Dy v.
CA the execution of the public instrument pursuant to
FACTS:
Wilfredo Dy purchased a truck and a farm tractor
through LIBRA which was also mortgaged with the latter,
as a security to the loan.
Petitioner, expresses his desire to purchased his
brother’s tractor in a letter to LIBRA which also includes
his intention to shoulder its mortgaged. LIBRA approved
the request. At the time that Wilfredo Dy executed a
deed of absolute sale in favor of petitioner, the tractor
and truck were in the possession of LIBRA for his failure
to pay the amortization.
When petitioner finally fulfilled its obligation to pay the
tractor, LIBRA would only release the same only if he
would also pay for the truck. In order to fulfill LIBRA’s
condition, petitioner convinced his sister to pay for the
remaining truck, to which she released a check
amounting to P22,000. LIBRA however, insisted that the
check must be first cleared before it delivers the truck
and tractor.
Meanwhile, another case penned “Gelac Trading Inc vs.
Wilfredo Dy” was pending in Cebu as a case to recover
for a sum of money (P12,269.80). By a writ of execution
the court in Cebu ordered to seize and levy the tractor
which was in the premise of LIBRA, it was sold in a public
auction to which it was purchased by GELAC. The latter
then sold the tractor to Antonio Gonzales.
RTC rendered in favor of petitioner.
CA dismissed the case, alleging that it still belongs to
Wilfredo Dy.
ISSUE:
Whether or not there was a consummated sale between
Petitioner and LIBRA?
HELD:NO. The mortgagor who gave the property as
security under a chattel mortgage did not part with the
ownership over the same. He had the right to sell it
although he was under the obligation to secure the
written consent of the mortgagee. And even if no
consent was obtained from the mortgagee, the validity
of the sale would still not be affected.
Article 1496 of the Civil Code states that the ownership
of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501 or in any other manner
signing an agreement that the possession is transferred
from the vendor to the vendee. In the instant case,
actual delivery of the subject tractor could not be made.
However, there was constructive delivery already upon
Article 1498 and upon the consent or agreement of the
parties when the thing sold cannot be immediately
transferred to the possession of the vendee.
The payment of the check was actually intended to
extinguish the mortgage obligation so that the tractor
could be released to the petitioner. It was never
intended nor could it be considered as payment of the
purchase price because the relationship between Libra
and the petitioner is not one of sale but still a mortgage.
The clearing or encashment of the check which produced
the effect of payment determined the full payment of
the money obligation and the release of the chattel
mortgage. It was not determinative of the
consummation of the sale. The transaction between the
brothers is distinct and apart from the transaction
between Libra and the petitioner. The contention,
therefore, that the consummation of the sale depended
upon the encashment of the check is untenable.
Tsai v. Court of Appeals
FACTS
Ever Textile Mills, Inc. (EVERTEX) obtained a three million
peso (P3,000,000.00) loan from Philippine Bank of
Communications (PBCom) on November 26, 1975.
EVERTEX executed in favor of PBCom a deed of Real and
Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein
as enumerated in a schedule attached to the mortgage
contract.
On April 23, 1979, PBCom granted a second loan of
P3,356,000.00 to EVERTEX. The loan was secured by a
Chattel Mortgage over personal properties enumerated
in a list attached thereto that were similar to those listed
in Annex A of the first mortgage deed.
Upon EVERTEX’s failure to meet its obligation to PBCom,
the latter commenced extrajudicial foreclosure
proceedings against EVERTEX under Act 3135, otherwise
known as "An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate
Mortgages" and Act 1506 or "The Chattel Mortgage
Law."
On March 7, 1984, PBCom consolidated its ownership
over the lot and all the properties in it. In November
1986, it leased the entire factory premises to petitioner
Ruby L. Tsai for P50,000.00 a month. On May 3, 1988,
PBCom sold the factory, lock, stock and barrel to Tsai for
P9,000,000.00, including the contested machineries.
On March 16, 1989, 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.
ISSUES
(1) Whether or not the contested properties are
personal or movable properties
(2) Whether or not the sale of these properties to
Ruby Tsai is valid
HELD
(1) Nature of the Properties and Intent of the Parties
The nature of the disputed machineries, i.e., that they
were heavy, bolted or cemented on the real property
mortgaged by EVERTEX to PBCom, make them ipso facto
immovable under Article 415 (3) and (5) of the New Civil
Code. This assertion, however, does not settle the issue.
Mere nuts and bolts do not foreclose the controversy.
We have to look at the parties’ intent.
While it is true that the controverted properties appear
to be immobile, a perusal of the contract of Real and
Chattel Mortgage executed by the parties herein gives a
contrary indication. In the case at bar, both the trial and
the appellate courts reached the same finding that the
true intention of PBCOM and the owner, EVERTEX, is to
treat machinery and equipment as chattels.
As stressed upon by appellees, appellant bank treated
the machineries as chattels; never as real properties.
Indeed, the 1975 mortgage contract, which was actually
real and chattel mortgage, militates against appellants’
posture. It should be noted that the printed form used
by appellant bank was mainly for real estate mortgages.
But reflective of the true intention of appellant PBCOM
and appellee EVERTEX was the typing in capital letters,
immediately following the printed caption of mortgage,
of the phrase "real and chattel."
Too, 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. As far back as Navarro v.
Pineda, 9 SCRA 631 (1963), 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.
In the instant case, the parties herein: (1) executed a
contract styled as "Real Estate Mortgage and Chattel
Mortgage," instead of just "Real Estate Mortgage" if
indeed their intention is to treat all properties included
therein as immovable, and (2) attached to the said
contract a separate "LIST OF MACHINERIES &
EQUIPMENT." These facts, taken together, evince the
conclusion that the parties’ intention is to treat these
units of machinery as chattels. A fortiori, the contested
after-acquired properties, which are of the same
description as the units enumerated under the title "LIST
OF MACHINERIES & EQUIPMENT," must also be treated
as chattels.
(2) Sale of the Properties Not included in the Subject
of Chattel Mortgage is Not Valid
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."
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.
ACME Shoe v. CA
FACTS:
Petitioner Chua Pac, the president and general manager
of co-petitioner Acme executed a chattel mortgage in
favor of private respondent Producers Bank as a security
for a loan of P3,000,000. 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 of P3,000,000.00 was paid.
Subsequently it obtained additional loan totalling
P2,700,000.00 which was also duly paid.
Another loan was again extended (P1,000,000.00)
covered by four promissory notes for P250,000.00 each,
but went unsettled prompting the bank to apply for an
extrajudicial foreclosure with the Sheriff.
ISSUE:
Would it be valid and effective to have a clause in a
chattel mortgage that purports to likewise extend its
coverage to obligations yet to be contracted or incurred?
HELD:
No. 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.
BA Finance Corp. v. CA
Facts: On 15 May 1980, spouses Reynaldo and Florencia
Manahan executed, a promissory note binding
themselves to pay Carmasters, Inc., the amount of
P83,080.00 in thirty-six (36) monthly installments
commencing July 1, 1980.
To secure payment, the Manahan spouses executed a
deed of chattel mortgage over a motor vehicle, a Ford
Cortina 1.6 GL, with motor and serial number CUBFWE-
801010. Carmasters later assigned the promissory note
and the chattel mortgage to petitioner BA Finance
Corporation with the conformity of the Manahans.
When the latter failed to pay the due installments,
petitioner sent demand letters. The demands not having
been heeded, petitioner, on October 2, 1987, filed a
complaint for replevin with damages against the
spouses, as well as against a John Doe, praying for the
recovery of the vehicle with an alternative prayer for the
payment of a sum of money should the vehicle not be
returned.
Upon petitioner's motion and the filing of a bond in the
amount of P169,161.00 the lower court issued a writ of
replevin. The court, however, cautioned the petitioner
that should summons be not served on the defendants
within thirty (30) days from the writ's issuance, the case
would be dismissed because of failure to prosecute.
(The warning was based on what the court perceived to
be the deplorable practice of some mortgagees of
"freezing (the) foreclosure or replevin cases" which they
would so "conveniently utilize as a leverage for the
collection of unpaid installments on mortgaged
chattels.")
The service of summons upon the spouses Manahan was
served by the petitioner at No. 35 Lantana St., Cubao,
Quezon City. The original of the summons had the name
and the signature of private respondent Roberto M.
Reyes, indicating that he received, on October 14, 1987,
a copy of the same, as well as the complaint.
The petitioner, through its Legal Assistant, Danilo E.
Solano, issued a certification to the effect that it had
received from Orson R. Santiago, the deputy sheriff of
the Regional Trial Court of Manila, Branch 20, the Ford
Cortina seized from private respondent Roberto M.
Reyes, the John Doe referred to in the complaint, in
Sorsogon, Sorsogon.
On October 20, 1987, the lower court came out with an
order of seizure.
Alleging possession in good faith, private respondent
filed, on October 26, 1987, a motion for an extension of
time within which to file his answer and/or a motion for
intervention. The court granted the motion.
A few months later, or on February 18, 1988, the court
issued an order which, in part, stating that:
Considering that this is a replevin case and to forestall
the evils that arise from this practice, plaintiff failing to
heed the Order dated October 13, 1987, particularly
second paragraph thereof, the above-entitled case is
hereby ordered DISMISSED for failure to prosecute and
further ordering the plaintiff to return the property
seized with all its accessories to defendant John Doe in
the person of Roberto M. Reyes.
On February 26, 1988, petitioner filed a notice of
dismissal of the case "without prejudice and without
pronouncement as to costs” before service of Summons
and Answer.
It also sought in another motion the withdrawal of the
replevin bond. In view of the earlier dismissal of the case
(for petitioner's failure to prosecute), the court, on
March 2, 1988, merely noted the notice of dismissal and
denied the motion to withdraw the replevin bond
considering that the writ of replevin had meanwhile
been implemented.
On March 9, 1988, private respondent filed a motion
praying that petitioner be directed to comply with the
court order requiring the petitioner to return the vehicle
to him.
In turn, the petitioner filed, on March 14, 1988, a motion
for the reconsideration of the orders of February 18,
1988 and March 2, 1988, contending that:
(a) the dismissal of the case was tantamount to
adjudication on the merits that thereby deprived it with
the remedy to enforce the promissory note, the chattel
mortgage and the deed of assignment, under Section 3,
Rule 117, of the Rules of Court;
(b) the order to return the vehicle to private
respondent was a departure from jurisprudence
recognizing the right of the mortgagor to foreclose the
property to respond to the unpaid obligation secured by
the chattel mortgage; and
(c) there were no legal and factual bases for the court's
view that the filing of the replevin case was
"characterized (by) evil practices."
• On 20 April 1988, the court granted the
petitioner's motion for reconsideration and accordingly:
a. Recalled the order directing the return of the
vehicle to private respondent;
b. set aside the order dismissing the case;
c. directed the petitioner "to cause the service of
summons together with a copy of the complaint on the
principal defendants within five (5) days from receipt";
d. and ordered private respondent to answer the
complaint.
• On August 2, 1988, the petitioner filed a motion
to declare the private respondent in default. The court
granted the motion on the ground that the private
respondent failed to filed an answer within the
reglementary period.
• The court likewise granted petitioner's motion to
set the case for the presentation, ex parte, of evidence.
Petitioner, thereupon, submitted the promissory note,
the deed of chattel mortgage, the deed of assignment, a
statement of account in the name of Florencia Manahan
and two demand letters.
The Trial Court’s decision:
• On February 27, 1989, the trial court rendered a
decision dismissing the complaint against the Manahans
for failure of petitioner to prosecute the case against
them. It also dismissed the case against private
respondent for failure of petitioner to show any legal
basis for said respondent's liability.
• The court ratiocinated that Roberto M. Reyes
was merely an ancillary debtor in the case since the
defendant spouses Manahan are the principal debtor(s).
According to the court, there was no showing that the
latter (the Manahans) has been brought before the
jurisdiction of the court, and thus, it must necessarily
follow that the plaintiff has no cause of action against
said Roberto M. Reyes, herein before referred to as
defendant John Doe. The lower court rendered that
under the circumstances, it is incumbent upon the
plaintiff to return the seized vehicle unto the said
Roberto M. Reyes.
Court of Appeals Findings (affirmed the decision of the
trial court):
• In its appeal to the Court of Appeals, petitioner
has asserted that a suit for replevin aimed at the
foreclosure of the chattel is an action quasi in rem which
does not necessitate the presence of the principal
obligors as long as the court does not render any
personal judgment against them.
• The said argument did not persuade the
appellate court and it held that in an action quasi in rem,
an individual is named as defendant and the purpose of
the proceeding is to subject his interest therein to the
obligation or lien burdening the property, such as
proceedings having for their sole object the sale or
disposition of the property of the defendant, whether by
attachment, foreclosure, or other form of remedy.
• In the case at bar, the court cannot render any
judgment binding on the defendants spouses for having
allegedly violated the terms and conditions of the
promissory note and the contract of chattel mortgage on
the ground that the court has no jurisdiction over their
persons since no summons were served on them. If that
would be the case, then the defendant spouses will be
denied due process of law, which contemplates notice
and opportunity to be heard before judgment is
rendered, given that it would affect one's person or
property.
Issues: : 1 Whether or not BA Finance Corporation, as the
mortgagee, has a superior right of possession as against
Roberto M. Reyes (John Doe), whose right to possession
is dubious if not totally non-existent? (No); 2 Whether or
not a mortgagee can maintain an action for replevin
against any possessor of the object of a chattel mortgage
even if the latter was not a party to the mortgage? (Yes,
but not applicable to Roberto M. Reyes on the ground
that his possession has to be respected. See discussion
below)
Ruling: : Anent issue No. 1, the Court declared that: The
subject motor vehicle was taken from the possession of
said Roberto M. Reyes, a third person with respect to the
contract of chattel mortgage between the appellant and
the defendants spouses Manahan.
Every possessor has a right to be respected in his
possession. It added that good faith is always presumed,
and upon him who alleges bad faith on the part of a
possessor rests the burden of proof.
Good faith is equivalent to a title; nevertheless, one who
has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of
the same.
A possessor in good faith is entitled to be respected and
protected in his possession as if he were the true owner
thereof until a competent court rules otherwise
In the case at bar, the trial court did not err in holding
that the complaint does not state any cause of action
against Roberto M. Reyes, and in ordering the return of
the subject chattel to him
Regarding Issue No. 2:
The Court held that Replevin, as broadly understood, is
both a form of principal remedy and of a provisional
relief. It may refer either to the action itself,( i.e., to
regain the possession of personal chattels being
wrongfully detained from the plaintiff by another, or to
the provisional remedy that would allow the plaintiff to
retain the thing during the pendency of the action and
hold it pendente lite).
The action is primarily possessory in nature and generally
determines nothing more than the right of possession.
Replevin is so usually described as a mixed action, being
partly in rem and partly in personam — in rem insofar as
the recovery of specific property is concerned, and in
personam as regards to damages involved. As an "action
in rem," the gist of the replevin action is the right of the
plaintiff to obtain possession of specific personal
property by reason of his being the owner or of his
having a special interest therein.
Consequently, the person in possession of the property
sought to be replevied is ordinary the proper and only
necessary party defendant, and the plaintiff is not
required to so join as defendants other persons claiming
a right on the property but not in possession thereof.
Rule 60 of the Rules of Court allows an application for
the immediate possession of the property but the
plaintiff must show that he has a good legal basis, (i.e., a
clear title thereto, for seeking such interim possession)
Where the right of the plaintiff to the possession of the
specific property is so conceded or evident, the action
need only be maintained against him who so possesses
the property.
Accordingly, that the defendant is not privy to the
chattel mortgage should be inconsequential. By the fact
that the object of replevin is traced to his possession,
one properly can be a defendant in an action for
replevin. It is here assumed that the plaintiff's right to
possess the thing is not or cannot be disputed.
In case the right of possession on the part of the plaintiff,
or his authority to claim such possession or that of his
principal, is put to great doubt (a contending party might
contest the legal bases for plaintiffs cause of action or an
adverse and independent claim of ownership or right of
possession is raised by that party), it could become
essential to have other persons involved and accordingly
impleaded for a complete determination and resolution
of the controversy.
When the mortgagee seeks a replevin in order to effect
the eventual foreclosure of the mortgage, it is not only
the existence of, but also the mortgagor's default on, the
chattel mortgage that, among other things, can properly
uphold the right to replevy the property.
However, since Roberto M. Reyes is a possessor who is
given by the law a right to be respected in his possession,
the burden to establish a valid justification for the action
of replevin against the latter lies with the plaintiff.
• An adverse possessor, like Reyes, who is not the
mortgagor, cannot just be deprived of his possession, let
alone be bound by the terms of the chattel mortgage
contract, simply because the mortgagee brings up an
action for replevin. His possession needs to be respected
and protected as if he were the true owner thereof until
a competent court rules otherwise.
• As such, the Supreme Court held that the
appellate court, accordingly, acted well in arriving at its
now questioned judgment.
PNB v. CA
Cabral v. Evangelista
DOCTRINE: The rights of a mortgage creditor over the
mortgaged properties are superior to those of a
subsequent attaching creditor.
FACTS:
Defendant George L. Tunaya had executed in favor of
Alberta and Renato Cabral a chattel mortgage covering
an English piano, and an electric Stove as security for
payment to the Spouses Cabral of a promissory note
executed on the same date by said defendant Tunaya
with his wife. The chattel mortgage deed was duly
inscribed in the Chattel Mortgage Register of Rizal
province.
Meanwhile, the Evangelista spouses, obtained in a civil
case, a final money judgment against defendant Tunaya,
They caused the levy in execution on personal properties
of said defendant Tunaya, including the piano and stove
mortgaged to plaintiffs. The said mortgaged chattels,
together with other personal properties of the judgment
debtor, were sold at public to the Evangelista spouses.
Eight months after the maturity of Tunaya's promissory
note and his having defaulted in the payment thereof,
Cabral spouses filed their complaint against Tunaya and
the Evangelista spouses, alleging that the Evangelista
spouses had refused their demands to pay the amount
due on Tunaya's promissory note or to exercise their
right of redemption and praying for judgment, ordering
the defendants, jointly and solidarity, to pay them.
The City Court decided in favor of the Cabral spouses
against the mortgage debtor, Tunaya, on confession of
the latter, but granted the motion to dismiss of the
defendants Evangelista spouses. The court upheld the
superior rights of Cabral spouses as mortgage creditors
to the personal properties in question, holding the the
Evangelista spouses, "being subsequent judgment
creditors in another case, have only the right of
redemption."
ISSUE/S: Who has the better right over the personal
properties? SPOUSES CABRAL
HELD:
The prescription period for recovery of movables for
foreclosure purposes such as in the present case is eight
years as provided in Article 1140 of the Civil Code, and
here Spouses Cabral had timely filed their action within 8
months from the mortgage debtor's default.
Spouses Evangelista purchase of the mortgaged chattels
at the public sheriff's sale and the delivery of the chattels
to them with a certificate of sale did not give them a
superior right to the chattels as against plaintiffs-
mortgagees. It has long been settled by this Court that
The right of those who so acquire said properties should
not and cannot be superior to that of the creditor who
has in his favor an instrument of mortgage executed with
the formalities of the law, in good faith, and without the
least indication of fraud.
PAMECA Wood Treatment Plant, Inc. vs.CA
FACTS: PAMECA loaned P2M from DBP and executed a
promissory note, secured by its inventory of furniture
and equipment. PAMECA defaulted thus DBP
extrajudicially foreclosed on the chattels. DBP was the
only bidder so it was able to buy said property for P322K.
Subsequently for the deficiency, it filed a complaint
against PAMECA and its solidary debtors, according to
the promissory note it signed.
ISSUE: Whether an action can be instituted for deficiency
of a debt after a foreclosure of the chattel mortgage.
RULING: Yes. Chattel Mortgage Law expressly entitles the
mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs. Since
the Chattel Mortgage Law bars the creditor-mortgagee
from retaining the excess of the sale proceeds, there is a
corollary obligation on the part of the debtor-mortgagee
to pay the deficiency in case of a reduction in the price at
public auction.