People’s Bank and Trust Co. and Atlantic Gulf and Pacific Co.
, Manila v Dahican if already included therein at the time of their execution. As the language thus used
Lumber Company, Dahican American Lumber Corporation and Connell Bros
(Dizon, 1967)
Topic: Security Devices
FACTS
West Virginia corporation, Atlantic Gulf and Pacific Co. (ATLANTIC) sold and
assigned all its rights in the Dahican Lumber concession to Dahican Lumber
Company (DALCO) for the total sum of $500k and only $50k was paid. To develop
the concession, DALCO obtained various loans from petitioner bank (BANK)
amounting to P200k. Through BANK, DALCO obtained a $250k loan from Export-
Import Bank of Washington evidenced by 5 promissory notes of $50k each executed
by DALCO and Dahican American Lumber (DAMCO).
To secure said loans, DALCO executed in favor of BANK a deed of mortgage
covering 5 parcels of land with all other buildings and improvements therein and all
personal properties in the place of business. DALCO executed a 2 nd mortgage, this
time with ATLANTIC to secure payment of unpaid balance of lumber concession
amounting to $450k. Both deeds contained a provision extending the mortgage
lien to properties subsequently acquired (after acquired properties).
Mortgages were registered in the Office of the Register of Deeds. DALCO and
DAMCO failed to pay the 5th promissory note upon its maturity and BANK paid for the
promissory note in favor of Export-Import Bank. After the execution of the properties,
DALCO purchased various equipment, spare parts and supplies in addition to or
in replacement of some of those owned and used by it before the execution. Because
of the “after acquired properties” provision, the BANK requested for a complete
list of purchases with Connell Bros, the general purchasing agent of DALCO.
DALCO called for a board meeting and decided to rescind all purchases. BANK
demanded agreements to be cancelled.
ATLANTIC and BANK commenced foreclosure proceedings with CFI of Camarines
Norte. They also filed an ex-parte application for appointment of Receiver and/or for
writ of prelim injunction to restrain DALCO from removing properties. George Evans
was appointed as Receiver but was discharged upon motion of defendants.
CFI rendered judgment in favor of petitioners but all parties still appealed. Petitioners
wanted the after acquired properties to be subject of the mortgage.
ISSUES
WON the “after acquired properties” covered by and subject to the deeds of mortgage
subject of foreclosure – YES because it is a valid stipulation
Under the fourth paragraph of both deeds of mortgage, all property of every nature
and description taken in exchange or replacement, as well as all buildings,
machineries, fixtures, tools, equipments, and other property that the mortgagor may
acquire, construct, install, attach; or use in, to upon, or in connection with the
premises — that is, its lumber concession — "shall immediately be and become
subject to the lien" of both mortgages in the same manner and to the same extent as
leaves no room for doubt as to the intention of the parties.
The stipulation “after acquired properties” is neither unlawful nor immoral, its obvious
purpose being to maintain, to the extent allowed by circumstances, the original value
of the properties given as security. Indeed, if such properties were of the nature
already referred to, it would be poor judgment on the part of the creditor who does not
see to it that a similar provision is included in the contract.
WON the mortgages are valid and binding on the properties aforesaid inspite of the
fact that they were not registered in accordance with the provisions of the Chattel
Mortgage Law – YES, because Chattel Mortgage Law does not apply.
A chattel mortgage must be registered and must describe the mortgaged chattels or
personal properties sufficiently to enable the parties and any other person to identify
them. The law does not apply in this case (because not personal property).
The mortgage was executed on July 13, 1950, when the old Civil Code was in force.
However this is immaterial because the applicable provisions (Arts 334 and 1977)
were substantially reproduced in the New Civil Code (Arts 415 and 2127).
Chattel mortgages were executed on real properties. The after acquired properties
were obtained by DALCO for developing the lumber concession. They must be
deemed to have been “immobilized” in line with jurisprudence
 Berkenkotter v Cu Unjieng - Article 334, paragraph 5 of the Civil Code (old)
gives the character of real property to machinery, liquid containers,
instruments or replacements intended by the owner of any building or land
for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade or
industry
 Cu Unjieng e Hijos v MAbalacat Sugar - a mortgage constituted on a sugar
central includes not only the land on which it is built but also the buildings,
machinery and accessories installed at the time the mortgage was
constituted as well as the buildings, machinery and accessories belonging to
the mortgagor, installed after the constitution thereof .
 Davao Sawmill case applicable but not in defendant’s favor. - while under
the general law of Puerto Rico, machinery placed on property by a tenant
does not become immobilized, yet, when the tenant places it there pursuant
to contract that it shall belong to the owner, it then becomes immobilized as
to that tenant and even as against his assignees and creditors who had
sufficient notice of such stipulation
WON DAMCO and CONNELL have rights over the after acquired properties superior
to the mortgage lien – NO, they are not “unpaid suppliers”
The execution of the rescission of sales mentioned heretofore appears to be but a
desperate attempt to better or improve DAMCO and CONNELL's position by enabling
them to assume the role of "unpaid suppliers" and thus claim a vendor's lien over the
"after acquired properties". The attempt, of course, is utterly ineffectual, not only
because they are not the "unpaid sellers" they claim to be but also because there is
abundant evidence in the record showing that both DAMCO and CONNELL had
known and admitted from the beginning that the "after acquired properties" of DALCO
were meant to be included in the first and second mortgages under foreclosure.
 (evidence) The report of the auditors and its annexes show that neither
DAMCO nor CONNELL had supplied any of the goods of which they
respective claimed to be the unpaid seller; that all items were supplied by
different parties, neither of whom appeared to be DAMCO or CONNELL that,
in fact, CONNELL collected a 5% service charge on the net value of all items
it claims to have sold to DALCO and which, in truth, it had purchased for
DALCO as the latter's general agent; that CONNELL had to issue its own
invoices in addition to those o f the real suppliers in order to collect and
justify such service charge.

ALSO: The claim that Belden, of ATLANTIC, had given his consent to the rescission,
expressly or otherwise, is of no consequence and does not make the rescission valid
and legally effective

As regard the proceeds obtained from the sale of the after acquired properties and
the "undebated properties", it is clear, in view of the Court’s opinion sustaining the
validity of the mortgages in relation thereto, that said proceeds should be awarded
exclusively to the plaintiffs in payment of the money obligations secured by the
mortgages under foreclosure.

 MODIFIED but affirmed in all other respects