made in the month of April. Hartigan for plaintiff and appellee. The delivery was completed April 16.: On the 7th day of March. entered into contract with Chua Teng Chong for the sale to him of a lot of sugar. Ross and Block for defendant Wolfson and Wolfson for intervener William A. for collection. defendant-appellant. hereinafter referred to as "the bank. to file a third-party claim. On the same date as that on which the 5. appellant. shortly before the sheriff's sale. Rollo) IN VIEW OF THE FOREGOING. The agreement between the bank and Chua Teng Chong with respect to the alleged pledge of the sugar was never recorded in a public instrument. the bank sent an employee to inspect the sugar described in the pledge agreement. 1914. It does not appear from the evidence that the promissory note represents money delivered by the bank on the date of its execution. SO ORDERED.

upon the ground that the delivery of the sugar by plaintiff. and to that end. The lower court rendered judgment in favor of the plaintiff and from this decision appeals have been taken by the bank and by the intervener. the bank's representative. Muelle de la Industria. Subsequently. Upon these allegations the interveners contends that the sugar is the property of the insolvent estate represented by him. After Chua Teng Chong had refused to pay the bill for the price of the sugar which the plaintiff firm presented to him. It is admitted that the sugar seized by the bank in the Muelle de la Industria warehouse is the same sugar which the plaintiff firm delivered to Chua Teng Chong. upon which this action was commenced.200 piculs of sugar. and Francisco Chua Seco was appointed as assignee of the insolvency.800 piculs. the day after its delivery.did not exceed 1. a complaint in intervention was filed by Chua Seco. which the bank had received from Chua Teng Chong. After the answer of the defendant bank was filed. In the written contract by which the plaintiff firm undertook to sell the sugar in question to Chua Teng Chong nothing was said concerning the time and place for payment. and the latter informed him that the rest of the sugar covered by the pledge agreement was stored in the warehouse at No. Upon these facts the following questions arise: (a) Did title to the sugar pass to the buyer upon its delivery to him? (b) Assuming to pay that the title passed to the buyer. 119. subject to the order of the court upon the final disposition of the case. the plaintiff firm took advantage of those provisions of the procedural law which permit a plaintiff to replevin personal property.711 piloness of sugar." The plaintiff firm proved that in sales of this kind it is the custom among merchants in Manila for the seller to deliver the merchandise into the warehouse of the buyer.000 piculs. the sugar was sold and the proceeds of the sale deposited in the bank. the plaintiff partnership filed a complaint. A few days after. 1914. whereas the amount which should have been there. the buyer Chua Teng Chong was judicially declared to be insolvent. the price is payable on demand. had fallen due and was unpaid. of which he took immediate possession. 1914. on April 24. for inspection and verification of weights. The bank's representative immediately went to this warehouse and upon arrival there found some 3. 1914. closing the warehouse with the bank's padlocks. in which he asserts a preferential right to the sugar. went immediately to see Chua Teng Chong. had the effect of transmitting the title of the pledge asserted by the bank was null and void. the plaintiff made a demand on the bank for the delivery of the sugar. The court below found that the delivery of the sugar by plaintiff to Chua Teng Chong was made upon the mutual understanding that the price was to be paid in cash "upon the completion of delivery. an attempt was made by the plaintiff to recover possession of the sugar. On April 24. was 5. or to the proceeds of its sale. to which demand the bank refused to accede. by virtue of which it passed into the possession and control of Chua Teng Chong. and prayed for the judgment for the possession of said sugar. accompanied by a lawyer. naming the bank as defendant. Upon making this discovery. On the same date. and that as soon as this operation is completed. did his failure to pay the purchase price authorize the seller to rescind the sale? (c) Was the commencement of a replevin suit by the seller equivalent to the rescission of the sale? (d) Can the pledge of the sugar to the bank be sustained upon the evidence as to the circumstances under which it obtained physical possession thereof? . alleging that said defendant was unlawfully holding some 4. by agreement of the parties. and a few minutes after the insolvency proceedings were commenced. according to the contract. On the date on which the bank took possession of the sugar the promissory note executed March 17. the property of the plaintiff firm.

leaving it entirely subject to his control. would be void. As is correctly stated in Williston on Sales: .) The seller calls this transaction a cash sale. ass it is evident that no one can transfer a greater interest than that which he possesses. If the seller had allowed three." It is difficult to see how the seller could have divested himself more completely of the possession of the sugar. p. but the latter failed and refused to make payment. he was entitled. the consequences to the business community would. 8 Phil. any sale which might in the meantime be made by the buyer. Therefore. it is not cash sale. in fact he grants a term of credit to the buyer. art. 1914." If we were to sustain the seller's contention. the contract was perfected. (Tan Leonco vs. In the present case the buyer was not called upon to make payment until the following day. We cannot agree with this contention. 120). however short and indeterminate it my be. called on behalf of the seller. when no term for payment is stipulated the seller is not bound to deliver the thing sold until the buyer has paid him the price. or how he could have placed it more completely under the control of the buyer. Go Inqui. would relieve him from the obligation to pay — the thing perishes for its owner. . and it was the duty of the buyer to pay the price immediately upon demand. No term having been stipulated within which the payment should be made. there can be no doubt that from March 24. With even greater reason. On the day following the delivery of the sugar the seller presented his bill to the buyer. .) It is also clear that the obligation of the seller to make delivery of the thing sold was not subject to the condition that the buyer was to pay the price before delivery. testified that the price was to be paid after the completion of delivery. 1450. If the seller may make delivery of the thing sold and clothe the buyer with all the appearances of ownership but without the passage of title until the purchase price is actually paid.) The sugar was delivered to the buyer March 16. 4. but if. Article 1462 of the Civil Code provides that the thing sold is deemed to be delivered "when it passes into the possession and control of the buyer. but. it occurs to us to inquire how long this anomalous state of affairs may be permitted to continue? It is the buyer's duty. or five days to go by before presenting his account for payment. and waives his right to insist upon payment in advance or simultaneously with delivery. (Civil Code. in which delivery and payment are to be made simultaneously. would it be permitted him still to contend that title had passed? If the title did not pass. Of course. but the seller is not bound to present his account immediately.. We agree with the seller's contention that he was entitled to demand payment of the sugar at any time after the delivery. Rep. 1914. (Stenographic notes. But the seller not only argues that he was entitled to demand payment at any time after delivery. be most deplorable. 1500. delivery is consummated without requiring payment to be made in advance or simultaneously. art. title to the sugar did not pass to the buyer. 10 p. but as no term for payment was stipulated. The seller delivered it into the buyer's warehouse. four. to require payment to be made at any time after delivery. on which date the parties agreed in regard to the quantity of the sugar which the seller was to deliver and the price which the buyer was to pay. (Civil Code. 531. tradition is a true mode of acquiring ownership "which effects the passage of title and the birth of the right in rem.Clearly. notwithstanding this right. As Manresa says (vol. before demand upon him for payment. signifies that title has passed from the seller to the buyer. It is not like a sale made in a retail store. The witness Pomar. but contends further that until such payment was in fact made. the destruction of the thing in the possession of the buyer. in our judgment. the delivery of the thing . but in lieu thereof he becomes entitled to payment upon demand therefor made upon the buyer.) The seller did not avail himself of his right to demand payment as soon as the right to such payment arose. upon the assumed facts to pay the price on demand. strictly speaking. payment was demandable at the time and place of the delivery of the thing sold.

343.. As was stated by Justice Mapa. because as such a condition was not stipulated in the contract..) It is contended that there was an express agreement in this case that the passage of the title should be subject to the payment of the price. Article 1506 of the Civil Code provides that the contract of sale may be rescinded for the same causes as all other obligations. the court sustained the validity of a sale of personal property subject to the stipulation that title should not pass until the payment of the purchase price. Article 1124 of the Civil Code establishes the principle that all reciprocal obligations are rescindible in the event that one of the parties bound should fail to perform that which is incumbent upon him. arts. . as a condition precedent. 6 Phil. conferred upon him by the law. The law subordinates it to the rights of third persons to whom bad faith is not imputable (Civil Code. Rep. Rojas (16 Phil. Sales par.. It is also observed that the article does not distinguish the consummated sale from the merely perfected sale. we will now consider the legal effect of the failure on the part of the buyer to pay the price on demand. 432): The fact that the price of the property has not yet been paid in full is not. when there has been no such express agreement and the thing sold has been delivered." Having concluded that the effect of the delivery was to transmit the title of the sugar to the buyer. of the course. together with damages in either event. Rep. and the defendant bank seeks to invoke in its defense this principle." In the case of Kuenzle and Sheriff vs. after its delivery to the buyer and before the latter was placed in default with respect to the payment of the price. On the other hand. to the right of the vendor to claim payment of any sum still due. Rep. and if such is the contemplation of the parties. it is not contemplated that the buyer shall refrain from dealing with the goods or even from reselling them. without prejudice. under the circumstances suggested. (13 Phil. while delivery or tradition is the method of accomplishing the same. Lopez. (10 Phil. the latter immediately produced its natural effects in law. the title and the method of acquiring it being different in our law. title passes from the moment the thing sold is placed in the "possession and control of the buyer. 26). Contracts only constitute titlesor rights to the transfer or acquisition of ownership. to elect to demand the performance of the obligation or its rescission (Mateos vs. Watson and Co. Nonperformance by one of the parties authorizes the other to exercise the right.Confusion especially may be caused by use of the words 'cash sale' or 'terms cash' by business men. for. it is impossible to say that the property was not to pass until the price was paid. In such a case it is clear there is no cash sale in the legal sense. In the contract of the sale the obligation to pay the price is correlative to the obligation to deliver the thing sold.. ownership of things is not transferred by contract merely but by delivery. 206). an obstacle to the acquisition of the ownership thereof by the plaintiff. Sanchez. . and we do not believe that there is any reason for making this distinction. In business dealings these words are frequently used when in reality a short period of credit is contemplated. the principal and most important of which being the conveyance of the ownership by means of the delivery of the thing old to the purchaser. in addition to the special causes enumerated in the preceding articles. alleging that the sugar in question was pledge to it. But the right to rescind the sale for nonperformance on the part of the buyer is not absolute. . Rep. nor can it be. (Williston. the author of the decision in the case of De la Rama vs. 51): . 1124 and 1295). The same fundamental doctrine was stated by Chief Justice Arellano in the case of Gonzalez vs.

Article 1865 of the Civil Code provides that a pledge is without effect as against third persons "if the certainty of the date does not appear by public instrument. it is evident that the question of procedure does not affect it. It appears that by reason of the insolvency of the buyer Chua Teng Chong an insolvency proceeding was commenced in a court of competent jurisdiction and in that proceeding Francisco Chua Seco was appointed assignee of the property of the insolvent. that the seller of the thing pledged. But as it is held that the bank has no interest in this matter. From these statements it appears that no attempt was made to enter into any agreement for the pledge of the sugar here in question. the assignee asks that he be recognized in his representative capacity as the owner of the sugar in question." In the case ofTec Bi and Co. that this was not done because of an agreement concerning the pledge of the sugar now in dispute. it is evident that the pledge aserted by the International Bank is inefficacious. But even if it were assumed that on the afternoon of April 16. whereupon at No. title to the sugar passed to the latter and that the pledge set up by the bank is void as to third persons. an attempt was made to pledge the sugar and that delivery was made in accordance with the agreement. Muelle de la Industria. as the seller delivered it into the bodega at No. In the first place. 119. vs. that upon observing this storage he asked the debtor to account for it. 1). Australia and China. 119. Muelle de la Industria. in which he contends that by reason of its sale and delivery by plaintiff to the insolvent. this court held that when the contract of pledge is not recorded in a public instrument. which bears date March 4. 908 decided February 5." that upon receiving this reply the witness went to the warehouse at No. and then closed the warehouse with the bank's own padlocks. Grey. he ascertained. and all parties in interest have been heard in this proceeding. 1914. 1914. It is true that it appears that in the afternoon of the day the sugar was delivered. and this constitutes an indispensable requisite for the creation of a pledge. it is evident that the sugar therein mentioned is not the same as that here in dispute. In the brief filed on behalf of the bank it is argued that in no case may a revindicatory action be maintained when the plaintiff attempts to exercise the right to rescind the sale for nonpayment of the purchase price and that therefore a replevin suit will not lie. is a third person within the meaning of the article cited. it is void as against third persons. Calle Toneleros. 1857. By this document. As such assignee Chua Seco filed a complaint in intervention in this suit. 119. an attempt was made to pledge the lot of sugar deposited in warehouse No. art. after an inspection of the warehouse on Calle Toneleros. The sugar here in question could not be possibly have been the subject matter of the contract of pledge which the parties undertook to create by the private document dated March 7. as its alleged contract of pledge is utterly unavailing. the buyer gave the bank's representative the keys of the warehouse on the Muelle de la Industria in which the sugar was stored. but it also appears from the testimony of the bank's witness. The voluntary intervention of the assignee of the insolvent buyer cures the defect of nonjoiner of the latter as a party defendant. The sugar in dispute has never been in that warehouse. 1916. 16 Off.We believe that this connection of the defendant bank cannot be sustained. that the sugar therein stored was not stated in the document of pledge. Muelle de la Industria.. Manila." Applying the doctrine of the decision cited. 1914. based upon the false statement of Chua Teng Chong. 1919. 1008. the pledge so established would be void as against third persons. Gaz. The bank took possession of that sugar under the erroneous belief. seeking to recover the purchase price thereof. Grey testified that on the afternoon of April 16. but that "It prescribes a condition without which the contract of pledge cannot adversely affect third persons. even giving all possible effect to the contract evidenced by the private document exhibited by the bank (Exhibit No. that it was a part of the lot mentioned in the private document dated March 7. The court held that the principle established by article 1865 of the Civil Code is not adjective in its character. to whom the keys of the warehouse were delivered. 1914. Chartered Bank of India. and that the fact that the person claiming as pledgee has taken actual physical possession of the thing sold will not prevent the pledge form being declared void as against the seller. inasmuch as it was not at the time the property of the defendant. (Civil Code. demanded the keys from the person in charge.) It does not appear from the record that any effort was made to pledge the sugar which is the subject matter of this case. . Standing in the place of the insolvent buyer.

Consequently. the only thing we can do is to decide that the title to the sugar having been commenced against him before the declaration of insolvency. in no wise differs from that which is established. This being so. . it is clear that his creditors have an interest in this question." But the right so conferred is not an absolute one. or is it necessary for him to bring an action of rescission? The action of replevin. assuming that by reason of the nonpayment of the purchase price. reserving proceedings. on the contrary. unless there are causes which justify him in allowing a term. standing in the shoes of the buyer. That is. has a better right to its possession or to the product of its sale during the pendency of this action. it is the judgment of the court and not the mere will of the plaintiff which produces the rescission of the sale. by article 1124 in "true event that one of the obligors fails to perform the obligation incumbent upon him. it having been so disposed of by agreement by the parties during the pendency of the suit. So ordered. But the intervener.76. established by article 1506. .1 The decision of the court below is therefore reversed." (Scaevola. p. in cases in which title has passed by delivery and in which the buyer has failed to pay the purchased price on demand. 263) upon the assumption that the plaintiff at the time of bringing the action is either the owner of the thing which is the subject matter of the suit or entitled to its possession. But the question presented is whether. the action of replevin will no lie upon the theory that the rescission has already taken place and that the seller has recovered title to the thing sold. vs. the assignee. Attention is also invited to the decision of the court overruling the motion for a rehearing in the case of Tec Bi & Co. Chartered Bank of India. for the purposes of avoiding an unnecessary multiplicity of suits. adopting the argument of the bank. Of course. together with the interest accruing thereon. they will have an opportunity to be heard. The same article provides that "the court shall decree the rescission demanded. inasmuch as the sugar in question had not passed by an "irrevocable title" when the buyer was declared insolvent. The intervener excepted to the decision and joined in the bank's appeal. if the action of the court is necessary in order to effectuate the rescission of the sale. with respect to reciprocal obligations. P10. vol. Strictly speaking the mission of the court ends at this point. but following the practice adopted in other cases. and this conclusion is supported by the last paragraph of the article cited. instead of the assignee in the bankruptcy suit. But as the buyer has been declared insolvent. the action of replevin cannot be maintained. because one of the material averments of the complaint is that Chua Teng Chong unlawfully took possession of the sugar. . 19. In the present condition of the case. cited above. sec." Therefore. 1956. we might perhaps have said that all the parties in interest having been heard. we deem it advisable to indicate that we are of the opinion that the rights of the seller are protected by section 48 of Act No. saying that the acts of the seller — the filing of its complaint — imply that it has made the election. to wit. If the buyer himself had intervened.826.The judgment of the court below awards the plaintiff the product of the sale of the sugar. is the rescission effected ipso facto by such election. and that if this interest is discussed in the bankruptcy proceedings. The right to rescind a sale. We cannot apply section 126 of the Civil Code Procedure. and bearing in mind the fact that the assignee of the bankruptcy is a party to this proceedings. is based (Code of Civil Procedure. and it is decided that the assignee of the bankruptcy of Chua Teng Chong is entitled to the product of the sale of the sugar here in question. the seller is entitled to elect to rescind the sale. Australia & China. contends that the party to whom article 1124 of the Civil Code grants the right to rescind "must apply to the court for a decree for the rescission of the contract. title is revested in the seller by the mere fact that he has mentally determined to elect to rescind? In its brief the plaintiff partnership contends for the affirmative. such rescission does not follow ipso jure by reason of nonpayment and the determination of the seller to elect to rescind. In his brief in this court the intervener raises a question as to the sufficiency of the complaint to support the decision of the court below. The evidence shows. we would overlook the matter of procedure and proceed to adjudicate the rights of the parties upon the evidence submitted. the intervener contends. in general terms. 673). that it was delivered to him by plaintiff. adopting the argument of the bank upon this point. .

the court made an order requiring the assignee to render an account and to give the creditors a copy. 1922. 90. 1924. Davao Province.at 9. J. one auxiliary boat “Manuela. the assignee filed his account for the period between October 1. B. One thousand piculs hemp now in the plantation bodega at Pantucan all belonging to the “Gulf Plantation. to November 30. Forty-eight buildings of permanent materials valued at P5. Incorporated. P200.20 THE PROVINCIAL GOVERNMENT OF DAVAOOFFICE OF THE REGISTER OF DEEDSReceived this 24th day of Feb.: Lease No. . one launch “Rigel. m. Hughes. 1921.. THE PROVINCIAL GOVERNMENT OF DAVAOOFFICE OF THE REGISTER OF DEEDSReceived this 24th day of Feb. 1923.. March 20. 1923. 1921. vs.Involuntary Insolvency of The Gulf Plantation Co.000. and the court ordered the sheriff to take possession of all the assets of the insolvent estate. he filed an inventory of all of the properties of the plantation company. one launch “New Kirk. Volume Day Book (Provisional). stamps affixed P17. and it was declared insolvent on September 16. Entry No. Cruz for appellants. 38 bullocks. and February 28.30 o‟clock a. PHILIPPINE NATIONAL BANK. March 17. Twenty three carabaos.500 situated on above lease. DRUG COMPANY and STANDARD OIL COMPANY. PHILIPPINE-AMERICAN appellants.. March 25. including the Philippine National Bank. PACIFIC COMMERCIAL COMPANY.” P800.500 and cargo boats.” P3. Simon Dionisio de Leon for appellee. One launch “Peril” valued at P18. 1922. valued at P430. October 23.” valued at P45. P. H. 1922. Both of which accounts are still pending and waiting the approval of the court. 1923. I. 1922. with the consent and approval of all creditors. November 28. m. an insolvency petition was filed to have the Gulf Plantation Company declared insolvent.450.000. The instrument contains the following endorsement: Doc.” P9. page 3.000 hemp and 700 coconut trees. Two buildings of strong materials valued at P15. petitioners- . 1922. creditor-appellee. assignee. 18 horses. 1923.30 o‟clock a.000. 1923. 1922.000.at 9. 63 of 534 hectares of public situated in the municipality of Pantucan. and on October 27. On January 7. valued at P6. planted to 236.000. the assignee filed a further account covering the period from October 1. and assignee was appointed. the assignee filed a petition for authority to sell at public R.

the creditors appeal and assign the following errors: I. all such interest. and the balance to the assignee in insolvency.000. B. to have the proceeds of the sale applied to the satisfaction of the claim of the bank. through the fiscal of Davao. filed objections to the approval of the accounts rendered by the assignee. and that the creditors of the Plantation Company should share in any amount remaining after such application. possession of all the properties of the insolvent corporation. the bank. The lower court erred in not finding and holding that the Philippine National Bank has renounced its alleged preferred lien on the properties of the insolvent covered by the pledge. the Philippine National Bank filed a petition. (b) That the assignee appointed in this insolvency proceeding.000 that said proceeds be delivered to the Philippine National Bank. and in compliance with an order of the court. or if the latter has not yet been appointed.. From this judgment. including the income tax and the land tax. and dismissed the case. by giving its consent to . 1922. the court rendered a judgment in favor of the Philippine National Bank to the effect that it was entitled to the possession of all of the estate of the insolvent corporation. Inc. to which was attached a copy of Exhibit A and made a part of it. Hughes as its representative or administrator of the properties of the Plantation Company. and for the balance of difference not paid of the debt of the insolvent corporation to the claimant company. right or share as the Gulf Plantation. and requiring the bank to pay certain preferred claims. 1924. without costs. after notice to the Philippine National Bank. this amount of P165. and should have. has or may have in the properties described in Exhibit A. (c) That should the proceeds of the sale of the properties mentioned in appendix A be greater than the sum of P165. and upon the payment of such preferred claims. and to have the property sold and the proceeds of the sale applied to the satisfaction of the claim of the bank. which application is also now pending and waiting the order of the court. II. The lower court erred in not finding and holding that the so-called “agreement of pledge” executed by the insolvent Gulf Plantation Company in favor of the Philippine National Bank is null and void on account of its many defects.auction all of the properties of the insolvent estate.000 be delivered to the Philippine National Bank. the Philippine National Bank be admitted as an ordinary creditor in this insolvency proceeding. In this situation. February 9. the sheriff of the Province of Davao be authorized to sell at public or private sale. and that the bank was entitled to. November 3. reciting the execution of the instrument and a breach of its conditions. and (d) In the event that the proceeds of the sale of the properties mentioned in Appendix A is less than the sum of P165.. Inc. and that in the year 1919 the bank had appointed H. a copy of which is attached to this claim as appendix A be declared effective and matured. and praying for the following order from the court: (a) That the mortgage or pledge executed in its favor by the Gulf Plantation.

VI. Volume Day Book (Provisional). Upon the question of pledge. V. the receiving of it in the office of the register of deeds on February 24. The lower court erred in not finding and holding that the claim of the Philippine National Bank is an ordinary claim. J. Exhibit A is void as a pledge. there is no evidence in the record. to the accounts submitted by the assignee. and that it was then endorsed. 90 page 3. and to make it valid against creditors or the assignee. 1921. or to have it sold and the proceeds applied to the satisfaction of its claim. JOHNS. The lower court erred in holding that the mortgage in favor of the Philippine National Bank is effective and due.the appointment of and assignee and by permitting said assignee to take possession of said properties. and to continue and remain in such possessions. 1924. which he placed at about P60. Without it. physical possession at the time the Plantation Company was declared insolvent. physical possession of the property. only received in the “office of the register of deeds” with “Entry No. To make Exhibit A valid as a pledge. what is known in the record as Exhibit A must be construed as a pledge in both form and substance. and he was called for the sole purpose of testifying as to the amount of the bank‟s claim. It will be noted that it was never received or filed for any purpose until the 24th of February. Upon the question. which was two years and a half after it was executed. and would not now be entitled to the possession of the property of the Plantation Company. the bank must have been in such actual. IV. it was the duty of the bank to take the actual. It is very apparent from the language used in the instrument that it was prepared on the customary blank form of a pledge for the taking of properties under a pledge. The lower court erred in not overruling the opposition of the Philippine National Bank dated February 9. Hence. III. either as a chattel mortgaged or a pledge of personal property. as to the personal property therein described .” That is to say. The only witness for either party was Carlos Garcia. and that it was due and owing. the manager of the bank at Davao. article 1863 of the Civil Code provides: . filed or recorded anywhere or by anyone. 1921. VIII. is a nullity as to both a pledge and a chattel mortgage. The lower court erred in holding that the Philippine National Bank is entitled to the possession of the properties of the insolvent. there is no evidence that it was ever received. and the bank would not have a preference. The lower court erred in dismissing the insolvency proceedings.000.: In view of the numerous recitals made in it.

be placed in the possession of the creditor or. and for the registration of the mortgages so executed. clearly indicating that the buildings were attached to the soil and as such would be real estate.In addition to the requisites mentioned in article 1857. In what is known as schedule A. it follows that. there is no evidence in the record. it shall be necessary. It will be noted that it is a pledge of a lease of public land which is planted to hemp and coconut trees. entitled “an Act providing for the mortgaging of personal property. if valid for any . filed and recorded as a chattel mortgage. unless the mortgage is recorded in the office of the register of deeds of the province. filed and recorded as a chattel mortgage. if he resides without the Philippine Islands. in the every nature of things. it was not only its duty to so instruct the register of deeds. Section 4 of Act No. Hence. his executors or administrators. It may well be doubted whether that kind of property could become the subject matter of a pledge or chattel mortgage. but it was its further duty to see that the instrument was received. 63 of 534 hectares of public land planted to 236. Again. in the province in which the property is situated.500. his executors or administrators. without delivery of possession of the property. or. a chattel mortgage is not valid against any person except the mortgagor. It will be noted that. in the absence of such record and the delivery of possession a chattel mortgage is void as against the creditors or the assignee of an insolvent estate. Hence.” provides: A chattel mortgage shall not be valid against any person except the mortgagor. and two buildings of strong materials valued at P15. That is to say. in the absence of such delivery of possession on the recording of the instrument in the office of the register of deeds. and it cannot be extended or made to apply to real property. in order to constitute the contract of pledge. that the pledge. Upon that point there is no evidence. unless the possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at the time of making the same. and upon that question.000 hemp and 700 coconut trees valued at P430.000. the property is described as lease No. and it is very probable that the one thousand piculs of hemp have long since been sold. As to the twenty-three carabaos. It will also be noted that the pledge was executed in 1918. and forty-eight buildings of permanent materials valued at P5. of a third person appointed by common consent. attached to Exhibit A.000. a pledge or chattel mortgage is confined and limited to personal property. his executors or administrators. the pledge. thirty-eight bullocks and eighteen horses. If it was the purpose and intent of the bank to have Exhibit A received. there is no provision for the increase. 1508. and of forty-eight buildings of permanent materials and of two buildings of strong materials. a chattel mortgages is valid only as to the mortgagor.

" an action for the collection of a sum of money representing the value of two (2) checks which plaintiff Tan claims to have been delivered to him by defendant Mendoza. and would not include any increase. Ruben G. for this purpose. physical possession of the property described in it. or that it was in such possession for more than thirty days prior to the filing of the petition. ESTATE vs. and continued to remain in such possession up to the time the petition for insolvency was filed. That is to say. offered to sell to the Bernals textile cotton materials and. Thus. and that the Plantation Company was in such possession as its own. Q-8303 1 entitled "Alfonso Tan vs. From what has been said.M. Mendoza introduced the Bernals to Alfonso Tan. garments and cotton materials. 3 with Mendoza as president. and the bank would then have a preference on that property for the amount found due and owing upon its claim. The record discloses that the Bernal spouses 2 are engaged in the manufacture of embroidery. it follows that the judgment of the lower court is reversed. by a deed of assignment which was duly submitted to the court.: This petition for review presents two (2) main issues. J. MENDOZA and COURT OF APPEALS.B. respondents. GANCAYCO. if it be a fact that at time the pledge was executed the bank took actual. Bala for respondent Mendoza. and the case remanded. the pledge would then be valid as to the personal property. with costs in favor of the appellant. So ordered. Sometime in September 1963. then the bank would not have a preference over any other unsecured creditor. OF GEORGE LITTON. private respondent herein. Mendoza. should be confined and limited to the particular property described in the pledge. the Bernals purchased on credit from Tan some cotton . physical possession of the property at the time the insolvency petition was filed. by way of guaranty with a commission. validly enter into a compromise agreement thereafter releasing the defendant therein from his claim without notice to his assignee? and (2) Will such previous knowledge on the part of the defendant of the assignment made by the plaintiff estop said defendant from invoking said compromise as a ground for dismissal of the action against him? The present case stemmed from Civil Case No. Products. Ciriaco B. If be a fact that the bank was not in the actual. CIRIACO B. with instructions for the assignee to proceed with the administration of the insolvent estate in the ordinary course of business and in the manner provided by law. C. petitioner. to wit: (1) Can a plaintiff in a case. and for such further proceedings as are not inconsistent with this opinion. who had previously assigned in favor of his creditor his litigated credit in said case.purpose.

796. 6 Kanlaon. of age. 56850 against Mendoza. residing at No. Chinese.F. as his interest may then show.796. was framed in the following tenor: DEED OF ASSIGNMENT I. 56850. 1965. Manila) and Q-8503 (C.00. Tan assigned in favor of George Litton. 56850 7 for not knowing whom to pay. his litigatious credit * in Civil Case No. He informed the Bernals of the same and told them that they are indebted to him and asked the latter to sign an instrument whereby Mendoza assigned the said amount to Insular Products Inc.62 then on deposit with the court. GEORGE LITTON. GEORGE LITTON. and excluding.. personally guaranteed by Mr. and I further undertake to 8 The deed of assignment . Quezon City) are by these presents covered by this assignment. and interests in said net amount. SR. Manila. having already been received by the assignor on December 23.796. ASSIGN. with notice to the parties. Ciriaco B. asked and received from the Bernals PBTC Check No.. doing business under the name and style ALTA COMMERCIAL by way of securing or guaranteeing my obligation to Mr. While both actions were pending resolution by the trial court. Quezon City.B. I further undertake to hold in trust any and all amounts which may hereafter be realized from the aforementioned cases for the ASSIGNEE.62. Meanwhile. in principal. damages and attorney's fees now stands at P 76. payment of which was guaranteed by Mendoza. 626405 for P 80. Inc. as adverted to above. on March 20. in case the amount allowed therefor be less than the amounts claimed in the relief in Civil Case 56850 (C. authorizing Alfonso Tan to withdraw the amount of P 4.B. Q8303 6 4 in the while the Bernals brought an action for interpleader docketed as Civil Case No. TRANSFER AND CONVEY unto the said Mr. Products. Thereupon. Tan brought an action against Mendoza docketed as Civil Case No. C. 1964.62) the balance of which.000. do by these presents CEDE. the said checks were later returned to Tan with the words stamped "stop payment" which appears to have been ordered by Mendoza for failure of the Bernals to deposit sufficient funds for the check that the Bernals issued in favor of Mendoza.62 dated February 20. C.I. my claim against C. Tan had the two checks issued by Mendoza discounted in a bank. Sr. ALFONSO TAN. Mendoza. and less attorney's fees.796. All rights.796. Hence.M. interests. and to turn over to him such amounts in application to my liability to him. SR. P 4. plus interests and costs.. costs.M.62. in the amount of Eighty-Thousand Seven Hundred Ninety Six Pesos and Sixty-two centavos (P 80. pursuant to the order of the court in Civil CaseNo... Mr.62..796.I. duly submitted to the court. Products. Tan delivered the said cotton materials to the Bernals. married to UY CHAY UA.materials worth P 80.. on November 1963.F. on February 28. 1964 with the understanding that the said check will remain in the possession of Mendoza until the cotton materials are finally manufactured into garments after which time Mendoza will sell the finished products for the Bernals. SR. the said check matured without having been cashed and Mendoza demanded the issuance of another check same amount without a date. On the other hand.F. defendant Mendoza issued two (2) PNB checks 5 in favor of Tan in the total amount of P 80. 1966. However.I. through Mendoza. In view of the said arrangement. GEORGE LITTON.

As to the first ground invoked by Tan. citing Aro vs.. Sr. 1977.. plus damages and attorney's fees. respondent court ruled as follows: . Nanawa.79 and held Mendoza liable as a drawer whose liability is primary and not merely as an indorser and thus directed Mendoza to pay Tan the sum of P 76. 11 Meanwhile. 1977 be set aside. Laberinto. 1977. Mendoza entered into a compromise agreement with Tan wherein the latter acknowledged that all his claims against Mendoza had been settled and that by reason of said settlement both parties mutually waive. 10 Mendoza seasonably filed an appeal with the Court of Appeals.R. now deceased.000.cooperate towards the successful prosecution of the aforementioned cases making available myself. as witness or otherwise.847. on February 2. as well as any and all documents thereto appertaining.00. the Court of Appeals rendered a decision affirming in toto the decision of the lower court. the compromise agreement. arguing in the main that his liability is one of an accommodation party and not as a drawer. died leaving no properties whatever to satisfy the claim of the estate of the late George Litton. right or cause of action one may have against the other. Mendoza filed a motion for reconsideration praying that the decision of January 27. principally anchored upon the ground that a compromise agreement was entered into between him and Tan which in effect released Mendoza from liability. 12 On February 25. . No. Sr. transfer. he has no more right to alienate said credit. 41900-R. pending the resolution of the said appeal. or guaranteeing his obligation to GEORGE LITTON.assignment. with a provision that the said compromise agreement shall not in any way affect the right of Tan to enforce by appropriate action his claims against the Bernal spouses. release and quit whatever claim. the assignor. bond conveyance by Alfonso Tan was only by way of securing. 9 After due trial. alleging that with such. it is relevant to note that Paragraph 1of the deed of assignment states that the cession.. dockted as C.A. SR. 14 As to the second ground. and was instead represented by a certain Atty. 1971. the respondent court ruled that the nonintervention of Tan's counsel of record in the compromise agreement does not affect the validity of the settlement on the ground that the client had an undoubted right to compromise a suit without the intervention of his lawyer. 13 the respondent court set aside its decision and approved . Tan filed an opposition to this motion claiming that the compromise agreement is null and void as he was not properly represented by his counsel of record Atty. G. On January 27. In its Resolution dated August 30. and principally because of the deed of assignment that he executed in favor of George Litton. 1977. While the case was still pending reconsideration by the respondent court. the lower court ruled that the said PNB checks were issued by Mendoza in favor of Tan for a commission in the sum of P 4. Tan. Quiogue.. the sum still due.

son of George Litton. 1634. Before resolving the main issues aforementioned. as assignee under the deed of assignment. The estate of George Litton. the right of the petitioner to bring the present petition is well within the concept of a real party-in-interest in the subject matter of the action. if proven prejudicial to George Litton. This notwithstanding. petitioner herein. Hence. such credit may be validly alienated by Tan (Art." which indeed characterized the claims herein of Alfonso Tan.. release. may entitle Litton to pursue his remedies against Tan. the question of legal personality of herein petitioner to bring the instant petition for review. "Even considered as a litigations credit. Sr. Sr. Alfonso Tan retained possession and dominion of the credit (Par. Art. Sr. 16 If after the rendition of judgment the original party dies. must be resolved. Civil Code). the assignor Tan died pending resolution of the motion for reconsideration. 2. in relation to Civil Case No. and administrator15 of the former's estate. whereas the former was fully aware of the fact that the said estate is an assignee of Tan's right in the case litigated. it is not disputed that no proper substitution of parties was done.Hence. if herein petitioner failed to observe the proper substitution of parties when Alfonso Tan died during the pendency of private respondent's motion for reconsideration. petitioner has the personality to bring this petition in substitution of Tan. or quit-claim made by plaintiff-appellee Alfonso Tan in favor of defendant-appellant Ciriaco B. Now. within the latter category. As a rule. Civil Code). Such alienation is subject to the remedies of Litton under Article 6 of the Civil Code. the resolution of the main issues. Q-8303. 56850. 18 Hence. the parties in an appeal through a review on certiorari are the same original parties to the case. as the assignee and successor-in-interest of Tan. he should be substituted by his successor-in-interest. no one is to blame but private respondent himself. the Court so holds that the same cannot and will not materially affect the legal right of herein petitioner in instituting the instant petition in view of the tenor of the deed of assignment. as represented by James Litton. whereby the waiver. Tan. assumed the responsibility to prosecute the case and to turn over to the assignee whatever amounts may be realized in the prosecution of the suit. is now appealing the said resolution to this Court as assignee of the amount sued in Civil Case No. Moreover. Sr. We note that private respondent moved for the dismissal of the appeal without notifying the estate of George Litton. Well-settled is the rule that a real party-in-interest is a party entitled to the avails of the suit or the party who would be injured by the judgment. 2085. 19 We see the petitioner well . particularly paragraph two thereof 17 wherein the assignor. In this case. As mentioned earlier. Mendoza. The alienation of a litigatious credit is further subject to the debtor's right of redemption under Article 1634 of the Civil Code.

In this case. Sr. petitioner seeks to set aside the said compromise on the ground that previous thereto. Sr. private respondent herein is the president of C. his contention that he is not aware of the said deed of assignment deserves scant consideration from the Court. involving the same litigated credit.. citing Article 1634 of the Civil Code. Products is one of the defendants and the parties were notified through their counsel. 22 Although it is true that Tan may validly alienate the litigatious credit as ruled by the appellate court. the alienation of the litigated credit made by Tan in favor of private respondent by way of a compromise agreement does not bind the assignee. Sr. 24 the debtor has a corresponding obligation to reimburse the assignee. 25 As earlier mentioned. as observed by the appellate court. been fully aware of the deed of assignment executed by Tan in favor of Litton.The purpose of a compromise being to replace and terminate controverted claims. Private respondent acted in bad faith and in connivance with assignor Tan so as to defraud the petitioner in entering into the compromise agreement.M. Litton. The Court rules that the said provision should be read in consonance with Article 2097 of the same code. We rule for the petitioner. Failing in this. Moreover.B. as said deed was duly submitted to Branch XI of the then Court of First Instance of Manila in Civil Case No. petitioner herein. .M. in the light of the fact that no reimbursement has ever been made in favor of the assignee as required under Article 1634. 56850 (in relation to Civil Case No. Having such knowledge thereof. Q-8303) where C. Petitioner pointed out at the same time that private respondent together with his counsel were served with a copy of the deed of assignment which allegation remains uncontroverted. private respondent is estopped from entering into a compromise agreement involving the same litigated credit without notice to and consent of the assignee. 20 courts encourage 21 the same. will not in any way alter the resolution on the matter. A compromise once approved by final order of the court has the force of res judicata between parties and should not be disturbed except for vices of consent or forgery. Sr. More so. Products. said provision should not be taken to mean as a grant of an absolute right on the part of the assignor Tan to indiscriminately dispose of the thing or the right given as security. Litton. Tan executed a deed of assignment in favor of George Litton. Our examination of the deed of assignment shows that it fulfills the requisites of a valid pledge or mortgage. Sr. hence. the pledge being valid. a painstaking review of the record of the case reveals that private respondent has. did not ipso facto become the creditor of private respondent Mendoza. Sr. under Article 1634. or his duly authorized representative. 23 Although the pledgee or the assignee. To allow the assignor to dispose of or alienate the security without notice and consent of the assignee will render nugatory the very purpose of a pledge or an assignment of credit. Indeed. the incorporeal right assigned by Tan in favor of the former can only be alienated by the latter with due notice to and consent of Litton. petitioner herein. The fact that the deed of assignment was done by way of securing or guaranteeing Tan's obligation in favor of George Litton. for the price he paid or for the value given as consideration for the deed of assignment. The validity of the guaranty or pledge in favor of Litton has not been questioned. from the very beginning.B.

JULIA R.. affirming in toto the decision of the lower court. vs. NATIVIDAD and GENOVEVA R. and VIDAL ESPELETA. DRA. The facts. This decision is immediately executory. follow.: The assailed decision of the Court of Appeals took off on the premise that pledged shares of stock auctioned off in a notarial sale could still be redeemed by their owners. The assailed resolution of the respondent court dated August 30. and we thus reverse. the said compromise agreement being null and void. MIGUELA R. of shares of stock in a corporation known as the Quirino-Leonor-Rodriguez Realty Inc. DOLORES SOBERANO assisted by her husband JOSE SOBERANO. No motion for extension of time to file a motion for reconsideration will be granted. DECISION TINGA. Petitioners. as culled from the record. JR.1977 is hereby SET ASIDE. respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray ("Parays") the payment of certain loan obligations. SPOUSES BONIFACIO and FAUSTINA PARAY. SORONIO assisted by her husband ALFONSO SORONIO. This notion is wrong.1 Sometime during the years 1979 to 1980. SR. J. and a new one is hereby rendered reinstating its decision dated January 27. the petition is GRANTED.. in their respective personal capacities. Respondents were the owners.WHEREFORE. SO ORDERED. Respondents. 1977. ABDULIA C. The shares pledged are listed below: . GENEROSO. JARIOL assisted by her husband ANTOLIN JARIOL. RODRIGUEZ. TERESITA R. LEONORA NOLASCO assisted by her husband FELICIANO NOLASCO.

Soberano…. Nolasco ….1. Genoveva Soronio…. 699 shares covered by Stock Certificates No. 061 & 062. 022 & 097. 025.. 407 shares covered by Stock Certificates No. 060. 300 shares covered by Stock Certificates No. 023 & 093. Dolores R. 011.. Abdulia C.100 shares covered by Stock Certificates . Rodriguez …. Julia Generoso …. 091 & 092. 699 shares covered by Stock Certificates No. 1. 053.000 shares covered by Stock Certifi- cates No. 059 & 099. 021. Leonora R.Miguel Rodriguez Jariol ….

277. 085. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction on 4 November 1991. Teresita Natividad…. which were consolidated and tried before RTC Branch 14.No.. However the RTC. Nolasco …. 440 shares covered by Stock Certificates Nos. all of respondents caused the consignation with the RTC Clerk of Court of various amounts..66 . However. sought the declaration of nullity of the pledge agreements."4 This decision attained finality after it was affirmed by the Court of Appeals and the Supreme Court. 1991 Genoveva R. 086 & 084. The deposited amounts were as follows: Abdulia C. It was claimed that respondents had attempted to tender these payments to the Parays. Soronio … 425. but had been rebuffed. 14 Oct... before the scheduled date of auction. The Entry of Judgment was issued on 14 August 1991. 14 Oct. Cebu City. respondents filed complaints with the Regional Trial Court (RTC) of Cebu City.066. in its decision3 dated 14 October 1988. 051. dismissed the complaint and gave "due course to the foreclosure and sale at public auction of the various pledges subject of these two cases. 1991 Leonora R.353. The actions. 14 Oct.50 . 1991 .82 . Rodriguez.381. among others. 054 & 0552 When the Parays attempted to foreclose the pledges on account of respondents‟ failure to pay their loans.. P 120.

1991 Miguela Jariol …. CEB-10926.. docketed as Civil Case No. 1991 Teresita R. The complaint.200.61.. 1991 520. 1991 Dolores R. 264.00 .000. Natividad ….00. . Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the concluded public auction.00 for all of the pledged shares.11 Nov.00 . the public auction took place as scheduled. 19915 Notwithstanding the consignations.00 ..39 .375. 14 Oct. with petitioner Vidal Espeleta successfully bidding the amount of P6. 1991 Julia R... Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts. R-20120 and 20131. 18 Oct.031. Generoso ……. None of respondents participated or appeared at the auction of 4 November 1991.44 . 638.216. Petitioners countered that the auction sale was conducted pursuant to the final and executory judgment in Civil Cases Nos.385.18 Oct... was assigned to Branch 16 of the Cebu City RTC.000. 490. Soberano ….38. 25 Oct. 11 Nov. 25 Oct.385... and that the tender of payment and consignations were made long after their obligations had fallen due. 12.000. 1991 88.

as if respondents were exercising such right. Petitioners now argue before this Court that they were authorized to refuse as they did the tender of payment since they were undertaking the auction sale pursuant to the final and executory decision in Civil Cases Nos. They point out that the amounts consigned could not extinguish the principal loan obligations of respondents since they were not sufficient to cover the interests due on the debt. which did not authorize the payment of the principal obligation by respondents. it was observed that the minutes of the auction sale should have specified in detail the bids submitted for each of the shares of the pledgors for the purpose of knowing the price to be paid by the different pledgors upon redemption of the auctioned sales of stock. ruling that the consignations extinguished the loan obligations and the subject pledge contracts. R-20120 and 20131. that the buyer at public auction does not ipso facto become the owner of the pledged shares pending the lapse of the one-year redemptive period. the Court of Appeals made three crucial conclusions favorable to respondents: that their act of consigning the payments with the RTC should be deemed done in the exercise of their right of redemption. They likewise argue that the essential procedural requisites for the auction sale had been satisfied. The attempts at payment by respondents were characterized as made in the exercise of the right of redemption. In that perspective.8 Most crucially. Thus. The Court of Appeals likewise found fault with the auction sale. and that the collective sale of the shares of stock belonging to several individual owners without specification of the apportionment in the applications of payment deprives the individual owners of the . expressing agreement with the position of the Parays. holding that there was a need to individually sell the various shares of stock as they had belonged to different pledgors.The Cebu City RTC dismissed the complaint.7 The Court of Appeals Eighth Division however reversed the RTC on appeal. among others that respondents had failed to tender or consign payments within a reasonable period after default and that the proper remedy of respondents was to have participated in the auction sale. The fundamental premise from which the appellate court proceeded was that the consignations made by respondents should be construed in light of the rules of redemption. We rule in favor of petitioners. the appellate court chose to uphold the sufficiency of the consignations owing to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws. and the auction sale of 4 November 1991 as null and void.6 It held.

However. Preliminarily. and not those made or attempted to be made. extrajudicial sale was stayed with the filing of Civil Cases No. as propounded by the Court of Appeals. before the foreclosure sale. which sought to annul the pledge contracts. and – (1) Declaring the various pledges covered in Civil Cases Nos. A pledge contract is an accessory contract. it must be clarified that the subject sale of pledged shares was an extrajudicial sale. involving the right of redemption over pledged properties. if the credit has not been satisfied in due time. R-20120 and 20131. Nonetheless. The final and executory judgment in those cases affirmed the pledge contracts and disposed them in the following fashion: WHEREFORE. is to proceed before a Notary Public to the sale of the thing pledged. as in this case. The right of redemption involves payments made by debtors after the foreclosure of their properties. The proper focus of the Court of Appeals should have been whether the consignations made by respondents sufficiently acquitted them of their principal obligations.opportunity to know of the price they would have to pay for the purpose of exercising the right of redemption. R-20120 and R-20131 valid and effective. without intervention by the courts. and is necessarily discharged if the principal obligation is extinguished. petitioners attempted as early as 1980 to proceed extrajudicially with the sale of the pledged shares by public auction. We have no hesitation in pronouncing such theory as discreditable. judgment is hereby rendered dismissing the complaints at bar. as distinguished from a judicial sale as typified by an execution sale. the Court is now confronted with this rather new fangled theory.9 In this case. The appellate court‟s dwelling on the right of redemption is utterly off -tangent. All the creditor needs to do. the foreclosure of a pledge occurs extrajudicially. and . Under the Civil Code. specifically a notarial sale. premises considered.

Yet. may be redeemed by the creditor after being sold at public auction. extrajudicial in character. SO ORDERED. as affirmed by the Civil Code. such declaration could not detract from the fact that the sale so authorized is actually extrajudicial in character. who could very well choose not to hold the sale without violating the final judgments in the aforementioned civil cases.10 The phrase "giving due course to the foreclosure and sale at public auction of the various pledges subject of these two cases" may give rise to the impression that such sale is judicial in character. but instead upheld the right of the Parays to conduct such sale at their own volition. But nothing in the dispositive portion directed the sale at public auction as a mandatory recourse. as a fundamental . The Court of Appeals expressly asserted the notion that pledged property. Note that the final judgment in said cases expressly did not direct the sale by public auction of the pledged shares.11 the decision to proceed with the sale by public auction remains in the sole discretion of the Parays. the Parays would have no choice but to stage the sale for then the order directing the sale arises from judicial compulsion.(2) Giving due course to the foreclosure and sale at public auction of the various pledges subject of these two cases. The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales. by virtue of the Civil Code. While the decision did authorize the sale by public auction. and properly so since the sale of pledged property in public auction is. Costs against the plaintiffs. If the sale were truly in compliance with a final judgment or order. necessarily personal in character. Indeed. more precisely execution sales of real property.

hence the Court can affirm this decades-old ruling as effective to date.º v. the Court of Appeals had no business invoking and applying the inexistent right of redemption. sold on execution. after the sale of property on execution. . The said law does not extend the same benefit to personal property. or somehow construed as having been made in the exercise of the right of redemption. which. does the right of redemption exist over personal property? No law or jurisprudence establishes or affirms such right. The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally. Obviously. not subject to the right of redemption. since there is no right to redeem personal property. And Section 39 of the 1997 Rules of Civil Procedure. 1508.12 The right of redemption over mortgaged real property sold extrajudicially is established by Act No. In Sibal 1. not personal properties. Indeed. no such right exists. since the debtor enjoys the one-year redemptive period to redeem the property. Valdez.14 No countervailing statute has been enacted since then that would accord the right of redemption over personal property. it is a bare statutory privilege to be exercised only by the persons named in the statute. ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal property. or the Chattel Mortgage Law. Neither is it predicated on proprietary right. and thus. leaves the judgment debtor and vests in the purchaser. the rights of ownership vested unto the purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period. Instead. but the statute is definitely silent on the point. as early as 1927. since that law governs the extrajudicial sale of mortgaged personal property. 3135.matter. We also must reject the appellate court‟s declaration that the buyer of at the public auction is not "ipso facto" rendered the owner of the auctioned shares. In fact. rejected the proposition that personal property may be covered by the right of redemption. starkly utters that the right of redemption applies to real properties.13 the Court ruled that sugar cane crops are personal property. as amended. Act No. there is no law in our statute books which vests the right of redemption over personal property. this Court. Since the pledged shares in this case are not subject to redemption. We cannot thus agree that the consigned payments should be treated with liberality. extensively relied upon by the Court of Appeals. Tellingly.

none of the pledgors participated in the auction. bidding only on their respective pledged shares. such as in the case of lot sales for real property under Section 19. Clearly. The question though yet remains whether the consignations made by respondents extinguished their . Moreover. the theory adopted by the Court of Appeals is in shambles. This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place.The Court of Appeals also found fault with the apparent sale in bulk of the pledged shares. in this case. these instances again pertain to execution sales and not extrajudicial sales. under the Civil Code. it is the pledgee. a bidder expressed the desire to bid on a determinate number or portion of the pledged shares.16 A different ruling though would obtain if at the auction. or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. No provision in the Rules of Court or in any law requires that pledged properties sold at auction be sold separately. since no matter how slight or significant the value of the purchase price for the individual share is. The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction. on the premise the pledgors would be denied the opportunity to know exactly how much they would need to shoulder to exercise the right to redemption. who is given the right to choose which of the items should be sold if two or more things are pledged. notwithstanding the fact that these shares were owned by several people. On the other hand. and the sole bidder cast his bid for all of the shares. the sale is completed. with the pledgor and the pledgee not entitled to recover the excess or the deficiency. The same situation also would lie if one or some of the owners of the pledged shares participated in the auction. To invalidate the subject auction solely on this point serves no cause other than to celebrate formality for formality‟s sake. However. and cannot be resurrected. There obviously is no longer any practical reason to apportion the bid price to the respective shares. In such a case. since not all of the shares may be sold at the auction and correspondingly not all of the pledge contracts extinguished. and not the pledgor. neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal obligation. there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion. there may lie the need to ascertain with particularity which of the shares are covered by the bid price. However.15 No similar option is given to pledgors under the Civil Code. Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately. as the case may be.

but also the 5% monthly interests thereon. Before this Court. the right of the pledgee to foreclose the pledge is also established under the Civil Code. on the other hand. they were not sufficient to cover the interests due on these loans. They are mistaken. respondents. unless and until he has paid the debt and its interest. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor. With that in mind. This is because for sometime now. challenges this interest rate as "usurious. the creditor may proceed with the sale by public auction under the procedure provided under Article 2112 of the Code. the 5% monthly interest rate was noted in the statement of facts in the 14 October 1988 RTC Decision which had since become final."17 The particular pledge contracts did not form part of the records elevated to this Court. Petitioners point out that while the amounts consigned by respondents could answer for their respective principal loan obligations. Soberano.‟"18 The finality of this 1988 Decision is a settled fact. the said decision pronounced that even assuming that the interest rates of the various loans were 5% per month. At the same time. and thus the time to challenge the validity of the 5% monthly interest rate had long passed. usury has become „legally inexistent. "it is doubtful whether the interests so charged were exorbitantly or excessively usurious. which were pegged at the rate of 5% per month or 60% per annum. Respondents argue that their various consignations made prior to the auction sale discharged them from the loan and the pledge agreements. When the credit has not been satisfied in due time. do not contest this interest rate as alleged by petitioners. there is no reason for the Court to disagree with petitioners that in order that the consignation could have the effect of extinguishing the pledge contracts. the pledges should be terminated as well. such amounts should cover not just the principal loans. Article 2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid. save for Dolores Soberano. . However.respective pledge contracts in favor of the Parays so as to enjoin the latter from auctioning the pledged shares. Moreover. There is no doubt that if the principal obligation is satisfied.

and even if it were applicable.21 Under the circumstances. we cannot help but observe that respondents may have saved themselves much trouble if they simply participated in the auction sale. all respondents can recover is the amounts they had consigned. That respondents failed to avail of this beneficial resort wholly accorded them by law is their loss. since the creditor would be unable to recover any deficiency from the debtors should the sale price be insufficient to cover the principal amounts with interests. Certainly. Branch 16." The reference is inapropos. Now. and not extra-judicial sales. the provision applies only to execution sales. SO ORDERED. Rule 39. the petition is GRANTED.It bears noting that the Court of Appeals also ruled that respondents had satisfied the requirements under Section 18. had respondents participated in the auction. the failure of the payment to cover the interests due renders it insufficient to stay the sale. as they are permitted to bid themselves on their pledged properties. The effect of the finality of the judgments in Civil Cases Nos. but also by a final court judgment. R-20120 and R-20131 should also not be discounted.19 However.20 Moreover. respondents were even placed in a favorable position by the pledge agreements. WHEREFORE. as evidenced by the use of the phrases "sale of property on execution" and "judgment obligor. with the high interest payments that accrued after several years. dated 18 November 1992 is REINSTATED. The assailed decision of the Court of Appeals is SET ASIDE and the decision of the Cebu City RTC. . which provides that the judgment obligor may prevent the sale by paying the amount required by the execution and the costs that have been incurred therein. Petitioners‟ right to proceed with the auction sale was affirmed not only by law. there would have been a chance for them to recover the shares at a price lower than the amount that was actually due from them to the Parays. Costs against respondents. Finally. they would have had a better right had they matched the terms of the highest bidder. Any subsequent court ruling that would enjoin the petitioners from exercising such right would have the effect of superseding a final and executory judgment.

CARPIO Associate Justice Asscociate Justice ATTESTATION CONCHITA CARPIO-MORALES I attest that the conclusions in the above Decision had been in consultation before the case was assigned to the writer of the opinion of the Court‟s Division. QUISUMBING Associate Justice Chairman ANTONIO T. TINGA Associate Justice WE CONCUR: LEONARDO A.DANTE O. Third Division . QUISUMBING Associate Justice Chairman. LEONARDO A.

who subleased the same to the Angelo Leonar Enterprises & Co. originally encompassed in plaintiff-appellee's TCT No. On January 17. PANGANIBAN Chief Justice PACIENCIA VIZCONDE SERRANO. HONORABLE COURT OF APPEALS. T-438 (Exh. GUTIERREZ.CERTIFICATION Pursuant to Section 13. LEOCADIO MACARAYA and MAXIMO C. FERNANDEZ. tsn. D). vs. it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court‟s Division.. Inc.: This is a case which involves the true nature of the purported contract of sale executed by petitioner Paciencia Vizconde Serrano in favor of private respondent Leocadio Macaraya. with one Lorenzo Tan. Article VIII of the Constitution. Gregorio Batiller for private respondent. J. petitioner.000. in actual possession thereof for a monthly rental of P500. to expire last January 1971... 1969. 41-42). ARTEMIO V. Serrano executed a notarial document (Exh. 1) Mrs.00. The background tacts were summarized by the then Court of Appeals as follows: The litigated realty is more or less 384 square meters situated in the municipality of Mati. JR. and the Division Chairman‟s Attestation.. Serrano was given by Macaraya two months therefrom to repurchase her property during which period she was allowed to collect the monthly rentals. and pending the determination of the exact amount thereof by the Municipal Treasurer of Mati. Mrs. Macaraya had his . respondents. A) purporting to convey the said realty by way of absolute sale to defendant Leocadio Macaraya for the price of P12. then under lease. Guillermo Jumamil and Tanjili Law Office for petitioner.(1. Serrano did not re-purchase The property in question was burdened with unpaid taxes which had accumulated for many years.00. Mrs. Davao Province. Thereafter rentals were collected by Macaraya himself. In a separate private document of even date (Exh.

Thereafter. respondents Macaraya and Fernandez denied the imputation of fraud and insisted upon the regularity of the assailed transactions.000. a complaint against respondents Leocadio Macaraya and Maximo Fernandez for declaration of nullity of contract. which was a mere transaction of loan in the amount of P12. 2-A).ownership rights in TCT No. 1969. On October 21.00.00 and that the difference of P2. Leocadio and Dorotea. She alleged that the contract of sale between her and Macaraya was fictitious and simulated.00 was added to the consideration to conceal the usurious monthly interest of P1. Fernandez against the lessee Angelo Leonar Enterprises & Co.41 (Exh. Fernandez and to re-issue a new one in lieu thereof in the name of PACIENCIA VIZCONDE SERRANO. Macaraya paid the tax arrearages in its entirety. 2) The Register of Deeds of Davao Oriental to cancel Transfer Certificate of Title T15789 in the name of Maximo C.000. F) was consequently issued in his name. jointly executed a deed of absolute sale (Exh. Serrano was duly notified on even date (Exh. E & 2) of which fact Mrs. 15704 (Exh. who never attended trial but sent his deposition. and 3) Defendants to pay moral damages in the sum of P2. On May 29. TCT No. the trial court's decision was totally reversed in the following manner: . There is now pending in the Municipal Court of Mati. 1969.00. cancellation of titles. She averred that it did not reflect their true agreement. attorney's fees in the sum of P1.000. judgment is hereby rendered in favor of the plaintiff. She claimed to be a victim of fraud perpetrated by Macaraya and Fernandez. Transfer Certificate of Title No. 3). 1971.000. the lower court rendered the following decision: WHEREFORE. lodged by Maximo C. in the total amount of P 760.) the P20.00. 1969. the sale to Macaraya was registered and on October 3. Davao Oriental ejectment case No. 1969 (Exhs. On the other hand. On September 29. T-15789 in the name of Maximo C. Fernandez. including surcharges. Branch X. claimed good faith in purchasing the property in question and denied knowledge of any flaw in the title of Macaraya. G). petitioner Serrano filed with the then Court of First Instance of Davao Oriental. H) of the said property to Maximo C.000. for the period of 11 years from 1958 to 1969.00 and the costs of the suit. reconveyance and damages. Fernandez. the Macaraya spouses.00 consideration therefor was applied as partial payment for the Macaraya's outstanding indebtedness to the vendee Fernandez who was consequently issued TCT No. 366. Fernandez. ordering: l) Defendants to surrender to the Register Deeds of Davao Oriental. On April 18. 1970.000. On appeal to the Court of Appeals.000. T15789 (Exh. She further alleged that she actually received only P10. inclusive. which transaction was in effect one of (dacion en pago. T-438 on September 12. In the meantime that the present litigation has not been resolved with finality the parties in the said ejectment case agreed to have the monthly rentals deposited as they fall due in the said municipal court.

therefore. would be of no moment and cannot adversely affect the rights of the said defendant-transferee. the property subject of the conflict has been transferred to a third person. The title certificate TCT No. the nullity of Exhibit "A". On February 23. The Court of Appeals held that "the Deed of Sale" Identified as Exhibit "A" is really a contract of sale with all the required legal formalities and therefore has in its favor the presumption of regularity and nothing but the most convincing evidence will prevail in order to overthrow its probative value with respect to the transactions recorded therein.IN VIEW OF ALL THE FOREGOING CONSIDERATIONS. 1976. IV THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PRESUMPTION OF GOOD FAITH WAS NOT OVERCOME BY PETITIONER AND IN DECLARING THAT RESPONDENT FERNANDEZ HAS A VALID TITLE OVER THE LITIGATED PROPERTY. The motion was denied in a resolution dated January 19. This motion was denied by the Court of Appeals in its resolution dated April 19. Fernandez is hereby declared valid and consequently he is likewise declared the absolute owner of the herein litigated property. and. FERNANDEZ) IN ITS DECISION CONTRARY TO LAW. On November 26. the decision appealed from is set aside and the complaint dismissed. Fernandez. the other defendant Maximo C. T-15789 of defendant-appellant Maximo C." The appellate court stated that even if Exhibit "A" is void. the petitioner filed a motion for reconsideration and rehearing of the decision of the Court of Appeals. Petitioner Serrano went to this Court in a petition for certiorari with the following assignments of errors: I THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN HOLDING THAT EXHIBIT "A" WAS REALLY A CONTRACT OF SALE WITHOUT CONSIDERING EXHIBIT "I" AND OTHER CIRCUMSTANCES. 1977. III THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING DEPOSITION (EXHIBIT 1. the petitioner filed with the same court a motion for new trial based on newly discovered evidence which would prove that respondent Fernandez was not a buyer in good faith. V . 1977. II THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT EXHIBIT "A" TOGETHER WITH EXHIBIT "I" IS A PACTO DE RETRO SALE AND CONSEQUENTLY ERRED IN NOT ALLOWING PETITIONER TO REPURCHASE THE LITIGATED PROPERTY ACCORDING TO LAW. 1977.

they should not be applied in a very rigid and technical sense. Court of Appeals. We note that the respondents have deducted the number of days between the petitioner's notice of the decision and the date she filed a motion for reconsideration from the number of days given her to come to us on a petition for review or to take such other action before judgment becomes final and executory. De Jesus. In a number of cases. such a petition usually embodies justifying circumstances which warrant our heeding the petitioner's cry for justice. Director of Forestry. (100 Phil. Jr. People of the Philippines. The respondents err in their mode of computing the period before finality of judgment. not to defeat substantial justice. 121 SCRA 287. the conclusions of the Court of Appeals on factual matters are contrary to those of the trial court. this Court in the exercise of equity jurisdiction decided to disregard technicalities in order to resolve the case on its merits based on the evidence. Co. It bears repeating that rules of procedure are not to be applied rigidly (Tan v. et al. This Court has ruled in Shell Co. Was the contract entered into between petitioner Serrano and respondent Macaraya an absolute sale as found by the Court of Appeals or an equitable mortgage as alleged by the petitioner? The records show that the contract between the parties was actually a deed of sale pacto de retro which was made to appear as an absolute deed of sale. In the case at bar. N. Court of Appeals (106 SCRA 630. Even as respondents Macaraya and Fernandez urge this Court to affirm the Court of Appeals decision on its merits. 69 SCRA 360. of Newark. Cleofas. Inc. this Court may relax the stringent application of technical rules in the exercise of our equity jurisdiction. Court of Appeals. J. (Gregorio v. A minute scrutiny by this Court is in order and resort to duly proven evidence becomes necessary (Legaspi v. 125 SCRA 302). v. The 15-day period starts anew from the notice of the motion's denial.THE HONORABLE COURT OF APPEALS ERRED IN DENYING PETITIONER'S MOTION FOR RECONSIDERATION AND REHEARING AND THE SUBSEQUENT MOTION FOR NEW TRIAL WITHOUT VALID GROUNDS STATED THEREIN. are intended to promote. 72 SCRA 120 [1976]) Rules of procedure. 112 SCRA 573). 56 SCRA 167). they raise as a preliminary issue the timeliness of the filing of the petition. v. Ltd. Helmuth. of the Phils. Peter Memorial Park. and Tolentino v. These 15 days do not include the number of days that lapse from notice of judgment to the filing of the motion for reconsideration.) that: . 637): Dismissal of appeals based on purely technical grounds is frowned upon as the policy of the Courts is to encourage hearing of appeals on the merits. where strong considerations of substantial justice are manifest in the petition. and therefore. As we ruled in the case of Calasiao Farmers Cooperative Marketing Association. v. In addition to the basic merits of the main case. (See St. v. Section I of Rule 45 of the Rules of Court gives a party 15 days from the denial of a motion for reconsideration by the appellate court to come to the Supreme Court. 757. And even assuming that a petition for review is filed a few days late. inspite of the earlier negligence of counsel. Our examination of the records of this case shows that the arguments on this issue have no merit. Firemen's Ins. Inc.

That a transaction was really one of loan with security. The difficulty lies in its application. . We stated: There is one important factor that differentiates the Villarica case from the instant petition. in fact. the intent of the parties to circumvent the provision discouraging pacto de retro sales is very apparent in the instant case. The two contracts. On the same date Macaraya executed an Undertaking" giving the vendor the right to repurchase the lot within two months from date. . and notarized on the same day. Court of Appeals (26 SCRA 189). only one transaction of sale pacto de retro which must be construed as an equitable mortgage. Court of Appeals (130 SCRA 245). The option to buy in Villarica case was interpreted to be only an afterthought. should there be a controversy as to what they really had intended to enter into. the intent to circumvent the Civil Code provision discouraging pacto de retro sales is very apparent. may be shown by the aid of surrounding circumstances. 1602. the former must prevail over the latter. Significantly. Lagura who signed as witness to the deed of absolute sale was also a witness to the undertaking. Since the sale of the lot was one of pacto de retro. in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate.. As stated in Capulong v. This rule has been accepted for many generations. but each to be considered in its company. but the way the contracting parties do or perform their respective obligations stipulated or agreed upon may be shown and inquired into. The document granting the vendors therein an option to buy back the property was executed six (6) days after the execution of the deed of sale whereas in the instant case the option to buy was embodied in a document executed at the same time that the questioned deed of sale was executed. The contract shall be presumed to be an equitable mortgage. On the other hand. The respondent court should have seen through a transparent effort to make it appear that the two transactions were not intimately related but distinct and separate as in the Villarica case. none of them conclusive in itself. for many factors are to be considered. signed. The Civil Code provides: ART. In the instant case. the question before us now is whether or not it should be treated as an equitable mortgage. (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed. This should have put the court on guard considering the other circumstances of the case from which no other conclusion could be derived except that the deed of absolute sale and the document giving the right to repurchase were. In the Capulong case. we distinguished between these types of contracts and the contract in Villarica v.To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties. the same Elpidia C. 59-60 [1943]). (1 Glenn. the petitioner was made to execute a document entitled "Deed of Absolute Sale" in favor of respondent Macaraya. the deed of sale and the document embodying the option to repurchase were prepared. Mortgages. and therefore a mortgage. and parol evidence is competent in that respect. (2) When the vendor remains in possession as lessee or otherwise. and should such performance conflict with the name or title given the contract by the parties..

we also note that respondent Macaraya had not been consistent in rebutting the allegation that the petitioner had paid him P1. What was admitted in the pleadings and testimonies of both parties was the fact that petitioner Serrano "needed the money.00 inadequate for a 384 square meter lot in the poblacion of Mati. but to answer a present emergency. Fernandez was not a purchaser in good faith. however.000. There was no showing of any reasons why the value of the lot appreciated so rapidly. The trial court stated in its decision that it had serious doubts on the authenticity of the deed of sale executed by Macaraya in favor of his co-respondent Maximo C. Lacuesta (86 SCRA 16). offered to respondent Macaraya their willingness to purchase the same lot for P30.00. The last issue refers to the petitioner's allegations that respondent Maximo C. ART. This Court finds it strange that respondent. the petitioner and supposed vendor in an absolute sale has retained possession of the disputed property. 1604. the lessee of the subject property for at least six months after the execution of the contract of sale dated January 17. The appellate court. (5) When the vendor binds himself to pay the taxes on the thing sold.000. p. 1603. fruits. In any of the foregoing cases. Inc. a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. brushed aside the contentions that Fernandez was a mere dummy in a simulated sale and ." In Labasan v. — 13) thus: Necessitous men are not.000.000. (Exhibit "4"). it was transferred to respondent Fernandez (Exhibit H) who admitted that it was good bargain. this Court quoted the Lord Chancellor in Vernon v. truly speaking.(4) When the purchaser retains for himself a part of the purchase price. The records also show that on June 2. or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. will submit to any terms that the crafty may impose upon them. 1969 (2 tsn. any money. Inc. It was also admitted by respondent Macaraya that petitioner Serrano continued receiving rentals from Angelo Leonar Enterprises. ART. Macaraya would allow petitioner Serrano to receive the fruits of the subject property several months after he acquired absolute ownership of the same. for a consideration of P20.00. As of the filing of the petition and presumably up to the present. (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Fernandez. Davao which the trial court found to be "a very valuable piece of commercial property." This conclusion is supported by the fact that barely ten months after the questioned transaction between the petitioner and respondent Macaraya.00 monthly as interest for the amount loaned." In the trial proceedings below. This is contrary to the principle of ownership. In case of doubt. free men. the Angelo Leonar Enterprises.. 24). The provisions of article l602 shall also apply to a contract purporting to be an absolute sale. We find the amount of P12. 1970 or another seven months later. The collection of rentals ceased only when respondent Fernandez sued the lessee for ejectment and the rentals were subsequently ordered to be deposited in the municipal court of Mati pending the resolution of this case. Bethell (2 Eden.

00 lot to Fernandez. whether or not the land was really worth that much or that it even existed.00 in 1969. We sustain the factual finding of the trial court. 1969. The petitioner wanted to introduce into the records the certification of the Talisay. 15704 was already registered in the Registry of Davao in the name of Fernandez.ruled that the presumption of good faith was not overcome by clear cut and positive evidence to the contrary. He never bothered to find out what was sold to him for P20. Colon Street was introduced in evidence by the respondents. It took Macaraya until October 3. the petition is hereby GRANTED. a poor tailor. T-15789 in the name of Maximo C. manifested intense interest in the outcome of the same so much so that no one will doubt that he is indeed and truly the owner of the lot in question. Davao Oriental and he has never seen the lot sold to him by Macaraya. as "partial payment" for the Macaraya's outstanding indebtedness to the vendee. Two days later.000. Fernandez was then a 64-year old man who worked as a tailor for a living. The decision of the Court of Appeals is REVERSED and SET ASIDE. who has from the inception of this case. who appear to be well to do. The deed of sale in favor of Fernandez was executed in Cebu City on October 21. Cebu. Transfer Certificate of Title No. The contract between the petitioner and Leocadio Macaraya being one of equitable mortgage. 1969. who was all the time in Cebu. The court stated: It was the defendant Macaraya. Fernandez is ordered CANCELLED and a new one issued in the petitioner's name. It is also highly unusual that the transaction between Macaraya and Fernandez involved no transfer of money. He lives in San Roque. The records show that the deed of sale was executed by petitioner Serrano in favor of Macaraya on January 17. "sold" the P20. Fernandez did not appear at the trial. the new title. The fifth assignment of error questions the respondent court's denial of the petitioner's motion for rehearing or new trial. Maximo C. There is more than enough evidence in the records to affirm the trial court's finding that Fernandez was not a buyer in good faith. Talisay. October 23. The Macarayas. TCT No. WHEREFORE. We see no need to pass upon this issue. His deposition taken in Cebu City at the Macaraya Building. The trial court emphasized in its decision that the supposed buyer in good faith and current owner never showed the slightest interest in the litigation involving the cancellation of his title and the reversion of the lot he purchased from Macaraya to the original vendor.000. 1969. 1969 to have the transfer certificate of title — T15704 — registered in his name. Fernandez admitted that he has never been to Mati. . The sale was allegedly one of dacion en pago. Cebu treasurer that respondent Fernandez has no property listed in his name in that municipality and the certification of the Bureau of Internal Revenue Regional Director for Central Visayas that respondent Fernandez did not file any income tax returns for the years 1968 through 1972. SO ORDERED.

Antonio Gonzalez for defendant-appellant. 1926. being desirous of obtaining a further loan upon the same and other jewels. 30569). the judgment was affirmed for failure of the appellants to cause a transcript of the oral testimony to be . presented himself to the defendant Chua A. As a consequence Lee asked for judgment against Cruz in the amount of P6. for which the plaintiff executed a receipt containing words to the effect that the amount of P3. CHUA A.020. The tickets which form the principal feature in these two pledges represented a pair of diamond earrings previously pledged to Ildefonso Tambunting for P7. J. although an attempt was made to get the decision reviewed in the Supreme Court. All of these tickets were renewable. Lee filed a complaint against Cruz in the Court of First Instance of Manila (case No. defendant-appellant. receiving therefor twelve pawn tickets showing the terms upon which the articles pledged were held by the pledges. It appears that prior to June 10. H. STREET. was never exercised by him.CORNELIO CRUZ and CIRIACA SERRANO. Lee. 1926. One week thereafter Cruz again presented himself at the place of business of Lee and received the further sum of P3.020. according to the custom of pawnbrokers. From this judgment both plaintiffs and defendant appealed. the plaintiff Cornelio Cruz had pledged valuable jewelry to two different pawnshops in the city of Manila. the Monte de Piedad and Ildefonso Tambunting. Upon hearing the cause the trial court gave judgment in favor of the plaintiffs to recover of the defendant the sum of P1. for the purpose of recovering a sum of money from the defendant Chua A.500. vs. At the same time Cruz signed a further receipt containing a stipulation that the sale of the articles pledge would become absolute unless the amount stated in the receipt should be return within sixty days. 1927. which was conceded to Cruz in the two receipt above mentioned. therein stated. in which it was allege that the receipts above mentioned had been drawn in the form of a sale with stipulation for repurchase in sixty days but it was understood between the parties that the transaction was a loan and that the jewelry and pawn tickets held by Lee constituted a mere security for the money advanced by him to Cruz.520. judgment in said action was rendered in the Court of First Instance favorably to the plaintiff and. at the same time delivering two pawn tickets of the house of Ildefonso Tambunting and four pawn tickets of the Monte de Piedad. represented the value of the bracelet and pawn tickets and that it was understood that Lee would become the absolute owner of the articles pledge if Cruz should not return said sum of money within the period of sixty days. LEE.H. with legal interest from December 16. and several other pieces of jewelry priviously pledged to the Monte de Piedad for the aggregate amount of P2.141. The right of repurchasing the jewelry.: This action was instituted in the Court of First Instance of the City of Manila by Cornelio Cruz and wife.H Lee and pledged to him six pawn tickets of the Monte de Piedad and a bracelet and the six tickets Lee delivered to the plaintiff a sum of money. plaintiffs-appellants. On the date stated the plaintiff. Gibbs and McDonough for plaintiff-appellants. namely.000. 1927. and on September 25. upon payment from time to time of the sums of money representing the interest accruing upon the debts for which the jewelry was pawned. and with costs. On March 31. representing the damages alleged to have been sustained by them from the lapsing of certain pawn tickets which they had pledged to the defendant under the circumstances hereinafter stated.

brought to said court. whether a person who takes a pawn tickets in pledge is bound to renew the ticket from time to time. he shall be entitled to recover any expenses incurred for its preservation and shall be liable for its loss or deterioration. From this it will be seen that all of the pawned jewelry was still subject to redemption when civil case No. Article 1867 contemplates that the pledgee may have to undergo expenses in order to prevent the pledge from being lost. 1927. The record does not show whether or not the earrings pawned to Ildefonso Tambunting were in fact sold after the tickets lapsed on May 12. The pawn tickets issued by the Tambunting's pawnshop on the diamond earrings were dated May 12. 1926. which reads as follows: The creditor must take care of the thing given in pledge with the diligence of a good father of a family. namely. and it is the holder who must renew the pledge. whether the present action can be maintained in view of the fact that the cause of action set out in the present complaint might have been — so the defendant supposes — used as a ground of defense or counterclaim in action No. 1926. therefore. In this connection reliance is placed by the attorney for the plaintiff upon article 1867 of the Civil Code. but it is proved that the jewelry was not forthcoming when a inquiry was made therefor by the present plaintiff with a view to redemption after judgment had been rendered in the instituted by Lee against him. and remained good for one year. if it is to be kept alive. execution in that case was suspended to wait the result of the judgment to be given in this case. and the contract of the pledge is. or premium. Although the pawn tickets issued by the Monte de Piedad expired on October 18. 1927. 1927. it is admitted that they could have been renewed or the jewelry redeemed at any time prior to actual sale at public auction. absolvable to bearer. 30569 was first called for trial on January 3. Upon this it is insisted that the trial court should sustained the plea of res judicatainterposed in this case by the defendant. but these tickets all expired on October 18. as required by the pawnbroker. The principal question requiring decision in the case before us is one of law. which is. Under section 97 of the Code of Civil Procedure the defendant is required to set up his counterclaim as a defense only in those cases where the right out of which the counterclaim arises existed at the time of the commencement of the action. and these jewels were not sold by the Monte de Piedad until in the year 1927. 1926. renewed the ten pawn tickets issued by the Monte de Piedad by paying the interest necessary to effect the renewal. and this expenses the pledgee is entitled to recover from the pledgor. But the jewelry represented by one of these pawn tickets was that thus not sold until August 10. 1928. at different dates. In applying this provision to the situation before us it must be borne in mind that the ordinary pawn ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by mere delivery of the ticket. 1 After affirmance of the judgment in the Supreme Court the cause was returned to the Court of First Instance for execution. It results that one who takes a pawn ticket in pledge acquires domination over the pledge. 1926. and were never renewed. when they were. in a case . until the rights of the pledgor are finally foreclosed. This contention is untenable for the reason that the facts which serve as the basis of the present action were not existence at the time of commencement of action No. brought in by the appraiser of the Monte de Piedad for the amount then due upon the respective jewels. From this it follows that were. having expired on May 12. It appears that the defendant Lee on August 18. and apparently the right of redemption on only one piece of jewelry had been foreclosed by sale when the decision was rendered in the same case at the end of March. The first two errors assigned in the brief of the defendant as appellant raise a question of a preliminary nature. 30569. 30569 of the Court of First Instance of Manila instituted by the present defendant against the present plaintiff. in accordance with the provisions of this code. by the payment of interest. but as a result of certain proceedings not necessary to be here recounted.

it is stated that the creditor who receives an article in pledge must bear all the expenses necessary to secure the conservation of the pledge and that the debtor is bound to reimburse him for such expenses. Droit Civil Explique. the pledge is lost by the failure of the pledgee to renew the loan.. committed no error is so holding. 16 N. Lee in the case before us in liable for the value of the securities lost by his failure to keep the pledges alive in the extent of their actual value over the amounts for which the same were pledged. To the same effect is a passage found in the pages of the French commentator Troplong. . 77). shall be lost through the negligence or inattention of the pledgee.. he is liable for the resulting damage. In commenting upon article 1867 of the Civil Code. We apprehend that it carries with it the further implication that the property. St. but as a general rule not only is it the right of the holder of collateral security to collect the money thereon and apply it to the principal debt but his duties in this respect are active and he is bound to ordinary diligence to preserve the legal validity and pecuniary value of the pledge.Y. But this controversy. was the duty of the pledgee destroyed by the fact that the pledgee had obtained a judgment for the debt of the pledgor which was secured by the pledge.net The application of the doctrine above expounded to the case in hand leads the conclusion that the defendant Chua A. because the latter. the commentator Manresa points out that the predecessor article in the Civil Code of 1851 limited itself to declaring that the creditor should take such care of the pledge thing as the good father of the family. he states that a pledgee who fails to renew at the proper time the inscription of a mortgage guaranteeing a credit will be liable for the damage resulting from its loss (opus citat. to a certain extent at least. says the learned author. he must. to wit: The rights and duties of parties to a pledge of securities for the payment of the debt may of course be fixed by agreement as to the manner in which they are to be collected. in this case.) 1awphil. wrongful act or omission on his part loss is sustained. In this case we find the following observation made by the author of the title "Pledge" in 21 Ruling Case Law. Du Gage. 427). sec. and the trial court. Nor. 30. Rep. 4426. Day (32 Am. 396. (Pledge. The duty to use the deligence of a good father of the family in caring for the pledge subsists as long as the pledge article remains in the power of the pledgee. The contract carries with it the implication that the security shall be made available to discharge the obligation': Wheeler vs. p. and if by negligence. in which it is said: As the holder of collateral security is entitled to its possession and to the extent of his interest is substantially the owner thereof.like this. In this connection we quote as follows from a monographic note appended to Griggs vs. has largely lost its interest because the authors of the Code put an end to such discussions by defining the responsibility of the creditor in a form so clear and explicit as to leave no room for doubt (Manresa. 718). H. it must be borne by him. As an illustration of the duty of the pledgee to exercise diligence in preserving the pledge. and furthermore must protect the interest of his pledgor as well as his own. In the treatise of Colin and Capitant on the Civil Law. has parted with the power to protect himself. assume the duties of the ownership. in our opinion. 428. no matter what its character. by giving the collateral security. sec. and this led to a lively controversy among the civilians concerning the consequences of the duty of conservation or safekeeping imposed upon the creditor. Newbould. The question of the extent of the duty of the pledgee in caring for the property pledged has often been discussed in connection with pledges of collatteral security. Codigo Civil.

and by virtue thereof ordered that their respective transfer certificates of title Nos. 6328 and 6329 (formerly Nos. So ordered.687. upon the property described in the transfer certificates of title Nos. Occidental Negros.56. they were adjudged in default. as estimated above. VILLAMOR. defendants-appellants. The judgment appealed from is therefore modified to the extent above indicated. there is of course to be deducted the amounts which had been advanced upon the pledges with interest thereon at the situated rate of 18 per cent per annum until the date when the offer was made by the plaintiff Cornelio Cruz in writing to redeem the jewelry. judge. The defendants demurred to the complaint on the ground that the same did not state facts sufficient to constitute a cause of action. has already recovered judgment for that amount.There remains to be considered the question of the proper valuation of the jewelry sacrificed in the manner above stated. the West Coast Life Insurance Company. plaintiff-appellee.: The instant complaint seeks the annulment and cancellation of the preliminary attachment levied by the defendant provincial sheriff of Occidental Negros on petition of the other defendant. at a conservation estimate. because the defendant. In fixing these values it must be remembered that it is not the practice of pawnshops to advance more than from thirty-five to fifty per cent of the true value upon pledges of jewels. in order to clarify the appealed decision. but he at the same time stated that they were at the time of the trial in the court below worth at least P15. J.000. and as none of them appeared at the hearing. 3220 and 1263 in the name of Go Chulian.040. and after the plaintiff had introduced his evidence.000. But it should be noted that the sum of P3. it results that the plaintiffs herein were damaged by the sacrifice of the jewelry in question in the total amount of P6. that the plaintiffs shall recover of the defendant the sum of P6. Provincial Sheriff of Occidental Negros. 1927. Again. Also. 64 and 662 of the cadastre of Murcia. Angel S. a jewelry merchant of Manila supplemented by that of the plaintiff. 3220 and 1263) of the . until the same shall be paid. belong in fee simple to the plaintiff. and Francisco Ferrer. and JOSE C. namely. as well as the bracelet of seventeen diamonds upon satisfaction of the judgment above mentioned. upon satisfaction of the judgment in civil case No. WEST COAST LIFE INSURANCE CO. vs. Gibbs and McDonough and Roman Ozaeta for appellants. that the two diamond earrings represented by the tickets issued by Tambunting's pawnshop were fairly worth P14. we are of the opinion that the jewels represented by the ten pawn tickets of Monte de Piedad were worth. TAN CHUN TIC. upon the testimony of Manuel Javier. the sum of P4. Upon liquidation of the account between plaintiffs and defendant in conformity with the suggestion above made. it is declared that the plaintiff is entitled to recover the bracelet composed of seventeen diamonds.500 which the defendant advanced to Cruz upon the pledge of the pawn tickets covering the earings must not be deducted. and we find. LOCSIN. in the prior action.687. The defendants answered with a general denial. L.000.56. It is true that Cornelio Cruz testified that these jewels cost him P11. 30569. From the values of the jewelry. Cornelio Cruz. The demurrer was overruled by M. de la Rosa. appraiser of the La Insular Pawnshop. forming the additional pledge made by the plaintiff to the defendant. Gamboa for appellee. with legal interest from December 16. Upon this point we are of the opinion that the trial court was too conservative in its estimate. without costs. the trial court rendered judgment holding that lots Nos.

with costs against the defendant. On September 15. whereby the lands mortgaged shall become the property of the creditor-mortgagee in the event of the nonpayment of the debt within the term fixed. 1925. on September 21. the deed of assignment being signed by her husband. the date on which the mortgage fell due. On the same day. of which we shall consider the fourth. and Francisco Sanchez in the Court of First Instance of Manila for the recovery from them of the sum of P24. and in its brief assigns five errors. and the debtor Go Chulian. to our mind. In the fourth assignment of error the appellant alleges that: "The trial court erred in not holding that the stipulation in the mortgage Exhibit A. Tan Chun Tic presented to the registrar of deeds of Occidental Negros an affidavit wherein he stated that the period granted to the debtor in the said mortgage had already elapsed without payment of its value (Exhibit C). and to dispose of them after the sugar-cane crop has been harvested for milling in the season of 1925-1926.200. Julio Gonzaga. The creditor may not appropriate to himself the things given in pledge or mortgage. the West Coast Life Insurance Company filed a complaint against Go Chulian. The fundamental question raised by the appellant in his fourth assignment of error refers to the validity or nullity of the pactum commissorium contained in the mortgage contract in favor of Genoveva Gamboa de Jayme. he will authorize the mortgagee to take over the aforesaid parcels of land. it being understood that if upon maturity the mortgagor shall be unable to satisfy the amount owed. On March 30. 1926. be cancelled. which fell due on March 30. attached. Antonio Jayme. in order to secure the payment of a loan of P4. September 21. This mortgage appears in Exhibit A. Genoveva de Jayme assigned and transferred her rights and actions in the mortgage contract to Tan Chun Tic. 1927. . On March 7. These articles provide: ART. The defendant West Coast Life Insurance company appealed from the judgment in due time and form. among others. Go Chulian executed a mortgage on the two parcels in question in favor of Genoveva Gamboa de Jayme. contains the following agreement: This mortgage shall fall due on March 30. the mortgage. 1926. 1925. but preserved the annotation of the preliminary attachment in favor of the West Coast Life Insurance Company. of secondary importance in this case. the ownership of the aforesaid lots being thus transferred to the mortgagee who shall then be the owner thereof in fee simple. 1926. 3220 and 1263 in the name of Go Chulian. Exhibit B. and in lieu thereof issued others in the name of Tan Chun Tic. and that the annotation of the preliminary attachment of said lots be stricken therefrom.000. in connection with the provisions of articles 1859 and 1884 of the Civil Code. or dispose of them. 1859. the rest being. 1925. is a pactum commissoriumand therefore null and void under articles 1859 and 1884 of the Civil Code. copied literally in the bill of exceptions. 1925. two parcels of land described in the transfer certificates of title Nos. The registrar of deeds then cancelled the certificates of title in the name of Go Chulian. According to said document." From the record it appears that on September 16. dispensing with expensive lawsuits. The attachment was duly recorded in the registry of deeds of Occidental Negros and annotated on the back of the proper certificates on the same date. the West Coast Life Insurance Company obtained from the court a writ of preliminary attachment by virtue of which the provincial sheriff of Occidental Negros. for value received.office of the registrar of deeds of the province.

and contrary to law. It was so held by the Supreme Court in its judgment of November 3. illicit. which. even if it be so stipulated. And with regard to the pledge. whose authority is undisputable. The non-payment of the debt within the term agreed upon does not vest the ownership of the property in the creditor. the provisions of article 1872 conferring a right to the creditor. and that the obligations arising therefrom have the force of law between the parties who must comply therewith according to the agreement. to consider it lawful with respect to the pledgee. raises the following question: "May the creditor appropriate to himself the things pledged or mortgaged. 1902. the answer cannot but be in the negative. the creditor is entitled to apply to the courts for the foreclosure of the mortgage. But in such case the creditor may demand. Any stipulation to the contrary shall be void. That agreement. pursuant to the general terms of article 1859. when it is especially no stipulated in the contract?" And he answers it in the following terms: "Some have so contended. the payment of the debt or the sale of the realty.. commenting upon article 1859 of the Civil Code. in the alienation of the property pledged. because he is only permitted to recover his credit from the proceeds of the sale at public auction of the chattels and personal property pledged not in . such an agreement would be immoral. on the ground that the contract is the law between the contracting parties. who. for article 1884 expressly provides that non-payment of the debt within the term agreed upon does not vest the ownership of the property in the creditor. Manresa. even though he may renounce. it is likewise evident that these two precepts of articles 1278 and 1091 of the Civil Code are subordinate to the provision of article 1255. which prohibits agreements contrary to law.xxx xxx xxx ART. In Mahoney vs. Cortes (15 Phil. 1884. 211). does also constitute a guaranty of the debtor which the latter cannot lose simply by the will of the former or by a stipulation which cannot be enforced in law." The same doctrine is held in this jurisdiction. provided they contain the conditions essential to their validity. 1902 is as follows: "While it is true that contracts are binding. neither can the creditor appropriate the thing pledged. The doctrine laid down by the Supreme Court of Spain in said judgment of November 3. Tuason (39 Phil. morals. 952). or public order. cannot disregard. With respect to the mortgage. the following doctrine was laid down: When an obligation secured by the mortgage of real estate becomes due. there can be no question. having in mind the precedents of our ancient law. in the absence of other conditions which may have been validly stipulated. In Perez vs. but he is not authorized to appropriate or dispose of the property in order to recover the amount due.. but in our opinion. nor can he make payment by himself and to himself for his own credit with the value of the said property. and even declares that any stipulation to the contrary shall be void. which annulled an agreement so worded. there can be no rational basis. that wherein it is stipulated that the creditor may appropriate the thing pledged as if it had been sold to him. One of said agreements would be. being void as to the mortgagee pursuant to article 1884 of that Code. whatever their form. merely because the period for the payment of the loan had lapsed. it was held: The creditor has no right to appropriate to himself the personal property and chattles pledged. in the manner prescribed by the Law of Civil Procedure. because in that case.

. in attempting to construe the agreement in question. for he is only allowed to collect the debt out of the proceeds of the sale of the effects and chattels pledged. in default of the payment of the debt. because. there exists no just or legal reason which prevents the creditor from recovering his credit from the proceeds of the effects pledged sold at a sale effected in accordance with law. nevertheless. if upon maturity the mortgagor shall be unable to satisfy the amount owed. it was stated: The pactum commissorium. inasmuch as the law has expressly established the procedure in order that the creditor may not be defrauded or deceived in his right to recover his credit from the proceeds of the chattels retained by him as a security. . The vice of nullity which vitiates the additional agreement entered into by the contracting parties authorizing the creditor to appropriate the property and effects pledged in payment of his credit does not affect substantially the principal contract of chattel mortgage with regard to its validity and efficacy. .the manner prescribed by article 1872 of the Civil Code but in that provided for in section 14 of the said Act No. The creditor has no right to appropriate the chattels and effects pledged. it refers to the debtor's power to sell said property to the said mortgagee. dealt with a contract of pledge. if the debtor could not pay his debt. which is the one in force. and to dispose of them after the According to court: ". we shall place the contract Exhibit A and the court's interpretation side by side for purposes of comparison: According to Exhibit A: . as agreed upon by the parties. for the reason that the principal contract of pledge or chattel mortgage having been perfected it can subsist although the contracting parties have not agreed as to the manner the creditor could recover his credit from the value of the things pledged. In order that this aspect of the question may be clarified. is void. what the parties agreed is and was that in case is and was that pay the debt within the period stipulated. 286). And in Puig vs. in case the debtor does not comply with his obligation. should the credit not be satisfied within the period stated in the contract. Sellner and Green (45 Phil. 1508. the property given as security would be transferred to the creditor for the amount of . And although that last two cases cited. or to make payment to himself and by himself of his credit with the value thereof. whereby the thing pledged shall become the property of the creditor in the event of the non-payment of the debt within the term fixed. gives it such an interpretation that instead of said stipulation referring to the creditor's right to appropriate to himself the mortgaged property. in case of the insolvency of the debtor. . he will authorize the mortgage to take over the aforesaid of land. But the judge who decided the case. the doctrine is also applicable to contracts of mortgage which include the stipulation referred to. that is. . since the prohibition contained in said article 1859 applies to both classes of contract. the additional stipulation to a contract of loan.

the latter may be effectuated without any juridical objection upon the mere default in the payment. and consists in that in one case the mortgagee may take over and dispose of the property mortgaged for the nonpayment. or any other requisite or formality. . without the necessity of a prior auction sale. the latter thereby becoming the owner. the debtor sells to the creditor the same property mortgaged. if instead of agreeing upon the alienation the agreement merely states that upon non-fulfillment of the obligation secured by the mortgage. must be observed. there is no reason whatsoever why he should not be able in like manner to make a promise to sell. the borrower promises to execute a public deed of sale transferring to the lender the two parcels of land described in number 2 and 3. of the property mortgaged to the creditor. where the additional stipulation in question is entirely different from that which the judge took into consideration as the ground of the judgment appealed from. it is held that the court below erred in upholding the validity of the additional stipulation in question. the mortgagee may. are not applicable to the case at bar." And Manresa concludes: "That is to say. and that if the debtor may legally sell to his creditor the mortgaged property for such price and subject to such conditions as he may deem fit. when the mortgage falls due. the amount loaned has not been returned. and in ordering the cancellation of the annotation of the preliminary attachment upon said lots in favor of the defendant West Coast Life Insurance Company. for the value of the mortgage. The doctrines invoked by the plaintiff in support of the judgment appealed from were rendered in cases where the question in dispute was whether a mortgagor could validly sell the thing mortgaged to the mortgagee for the amount of the mortgage. the parties may be compelled to do so by the courts. that "what the law forbids is the appropriation or disposition of the mortgaged property by the mortgagee. should the obligation secured by it not be complied with in time." But the doctrines which recognize the right of owners of mortgaged property to transmit freely the ownership thereof to the mortgagee in payment of his credit. when the latter became due. holding. among other grounds for such a resolution. that if said parties agree in the mortgage deed upon the sale. "without necessity of expensive judicial proceedings. then the provisions of the law for the sale of the thing pledged. 1902. sell the encumbered property. held that such an instrument (containing the stipulation quoted) can be registered. for the price of 4. but. or mere promise to sell. contained the following stipulation: "If upon the lapse of one year from this date." The board of registration in its resolution dated November 16.sugar-cane crop has been harvested for milling in the season of 1925-1926. dispensing with expensive lawsuits. and in case of the nonfulfillment of this obligation." The fundamental difference between the two may be easily understood. which has never been doubted.000 pesetas. stipulating the conditions of the alienation. The most interesting case expounded by Manresa in his commentaries upon article 1872 of the Civil Code. the ownership of the aforesaid lots being thus transferred to the mortgagee who shall then be the owner thereof in fee simple. This being so. as given in the article under consideration." the debt.

the assignor could not have appropriated said property to herself. But it should be noted that although the contract thus entered into is voidable at the husband's instance. it is not a reversible error. Another ground of the appeal is that the contract Exhibit A is void as having been executed in favor of a married woman without her husband's authority. ratified it. So ordered. It is also alleged that the court below erred in reversing the ruling upon the defendant's first demurrer. And as it is evident that the assignee Tan Chun Tic could not have acquired more rights to the mortgaged property than his assignor Genoveva Gamboa de Jayme had. and hence. and the instant complaint should be. . but such an assignment does not extend to the ownership of the mortgaged property. together with his wife. without special pronouncement of costs. instead of asking for its annulment. handed down by another judge of the same court. dismissed. for. Supposing that such an error was committed. he had no right to ask for the cancellation of the annotation of the preliminary attachment levied thereon. the additional stipulation in question. the latter. being void. as it is hereby. By virtue of the foregoing. he executed the contract of assignment Exhibit B. Genoveva Gamboa de Jayme assigned her rights and actions to the plaintiff Tan Chun Tic. it follows that neither could he have acquired the ownership of said lots.It is true that by Exhibit B. when. by itself alone. the judgment appealed from is reversed.

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