Acme Shoe vs CA

Date: August 22, 1996

Petitioners: Acme Shoe, Rubber and Plastic Corporation and Chua Pac
Respondents: CA, BPI and Regional Sheriff of Caloocan City

Ponente: Vitug

Facts: - Chua Pac, the president and general manager of Acme Shoe, Rubber & Plastic Corp., executed for and in behalf
of the company, a chattel mortgage in favor of Producers Bank of the Philippines. The mortgage stood by way of security
for petitioner's corporate loan of P3,000,000. A provision in the chattel mortgage agreement states that if the mortgagor of
his heirs, executors or administrators shall well and truly perform their full obligations, then the mortgage shall be null
and void. The mortgage shall also stand as security for the payment of subsequent promissory notes, extensions or new
loans that the mortgagor shall subsequently execute, including any obligations of the mortgagor to the mortgagee, whether
such obligations have been contracted before, during or after the constitution of the mortgage.
- In due time, the loan of P3,000,000 was paid by the corporation. Subsequently, in 1981, it obtained from the
bank additional accommodations totalling P2,700,000. These borrowings were also fully paid.
- On January 1984, the bank yet again extended to the corporation a loan of P1,000,000. covered by four
promissory notes for P250,000 each. Due to financial constraints, the loan was not settled at maturity. The bank applied
for an extra judicial foreclosure of the chattel mortgage, with the Sheriff of Caloocan City, prompting the corporation to
file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before the RTC. The court
dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held the corporation was bound by the
stipulations of the chattel mortgage. The CA affirmed.

Issue: WON a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be
contracted or incurred is valid

Held: No

Ratio: - Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a
suretyship, the faithful performance of the obligation by the principal debt or is secured by the personal commitment of
another. In contracts of real security, the property encumbered can be alienated for the payment of the obligation, but that
should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory
character of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security
becomes, ipso facto, null and void.
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as
these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time
the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation
can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but,
of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed.
- A chattel mortgage must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One
of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is
not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons
acting in good faith , the fact, however, that the statute has provided that the parties to the contract must execute an oath
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the
chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000 loan
which the corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, vs. Magallanes Press:
. . . A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not
from the date of the mortgage.
- The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to
exist coincidentally with the full payment of the P3,000,000 loan, there no longer was any chattel mortgage that could
cover the new loans that were concluded thereafter.
Ong vs. Roban Lending Corporation
July 9, 2008
Carpio Morales, J.:
Topic: Security Devices
Facts:
On different dates from Jul 14, 1999 to March 20, 2000, petitioner-spouses Ong obtained several
loans from Roban Lending Corporation amounting to P4,000,000. These were secured by a real
estate mortgage over a parcel of land in Tarlac.
On February 21, 2001, both parties executed an Amendment to the Amended Real Estate
Mortgage, a pertinent provision of which states, the Second Party hereby sign a promissory note
in the amount of P5,916,117.50 with a promise to pay the First Party, otherwise the Second
Part agree to have their DACION IN PAYMENT agreement, which they have executed and signed
today in favor of the First Party.
In April 2002, petitioners filed a complaint praying that the Amendment to the Amended Real
Estate Mortgage be annulled for being pactum commissorium, and to have the interest rates
reduced for being unconscionable.
RTC of Tarlac found that there was no pactum commissorium. The CA affirmed the RTC ruling.
Issue / Held:
WON the Amendment to the Amended Real Estate Mortgage constitutes pactum commissorium.
YES. The Ong spouses won!
Ratio:
2 elements of pactum commissorium (1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.
In a true dacion en pago, the assignment of the property extinguishes the monetary debt. In the
case at bar, the alienation of the property was by way of security and not by way of satisfying
the debt. The Dacion in payment did not extinguish Ongs obligation to Roban Lending
Corporation. On the contrary, Ong had to execute a promissory not which they were to pay within
one year.
As to the interest rates, the court finds the monthly interest rate of 3.5% or 42% per annum
unconscionable and thus reduces it to 12% p.a. while the penalty fee at the monthly interest rate
of 5% (60% p.a.) is also unconscionable and reduced it to 12% yearly. Moreover, the court finds
that the penalty fee of 25% imposed on the principal, interests and interests thereon
unconscionable and thus reduced it to 25% of the principal amount only.
WHEREFORE, the CA decisions is REVERSED.
 PARAY v. RODRIGUEZ, ET AL., G.R. No. 132287 (JANUARY 24, 2006)

FACTS:

Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 1979 to 1980, 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.

When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed
complaints with RTC of Cebu City. The actions sought the declaration of nullity of the pledge agreements, among others. However the
RTC dismissed the complaint and gave due course to the foreclosure and sale at public auction of the various pledges. This decision
attained finality after it was affirmed by the Court of Appeals and the Supreme Court.

Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction. However,
before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of various amounts. It
was claimed that respondents had attempted to tender payments to the Parays, but had been rejected.

Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding
for all of the pledged shares. None of respondents participated or appeared at the auction.

Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public auction.

Respondents argument:

Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and
discharged the pledge contracts.

Petitioners argument:

Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that the tender of
payment and consignations were made long after their obligations had fallen due.

They pointed 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. They likewise argued that the essential procedural requisites for the auction
sale had been satisfied.

Ruling of RTC:

The RTC dismissed the complaint, expressing agreement with the position of the Parays. It held 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.

Ruling of CA:

The Court of Appeals however reversed the RTC on appeal, ruling that the consignations extinguished the loan obligations
and the subject pledge contracts; and the auction sale as null and void. It (CA) 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. The attempts at
payment by respondents were characterized as made in the exercise of the right of redemption.
CA likewise found fault with the auction sale, holding that there was a need to individually sell the various shares of stock as
they had belonged to different pledgors.

ISSUES:

1 WON right of redemption exists over personal properties (such as the subject pledged shares).
2 WON the consignations made by respondents prior to the auction sale are sufficient to extinguish the loan obligations and the
subject pledged contracts.
3 WON the act of respondents in consigning the payments should be deemed done in the exercise of their right of redemption owing
to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws.
4 WON a buyer at a public auction ipso facto becomes the owner of the pledged shares pending the lapse of the one-year
redemptive period
5 WON there is a need to individually sell the various shares of stock as they had belonged to different pledgors.

HELD:

1 No.

No law or jurisprudence establishes or affirms such right. Indeed, no such right exists.

The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The
said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests the right of
redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any
legislative intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged
personal property, but the statute is definitely silent on the point.

The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely
execution sales of real property.

It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to
proceed before a Notary Public to the sale of the thing pledged.

In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction. However,
extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The final and executory judgment
in those cases affirmed the pledge contracts and disposed them. Said judgment did not direct the sale by public auction of the pledged
shares, but instead upheld the right of the Parays to conduct such sale at their own volition.

2 No.

There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. 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. 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, unless and until
he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the
Civil Code. When the credit has not been satisfied in due time, the creditor may proceed with the sale by public auction under the
procedure provided under Article 2112 of the Code.
In order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should cover not just
the principal loans, but also the monthly interests thereon.

In the case at bar, while the amounts consigned by respondents could answer for their respective principal loan obligations, they
were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per month or 60% per annum.

3 No.

The pledged shares in this case are not subject to redemption. Thus, the consigned payments should not be treated with
liberality, or somehow construed as having been made in the exercise of the right of redemption.

4 Yes.

Obviously, since there is no right to redeem personal property, 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.

5 No.

This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place. Rule 39 of
the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately, such as in the case
of lot sales for real property under Section 19. However, these instances again pertain to execution sales and not extrajudicial sales. No
provision in the Rules of Court or in any law requires that pledged properties sold at auction be sold separately.

On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of the
items should be sold if two or more things are pledged. No similar option is given to pledgors under the Civil Code. Moreover, 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, or from the buyer at the auction sale in purchasing
all the pledged properties with a single purchase price. 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, 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.

RULING:

Decision of the Court of Appeals is SET ASIDE and the decision of the RTC Cebu City is REINSTATED.
 Caltex Philippines vs CA

Facts:

On various dates, defendant, a commercial banking institution, through its Sucat Branch issued
280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz.

One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchase
of fuel products from the latter. However, Sometime in March 1982, he informed the Sucat
Branch Manger that he lost all the certificates of time deposit in dispute. New CTDs were issued
after the execution of affidavit of loss.

Subsequently, Angel dela Cruz negotiated and obtained a loan from defendant bank and
executed a notarized Deed of Assignment of Time Deposit, which stated, among others, that he
surrenders to defendant bank "full control of the indicated time deposits from and after date" of
the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said
time deposits to the payment of whatever amount or amounts may be due" on the loan upon its
maturity.

In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's
Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging
that the same were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor.

The bank received a letter from the plaintiff formally informing of its possession of the CTDs in
question and of its decision to pre-terminate the same. Accordingly, defendant bank rejected the
plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7,
1983.

The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5,
1983, the latter set-off and applied the time deposits in question to the payment of the matured
loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered
to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued
interest and compounded interest therein at 16% per annum, moral and exemplary damages as
well as attorney's fees.

Issues:

Whether or not the transaction between Caltex and de la cruz is valid pledge. Whether or not
Caltex can recover the CTDs

Held:

1. The transaction entered into is a pledge. Petitioner's insistence that the CTDs were negotiated
to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when
it is transferred from one person to another in such a manner as to constitute the transferee the
holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of
a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as
security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere
delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of
such security, in the event of non-payment of the principal obligation, must be contractually
provided for. In the case at bar, evidence suggests that the instrument was delivered to Caltex
by Dela Cruz as security to the fuel purchases of the latter and not as payment for such
purchases.

2. No. The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. As such holder of
collateral security, he would be a pledgee but the requirements therefor and the effects thereof,
not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code
provisions on pledge of incorporeal rights, which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged.

The instrument proving the right pledged shall be delivered to the creditor, and if negotiable,

must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing

pledged and the date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons adversely.

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether
as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the
extent of its lien nor the execution of any public instrument which could affect or bind private
respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has
definitely the better right over the CTDs in question.

DIOSDADO YULIONGSIU vs.PHILIPPINE NATIONAL BANK (Cebu Branch)

Facts: Yuliongsiu was the owner of two (2) vessels, namely: The M/S Surigao, valued at
P109,925.78 and the M/S Don Dino, valued at P63,000.00, and operated the FS-203, valued at
P210,672.24, which was purchased by him from the Philippine Shipping Commission, by
installment or on account. As of January or February, 1943, plaintiff had paid to the Philippine
Shipping Commission only the sum of P76,500 and the balance of the purchase price was
payable at P50,000 a year, due on or before the end of the current year.

Yuliongsiu obtained a loan of P50,000 from PNB. To guarantee its payment, plaintiff pledged the
M/S Surigao, M/S Don Dino and its equity in the FS-203, as evidenced by the pledge contract ,
duly registered with the office of the Collector of Customs for the Port of Cebu. Yuliongsiu
effected partial payment of the loan in the sum of P20,000. The remaining balance was renewed
by the execution of 2 promissory notes in the bank's favor. These two notes were never paid at
all by Yuliongsiu on their respective due dates.

PNB filed criminal charges against Yuliongsiu and two other accused for estafa thru falsification
of commercial documents, and they were convicted by the trial court and sentenced to indemnify
PNB

in the sum of P184,000. CA affirmed conviction. The corresponding writ of execution issued to
implement the order for indemnification was returned unsatisfied as Yuliongsiu was totally
insolvent .Meanwhile, together with the institution of the criminal action, PNB took physical
possession of three pledged vessels while they were at the Port of Cebu, and after the first note
fell due and was not paid, the Manager of PNB, acting as attorney-in-fact of Yuliongsiu pursuant
to the terms of the pledge contract, executed a document of sale, transferring the two pledged
vessels and Yuliongsiu's equity in FS-203, to PNB for P30,042.72.The FS-203 was subsequently
surrendered by PNB to the Philippine Shipping which rescinded the sale to Yuliongsiu, for failure
to pay the remaining installments on the purchase price.

The other two boats were sold byPNB to third parties.Yuliongsiu commenced action in the CFI to
recover the three vessels or their value and damages from PNB.The lower court rendered its
decision ruling: (a) that the bank's taking of physical possession of the vessels was justified
by the pledge contract and the law; (b) that the private sale of the pledged vessels by PNB
to itself withoutnotice to the plaintiff-pledgor as stipulated in the pledge contract was likewise
valid; and (c) that the PNB should paythe sums of P1,153.99 and P8,000, as his remaining
account balance, or set-off these sums against the indemnitywhich Yuliongsiu was ordered to pay
to it in the criminal cases.

Issue

: W/N the contract was a chattel mortgage so that PNB cannot take possession of the chattels
until after there has been default.

Held:

No. Pledge.

Ratio:

The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract. Necessarily, this
judicial admission binds Yuliongsiu. Without any showing that this was made thru palpable
mistake, no amount of rationalization can offset it.

PNB as pledgee was therefore entitled to the actual possession of the vessels. While it is true
that Yuliongsiu continued operating the vessels after the pledge contract was entered into, his
possession was expressly made subject to the order of the pledgee." The provision of Art. 2110
of the present Civil Code being new, cannot apply to the pledge contract here which was entered
into on June 30, 1947. On the other hand, 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. In such a case, the pledgor is regarded as holding the
pledged property merely as trustee for the pledgee.

Yuliongsiu also urge Us to rule that constructive delivery is insufficient to make pledge effective.
The type of delivery will depend upon the nature and the peculiar circumstances of each case.
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."Considering the circumstances of this
case and the nature of the objects pledged, i.e., a vessel used in maritime business, such
delivery is sufficient. Since PNB was, pursuant to the terms of pledge contract, in full control of
the vessels thru Yuliongsiu, the former could take actual possession at any time during the life of
the pledge to make more effective its security. Its taking of the vessels therefore was not
unlawful. Nor was it unjustified considering that Yuliongsiu had just defrauded the PNB in the
huge sum of P184,000