ASSOCIATED INSURANCE AND SURETY COMPANY V. IYA, ET. AL 103 SCRA 972 G.R. Nos.

L-10837-38 May 30,

1958

ASSOCIATED INSURANCE AND SURETY COMPANY V. IYA, ET. AL

103 SCRA 972

G.R. Nos. L-10837-38 May 30, 1958

FACTS:

Spouses Valino were the owners of a house, payable on installments from Philippine Realty Corporation. To be able to
purchase on credit rice from NARIC, they filed a surety bond subscribed by petitioner and therefor, they executed an
alleged chattel mortgage on the house in favor of the surety company. The spouses didn’t own yet the land on which the
house was constructed on at the time of the undertaking. After being able to purchase the land, to be able to secure
payment for indebtedness, the spouses executed a real estate mortgage in favor of Iya.

The spouses were not able to satisfy obligation with NARIC, petitioner was compelled to pay. The spouses weren’t able to
pay the surety company despite demands and thus, the company foreclosed the chattel mortgage. It later learned of the
real estate mortgage over the house and lot secured by the spouses. This prompted the company to file an action against
the spouses. Also, Iya filed another civil action against the spouses, asserting that she has a better right over the property.
The trial court heard the two cases jointly and it held that the surety company had a preferred right over the building as
since when the chattel mortgage was secured, the land wasn’t owned yet by the spouses making the building then a
chattel and not a real property.

ISSUE:

WON the auction sale was null and void

WON the house can be considered as personal property.

HELD:

A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed
belongs to another. To hold it the other way, the possibility is not remote that it would result in confusion, for to cloak the
building with an uncertain status made dependent on ownership of the land, would create a situation where apermanent
fixture changes its nature or character as the ownership of the land changes hands. In the case at bar, as personal
properties may be the only subjects of a chattel mortgage, the execution of the chattel mortgage covering said building is
null and void.

Philippine Refining Co., Inc. v. Aboitiz & Co., G.R. No. L-41506 (March 25, 1935) Case Digest
Facts:

Philippine Refining Co., Inc., and Francisco Jarque executed three chattel mortgages on the motor vessels Pandan and
Zaragoza, which were recorded in the record of transfers and incumbrances of vessels for the port of Cebu. The
mortgages had no appended affidavit of good faith except for the 3rd mortgage, which was not registered in the customs
house within the period of 30 days prior to the start of the insolvency proceedings against Francisco Jarque.

A fourth mortgage was executed by Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in
the chattel mortgage registry of the register of deeds.

Francisco Jarque was then declared to be an insolvent debtor that resulted to an assignment of all his properties in favor
of Jose Corominas.

Judge Jose M. Hontiveros declined the foreclosure of the mortgages and sustained the special defenses of fatal
defectiveness of the mortgages.

Issue:
Whether or not the mortgages are defective.

Held:

Vessels are considered personal property under the civil law. (Code of Commerce, article 585.) Similarly under the
common law, vessels are personal property although occasionally referred to as a peculiar kind of personal property.

Since the term "personal property" includes vessels, they are subject to mortgage agreeably to the provisions of the
Chattel Mortgage Law. (Act No. 1508, section 2.)

The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is not
now necessary for a chattel mortgage of a vessel to be noted n the registry of the register of deeds, but it is essential that
a record of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of
entry. Otherwise a mortgage on a vessel is generally like other chattel mortgages as to its requisites and validity.

A good chattel mortgage according to Section 5 of The Chattell Mortgage Law, includes the requirement of an affidavit of
good faith appended to the mortgage and recorded therewith. The absence of the affidavit vitiates a mortgage as against
creditors and subsequent encumbrancers. As a consequence a chattel mortgage of a vessel wherein the affidavit of good
faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons.

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs.HON. COURT OF APPEALS, BANK OF THE
PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY

G.R. No. 103576 August 22, 1996

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.

Romero (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

G.R. No. 106435, July 14, 1999, 310 SCRA 281

PAMECA Wood Treatment Plant, Inc. v. Court of Appeals

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 be instituted for deficiency of a debt after 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.

RCBC v. ROYAL CARGO

J. Gutierrez
Petitioner
: Rizal Commercial Banking Corporation
Respondents:
Royal Cargo Corporation
FACTS:
Terrymanila Inc. filed a
petition forvoluntary insolvency
with RTC of Bataan. One of its creditors was RCBC (P3M secured by chattelmortgage)Royal Cargo Corporation, another creditor
of Terrymanila, filed an
action
before the RTC of Manila
for collection of sum of money
andpreliminarily
attached "some" of Terrymanila'spersonal properties
to secure the satisfaction of judgment award of P296,662.16, exclusive of interests and atty's fees.
Bataan RTC
declared Terry insolvent
Manila RTC
judgment in favor of Royal CargoIn the meantime, RCBC sought in the insolvencyproceedings at Bataan RTC
permission toextrajudicially foreclose the chattel mortgage
- grantedProvincial Sheriff scheduled the public auction saleof mortgaged personal properties in Bataan. At theauction sale, RCBC was the sole
bidder, andpurchased them for P1.5M.Royal Cargo filed a
petition

for

annulment of auction sale

before Manila RTC, against theProvincial Sheriff of Bataan RTC and RCBC.- Questioned the failure to duly notify RoyalCargoof the sale at
least 10 days prior to the sale- Basis: Act No. 1508, Sec. 14
Manila RTC
judged in favor of Royal Cargo
CA
affirmed and increased atty's fees and awardedexemplary damages and interest on principalamount
ISSUES/HELD:(1) WON Royal Cargo should have beennotified of the foreclosure sale - NOPetitioner:
Chattel Mortgage Law only allows anattaching creditor or judgment creditor to "redeem"the mortgage, BEFORE the holding of the auction.
SC:
Agrees. Sec. 13 of the Chattel Mortgage Lawallows the would-be redemptioner to redeem themortgaged property only BEFORE its sale. The
redemption cited in Sec. 13 partakes of an
equity of redemption,
which is the right of themortgagor to redeem the mortgaged property afterhis default in the performance of conditions of themortgage, but before
the sale of property, to clearit from encumbrance of the mortgage.
Royal Cargo attached Terry's equity of redemption.
Thus it had to be informed of the date of sale of mortgaged assets for it to exercise such equity of redemption over some of those
foreclosedproperties.
Royal Cargo was aware of the auction sale
- It was informed about the Order of the insolvencycourt that gran