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1. Torres et. al. vs.

Limjap

Facts

Jose Henson executed a chattel mortgage in plaintiffs favor to secure a loan. The subject
of the chattel mortgage is a drug store. Henson defaulted in payment thus the plaintiffs
moved to foreclose the subject property but the defendant alleged that the chattels which
the plaintiffs sought to recover were not the same property described in the mortgage
because he contends that the goods in the pharmacy at the present time are not covered by
the executed chattel mortgage.

As the defendants relied on the provision of section 7 Act No. 1508, which reads as
follows:

A chattel mortgage shall be deemed to cover only the property described therein
and not like or substituted property thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged, anything in the mortgage to the
contrary notwithstanding.

Issue

Whether or not the goods in the drug store are also covered by the chattel mortgage.

Held

It was held by the SC that the intention of the law is to promote business in the
Philippines and by applying section 7 in the case at bar would contradict the said
intention because if said provision were intended to apply to this class of business, it
would be practically impossible to constitute a mortgage on such stores without closing
them, contrary to the very spirit about a handicap to trade and business, would restrain
the circulation of capital, and would defeat the purpose for which the law was enacted, to
wit, the promotion of business and the economic development of the country.
2. Acme Shoe vs. CA

Facts

Petitioner Chua, president of the Acme Shoe, Rubber and Corporation executed a chattel
mortgage in favor of Bank of the Philippines to secure a loan with a stipulation on the
said chattel mortgage that it would cover future obligations. At first the Acme shoes
were able to pay their loans but on the succeeding loans they defaulted thus the
foreclosure of the property being the subject of the said chattel mortgage.

Petitoner filed an action for injunction before the RTC, it was denied, appealed in CA,
CA affirmed the decision of RTC in toto, still they filed motion for reconsideration and it
was granted.

Issue

Whether or not it is correct to put a stipulation on the chattel mortgage that it may cover
future obligations.

Held

It was held by the SC that a stipulation expressed in 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, it can only be executed (the new contract) either by concluding a
new chattel mortgage or by amending the old one.

The ruling is based on the requirement of Affidavit of Good Faith which must certain an
oath that the mortgage is made for the purpose of securing the obligation specified in the
conditions and for no other purpose – which makes it obvious that the debt refereed to in
the law is a current, not an obligation that is yet merely contemplated.

WHEREFORE, the questioned decisions of the appellate court and the lower court are set
aside without prejudice to the appropriate legal recourse by private respondent as may
still be warranted as an unsecured creditor. No costs.
4. Southern Motors Inc vs. Moscoso

Facts

Plaintiff sold to defendant one Chevrolet truck on installment basis. Upon making a down
payment the defendant executed a promissory note for the sum of P4,915.00, representing the
unpaid balance of the purchase price, to secure the payment of which, a chattel mortgage was
constituted on the truck in favor of the plaintiff

The defendant failed to pay three installments on the balance of the purchase price. Plaintiff
filed an action to recover the unpaid balance. The court issued a writ of attachment against
the house of the defendant and on the said truck. The Provincial Sheriff of Iloilo sold the
truck at public auction in which plaintiff itself was the only bidder for P1,000.00.

The trial court condemned the defendant to pay the plaintiff the remaining amount of
P4,475.00 with interest.

The defendant filed an appeal and contends that that the attachment caused to be levied on
the truck and its immediate sale at public auction, was tantamount to the foreclosure of the
chattel mortgage on said truck; thus extinguished his obligation.

Issue

Whether or not the attachment caused to be levied on the truck and its immediate sale at
public auction, was tantamount to the foreclosure of the chattel mortgage on said truck.

Held

It was held by the SC that under article ART. 1484. 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:

(1) Exact fulfillment of the obligation, should the vendee fail to pay; .

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(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 defendant’s contention that the present circumstances falls into paragraph number 3 is
bereft of merit. The SC finds that the appellee had chosen the first remedy. The complaint is
an ordinary civil action for recovery of the remaining unpaid balance due on the promissory
note. The plaintiff had not adopted the procedure or methods outlined by Sec. 14 of the
Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of
Court. Herein appellee did not intend to foreclose the mortgage truck, is further evinced by
the fact that it had also attached the house and lot of the appellant
5. Cruz vs. Filipina Investment

Facts

Ruperto Cruz purchased on installment unit of Isuzu Diesel Bus payable on installments
and to secure payment, Cruz executed in favor of the seller, Far East Motor Corporation,
a chattel mortgage over the said vehicle.

Cruz defaulted in payment and the Far East Motor Corpartion finds that even foreclosing
the said vehicle, it will not be enough to satisfy the debt of Cruz thus requiring Cruz to
SECOND MORTGAGE on a parcel of land.

The said bus was foreclosed and still the Far Eastern Motor Corporation finds Cruz to be
still indebted to them and they moved to foreclose the land contained in the second
mortgage.

Ruperto Cruz filed an action for the cancellation of the real estate mortgage constituted on the
said land alleging the same that after foreclosing the bus he is freed from any obligation in
connection with the chattel mortgage executed.

Issue

Whether or not the foreclosure of the bus even the proceeds thereof are insufficient to satisfy the
debt of Mr. Cruz precludes the Far Eastern Motor Corporation for further recovery.

Held

It was held by the SC that the provisions of Article 1484 of the NCC should apply in this case.
As it provides that;

ART. 1484. 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:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(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.

That it is clear under paragraph number 3 of the said article precludes the defendant from further
recovering any amount from the plaintiff after foreclosing the said bus.
6. Ridad vs. Filipinas Investment Corporation

Facts

Plaintiffs bought in installment cars (2 Ford Consul Sedans) from the Supreme Sales arid
Development Corporation. To secure payment 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) including 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.

The plaintiff defaulted payment thus the foreclosure 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,

Plaintiffs filed an action for annulment of contract in connection with the public auction
of the remaining properties, this concerns the taxicab franchise and the used Chevrolet
car. RTC annulled the said contract of sale.

Issue

Whether or not the foreclosure of the two Ford Consul Cars satisfy the debt of Ridad thus
the annulment of the RTC in the said contract of sale are correct.

Held

It was held by the SC that under Article 1484 paragraph 3 applies in this case;

Art. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise y 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.

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.