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SPCL Chattel Mortgage

CHATTEL MORTGAGE

LOAN SECURITY BY CHATTEL MORTGAGE

1. Makati Leasing and Finance Corporation v. Wearever Textile Mills, Inc., 122 SCRA 296 (1983)

2. Filipinas Marble Corporation v. Intermediate Appellate Court, 142 SCRA 180 (1986)

3. Allied Banking Corporation v. Salas, 168 SCRA 414 (1988)

4. Servicewide Specialists, Inc. v. Intermediate Appellate Court, 174 SCRA 80 (1989)

5. Bicol Savings Loan Association v. Guinhawa, 188 SCRA 642 (1990); Pameca Wood Treatment Plant, Inc.
v. Court of Appeals, 310 SCRA 281 (1999)

6. BA Finance Corporation v. Court of Appeals, 201 SCRA 157 (1991)

7. Cerna v. Court of Appeals, 220 SCRA 517 (1993)

8. Filinvest Credit Corporation v. Court of Appeals, 248 SCRA 549 (1995)

9. Acme Shoe Rubber & Plastic Corporation v. Court of Appeals, 260 SCRA 714 (1996)

10. Cebu International Finance Corporation v. Court of Appeals, 268 SCRA 178 (1997)

11. Nicol v. Blanco, 307 SCRA 241 (1991); Neeland v. Villanueva, 317 SCRA 652 (1999)

12. Tsai v. Court of Appeals, 366 SCRA 324 (2001)

13. Nordic Asia Limited and Bankers trust Co. v. Court of Appeals,, 403 SCRA 391 (2003)

14. Phillip Brothers Oceanic, Inc. v. Court of Appeals, 402 SCRA 605 (2003)

15. Poliand Industrial Limited v. National Development Company, 467 SCRA 500 (2005)

16. Spouses Rosario v. PCI Leasing and Finance, Inc. 474 SCRA 500 (2005)

17. Ching v. Spouses Santos, 531 SCRA 730 (2007)

B. CHATTEL MORTGAGE ON A PERSONAL PROPERTY SOLD ON INSTALLMENTS

Industrial Finance v. Tobias, 78 SCRA 28 (1977)

2. Filinvest Credit Corporation v. Philippine Acetylene Co., Inc. 111Scra 421 (1982)

3. Zayas, Sr. v. Luneta Motor Company, 117 SCRA 726 (1982)

4. Ridad v. Filinvest and Finance Corporation, 120 SCRA 246 (1983)

5. Esguerra v. Court of Appeals, 173 SCRA 1 (1989)

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SPCL Chattel Mortgage

6. Borbon II v. Servicewide specialist, 258 SCRA 634 (1996)

7. Agustin v. Court of Appeals,, 271 SCRA 463 (1997)

LOAN SECURITY BY CHATTEL MORTGAGE

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SPCL Chattel Mortgage
1. Makati Leasing and Finance Corporation v. Wearever Textile Mills, Inc., 122 SCRA 296 (1983)

FACTS:

-Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable
Purchase Agreement in favor of Makati Leasing and Finance Corporation in order to obtain financial
accommodations.

- To secure the collection of the receivables assigned, Wearever executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.

-Upon Wearever’s default, Makati Leasing filed a petition for extrajudicial foreclosure of the properties mortgage to
it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into premisesof
Wearever and was not able to effect the seizure of the aforedescribed machinery. Makati Leasing thereafter filed a
complaint for judicial foreclosure.

-Acting on Makati Leasing's application for replevin, the lower court issued a writ of seizure, the enforcement of
which was however subsequently restrained upon Wearever’s filing of a motion for reconsideration. After several
incidents, the lower court finally issued an order lifting the restraining order for the enforcement of the writ of
seizure and an order to break open the premises of Wearever’s to enforce said writ. The lower court reaffirmed its
stand upon Wearever’s filing of a further motion for reconsideration.

-The sheriff enforcing the seizure order, repaired to the premises Wearever’s and removed the main drive motor
of the subject machinery.

CA:

-Set aside orders of the Lower Court and ordered the return of the main drive motor of the machinery. It held that
the subject machinery cannot be subject of replevin because it is a real property pursuant to Article 415 of the
Civil Code. Therefore Chattel Mortgage constituted upon it is null and void.

ISSUE:

-Whether or not the subject machinery is a real property or a personal property to subject it to chattel mortgage.

HELD:

-Where a chattel mortgage is constituted on machinery attached to the ground the machinery is to be considered
as a personal property and the chattel mortgage constituted thereon is not null and void regardless of who owns
the land.

- A property attached to the ground like a house of strong materials, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the existence of the chattel mortgage.

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SPCL Chattel Mortgage

2. Filipinas Marble Corporation v. Intermediate Appellate Court, 142 SCRA 180 (1986)

FACTS:

-Filipinas Marble Corporation applied for a loan with Development Bank of the Philippines (DBP) in its desire to
develop the fun potentials of its mining claims and deposits and to finance acquisition of machinery. DBP granted
the loan subject, however, to sixty onerous conditions, among which are: Filipinas Marble shall have to enter into
a management contract with respondent Bancom Systems Control, Inc. [Bancom] and that the loan be secured by
a mortgage.

-The mortgage was not registered.

-Bancom and its directors/ officers mismanaged and misspent the loan.

-Bancom resigned with the approval of DBP even before the expiration of the management contract, leaving
Filipinas Marble desolate and devastated.

-Machineries arrived in the Philippines but alleged not delivered to Filipinas Marble.

-Also, instead of helping Filipinas Marble get back on its feet, DBP completely abandoned Filipinas Marble’s
project and proceeded to foreclose the properties mortgage without previous demand or notice.

-In essence, the Filipinas Marble seeks the annulment of the deeds of mortgage and deed of assignment because
there was no loan at all to secure since what DBP "lent" to Filipinas Marble 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 Filipinas Marble.

-The Filipinas Marble 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 Filipinas Marble’s properties in Metro Manila and in Romblon.

DBP’s DEFENSE:

-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.

TC AND CA:
-While evidence of Filipinas Marble Corporation appears persuasive, still it cannot enjoin DBP from complying
with the mandatory provisions of PD 385.

ISSUES:

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SPCL Chattel Mortgage

If there was no valid contract of loan for failure of consideration, whether or not the mortgage can exist or stand by
itself being a mere accessory contract.
Whether or not the non-registration of the Chattel Mortgage affects its validity.

HELD:

- 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 to bankruptcy through mismanagement or
misappropriation of its funds, and who, after ruining it, use the mandatory provisions of the decree to avoid the
consequences of their misdeeds.

-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.D. 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.

-In the case at bar, the respondents try to impress upon this Court that the $5,000,000.00 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. The
respondents also argue that since the loan was extended to the corporation, the releases had to be made to the
then officers of that borrower corporation.

-Precisely, 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. 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, that is, to develop the projects of the corporation. Therefore, it is as if the loan was never delivered to it
and thus, 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.

- Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the
immediate parties. It states:

Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a mortgage may be
validly constituted that the document in which it appears be recorded in the Registry of Property. If the instrument
is not recorded, the mortgage is nevertheless binding between the parties.
Filipinas marble, however, cannot invoke the above provision to nullify the chattel mortgage it executed in favor of
respondent DBP.

3. Allied Banking Corporation v. Salas, 168 SCRA 414 (1988)

FACTS:

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SPCL Chattel Mortgage
-General Bank and Trust Company granted Gencor Marketing, Inc., a time loan evidenced by a Promissory Note
executed by the latter through its President, Dr. Clarencio S. Yujuico. As security for the time loan and pursuant to
a resolution of the Board of Directors of Gencor Marketing, a Deed of Chattel Mortgage was executed by Gencor
Marketing in favor of General Bank and Trust Company involving the personal properties.

-The Deed of Chattel Mortgage was duly recorded in the Chattel Mortgage Registry of Quezon City.

-On maturity date of the Loan and allegedly after several subsequent extensions of time for Gencor to settle its
account, Gencor failed to pay its obligations either to General Bank and Trust Company or to Allied Banking which
took over the affairs and/or acquired all the assets and assumed the liabilities of General Bank and Trust
Company.

-Allied Banking extrajudicially foreclosed the aforesaid Chattel Mortgage and requested the City Sheriff of Quezon
City to effect the said foreclosure. The City Sheriff of Quezon City, through Deputy Sheriff A. Tabbada levied upon
the afore-described mortgaged personal properties in question and issued the corresponding Notice of Sheriff s
Sale.

-It appears, however, that prior to the extrajudicial foreclosure effected by Allied Banking involving the personal
properties in question, Metropolitan Bank and Trust Company filed an action for a sum of money in the amount of
with preliminary attachment against Clarencio Yujuico and Jesus Yujuico, a writ of preliminary attachment was
issued in said case and the Sheriff of the Court of First Instance of Rizal levied upon the personal properties in
question.

-Thus, upon teaming of the Notice sent by City Sheriff Tabbada for the sale of the foreclosed personal properties
in question, MBTC filed an Urgent Motion to Enjoin the Sheriff of Quezon City from foreclosing and selling at
public auction the said properties, alleging that the printing machineries and equipment previously levied and
attached by the Sheriff of Rizal belonged exclusively to defendant Clarencio S. Yujuico, doing business under the
firm name of Gencor Printing and as such, may not legally be foreclosed and sold at auction by the Sheriff of
Quezon City.

-Meanwhile, Metropolitan Bank and Trust Company filed a Third Party Claim with the Quezon City Sheriff 's Office
over the personal properties in question levied upon and sought to be sold at public auction by City Sheriff
A.Tabbada, alleging that these same personal properties had been previously levied upon by the Deputy sheriff of
Branch I of the Court of First Instance of Rizal, pursuant to a Writ of Attachment issued by herein respondent
Judge Emilio V. Salas.

-Allegedly to protect Allied Banking’s rights over the personal properties in question, Allied banking’s counsel
entered a special appearance during the scheduled hearing for the exclusive purpose of opposing MBTC’s motion
on jurisdictional grounds and gross irregularity of procedure amounting to lack of jurisdiction.

-However, over Allied Banking's opposition, respondent Judge rendered the assailed Order, enjoining the public
sale of the extra judicially foreclosed properties.

HELD:

- The chattel mortgage lien attaches to the property wherever it may be. Thus, private respondent as attaching
creditor acquired the properties in question subject to petitioner's mortgage lien as it existed thereon at the time of
the attachment.

- The lien of petitioner's chattel mortgage over the mortgaged properties in question superior to the levy on
attachment made on the same by MBTC as creditor of chattel mortgagor Clarencio Yujuico. What may be

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SPCL Chattel Mortgage
attached by private respondent as creditor of said chattel mortgagor is only the equity or right of redemption of the
mortgagor.

4. Servicewide Specialists, Inc. v. Intermediate Appellate Court, 174 SCRA 80 (1989)

FACTS:

- Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle and paid a downpayment of the price. The
remaining balance includes not only the remaining principal obligation but also advance interests and premiums
for motor vehicle insurance policies.

-Siton executed a promissory note in favor of Car Traders Philippines, Inc. expressly stipulating that the face value
of the note shall "be payable, without need of notice of demand, in instalments. There are additional stipulations in
the Promissory Note consisting of, among others, that if default is made in the payment of any of the installments
or interest thereon, the total principal sum then remaining unpaid, together with accrued interest thereon shall at
once become due and demandable.

-As further security, Siton executed a Chattel Mortgage over the subject motor vehicle in favor of Car Traders
Philippines, Inc.

-The credit covered by the promissory note and chattel mortgage executed by respondent Galicano Siton was first
assigned by Car Traders Philippines, Inc. in favor of Filinvest Credit Corporation. Subsequently, Filinvest Credit
Corporation likewise reassigned said credit in favor of petitioner Servicewide Specialists, Inc. and respondent
Siton was advised of this second assignment.

-Siton failed to pay, Servicewide Specialist filed this action against Galicano Siton and "John Doe."

-After the service of summons, Justiniano de Dumo, identifying himself as the "John Doe" in the Complaint,
inasmuch as he is in possession of the subject vehicle, filed his Answer with Counterclaim and with Opposition to
the prayer for a Writ of Replevin. Said defendant, alleged the fact that he has bought the motor vehicle from
Galicano Siton; that de Dumo and Siton testified that, before the projected sale, they went to a certain. Atty. Villa
of Filinvest Credit Corporation advising the latter of the intended sale and transfer. Siton and de Dumo were
accordingly advised that the verbal information given to the corporation would suffice, and that it would be tedious
and impractical to effect a change of transfer of ownership as that would require a new credit investigation as to
the capacity and worthiness of Atty. De Dumo, being the new debtor. The further suggestion given by Atty. Villa is
that the account should be maintained in the name of Galicano Siton.; that as such successor, he stepped into the
rights and obligations of the seller; that he has religiously paid the installments as stipulated upon in the
promissory note. He also manifested that the Answer he has filed in his behalf should likewise serve as a
responsive pleading for his co-defendant Galicano Siton.

TC affirmed by CA:

-Denied the issuance of Writ of Replevin and ordering Siton and De Dumo to pay jointly and severally, the plaintiff,
the remaining balance on the motor vehicle .

ISSUE:

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SPCL Chattel Mortgage
-Whether or not the mortgagee is bound by the deed of sale by the mortgagor in favour of a third person, as
neither the mortgagee nor its predecessors has given written or verbal consent thereto pursuant to the deed of
Chattel Mortgage.

HELD:

-The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the
power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of
the mortgagee. Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties
executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to
therein.

-The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third
person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised
Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.

-There is no dispute that the Deed of Chattel Mortgage executed between Siton and the petitioner requires the
written consent of the latter as mortgagee in the sale or transfer of the mortgaged vehicle. We cannot ignore the
findings, however, that before the sale, prompt inquiries were made by private respondents with Filinvest Credit
Corporation regarding any possible future sale of the mortgaged property; and that it was upon the advice of the
company's credit lawyer that such a verbal notice is sufficient and that it would be convenient if the account would
remain in the name of the mortgagor Siton.

-Even the personal checks of de Dumo were accepted by petitioner as payment of some of the installments under
the promissory note. If it is true that petitioner has not acquiesced in the sale, then, it should have inquired as to
why de Dumo's checks were being used to pay Siton's obligations.

5. Bicol Savings Loan Association v. Guinhawa, 188 SCRA 642 (1990); Pameca Wood Treatment Plant, Inc.
v. Court of Appeals, 310 SCRA 281 (1999)

FACTS:

-Victorio Depositario together with Jaime Guinhawa, acting as solidary co-maker, took a loan from petitioner Bicol
Savings and Loan Association (BISLA).

-To secure the payment of the foregoing loan obligation, Victorio Depositario put up as security a chattel mortgage
which was a Yamaha Motorcycle. Said motorcycle was eventually foreclosed by reason of the failure of
Depositario and Guinhawa to pay the loan.

-As a result of the foreclosure, there was a deficiency , where BISLA made a demand to pay the same.

-BISLA) filed a complaint for the recovery of a sum of money constituting the deficiency after foreclosure of the
chattel mortgage put up by the Depositario against the latter and his solidary co-maker Guinhawa.

-Depositorio was dropped as his where abouts were unknown and he could not be served with summons.

TC:

-Creditor may proceed to Guinhawa being a Solidary debtor.

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SPCL Chattel Mortgage
CA:

-Reversed. Although Guinhawa is a solidary debtor, the creditors has already resorted to foreclosure, creditor has
chosen to collect from Depositario and can no longer collect from Guinhawa not being party to the mortgage
contract but merely a co-maker on the Promissory Note.

ISSUE:

-Whether or not a co-maker in a loan, who jointly and severally bound himself to pay loan on the promissory note
but is not a party to the chattel mortgage executed to secure the same loan by the principal debtor can be held
liable for the deficiency in case of foreclosure.

HELD:

-Where the obligation is one of a loan by a chattel mortgage and not a sale where the price is payable on
instalments, an independent civil action may be instituted for the recovery of said deficiency if after extra judicial
foreclosure of such chattel mortgage a deficiency exist. If the mortgagee has foreclosed the mortgage judicially,
he may ask for the execution of the judgment against any other property of the mortgagor for the payment of the
balance. 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.

-Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected. And therefore,
where the private respondent binds himself solidarily with the principal debtor to pay the latter's debt, he may be
proceeded against by the principal debtor. Private respondent as solidary co- maker is also a surety (Art. 2047)
and that under the law, the bringing of an action against the principal debtor to enforce the payment of the
obligation is not inconsistent with, and does not preclude, the bringing of another action to compel the surety to
fulfill his obligation under the agreement.

6. BA Finance Corporation v. Court of Appeals, 201 SCRA 157 (1991)

FACTS:

-Spouses Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a credit, which amount covered the cost
of one unit of Ford Escort 1300, four-door sedan. Said obligation was evidenced by a promissory note executed
by Sps. Cuady in favor of Supercars, Inc., obligating themselves to pay the latter or order.

-To secure the faithful and prompt compliance of the obligation under the said promissory note, the Cuady
spouses constituted a chattel mortgage on the aforementioned motor vehicle.
-Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to B.A. Finance Corporation.
The Cuadys made partial payment leaving an un paid balance.In addition thereto, the Cuadys owe B.A. Finance .

-Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the renewal of the
insurance coverage over the aforementioned motor vehicle for the with Zenith Insurance Corporation, when the
Cuadys failed to renew said insurance coverage themselves. Under the terms and conditions of the said
insurance coverage, any loss under the policy shall be payable to the B.A. Finance Corporation.

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SPCL Chattel Mortgage
-The motor vehicle figured in an accident and was badly damaged. The unfortunate happening was reported to
the B.A. Finance Corporation and to the insurer, Zenith Insurance Corporation. The Cuadys asked the B.A.
Finance Corporation to consider the same as a total loss, 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,
if any. But instead of heeding the request of the Cuadys, B.A. Finance Corporation prevailed upon the former to
just have the car repaired. Not long thereafter, however, the car bogged down.

-The Cuadys wrote B.A. Finance Corporation requesting the latter to pursue their prior instruction of enforcing the
total loss provision in the insurance coverage. When B.A. Finance Corporation did not respond favorably to their
request, the Cuadys stopped paying their monthly installments on the promissory note.
In view of the failure of the Cuadys to pay the remaining installments on the note, B.A. Finance Corporation sued
them.

TC and CA:

-Dismissed the complaint.

ISSUE:

-Whether or not the mortgagor has waived its rights to collect the unpaid balance of the mortgage 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.

BA FINANCE’S CONTENTION:

- It is the contention of B.A. 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, said failure does not operate to extinguish
the unpaid balance on the promissory note, considering that the circumstances obtaining in the case at bar do not
fall under Article 1231 of the Civil Code relative to the modes of extinguishment of obligations.

HELD:

-Under the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full power
and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign execute and deliver the
corresponding papers, receipts and documents to the Insurance Company as may be necessary to prove the
claim, and to collect from the latter the proceeds of insurance to the extent of its interests, in the event that the
mortgaged car suffers any loss or damage. In granting B.A. Finance Corporation the aforementioned powers and
prerogatives, the Cuady spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil
Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency, and is liable
for damages which, through its non-performance, the Cuadys, the principal in the case at bar, may suffer; in such
case, the assignee of the mortgage agreement is bound by the same stipulation and if the assignee failed to file
and prosecute the insurance claim when the car was damaged totally, the mortgagor is relieved from his
obligation to pay as he suffered a loss because of the failure of the mortgagee to file the claim.

7. Cerna v. Court of Appeals, 220 SCRA 517 (1993)

FACTS:

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SPCL Chattel Mortgage
-Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced
by a promissory note. worded as follows:

-On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him. And acting as the
attorney-in-fact, Manolo P. Cerna, he also mortgage a "Taunus' car owned by the latter.

-The period lapsed without Delgado paying the loan. This prompted Leviste to a file a collection suit against
Delgado and Cerna as solidary debtors.

-Cerna filed a Motion to Dismiss on the ground of lack of cause of action against Cerna and the death of Delgado.
Anent the latter, Cerna claimed that the claim should be filed in the proceedings for the settlement of Delgado's
estate as the action did not survive Delgado's death. Moreover, he also stated that since Leviste already opted to
collect on the note, he could no longer foreclose the mortgage.

CA and TC:

-Denied the Motion to Dismiss.

ISSUES:

-Whether or not a third party, who is not a debtor under the note but mortgaged his property to secure the
payment of the loan of another is solidarily liable with the principal debtor.
Whether or not a mortgagee who opted to collect may still foreclose the mortgage.

HELD:

- There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the
fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A
chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-
party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is, to pay the loan.
The signatory to the principal contract — loan — remains to be primarily bound. It is only upon the default of the
latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu
of an action for the recovery of the amount of the loan. And the liability of the third-party mortgagors extends only
to the property mortgaged. Should there be any deficiency, the creditors has recourse on the principal debtor.

- The Special Power of Attorney did not make petitioner a mortgagor. All it did was to authorized Delgado to
mortgage certain properties belonging to petitioner
-Hence, Leviste, having chosen to file the collection suit, could not now run after petitioner for the satisfaction of
the debt. This is even more true in this case because of the death of the principal debtor, Delgado. Leviste was
pursuing a money claim against a deceased person.

8. Filinvest Credit Corporation v. Court of Appeals, 248 SCRA 549 (1995)

FACTS:

-Spouses Edilberto and Marciana Tadiaman, purchased a 10-wheeler Izusu cargo truck from Jordan Enterprises,
Inc., in Quezon City, in installments.

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-Said spouses executed a promissory note payable in 24 monthly installments in favor of Jordan Enterprises, Inc.,
and a Chattel Mortgage over the motor vehicle purchased to secure the payment of the promissory note.

-Jordan Enterprises, Inc. assigned its rights and interests over the said instruments to Filinvest Finance and
Leasing Corporation, which in turn assigned them to plaintiff-appellant Filinvest Credit Corporation.

-Subsequently, the spouses Tadiaman defaulted in the payment of the installments due on the promissory note,
and plaintiff-appellant filed an action for replevin and damages against them with the court below. Upon motion of
the plaintiff-appellant, a writ of replevin was issued, and the truck was seized in the province of Isabela, by
persons who represented themselves to be special sheriffs of the court, but who turned out to be employees of
the plaintiff-appellant. The truck was brought by such persons all the way back to Metro Manila.

-Thereafter, defendant spouses filed a counterbond, and the lower court ordered the return of the truck. This was
not immediately implemented because the defendant spouses were met with delaying tactics of the plaintiff-
appellant, and when they finally recovered the truck, they found the same to be "cannibalized".

-Because of the said actuations of Filinvest Credit the spouses Tadiaman filed a counter claim for damages.

-On the main action, the Trial Court ordered the spouses to pay Filinvest Credit the balance of the promissory
note.

-On the counter claim, the trial court rendered judgment in favour of Spouses Tadiaman.

CA:

-Affirmed the decision of TC and ruled that Filinvest is liable for damages not because it commenced an action for
replevin to recover possession of the truck prior to its foreclosure BUT because of the MANNER it carried out the
seizute of the Truck.

HELD:

-The reason why the law does not allow the creditor to possess himself of the mortgaged property with violence
and against the will of the debtor is to be found in the fact that the creditor's right of possession is conditioned
upon the fact of default, and the existence of this fact may naturally be the subject of controversy. The debtor, for
instance, may claim in good faith, and rightly or wrongly, that the debt is paid, or that for some other reason the
alleged default is nonexistent. His possession in this situation is as fully entitled to protection as that of any other
person, and in the language of article 446 of the Civil Code he must be respected therein. To allow the creditor to
seize the property against the will of the debtor would make the former to a certain extent both judge and
executioner in his own cause — a thing which is inadmissible in the absence of unequivocal agreement in the
contract itself or express provision to that effect in the statute.

-It will be observed that the law places the responsibility of conducting the sale upon "a public officer;" and it might
be supposed that an officer, such as the sheriff, can seize the property where the creditor could not. This
suggestion is, we think, without force, as it is manifest that the sheriff or other officer proceeding under the
authority of the language already quoted from section 14 of the Chattel Mortgage Law, becomes pro hac vice the
mere agent of the creditor. There is nothing in this provision which creates a specific duty on the part of the officer
to seize the mortgaged property; and no intention on the part of the law-making body to impose such a duty can
be implied. The conclusion is clear that for the recovery of possession, where the right is disputed, the creditor
must proceed along the usual channels by action in court. Whether the sheriff, upon being indemnified by the
creditor, could safely proceed to take the property from the debtor, is a point upon which we express no opinion.

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-But whatever conclusion may be drawn in the premises with respect to the true nature of a chattel mortgage, the
result must in this case be the same; for whether the mortgagee becomes the real owner of the mortgaged
property — as some suppose — or acquires only certain rights therein, it is none the less clear that he has after
default the right of possession; though it cannot be admitted that he may take the law into his own hands and
wrest the property violently from the possession of the mortgagor. Neither can he do through the medium of a
public officer that which he cannot directly do himself. The consequence is that in such case the creditor must
either resort to a civil action to recover possession as a preliminary to a sale, or preferably he may bring an action
to obtain a judicial foreclosure in conformity, so far as with the provisions of the Chattel to Mortgage Law.

-Replevin is, of course, the appropriate action to recover possession preliminary to the extrajudicial foreclosure of
a chattel mortgage. Filinvest did in fact institute such an action and obtained a writ of replevin. And, by filing it,
Filinvest admitted that it cannot acquire possession of the mortgaged vehicle in an orderly or peaceful manner.
Accordingly, it should have left the enforcement of the writ in accordance with Rule 60 of the Rules of Court which
it had voluntarily invoked.

9. Acme Shoe Rubber & Plastic Corporation v. Court of Appeals, 260 SCRA 714 (1996)

FACTS:

- Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation,"
executed, for and in behalf of the company, a chattel mortgage in favor of Producers Bank of the Philippines. A
provision in the chattel mortgage agreement was to this effect -
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note,
as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts,
letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this
mortgage shall also stand as security for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new contract and this mortgage shall have the same force
and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This
mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR
to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during
or after the constitution of this mortgage.

-In due time, the loan was paid by petitioner corporation. Subsequently, in 1981, it obtained from Producers Bank
additional financial accommodations These borrowings were on due date also fully paid.

-The bank yet again extended to ACME a covered by four promissory notes. Due to financial constraints, the loan
was not settled at maturity.
-The bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage, prompting ACME to forthwith
file an action for injunction, with damages and a prayer for a writ of preliminary injunction.

TC and CA:

-Dismissed the complaint and ordered the foreclosure of the chattel mortgage. ACME is bound by the
stipulations, aforequoted, of the chattel mortgage.

ISSUE:

-Whether or not chattel mortgage may secure after incurred obligations.

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HELD:

-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 debtor is secured by the personal
commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an
antichresis, that fulfillment is secured by an encumbrance of property - in pledge, the placing of movable property
in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in
the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real
property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive
the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and
thereafter to the principal of his credit - upon the essential condition that if the principal obligation becomes due
and the debtor defaults, then 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.

10. Cebu International Finance Corporation v. Court of Appeals, 268 SCRA 178 (1997)

FACTS:

- Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay, authorizing the latter to
sell the cargo vessel owned by Dy and christened LCT "Asiatic."

- Through a Deed of Absolute Sale, Ang Tay sold the subject vessel to Robert Ong (Ong). Ong paid the purchase
price by issuing three (3) checks However, since the payment was not made in cash, it was specifically stipulated
in the deed of sale that the "LCT Asiatic shall not be registered or transferred to Robert Ong until complete
payment." Thereafter, Ong obtained possession of the subject vessel so he could begin deriving economic
benefits therefrom. He, likewise, obtained copies of the unnotarized deed of sale allegedly to be shown to the
banks to enable him to acquire a loan to replenish his (Ong's) capital. The aforequoted condition, however, which
was handwritten on the original deed of sale does not appear on Ong's copies.

- Contrary to the aforementioned agreements and without the knowledge of Ang Tay, Ong had his copies of the
deed of sale (on which the aforementioned prohibition does not appear) notarized Ong presented the notarized
deed to the Philippine Coast Guard which subsequently issued him a Certificate of Ownership and a Certificate of
Philippine Register over the subject vessel. Ong also succeeded in having the name of the vessel changed to
LCT "Orient Hope."

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-Ong acquired a loan from Cebu International Finance Corporation to be paid in installments as evidenced by a
promissory note of even date.

-As security for the loan, Ong executed a chattel mortgage over the subject vessel, which mortgage was
registered with the Philippine Coast Guard and annotated on the Certificate of Ownership.

-Ong defaulted in the payment of the monthly installments. Consequently, Cebu International Finance Corporation
sent him a letter] demanding delivery of the mortgaged vessel for foreclosure or in the alternative to pay the
balance pursuant to paragraph 11 of the deed of chattel mortgage.

-Meanwhile, the two checks paid by Ong to Ang Tay for the Purchase of the subject vessel bounced. Ang Tay's
search for the elusive Ong and all attempts to confer with him proved to be futile. A subsequent investigation and
inquiry with the Office of the Coast Guard revealed that the subject vessel was already in the name of Ong, in
violation of the express undertaking contained in the original deed of sale.

-As a result thereof, Ang Tay and Jacinto Dy filed a civil case for rescission and replevin with damages against
Ong and his wife.

-The trial court issued a writ of replevin and the subject vessel was seized and subsequently delivered to Ang Tay.

- Cebu International filed a motion for intervention but withdrew the same. Instead, Cebu International filed a
separate case for replevin and damages against Ong and "John Doe" (Ang Tay).

-The trial court granted petitioner's prayer for replevin. The vessel was seized and placed in the custody of the
trial court. However, Ang Tay posted a counterbond and the vessel was returned to his possession.

TC:

-In favor of Ang Tay and Jacinto Dy. The sale of the subject vessel was rescinded, the registration of the vessel
with the Office of the Coast Guard and other government agencies in Ong's name nullified and the vessel's
registration in Dy's name revived. Ong was, likewise, ordered to pay Jacinto Dy and Ang Tay actual damages for
lost income, moral damages, attorney's fees and litigation expenses.

CA:

-Affirmed in toto TC’s decision.

ISSUE
:
-Whether or not Cebu International Finance Corporation is a mortgagee in good faith whose lien over the
mortgaged vessel should be respected
.

HELD:

-The chattel mortgage constituted on a vessel by the buyer who was able to register the vessel in his name
despite the agreement with the seller that the vessel would not be so registered until after full payment of the price
which do not appear in the buyer’s copy of the deed of sale is VALID, for the mortgagee has the right to rely in
good faith on the certificate of registration.

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

11. Nicol v. Blanco, 307 SCRA 241 (1991); Neeland v. Villanueva, 317 SCRA 652 (1999)

FACTS:

- Nicol and her husband were operators of a mini-bus.

-They obtained a loan from Radiowealth Finance Company which was later restructured due to their failure to pay
several monthly installments.

-As a collateral, they mortgaged their mini-bus.

-Subsequently with the approval of the manager of RFC, Salvacion pledged the mini bus for two months to
Engineer Rito.

-They again defaulted on their payments to RFC and their chattel was threatened to be foreclosed.

-Salvacion went to the RFC office to request the non-foreclosure of their mortgage and met Blanca who was
introduced by RFC's manager as its sheriff.

-On different occasions Blanca went to Salvacion’s office asking some amounts in consideration of not proceeding
with the foreclosure and auction sale of the mini bus.

-After a month, however, she received a notice of auction sale signed by Blanca and went to the situs of the sale
on the scheduled date, but nobody was there and no sale took place. She inquired from the Clerk of Court
regarding the auction sale, and was advised to ask Blanca.

-Blanca informed her that Jose Bragais won in the bidding.

-She checked with RFC and got the information that it was RFC that won in the bidding. She went to the office of
RFC to arrange for the redemption of the mini-bus and met Blanca there.

-This time, Blanco told Nicol that it was Elbert Vibal who won in the bidding and not RFC.

-Nicol then filed a letter-complaint with the Ombudsman alleging that the auction sale never took place on the
scheduled date and place and that Blanca never gave her the excess of the bid price.

-Blanca denied and maintained that he conducted an auction sale.

-The RFC filed the petition for extra-judicial foreclosure and he found the mini-bus in the possession of Engineer
Rito.

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-He sent RFC and the complainants a notice of auction sale and was conducted later on. He opined that the
charge was filed against him when he failed to accommodate Bragais who was recommended by Salvacion Nicol
to participate in the bidding.

-On rebuttal, Salvacion Nicol alleged that she could not have given respondent any loan since she was financially
distressed at that time.

-For failing to meet her various financial obligations, she was charged with estafa and violation of B.P. 22. She
maintained that the auction sale never took place on the scheduled dated and place. She also claimed that
respondent never gave her the excess of the bid price.

-Nicol furnished the OCA with copies of two criminal information for Direct Bribery filed by the Office of the Deputy
Ombudsman for Luzon against Blanca. The criminal information accused respondent of taking advantage of his
office as Sheriff by demanding and receiving a sum of money from complainants Nicol spouses for and in
consideration of discontinuing the auction sale of the latter's motor vehicle.

-Blanca averred that the amount received from the complainants is a loan he obtained prior to the time he acted
upon the petition for extra-judicial foreclosure of the mini-bus. On recommendation of the OCA, SC referred the
complaint to Executive Judge Santelices for investigation, report and recommendation. Judge Santelices
submitted his Report and Recommendation. He recommended that respondent be suspended for six months
without pay.

ISSUE:

-Whether or not Blanca’s failure to turn over to the mortgagor the excess of the bid price constituted gross
misconduct.

HELD:

-The Officer who conducted the forclosure must demand and actually receive the cash proceeds of the auction
sale from the highest bidder and turnover the balance to the mortgagee. It was therefore irregular for the sherrif
not to demand and receive the entire bid price in cash from the winning bidder, or at the very least, to demand the
excess amount and turnover to the mortgagor.

12. Tsai v. Court of Appeals, 366 SCRA 324 (2001)

FACTS:

--Ever Textile Mills, Inc. (EVERTEX) obtained a loan from petitioner Philippine Bank of Communications (PBCom).
-As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the
lot where its factory stands, and the chattels located therein as enumerated in a schedule attached to the
mortgage contract.

-PBCom granted a second loan to EVERTEX. The loan was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto. The listed properties were similar to those listed in the first
mortgage deed.

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-Due to business reverses, EVERTEX filed insolvency proceedings docketed. The CFI issued an order on
declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including
the collateral, real and personal, securing the two mortgages as abovementioned.

-In the meantime, upon EVERTEX’s failure to meet its obligation to PBCom, the latter commenced extrajudicial
foreclosure proceedings against EVERTEX.

-The first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale
was issued in its favor on the same date. Another public auction was held and again, PBCom was the highest
bidder.

-PBCom consolidated its ownership over the lot and all the properties in it. Subsequently, it leased the entire
factory premises to petitioner Ruby L. Tsai.

-PBCom sold the factory, lock, stock and barrel to Tsai, including the contested machineries.

- EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court
against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the
Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent
EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets.

-EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which
were not included in the Real and Chattel Mortgages.

TC, affirmed by CA:

-Found that the lease and sale of said personal properties were irregular and illegal because they were not duly
foreclosed nor sold at the auction sale since these were not included in the schedules attached to the mortgage
contracts.

ISSUE:

-Whether or not the inclusion of the questioned properties in the foreclosed properties is proper and whether or
not the sale of these properties to petitioner Ruby Tsai is valid.

HELD:

-Assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from
treating it as chattels to secure an obligation under the principle of estoppel. An immovable may be considered a
personal property if there is a stipulation as when it is used as security in the payment of an obligation where a
chattel mortgage is executed over it, as in the case at bar.

-Inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and
machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: “a chattel
mortgage shall be deemed to cover only the property described therein and not like or substituted property
thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged ,
anything in the mortgage to the contrary notwithstanding.”

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-And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or
1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with
the properties enumerated in said chattel mortgages.

-As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently,
the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot
give what one does not have

13. Nordic Asia Limited and Bankers trust Co. v. Court of Appeals,, 403 SCRA 391 (2003)

FACTS:

-Sextant Maritime obtained a loan from Nordic Asia and executed a Chattel Mortgage covering the vessel.

-Sextant defaulted payment. Nordic Asia instituted an Extra Judicial Foreclosure Proceeding. Nordic petitioned for
the issuance of the arrest order against the vessel which was granted.

-On the same day , the unpaid crew members filed an action for sum of money against Sextant.

-Nordic filed a complaint-in-intervention in the collection case arguing that it has a preferred claim over the vessel.

TC and CA:

-Favored the unpaid crew members.

ISSUE:

-Whether or not the mortgagee should be allowed to intervene in a collection case filed by a co-creditor who has
a superior or preferred lien, for the purpose of preventing the diminution of the mortgagees share.

HELD:

-A mortgagee of a vessel should not be allowed to intervene in a collection case filed by a co-claimant/ co-
creditor (unpaid crew members) possessing a superior lien or preferred credit than the mortgagee solely for the
purpose of opposing such claims so that its share in the mortgaged chattel may not be diminished substantially, or
to prevent it from being diminished at all since the higher the claims awarded to the crew members in the
collection case, which would be recovered from the attached vessel, the lesser the amount the mortgagee can
obtain from their extrajudicial foreclosure.

-In the case at bar, the complaint-in-intervention merely alleged that the mortgage possesses a mortgage lien and
it is so situated as to be adversely affected by the crew member’s collection case. Being just a mortgagee, the
cause of action lies with the vessel and mortgagor and not with a co-claimant. The mortgagee was unable to
allege what specific act or omission can be attributed to its co-claimant which violated its rights. The complaint-in-
intervention therefore failed to state a cause of action. In effect, the complaint-in-intervention is a devise to defeat
the order of preference of claims enumerated in PD 1521(the Ship Mortgage Decree). If the mortgagee’s tactics

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were allowed, it would virtually pave way for any creditor with a secondary lien or junior mortgage to block the
claims of a preferred creditor or claimant by simply intervening to oppose such credits or claims.

14. Phillipp Brothers Oceanic, Inc. v. Court of Appeals, 402 SCRA 605 (2003)

FACTS:
-A contract was entered into between Phillipp Brothers Hongkong and San Grace Mining Corporation
(SAGRAMCO).

-In the contract, Sagramco agreed to sell and ship to Phillipp Bothers H.K at least 9,000 metric tons of chrome
ore.

-In consideration for the delivery of the chrome ore., PhilBro H.K. agreed to open a letter of credit under which
Sagramco woulb be allowed to withdraw advances to be charged against Sagramco’s future deliveries of chrome
ore.

-PhilBro H.K. opened the letter of Crdit with BPI and the full amount was drawn by Sagramco.

-To secure the advance, Sagramco executed a chattel mortgage in favor of PhilBro H.K. over Sagramco’s
personal properties.

-Aside from the dollar advance obtained from PhilBro H.K., sagramco separately received peso advance from
Phil. Oceanic.

-Sagramco was able to produce chrome ores the value of which is more than the dollar advance.

-Subsequently, Sagramco and its corporate officers, Spouses de Gracia obtained from BPI two loans which were
secured by a Real Estate Mortgage.

-As further security, Sagramco executed a Deed of Assignment in favor of BPI assigning the proceeds of the
Letter of Credit which PhilBro H.K. opened with BPI and the trust receipts over the 1,8000 metric tons of chrome
ore stocked in the warehouse of PhilBro Oceanic.

-PhilBro H.K. assigned to PhilBro Oceanic all rights, interests and collectibles from Sagramco arising from PhilBro
H.K.’s and Sagramco’s contract and from the deed of chattel mortgage securing the same.

-BPI sought possession of the chrome ores alleging that by virtue of the trust receipts, it is the owner of the
chrome ore held in trust by Sagramco.

-A writ of replevin was issued and attempted to be enforced.

-PhilBro Oceanic filed a third party-claim alleging it was the rightful owner of the chrome ore, and subsequently
filed for judicial foreclosure of the chattel mortgage.

-The chrome ores were sold to public auction to prevent deterioration.

ISSUE:

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-Whether or not the chattel mortgage can be called upon to satisfy the peso advance obtained from PhilBro
Oceanic.

HELD:

-PhilBro H.K. and PhilBro Oceanic are two separate and distinct entity.

-Peso advance was simply an unsecured and interest bearing loan.

-The chattel mortgage is a mere accessory contract. Hence, it should be deemed automatically extinguished upon
the satisfaction of the principal obligation. It cannot extend to guarantee the payment of the obligation of another
entity which did not participate in the execution of the contract in its own right and was not an assignee thereof.

15. Poliand Industrial Limited v. National Development Company, 467 SCRA 500 (2005)

FACTS:

-Asian Hardwood extended credit accommodations in favor of Galleon. To augment Galleon’s working capital
depleted as a result of the purchase of 5 new vessels and 2 second hand vessels.

-To finance acquisition of vessels, galleon obtained loans from Japanese lenders.

-DBP executed Deed of Undertaking to guarantee prompt and punctual payment of Galleon.

-To secure DBP’s guarantee under the Deed of Undertaking, Galleon executed a first mortgage over the vessels.

-Meanwhile, President Marcos issued a Letter of Instruction directing NDC to acquire the entire share holdings of
Galleon.

-NDC assumed management and operation of Galleon.

-NDC paid Asian Hardwood using its own fund as partial settlement of Galleon’s obligation.

-Another LOI was issued directing the foreclosure of the mortgage for faileure of Galleon to pay its debt despite
repeated demands from DBP.

-DBP acquired the vessel in the foreclosure then later sold it to NDC.

-Asian Hardwood assigned its rights over the outstanding obligation of Galleon to World Universal, which in turn
assigned the credit to Poliand.

-President. Aquino issued Administrative Order directing NDC to transfer some of their assets to the National
Government through the Asset Privatization Trust among those transferred were the 5 Galleons sold at the
foreclosure proceedings.

-Poliand demanded to Galleon, NDC, and DBP for the satisfaction of the outstanding balance.

-Failure to heed, Poliand instituted a collection case against NDC, DBP and Galleon, claiming that under the LOI
and MOA between Galleon and NDC, Galleon, NDC and DBP were solidary liable to Poliand as assignee of the

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rights of the credit advances/loan accommodations to Galleon and also claimed it had preferred maritime lien over
the proceeds of the extra judicial foreclosure sale.

-By way of an alternative cause of action, Poliand sought reimbursement for the preferred maritime lien.

-DBP countered that it was unaware of the Maritime Lien on the 5 vessels mortgaged.

TC:

-Ruled that Poliand had preference to the maritime lien over the proceeds of the extra judicial foreclosure sale of
Galleon’s vessels since the loan advances/credit accommodations utilized for the payment of expenses on the
vessels were obtained prior to the constitution of the mortgage in favor of DBP.

CA:

-NDC liable to pay preferred maritime lien.

ISSUE:

-Whether or not, the mortgage lien of DBP is superior over the maritime lien of Poliand (registered or which was
prior in time with the chattel mortgage.) (NDC invoking Art 580 of the Civil Code.)

HELD:

-Article 580 of the Civil Code providing for the order of payments of creditors in the event of sale of a vessel had
been repealed by PD 1521, otherwise known as the Ship Mortgage Decree of 1978. If the mortgage of the vessel
constituted for the purpose of financing the construction, acquisition, purchase or initial operation of vessels, the
mortgagee obtains a preferred status provided the formalities prescribed by law are complied with. Upon
enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall first
be applied to the claim of the mortgage creditor unless there are superior or preferential claims under Section 17
of the same law.

16. Spouses Rosario v. PCI Leasing and Finance, Inc. 474 SCRA 500 (2005)

FACTS:

--Spouses Rosario purchased an Isuzu Elf Pick-up Utility vehicle from CarMerchants, Inc. The transaction was
covered by a Purchase Agreement whereby the spouses undertook to make a down payment.

-The spouses then applied for a loan with PCI Leasing to pay for the balance.

-Upon the approval of their loan application, the spouses Rosario executed a Promissory Note in favor of PCI
Leasing covering the amount of the loan plus finance charges. The spouses undertook to pay the loan in monthly
installments payable on the 29th day of each month at 22.10% annual interest.

-The spouses Rosario also agreed that, in case of default, the payment of the outstanding sum with interest shall
immediately become due and payable. To secure the payment of the loan, they executed, on the same day, a

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Chattel Mortgage in favor of PCI Leasing over the Isuzu Elf 4BD1. The motor vehicle was delivered to the
spouses and it was registered in their names.

-Despite demands, the spouses Rosario failed to pay the amortizations on their loan to PCI Leasing.

-PCI Leasing filed a Complaint against the spouses Rosario “Sum of Money with Damages with a Prayer for a
Writ of Replevin.”

- RTC issued an Order for the issuance of a writ of replevin. Then, the Sheriffseized the motor vehicle. After five
(5) days, without the court issuing an order discharging the writ, the Sheriff turned over the possession of the
vehicle to PCI Leasing.

-In their Answer to the complaint, the spouses Rosario alleged that the chattel mortgage they executed in favor of
PCI Leasing covering the motor vehicle was in effect a contract of sale of personal property, payable in
installments to be governed by Article 1484 [ of the New Civil Code of the Philippines. They further alleged that
since PCI Leasing opted to foreclose the chattel mortgage, it was estopped from collecting the balance of their
account under the promissory note and chattel mortgage.

TC:

-The trial court rendered judgment in favor of PCI Leasing. The trial court declared that the spouses Rosario were
only able to pay several monthly installments on their loan and their account was overdue. The trial court did not,
however, resolve the issue of whether Article 1484 of the New Civil Code was applicable.

CA:

-Rendered judgment dismissing the appeal, declaring that the spouses Rosario failed to prove their claim that
PCI Leasing had agreed to be subrogated to the right of CarMerchants, Inc. to collect the unpaid balance of the
purchase price of the motor vehicle. The appellate court also ruled that even if Article 1484 of the New Civil Code
were to be applied, the chattel mortgage had not been foreclosed; hence, PCI Leasing was not precluded from
collecting the balance of the appellants’ account. It held that the remedy of the unpaid seller under Article 1484 of
the New Civil Code is alternative and not cumulative.

ISSUE:

-Whether or not Article 1484 will apply as against a mortgagee who is not the vendor of the chattel mortgaged.

HELD:

-Article 1484 will not apply as against a mortgagee who is not the vendor of the chattel mortgaged. Thus, a suit for
replevin is not equivalent to an exercise of the remedy of foreclosure under Article 1484 of the New Civil Code.
Hence, a vendor-mortgagee is not barred from making a claim for specific performance against the buyer
mortgagor, by mere fact that the former was already able to secure writ of Replevin.

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17. Ching v. Spouses Santos, 531 SCRA 730 (2007)

FACTS:

-Antonio Ching executed a loan to Spouses Santos secured by a Real Estate Mortgage.

-The Spouses issued checks, however, some of them were dishonored, which prompted ching to file a criminal
case of BP 22.

-A compromise agreement was entered into which caused the termination of the case, but Spouses Santos still
failed to comply with it.

-Ching tried to foreclose the Real Estate Mortgage.

ISSUE:

-Whether or not the filing of a criminal case in connection with violation of BP 22 bars the mortaggee to foreclose
the Real Estate Mortgage.

HELD:

-The filing of a criminal case in connection to violation of BP 22 is equivalent to collection suit. Following the rule
on the alternative remedies of a mortgagee-creditor will bar or preclude the former from availing himself of the
other civil remedy of foreclosure of the real estate mortgage because pursuant to Section 1 (b) of Rule 111 of the
2000 Rules on Criminal Procedure, he is deemed to have already availed himself of the remedy of collection suit.

B. CHATTEL MORTGAGE ON A PERSONAL PROPERTY SOLD ON INSTALLMENTS

1. Industrial Finance v. Tobias, 78 SCRA 28 (1977)

FACTS:

-Castor Tobias bought on installment one (1) Dodge truck from Leelin Motors, Inc. To answer for his obligation he
executed a promissory note in favor of the latter, for the sum of P29.070.28 payable in thirty-six (36) equal
installments with interest at the rate of 12% per annum payable in the amounts and dates indicated in said
promissory note.

- To secure payment of the promissory note, respondent Tobias executed in favor of Leelin Motors, Inc. a chattel
mortgage on the Dodge truck.

-Leelin Motors, Inc. indorsed the promissory note and assigned the chattel mortgage to petitioner Industrial
Finance Corporation.

-As a consequence respondent Tobias paid six (6) installments on the promissory note directly to the petitioner
Industrial Finance Corporation.

-When Tobias was in arrear in the payment of more than two installments, IFC through a letter gave Tobias a
choice of either paying the balance of the purchase price or surrender the truck.

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-Tobias responded to the letter and voluntarily and willingly surrendering the truck which was still in the custody of
Leelin Motors ever since the truck met an accident.

-Upon learning that the truck met an accident, petitioner decided not to get the truck anymore from Leelin Motors,
Inc.

-Instead, IFC filed an action against Tobias to recover the unpaid balance of the promissory note.

TC, affirmed by CA:

-Dismissed the complaint on the ground that in as mucj as Tobias voluntarily and willingly surrendered the said
truck from Leelin Motors pursuant to the demand to surrender, Tobias has already complied with the demands of
IFC.

ISSUE:

-Whether or not the mortgagee is estopped to insist on its claim on the balance of the promissory note when it
demanded the return or surrender of the truck to which demand the mortgagor acceded.

HELD:

- Art. 1484 is clear that "should the vendee or purchaser of a personal property be in default in the payment of two
or more of the agreed installments, the vendor or seller has the option to either exact fulfillment by the purchaser
of -the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one
was constituted. Since the case involves the sale of personal property on installments Art. 1484 of the Civil Code
should apply. The remedies provided for in Art. 1484 are considered alternative, not cumulative such that the
exercise of one would bar the exercise by the others.

-Here, petitioner has not cancelled the sale, nor has it exercised the remedy of foreclosure. Foreclosure, judicial
or extra-judicial, presupposes something more than a mere demand to surrender possession of the object of the
mortgage. Since the petitioner has not availed itself of the remedy of cancelling the sale of the truck in question or
of foreclosing the chattel mortgage on said truck, petitioner is still free to avail of the remedy of exacting fulfillment
' of the obligation of respondent Tobias, the vendee of the truck in question. Said the Court:

The contract being a sale of machinery payable in installments, the applicable provision of law is
Article 1484 of the Civil Code, which gives the vendor the option to exercise any one of the
alternative remedies therein mentioned: exact fulfillment of the obligation, cancel the sale, or
foreclose the chattel mortgage. But the vendor- mortgagor in the present case desisted, on its
own initiative, from consummating the auction sale, without gaining any advantage or benefit, and
without causing any disadvantage, or harm to the vendees-mortgagees. The least that could be
said is that such desistance of the plaintiff from proceeding with auction sale was a timely
disavowal that cancelled and rendered useless its previous choice to foreclose; its acts, being
extra-judicial, brought no trouble upon any court, and were harmless to the defendants. For this
reason, the plaintiff cannot be considered as having "exercised" (the Code uses the word
"exercise") the remedy of foreclosure because of its incomplete implementation, and, therefore,
the plaintiff is not barred from suing on the unpaid account.

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-The issue of estoppel raised by respondent Tobias, to hold the petitioner in estoppel, it must be shown that when
it gave the respondent the choice of either paying the balance of the purchase price or of surrending the truck, it
had already knowledge of the accident and the consequent damage to the truck. In the present case petitioner
claims it had no knowledge of the accident when it gave the respondent the choice of either paying the balance of
the promissory note or of surrendering the truck. It is hard to believe that petitioner would make such offer to
respondent either to pay the balance on the promissory, note or to surrender the truck in question if it knew that
the truck has had an accident. The more plausible thing it would have asked the respondent is to ask for the
balance on the promissory note. Besides the allegation of petitioner that it had no knowledge of the accident is a
negative allegation and needs no evidence to support it, not being an essential part of the statement of the right
on which the cause of action is founded. It is therefore the respondent Tobias who has the burden of disproving
the claim of petitioner that he has no knowledge of the accident when it made the offer to respondent either to pay
the balance on the promissory note or to surrender the truck. Respondent failed in this.

2. Filinvest Credit Corporation v. Philippine Acetylene Co., Inc. 111Scra 421 (1982)

FACTS:

-The Philippine Acetylene Co., Inc. purchased from one Alexander Lim, as evidenced by a Deed of Sale, a motor
vehicle described as Chevorlet, 1969 model, paying a down payment and the balance payable at 34 monthly
installments.

-As security for the payment of said promissory note, PAC executed a chattel mortgage over the same motor
vehicle in favor of said Alexander Lim.

-Subsequently, Alexander Lim assigned to the Filinvest Finance Corporation all his rights, title, and interests in the
promissory note and chattel mortgage by virtue of a Deed of Assignment.

-Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit and Development
Corporation assigned to the new corporation, Filinvest Credit Corporation, all its rights, title, and interests on the
aforesaid promissory note and chattel mortgage, which, in effect, the payment of the unpaid balance owed by
PAC to Alexander Lim was financed by Filinvest Credit Corporation such that Lim became fully paid.

-PAC failed to comply with the terms and conditions set forth in the promissory note and chattel mortgage since it
had defaulted in the payment of nine successive installments. Filinvest Credit Corporation then sent a demand
letter whereby its counsel demanded "that you (appellant) remit the aforesaid amount in full in addition to
stipulated interest and charges or return the mortgaged property to my client at its office at 2133 Taft Avenue,
Malate, Manila within five (5) days from date of this letter during office hours. "

-Replying thereto, PACt, thru its assistant general- manager, wrote back advising Filinvest Credit Corporation of
its decision to "return the mortgaged property, which return shall be in full satisfaction of its indebtedness pursuant
to Article 1484 of the New Civil Code." Accordingly, the mortgaged vehicle was returned Filinvest Credit
Corporation to the together with the document "Voluntary Surrender with Special Power of Attorney To Sell"
executed by PAC.

- Filinvest Credit Corporation wrote a letter to PAC informing the latter that Filinvest Credit Corporation cannot sell
the motor vehicle as there were unpaid taxes on the said vehicle. On the last portion of the said letter, Filinvest
Credit Corporation requested the PAC to update its account by paying the installments in arrears and accruing
interest.

Filinvest Credit Corporation, in a letter, offered to deliver back the motor vehicle to the PAC but the latter refused
to accept it, so Filinvest Credit Corporation instituted an action for collection of a sum of money with damages.
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-In its answer, PAC, while admitting the material allegations of the Filinvest Credit Corporation’s complaint, avers
that Filinvest Credit Corporation has no cause of action against it since its obligation towards the Filinvest Credit
Corporation was extinguished when in compliance with the Filinvest Credit Corporation's demand letter, it
returned the mortgaged property to the Filinvest Credit Corporation, and that assuming arguendo that the return of
the property did not extinguish its obligation, it was nonetheless justified in refusing payment since the Filinvest
Credit Corporation is not entitled to recover the same due to the breach of warranty committed by the original
vendor-assignor Alexander Lim.

LC:

-Ordered PAC to pay the outstanding unpaid obligation and to accept the delivery of the motor vehicle subject of
the chattel mortgage.

ISSUE:

-Whether or not the return the return of the mortgaged property by the mortgagor to the mortgagee constituted
dacion en pago or Dation in payment.

HELD:

- The mere return of the mortgaged motor vehicle by the mortgagor, PAC, to the mortgagee, Filinvest Credit
Corporation, does not constitute dation in payment or dacion en pago in the absence, express or implied of the
true intention of the parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing
by the debtor to the creditor as an accepted equivalent of the performance of obligation. In dacion en pago, as a
special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is
really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As
such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration
must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of
the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered
as the object of the contract of sale, while the debt is considered as the purchase price. 5 In any case, common
consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or
obligation.

-The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at least
intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as
actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle
was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en
pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred
special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to
appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible
that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent
transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant.

3. Zayas, Sr. v. Luneta Motor Company, 117 SCRA 726 (1982)


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FACTS:

- Eutropio Zayas, Jr. purchased on installment basis a Ford Thames Freighter with PUH Body (Engine 400E-
127738 and Chassis 400E-127738) from Mr. Roque Escaño of the Escaño Enterprises in Cagayan de Oro City,
dealer of Luneta Motor Company.

-The motor vehicle was delivered to the Zayas who paid the initial payment in, and executed a promissory note for
the balance of the total selling price, in favor of Luneta Motor Company. The promissory note stated the amounts
and dates of payment of 26 installments. Simultaneously with the execution of the promissory note and to secure
its payment, Zayas executed a chattel mortgage on the subject motor vehicle in favor of Luneta Motors.

-Zayas was unable to pay further monthly installments prompting the Luneta Motors to extrajudicially foreclose the
chattel mortgage. The motor vehicle was sold at public auction with the Luneta Motors represented by Atty.
Leandro B. Fernandez as the highest bidder.

Since the payments made by Zayas plus the proceeds realized from the foreclosure of the chattel mortgage could
not cover the total amount of the promissory note executed by Zayas in favor of the respondent Luneta Motors,
the latter filed an avtion for the recovery of the balance plus interests.

-The City Court affirmed by CFI dismissed the complaint.

-Luneta Motor Company appealed the case to the CFI. After various incidents, the CFI issued an order remanding
the case to the court of origin for further proceedings at it is in the opinion that the City Court should have not
decided the case merely on the question of law since the presentation of evidence is necessary to adjudicate the
questions involved. Hence, the petition for review by certiorari filed by Zayas.

ISSUE:

-Whether or not the assignee in the interest of the mortgagee can still recover the deficiency amount of the motor
vehicle subject of the chattel mortgage which has been sold at public auction.

HELD:

- Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages over personal property sold on
installment basis, provides that “In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies: (3) Foreclose the chattel ,mortgage on the
thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.”

-The foreclosure and actual sale of a mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser’s outstanding obligation not so satisfied by the sale. The prohibition applies to the assignee in interes
of the mortgagee.

4. Ridad v. Filinvest and Finance Corporation, 120 SCRA 246 (1983)

FACTS:
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- On April 14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation two (2) brand
new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly installments. To secure
payment thereof, plaintiffs executed on the same date a promissory note covering the purchase price and a deed
of chattel mortgage not only on the two vehicles purchased but also on another car (Chevrolet) and plaintiffs'
franchise or certificate of public convenience granted by the defunct Public Service Commission for the operation
of a taxi fleet. Then, with the conformity of the plaintiffs, the vendor assigned its rights, title and interest to the
above-mentioned promissory note and chattel mortgage to defendant Filipinas Investment and Finance
Corporation.

-Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant
corporation foreclosed the chattel mortgage extra-judicially, and at the public auction sale of the two Ford Consul
cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder and purchaser.
Another auction sale was held on November 16, 1965, involving the remaining properties subject of the deed of
chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the aforesaid vehicles, and at the
public auction sale, the franchise of plaintiffs to operate five units of taxicab service was sold for P8,000 to the
highest bidder, herein defendant corporation, which subsequently sold and conveyed the same to herein
defendant Jose D. Sebastian, who then filed with the Public Service Commission an application for approval of
said sale in his favor.

-On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First Instance of
Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose San
Agustin, as party-defendants.

TC:

- Court declared the chattel mortgage, to be null and void in so far as the taxicab franchise and the used
Chevrolet car of plaintiffs are concerned, and the sale at public auction conducted by the City Sheriff of Manila
concerning said taxicab franchise, to be of no legal effect. The certificate of sale issued by the City Sheriff of
Manila in favor of Filipinas Investment and Finance Corporation concerning plaintiffs' taxicab franchise for P8,000
is accordingly cancelled and set aside, and the assignment thereof made by Filipinas Investment in favor of
defendant Jose Sebastian is declared void and of no legal effect.

CA certified the case to SC.

ISSUE:

-Whether or not the vendor of personal property sold on installments basis is precluded, after foreclosing the
chattel mortgage on the thing sold, from having recourse against the additional security by the mortgagor.

HELD:

-The vendor of personal property the purchase price of which is payable in installments, has the right, should the
vendee default in the payment of two or more of the agreed installments, to exact fulfillment by the purchaser of
the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was
constituted. Whichever right the vendor elects, he cannot avail of the other, these remedies being alternative, not
cumulative. Furthermore, if the vendor avails himself of the right to foreclose his mortgage, the law prohibits him

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from further bringing an action against the vendee for the purpose of recovering whatever balance of the debt
secured not satisfied by the foreclosure sale. The precise purpose of the law is to prevent mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would find himself without the property and
still owing practically the full amount of his original indebtedness.

-In the instant case, defendant corporation elected to foreclose its mortgage upon default by the plaintiffs in the
payment of the agreed installments. Having chosen to foreclose the chattel mortgage, and bought the purchased
vehicles at the public auction as the highest bidder, it submitted itself to the consequences of the law as
specifically mentioned, by which it is deemed to have renounced any and all rights which it might otherwise have
under the promissory note and the chattel mortgage as well as the payment of the unpaid balance.

-Consequently, the lower court rightly declared the nullity of the chattel mortgage in question in so far as the
taxicab franchise and the used Chevrolet car of plaintiffs are concerned

5. Esguerra v. Court of Appeals, 173 SCRA 1 (1989)

FACTS:

-GA Machineries Inc. sold a Ford-trader cargo to Hilario Lagmay and Bonifacio Masilungan.

-Subsequently, Montelibano Esguerra bought the right to the cargo truck and assumed paying the unpaid
purchase price.

-In so doing, Esguerra executed in favor of GAMI a promissory note and chattel mortgage over the truck.

-Esguerra defaulted in his obligations.

-Gami took the truck from Esguerra who gave his consent on the condition that he be allowed to recover its
possession upon payment of its account.

-Esguerra tried to repossess the truck by sending his wife to Gami to partially settle his account.

-Still, Gami refused to deliver the truck, compelling Esguerra to file a complaint.

TC:

-Dismissed the complaint ruling that it was not unlawful on the part of Gami to repossess the cargo truck in
question as Esguerra gave his consent to the repossession.

CA:

-Set aside the decision of the LC and held that while it is true that the mortgagee can take possession of the
chattel, such taking did not amount to the foreclosure of the mortgage, otherwise stated, Gami should have
foreclosed the mortgage.

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ISSUE:

-Whether or not the mortgagee-vendor of the personal property sold on installments is legally obligated to
foreclose the chattel mortgage and sell the chattel subject thereof at public auction in case the mortgagor-vendee
defaults in the payment of the agreed installments.

HELD:

- While the mortgagee can take possession of the chattel, such taking did not amount to the foreclosure of the
mortgage. Otherwise stated, the taking of Esguerra's truck without proceeding to the sale of the same at public
auction, but instead, appropriating the same in payment of Esguerra's indebtedness, is not lawful.

-As clearly stated in the chattel mortgage contract, the express purpose of the taking of the mortgaged property is
to sell the same and/or foreclose the mortgage constituted thereon either judicially or extrajudicially and thereby,
liquidate the indebtedness in accordance with law.

-More than that, even if such automatic appropriation of the cargo truck in question can be inferred from or be
contemplated under the aforesaid mortgage contract, such stipulation would be pactum commissorium which is
expressly prohibited by Article 2088 of the Civil Code and therefore, null and void.

-Having opted to foreclose the chattel mortgage, respondent GAMI can no longer cancel the sale. The three
remedies of the vendor in case the vendee defaults, in a contract of sale of personal property the price of which is
payable in installment under Article 1484 of the Civil Code, are alternative and cannot be exercised
simultaneously or cumulatively by the vendor-creditor.

6. Borbon II v. Servicewide specialist, 258 SCRA 634 (1996)

FACTS:

-Daniel Borbon and Francisco Borbon purchased from Pangasinan AutoMart Inc. Brand new 1984 Isuzu KCD 20
crew cab and signed a promissory note payable in 12 monthly installments.

-To secure the promissory note, the Borbon’s executed a chattel mortgage over the vehicle.

-The right of Pangasinan Automart Inc was later assigned to Filinvest Credit Corporation with notice to the
Borbons.

-FCC in turn assigned all its rights, interest and title over the promissory note and the chattel mortgage to
Sevicewide Specialists.

-When the Borbon’s failed to comply with their obligation, Servicewide Specialist filed an action for replevin for the
foreclosure of the mortgage property.

-The Borbon’s claimed that they were not in default because Pangasinan Automart delivered a vehicle different
from what they have intended to buy and despite communication, the latter was not able to replace the vehicle
until it was seized by the court.

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-Sustaining the decision of the court a quo, the appellate court upheld the award of liquidated damages and
attorney’s fees in favor of Servicewide Specialists.

HELD:

-The remedies under Article 1484 of the Civil Code are not cumulative but alternative and exclusive, which means,
that -

"x x x Should the vendee or purchaser of a personal property default in the payment of two or more
of the agreed installments, the vendor or seller has the option to avail of any of these three remedies —
either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one was constituted. These remedies have been
recognized as alternative, not cumulative, that the exercise of one would bar the exercise of the others."

-When the seller assigns his credit to another person, the latter is likewise bound by the same law. Accordingly,
when the assignee forecloses on the mortgage, there can be no further recovery of the deficiency, and the seller-
mortgagee is deemed to have renounced any right thereto. A contrario, in the event the seller-mortgagee first
seeks, instead, the enforcement of the additional mortgages, guarantees or other security arrangements, he must
then be held to have lost by waiver or non-choice his lien on the chattel mortgage of the personal property sold by
any mortgaged back to him, although, similar to an action for specific performance, he may still levy on it.

-In ordinary alternative obligations, a mere choice categorically and unequivocally made and then communicated
by the person entitled to exercise the option concludes the parties. The creditor may not thereafter exercise any
other option, unless the chosen alternative proves to be ineffectual or unavailing due to no fault on his part. This
rule, in essence, is the difference between alternative obligations, on the one hand, and alternative remedies,
upon the other hand, where, in the latter case, the choice generally becomes conclusive only upon the exercise of
the remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil Code, it is only when there
has been a foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from a
deficiency liability. Thus, if the case is one for specific performance, even when this action is selected after the
vendee has refused to surrender the mortgaged property to permit an extrajudicial foreclosure, that property may
still be levied on execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the
judgment credit. So, also, a mere demand to surrender the object which is not heeded by the mortgagor will not
amount to a foreclosure, but the repossession thereof by the vendor-mortgagee would have the effect of
foreclosure

7. Agustin v. Court of Appeals,, 271 SCRA 463 (1997)

FACTS:

-Agustin executed a promissory note in favor of ERM commercial.

-The note was payable in monthly installments and secured by chattel mortgage over an Isuzu diesel truck, both
of which were subsequently assigned to Filinvest Finance Corporation.

-When Agustin defaulted in paying the installments, FFC demanded from him the payment of the entire balance or
lieu thereof, the possession of the mortgage vehicle.

-Neither payment nor surrender was made.

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-Aggrieved, FFC filed a complaint against Agustin praying for the issuance of writ of replevin or in the alternative,
for payment.

-Trial ensued and thereafter a writ of replevin was issued.

-By virtue thereof, FCC acquired possession of the vehicle.

-Upon repossession, FCC discovered that the vehicle was no longer in running condition and that several parts
were missing which FCC replaced.

-The vehicle was then foreclosed and sold at public auction.

-Subsequently, FCC filed a supplemental complaint claiming additional reimbursement for the value of
replacement parts and for expenses incurred in transporting the mortgaged vehicle from Cagayan to Manila.

-Agustin move to dismiss the supplemental complaint arguing that the court had already lost jurisdiction over the
case because of the earlier extra judicial foreclosure of the mortgage.

TC:

-Granted the motion.

CA:

-Set aside the order of dismissal and ruled that repossession expenses should be reimbursed.

ISSUE:

-Whether or not repossession expenses incurred by the mortgage in action for replevin are recoverable from the
mortgage.

HELD:

-The necessary expenses incurred in the prosecution by the mortgagee of the action for replevin so that he can
regain possession of the chattel should be borne by the mortgagor. Recoverable expenses include expenses
properly incurred in effecting seizure of the chattel and reasonable attorney’s fees in prosecuting the action for
replevin. These repossession expenses are not part of the unpaid claim which cannot be recovered by the
foreclosure of the chattel mortgage on the property sold on installments under Article 1484 of the Civil Code.

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