CREDIT TRANSACTIONS – PART 11: CHATTEL MORTGAGE (Articles 2140—2141) & THE CHATTEL MORTGAGE LAW (ACT 1508)
Cases
G.R. No. L-68010 May 30, 1986
FILIPINAS MABLE CORPORATION, petitioner, 
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT,
THE HONORABLE CANDIDO VILLANUEVA, Presiding
Judge of Br. 144, RTC, Makati, DEVELOPMENT BANK OF
THE PHILIPPINES (DBP), BANCOM SYSTEMS
CONTROL, INC. (Bancom), DON FERRY, CASIMERO
TANEDO, EUGENIO PALILEO, ALVARO TORIO, JOSE T.
PARDO, ROLANDO ATIENZA, SIMON A. MENDOZA,
Sheriff NORVELL R. LIM, respondents.
GUTIERREZ, JR., J.:
This petition for review seeks to annul the decision and
resolution of the appellate court which upheld the trial court's
decision denying the petitioner's prayer to enjoin the
respondent from foreclosing on its properties.  feet, DBP completely abandoned the petitioner's project and
On January 19, 1983, petitioner Filipinas Marble Corporation
filed an action for nullification of deeds and damages with
prayer for a restraining order and a writ of preliminary
injunction against the private respondents. In its complaint,
the petitioner alleged in substance that it applied for a loan in
the amount of $5,000,000.00 with respondent Development
Bank of the Philippines (DBP) in its desire to develop the fun
potentials of its mining claims and deposits; that DBP
granted the loan subject, however, to sixty onerous
conditions, among which are: (a) petitioner shall have to
enter into a management contract with respondent Bancom
Systems Control, Inc. [Bancom]; (b) DBP shall be
represented by no less than six (6) regular directors, three
(3) to be nominated by Bancom and three (3) by DBP, in
Filipinos Marble's board, one of whom shall continue to be
the chairman of the board; (c) the key officers/executives [the
President and the officers for finance, marketing and
purchasing] to be chosen by Bancom for the corporation
shall be appointed only with DBP's prior approval and all
these officers are to be made directly responsible to DBP;
DBP shall immediately designate Mr. Alvaro Torio, Assistant
Manager of DBP's Accounting Department as DBP's
Comptroller in the firm whose compensation shall be borne
by Filipinas Marble; and (d) the $5 Million loan shall be
secured by: 1) a final mortgage on the following assets with a
total approved value of P48,630,756.00 ... ; 2) the joint and
several signatures with Filipinas Marble of Mr. Pelagio M.
Villegas, Sr., Trinidad Villegas, and Jose E. Montelibano and
3) assignment to DBP of the borrower firm's right over its
mining claims; that pursuant to these above- mentioned and
other "take it or leave it" conditions, the petitioner entered
Averell B. Abrasaldo – II-Sanchez Roman
into a management contract with Bancom whereby the latter
agreed to manage the plaintiff company for a period of three
years; that under the management agreement, the affairs of
the petitioner were placed under the complete control of DBP
and Bancom including the disposition and disbursement of
the $5,000,000 or P37,600,000 loan; that the respondents
and their directors/officers mismanaged and misspent the
loan, after which Bancom resigned with the approval of DBP
even before the expiration date of the management contract,
leaving petitioner desolate and devastated; that among the
acts and omissions of the respondents are the following. (a)
failure to purchase all the necessary machinery and
equipment needed by the petitioner's project for which the
approved loan was intended; (b) failure to construct a
processing plant; (c) abandonment of imported machinery
and equipment at the pier, (d) purchase of unsuitable lot for
the processing plant at Binan; (e) failure to develop even a
square meter of the quarries in Romblon or Cebu; and (f)
nearly causing the loss of petitioner's rights over its Cebu
claims; and that instead of helping petitioner get back on its
proceeded to foreclose the properties mortgaged to it by
petitioner without previous demand or notice.  the plaintiff corporation appears to be
In essence, the petitioner in its complaint seeks the
annulment of the deeds of mortgage and deed of assignment
which it executed in favor of DBP in order to secure the
$5,000,000.00 loan because it is petitioner's contention that
there was no loan at all to secure since what DBP "lent" to
petitioner 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 petitioner. The petitioner 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
petitioner's properties in Metro Manila and in Romblon. 
Respondent DBP 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,
their receipt of the money was receipt by the petitioner
corporation and that the complaint does not raise any
substantial controversy as to the amount due under the
mortgage as the issues raised therein refer to the propriety of
the manner by which the proceeds of the loan were
expended by the petitioner's management, the allegedly
precipitate manner with which DBP proceeded with the
foreclosure, and the capacity of the DBP to be an assignee
of the mining lease rights. 
After a hearing on the preliminary injunction, the trial court
issued an order stating: 
The Court has carefully gone over the
evidence presented by both parties, and
while it sympathizes with the plight of the
plaintiff and of the pitiful condition it now
has found itself, it cannot but adhere to
the mandatory provisions of P.D. 385.
While the evidence so far presented by
persuasive, the same may be
considered material and relevant to the
case. Hence, despite the impressive
testimony of the plaintiff's witnesses, the
Court believes that it cannot enjoin the
defendant Development Bank of the
Philippines from complying with the
mandatory provisions of the said
Presidential Decree. It having been
shown that plaintiff's outstanding
obligation as of December 31, 1982
amounted to P151,957,641.72 and with
arrearages reaching up to 81 % against
said total obligation, the Court finds the
provisions of P.D. 385 applicable to the
instant case. It is a settled rule that when
the statute is clear and unambiguous,
there is no room for interpretation, and
all that it has to do is to apply the same. 
On appeal, the Intermediate Appellate Court upheld the trial
court's decision and held: 
While petitioner concedes 'that
Presidential Decree No. 385 applies only
where it is clear that there was a loan or
where the loan is not denied' (p. 14-
petition), it disclaims receipt of the $5
million loan nor benefits derived
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Cases
therefrom and bewails the onerous
conditions imposed by DBP Resolution
No. 385 dated December 7, 1977, which
allegedly placed the petitioner under the
complete control of the private
respondents DBP and Bancom Systems
Control Inc. (Bancom, for short). The
plausibility of petitioner's statement that
it did Dot receive the $5 million loan is
more apparent than real. At the hearing
for injunction before the counsel for DBP
stressed that $2,625,316.83 of the $5
million loan was earmarked to finance
the acquisition of machinery, equipment
and spare parts for petitioner's Diamond
gangsaw which machineries were
actually imported by petitioner Filipinas
Marble Corporation and arrived in the
Philippines. Indeed, a summary of
releases to petitioner covering the period
June 1978 to October 1979 (Exh. 2,
Injunction) showed disbursements
amounting to millions of pesos for
working capital and opening of letter of
credits for the acquisition of its
machineries and equipment. Petitioner
does not dispute that releases were
made for the purchase of machineries
and equipment but claims that such
imported machineries were left to the
mercy of the elements as they were
never delivered to it.  Presidential Decree No. 385 was issued primarily to see to it
x x x x x x x x x  decree.
Apart from the foregoing, petitioner is
patently not entitled to a writ of
preliminary injunction for it has not
demonstrated that at least 20% of its
outstanding arrearages has been paid
after the foreclosure proceedings were
initiated. Nowhere in the record is it
shown or alleged that petitioner has paid
in order that it may fall within the
exception prescribed on Section 2,
Presidential Decree No. 385. 
Dissatisfied with the appellate court's decision, the petitioner
filed this instant petition with the following assignments of
errors:  charges, as appearing in the book of
Averell B. Abrasaldo – II-Sanchez Roman
1. There being 'persuasive' evidence
that the $5 million proceeds of the loan
were not received and did not benefit the
petitioner per finding of the lower court
which should not be disturbed unless
there is grave abuse of discretion, it
must follow that PD 385 does not and
cannot apply;
2. If there was no valid loan contract for
failure of consideration, the mortgage
cannot exist or stand by itself being a
mere accessory contract. Additionally,
the chattel mortgage has not been
registered. Therefore, the same is null
and void under Article 2125 of the New
Civil Code; and  compliance
3. PD 385 is unconstitutional as a 'class
legislation', and violative of the due
process clause. 
With regard to the first assignment of error, the petitioner
maintains that since the trial court found "persuasive
evidence" that there might have been a failure of
consideration on the contract of loan due to the manner in
which the amount of $5 million was spent, said court
committed grave abuse of discretion in holding that it had no
recourse but to apply P.D. 385 because the application of
this decree requires the existence of a valid loan which,
however, is not present in petitioner's case. It likewise faults
the appellate court for upholding the applicability of the said
Sections 1 and 2 of P.D. No. 385 respectively provide:
Section 1. It shall be mandatory for
government financial institutions after
the lapse of sixty (60) days from the
issuance of this Decree, to foreclose the
collaterals and/or securities for any loan,
credit accommodation, and/or
guarantees granted by them whenever
the arrearages on such account,
including accrued interest and other
charges, amount to at least twenty
(20%) of the total outstanding
obligations, including interest and other
accounts and/or related records of the
financial institution concerned. This shall
be without prejudice to the exercise by
the government financial institution of
such rights and/or remedies available to
them under their respective contracts
with their debtors, including the right to
foreclose on loans, credits,
accommodations, and/or guarantees on
which the arrearages are less than
twenty percent (20%). 
Section 2. No restraining order,
temporary or permanent injunction shall
be issued by the court against any
government financial institution in any
action taken by such institution in
with the mandatory
foreclosure provided in Section 1 hereof,
whether such restraining order,
temporary or permanent injunction is
sought by the borrower(s) or any third
party or parties, except after due hearing
in which it is established by the
borrower, and admitted by the
government financial institution
concerned that twenty percent (20%) of
the outstanding arrearages has been
paid after the filing of foreclosure
proceedings. 
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.
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Cases
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. 
We cannot, at this point, conclude that respondent DBP
together with the Bancom people actually misappropriated
and misspent the $5 million loan in whole or in part although
the trial court found that there is "persuasive" evidence that
such acts were committed by the respondent. This matter
should rightfully be litigated below in the main action.
Pending the outcome of such litigation, P.D. 385 cannot
automatically be applied for if it is really proven that
respondent DBP is responsible for the misappropriation of
the loan, even if only in part, then the foreclosure of the
petitioner's properties under the provisions of P.D. 385 to
satisfy the whole amount of the loan would be a gross
mistake. It would unduly prejudice the petitioner, its
employees and their families. 
Only after trial on the merits of the main case can the true
amount of the loan which was applied wisely or not, for the
benefit of the petitioner be determined. Consequently, the
extent of the loan where there was no failure of consideration
and which may be properly satisfied by foreclosure
proceedings under P.D. 385 will have to await the
Averell B. Abrasaldo – II-Sanchez Roman
presentation of evidence in a trial on the merits. As we have
ruled in the case of Central Bank of the Philippines vs. Court
of Appeals, (1 39 SCRA 46, 5253; 56): 
When Island Savings Bank and Sulpicio
M. Tolentino entered into an P80,000.00
loan agreement on April 28, 1965, they
undertook reciprocal obligations, the
obligation or promise of each party is the
consideration for that of the othe.
(Penacio vs. Ruaya, 110 SCRA 46
[1981]; ... 
x x x x x x x x x  addition, FMC shall also pay DBP, out of
The fact that when Sulpicio M. Tolentino
executed his real estate mortgage, no
consideration was then in existence, as
there was no debt yet because Island
Savings Bank had not made any release
on the loan, does not make the real
estate mortgage void for lack of
consideration. It is not necessary that
any consideration should pass at the
time of the execution of the contract of
real mortgage (Bonnevie vs. Court of
Appeals, 125 SCRA 122 [1983]. It may
either be a prior or subsequent matter.
But when the consideration is
subsequent to the mortgage, the
mortgage can take effect only when the
debt secured by it is created as a
binding contract to pay (Parks vs.
Sherman, Vol. 2, pp. 5-6). And, when
there is partial failure of consideration,
the mortgage becomes unenforceable to
the extent of such failure (Dow, et al. vs.
Poore Vol. 172 N.E. p. 82, cited in Vol.
59, 1974 ed. C.J.S. p. 138). ... 
Under the admitted circumstances of this petition, we,
therefore, hold that until the trial on the merits of the main
case, P.D. 385 cannot be applied and thus, this Court can
restrain the respondents from foreclosing on petitioner's
properties pending such litigation. 
The respondents, in addition, assert that even if the $5
million loan were not existing, the mortgage on the properties
sought to be foreclosed was made to secure previous loans
of the petitioner with respondent and therefore, the
foreclosure is still justified. 
This contention is untenable. Two of the conditions imposed
by respondent DBP for the release of the $5 million loan
embodied in its letter to petitioner dated December 21, 1977
state: 
A. The interim loan of $289,917.32 plus
interest due thereon which was used for
the importation of one Savage Diamond
Gangsaw shall be liquidated out of the
proceeds of this $5 million loan. In
the proceeds of above foreign currency
loan, the past due amounts on obligation
with DBP. 
x x x x x x x x x 
B. Conversion into preferred shares of P
2 million of FMCs total obligations with
DBP as of the date the legal documents
for this refinancing shall have been
exempted or not later than 90 days from
date of advice of approval of this
accommodation. 
The above conditions lend credence to the petitioner's
contention that the "original loan had been converted into
'equity shares', or preferred shares; therefore, to all intents
and purposes, the only 'loan' which is the subject of the
foreclosure proceedings is the $5 million loan in 1978. " 
As regards the second assignment of error, we agree with
the petitioner that a mortgage is a mere accessory contract
and, thus, its validity would depend on the validity of the loan
secured by it. We, however, reject the petitioner's argument
that since the chattel mortgage involved was not registered,
the same is null and void. 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
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Cases
recorded, the mortgage is nevertheless
binding between the parties.
x x x x x x x x x 
The petitioner cannot invoke the above provision to nullify
the chattel mortgage it executed in favor of respondent DBP. 
We find no need to pass upon the constitutional issue raised
in the third assignment of error. We follow the rule started
in Alger Electric, Inc. vs. Court of Appeals, (135 SCRA 37,
45).  of P4,000, with interest at 6 per cent per annum, from the
We see no necessity of passing upon
the constitutional issues raised by
respondent Northern. This Court does
not decide questions of a constitutional
nature unless absolutely necessary to a
decision of a case. If there exists some
other grounds of construction, we decide
the case on a non- constitutional
determination. (See Burton vs. United
States, 196 U.S. 283; Siler vs. Luisville
& Nashville R. Co., 123 U.S. 175; Berta
College vs. Kentucky, 211 U.S. 45).  The deed was duly registered in the office of the
WHEREFORE, IN VIEW OF THE FOREGOING, the petition
is GRANTED. The orders of the Intermediate Appellate Court
dated April 17, 1984 and July 3, 1984 are hereby
ANNULLED and SET ASIDE. The trial court is ordered to
proceed with the trial on the merits of the main case. In the
meantime, the temporary restraining order issued by this
Court on July 23, 1984 shall remain in force until the merits
of the main case are resolved.  in the Civil Code and expressly stated in Article 559, there is
SO ORDERED.
G.R. No. L-9451             March 29, 1957
OLAF N. BORLOUGH, petitioner, 
vs.
FORTUNE ENTERPRISES, INC. and THE HONORABLE
COURT OF APPEALS (2nd DIVISION), respondents.
Arturo M. del Rosario and Alfredo G. Fernando for petitioner.
Laurel & Salonga for respondents.
LABRADOR, J.:
Averell B. Abrasaldo – II-Sanchez Roman
Appeal by certiorari against a judgment of the Court of
Appeals, Second Division. The facts of the case have been
briefly stated as follows:
On March 8, 1952, the United Car Exchange sold
to the Fortune Enterprises, Inc., the following
described car —
Make:       Chevrolet (1947);       Plate
No. 34-1465 
Type :       Sedan;                         Motor
No. EAA-20834 (Exhibit D).
The same car was sold by the Fortune
Enterprises, Inc. to one Salvador Aguinaldo, and
for not having paid it in full, the latter executed on
the same date a promissory note in the amount of
P2,400 payable in 20 installments including
interest thereon at 12 per cent per annum, the last
of which installments fell due on January 9, 1953
(Exhibit "A").
To secure the payment of this note, Aguinaldo
executed a deed of chattel mortgage over said car.
Register of Deeds of Manila at 1:12 p.m. on March
11, 1952 (Exhibit "B"). As the buyer-mortgagor
defaulted in the payment of the installments due,
counsel for Fortune Enterprises Inc. addressed a
letter on May 16, 1952 (Exhibit "C"), requesting
him to make the necessary payment and to keep
his account up to date, to that no court action
would be resorted to.
It further appears that the above-described car
found its way again into the United Car Exchange
which sold the same in cash for P4,000 to one O.
N. Borlough on April 6, 1952. Accordingly, he
registered it on the following day with the Motor
Vehicles Office. (Decision, Court of Appeal.).
It also appears from the record that defendant 0. N. Borlough
took possession of the vehicle from the time he purchased it,
On July 10, 1952, Fortune Enterprises, Inc. brought action
against Salvador Aguinaldo to recover the balance of the
purchase price. Borlough filed a third-party complaint,
claiming the vehicle. Thereupon, Fortune Enterprises, Inc.
amended its complaint, including Borlough as a defendant
and alleging that he was in connivance with Salvador
Aguinaldo and was unlawfully hiding and concealing the
vehicle in order to evade seizure by judicial process.
Borlough answered alleging that he was in legal possession
thereof, having purchased it in good faith and for the full
price of P4,000, and that he had a certificate of registration of
the vehicle issued by the Motor Vehicles Office, and he
prayed for the dismissal of the complaint, the return of the
vehicle and for damages against the plaintiff.
The vehicle was seized by the sheriff of Manila on August 4,
1952 and was later sold at public auction. The Court of First
Instance rendered judgment in favor of Borlough, and
against plaintiff, ordering the latter to pay Borlough the sum
date of the seizure of the car on August 4, 1952, and in
addition thereto, attorney's fees in the sum of P1,000.
Upon appeal to the Court of Appeals, this court rendered
judgment ordering that Emil B. Fajardo pay Borlough P4,000
plus attorney's fees and that plaintiff pay to Borlough any
amount received by it in excess of its credits and judicial
expenses. The reason for the modification of the judgment is
that the mortgage was superior, being prior in point of time,
to whatever rights may have been acquired by Borlough by
reason of his possession and by the registration of his title in
the Motor Vehicle Office.
The question involved in the appeal in this case is one of law
and may be stated thus: As between a prior mortgage
executed over a motor vehicle, registered under the Chattel
Mortgage Law only, without annotation thereof in the Motor
Vehicles Office, and a subsequent registration of the vehicle
in the Motor Vehicles Office accompanied by actual
possession of the motor vehicle, which should prevail. While
the question can be resolved by the general principles found
no need resorting thereto (the general principles) in view of
the express provisions of the Revised Motor Vehicles Law,
which expressly and specifically regulate the registration,
sale or transfer and mortgage of motor vehicles. The
following provisions of said law may help decide the legal
question now under consideration:
SEC. 5 (c) Reports of motor vehicle sales. — On
the first day of each month, every dealer in motor
vehicles shall furnish the Chief of the Motor
Vehicles Office a true report showing the name
and address of each purchase of a motor vehicle
during the previous month and the manufacturer's
serial number and motor number; a brief
description of the vehicle, and such other
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Cases
information as the Chief of the Motor Vehicles
Office may require.
SEC. 5 (e) Report of mortgages. — Whenever any
owner hypothecates or mortgage any motor
vehicle as surety for a debt or other obligation, the
creditor or person in whose favor the mortgage is
made shall, within seven days, notify the Chief of
the Motor Vehicles Office in writing to the effect,
stating the registration number of the motor
vehicle, date of mortgage, names and addresses
of both parties, and such other information as the
Chief of the Motor Vehicles Office may require.
This notice shall be signed jointly by the parties to
the mortgage.
On termination, cancellation or foreclosure of the
mortgage, a similar written notice signed by both
parties, shall be forwarded to the Chief of the
Motor Vehicles Office by the owner.
These notice shall be filed by the Chief of the
Motor Vehicles Office in the motor records, and in
the absence of more specific information, shall be
deemed evidence of the true status of ownership
of the motor vehicle. (Revised Motor Vehicles
Law.)
It is to be noted that under section 4 (b) of the Revised Motor
Vehicles Law the Chief of the Motor Vehicles Office is
required to enter or record, among other things, transfers of
motor vehicles "with a view of making and keeping the same
and each all of them as accessible as possible to and for
persons and officers properly interested in the same," and to
"issue such reasonable regulations governing the search and
examination of the documents and records . . . as will be
consistent with their availability to the public and their safe
and secure prevention."
Two recording laws are here being invoked, one by each
contending party — the Chattel Mortgage Law (Act No.
1508), by the mortgagor and the Revised Motor Vehicles
Law (Act No. 3992), by a purchaser in possession. What
effect did the passenger of the Revised Motor Vehicles Law
have on the previous enactment?
The Revised Motor Vehicles Law is a special legislation
enacted to "amend and compile the laws relative to motor
vehicles," whereas the Chattel Mortgage Law is a general
law covering mortgages of all kinds of personal property. The
Averell B. Abrasaldo – II-Sanchez Roman
former is the latest attempt to assemble and compile the
motor vehicle laws of the Philippines, all the earlier laws on
the subject having been found to be very deficient in form as
well as in substance (Villar and De Vega, Revised Motor
Vehicles Law, p. 1); it had been designed primarily to control
the registration and operation of motor vehicles (section 2,
Act No. 3992).
Counsel for petitioner contends that the passage of the
Revised Motor Vehicles Law had the effect of repealing the
Chattel Mortgage Law, as regards registration of motor
vehicles and of the recording of transaction affecting the
same. We do not believe that it could have been the intention
of the legislature to bring about such a repeal. In the first
place, the provisions of the Revised Motor Vehicles Law on
registration are not inconsistent with does of the Chattel
Mortgage Law. In the second place, implied repeals are not
favored; implied repeals are permitted only in cases of clear
and positive inconsistency. The first paragraph of section 5
indicates that the provisions of the Revised Motor Vehicles
Law regarding registration and recording of mortgage are not
incompatible with a mortgage under the Chattel Mortgage
Law. The section merely requires report to the Motor
Vehicles Office of a mortgage; it does not state that the
registration of the mortgage under the Chattel Mortgage Law
is to be dispensed with. We have, therefore, an additional
requirements in the Revised Motor Vehicles Law, aside from
the registration of a chattel mortgage, which is to report a
mortgage to the Motor Vehicles Office, if the subject of the
mortgage is a motor vehicle; the report merely supplements
or complements the registration.
The recording provisions of the Revised Motor Vehicles Law,
therefore, are merely complementary to those of the Chattel
Mortgage Law. A mortgage in order to affect third persons
should not only be registered in the Chattel Mortgage
Registry, but the same should also be recorded in the motor
Vehicles Office as required by section 5 (e) of the Revised
Motor Vehicles Law. And the failure of the respondent
mortgage to report the mortgage executed in its favor had
the effect of making said mortgage ineffective against
Borlough, who had his purchase registered in the said Motor
Vehicles Office.
On failure to comply with the statute, the
transferee's title is rendered invalid as against a
subsequent purchaser from the transferor, who is
enabled by such failure of compliance to retain the
indicia of ownership, such as a subsequent
purchaser in good faith, or a purchaser from a
conditional buyer in possession; and the lien of a
chattel mortgage given by the buyer to secure a
purchase money loan never becomes effective in
such case as against an innocent purchaser. (60
Corpus Juris Secundum, p. 171.)
One holding a lien on a motor vehicle, in so far as
he can reasonably do so, must protect himself and
others thereafter dealing in good faith by
complying and requiring compliance with the
provisions of the laws concerning certificates of
title to motor vehicles, such as statutes providing
for the notation of liens or claims against the motor
vehicle certificate of title or manufacturer's
certificate, or for the issuance to the mortgagee of
a new certificate of ownership. Where the lien
holder has satisfied himself that the existence of
the lien is recited in the certificate of title, he has
done all that the law contemplates that he should
do, and there is notice to the public of the existing
lien, which continues valid until the record shows
that it has been satisfied and a new certificate
issued on legal authority, even through another
certificate which does not disclose the lien is
procured as the result of false statements made in
the application therefore, and the vehicle is
purchased by a bona fide purchaser.
The holder of a lien who is derelict in his duty to
comply and require compliance with the statutory
provisions acts at his own peril, and must suffer
the consequence of his own negligence; and
accordingly, he is not entitled to the lien as against
a subsequent innocent purchaser filed as provided
by other chattel mortgage statutes. The rule is
otherwise, however, as against claimants not
occupying the position of innocent purchaser, such
as a judgment creditor, or one acquiring title with
actual notice of an unregistered lien, and the
statutes do not protect a purchaser holding under
registered title if a link in the title is forgery.
Moreover, such statute will not impair vested rights
of a mortgage under a chattel mortgage duly
recorded. (60 C.J.S., pp. 181-182.)
The above authorities leave no room for doubt that
purchaser O. N. Borlough's right to the vehicle as against the
previous and prior mortgage Fortune Enterprises, Inc., which
failed to record its lien in accordance with the Revised Motor
Vehicles Law, should be upheld.
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For the foregoing consideration, the judgment of the Court of
Appeals is hereby reversed and that of the Court of First
Instance affirmed, with costs against respondent.
G.R. No. L-20329             March 16, 1923
THE STANDARD OIL COMPANY OF NEW
YORK, petitioner, 
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of
Manila, respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the
respondent, Joaquin Jaramillo, register of deeds of the City
of Manila, to an original petition of the Standard Oil Company
of New York, seeking a peremptory mandamus to compel
the respondent to record in the proper register a document
purporting to be a chattel mortgage executed in the City of
Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the
Standard Oil Company of New York.  mortgage.  in the manner and form prescribed by the Chattel
It appears from the petition that on November 27, 1922,
Gervasia de la Rosa, Vda. de Vera, was the lessee of a
parcel of land situated in the City of Manila and owner of the
house of strong materials built thereon, upon which date she
executed a document in the form of a chattel mortgage,
purporting to convey to the petitioner by way of mortgage
both the leasehold interest in said lot and the building which
stands thereon.  Spanish law, of chattel mortgage. His duties in respect to
The clauses in said document describing the property
intended to be thus mortgage are expressed in the following
words:  pass upon the character of the property sought to
Now, therefore, the mortgagor hereby conveys and
transfer to the mortgage, by way of mortgage, the
following described personal property, situated in
the City of Manila, and now in possession of the
mortgagor, to wit:  criterion for discriminating between real property and
(1) All of the right, title, and interest of the
mortgagor in and to the contract of lease
hereinabove referred to, and in and to the
premises the subject of the said lease;  property may have character different from that imputed to it
Averell B. Abrasaldo – II-Sanchez Roman
(2) The building, property of the mortgagor,
situated on the aforesaid leased premises.
After said document had been duly acknowledge and
delivered, the petitioner caused the same to be presented to
the respondent, Joaquin Jaramillo, as register of deeds of
the City of Manila, for the purpose of having the same
recorded in the book of record of chattel mortgages. Upon
examination of the instrument, the respondent was of the
opinion that it was not a chattel mortgage, for the reason that
the interest therein mortgaged did not appear to be personal
property, within the meaning of the Chattel Mortgage Law,
and registration was refused on this ground only.  Judicial District, in the City of Manila; and little of value can
We are of the opinion that the position taken by the
respondent is untenable; and it is his duty to accept the
proper fee and place the instrument on record. The duties of
a register of deeds in respect to the registration of chattel
mortgage are of a purely ministerial character; and no
provision of law can be cited which confers upon him any
judicial or quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel
The original provisions touching this matter are contained in
section 15 of the Chattel Mortgage Law (Act No. 1508), as
amended by Act No. 2496; but these have been transferred
to section 198 of the Administrative Code, where they are
now found. There is nothing in any of these provisions
conferring upon the register of deeds any authority whatever
in respect to the "qualification," as the term is used in
such instruments are ministerial only. The efficacy of the act
of recording a chattel mortgage consists in the fact that it
operates as constructive notice of the existence of the
contract, and the legal effects of the contract must be
discovered in the instrument itself in relation with the fact of
notice. Registration adds nothing to the instrument,
considered as a source of title, and affects nobody's rights
except as a specifies of notice. 
Articles 334 and 335 of the Civil Code supply no absolute
personal property for purpose of the application of the
Chattel Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in this jurisdiction;
but it must not be forgotten that under given conditions
in said articles. It is undeniable that the parties to a contract
may by agreement treat as personal property that which by
nature would be real property; and it is a familiar
phenomenon to see things classed as real property for
purposes of taxation which on general principle might be
considered personal property. Other situations are constantly
arising, and from time to time are presented to this court, in
which the proper classification of one thing or another as real
or personal property may be said to be doubtful. 
The point submitted to us in this case was determined on
September 8, 1914, in an administrative ruling promulgated
by the Honorable James A. Ostrand, now a Justice of this
Court, but acting at that time in the capacity of Judge of the
fourth branch of the Court of First Instance of the Ninth
be here added to the observations contained in said ruling.
We accordingly quote therefrom as follows: 
It is unnecessary here to determine whether or not
the property described in the document in question
is real or personal; the discussion may be confined
to the point as to whether a register of deeds has
authority to deny the registration of a document
purporting to be a chattel mortgage and executed
Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law
(Act No. 1508), his Honor continued: 
Based principally upon the provisions of section
quoted the Attorney-General of the Philippine
Islands, in an opinion dated August 11, 1909, held
that a register of deeds has no authority to pass
upon the capacity of the parties to a chattel
mortgage which is presented to him for record. A
fortiori a register of deeds can have no authority to
be encumbered by a chattel mortgage. Of course,
if the mortgaged property is real instead of
personal the chattel mortgage would no doubt be
held ineffective as against third parties, but this is
a question to be determined by the courts of
justice and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and
Williamson (37 Phil., 644), this court held that where the
interest conveyed is of the nature of real, property, the
placing of the document on record in the chattel mortgage
register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function
of the register of deeds in placing the document on record. 
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In the light of what has been said it becomes unnecessary
for us to pass upon the point whether the interests conveyed
in the instrument now in question are real or personal; and
we declare it to be the duty of the register of deeds to accept
the estimate placed upon the document by the petitioner and
to register it, upon payment of the proper fee.  8 Tables, stateside.
The demurrer is overruled; and unless within the period of
five days from the date of the notification hereof, the
respondent shall interpose a sufficient answer to the petition,
the writ of mandamus will be issued, as prayed, but without
costs. So ordered.
G.R. No. L-13194             January 29, 1960
BUENAVENTURA T. SALDANA, plaintiff-appellant, 
vs.
PHILIPPINE GUARANTY COMPANY, INC., et
al., defendants-appellees.
REYES, J.B.L., J.:
This case arose from a complaint for damages filed by
Buenaventura Saldana (docketed as Civil Case No. 32703 of
the Court of First Instance of Manila) that was dismissed by
order of the Court dated August 20, 1957, for lack of
sufficient cause of action. In another order of September 30,
1957 of the same court, plaintiff's motion for reconsideration
was denied, and the case was appealed to this Court.
The facts are that on May 8, 1953, in order to secure an
indebtedness of P15,000.00, Josefina Vda. de Aleazar
executed in favor of the plaintiff-appellant Buenaventura
Saldana a chattel mortgage covering properties described as
follows:
A building of strong materials, used for restaurant
business, located in front of the San Juan de Dios
Hospital at Dewey Boulevard, Pasay City, and the
following personal properties therein contained:
1 Radio, Zenith, cabinet type.
1 Cooler.
1 Electric range, stateside, 4 burners.
Averell B. Abrasaldo – II-Sanchez Roman
1 Frigidaire, 8 cubic feet.
1 G.E. Deepfreezer.
32 Chromium chairs, stateside.
1 Sala set upholstered, 6 pieces.
1 Bedroom set, 6 pieces.
And all other furniture's, fixtures or equipment
found in the said premises.
Subsequent to the execution of said mortgage and while the
same was still in force, the defendant Hospital de San Juan
de Dios, Inc. obtained, in Civil Case No. 1930 of the
Municipal Court of Pasay City, a judgment was duly
Josewfina Vda. de Eleazar. A writ of execution was duly
issued and, on January 28, 1957, the same was served on
the judgment debtor by the sheriff of Pasay City; whereupon
the following properties of Josefina Eleazar were levied
upon:
8 Tables with 4 (upholstered) chairs each.
1 Table with 4 (wooden) chairs.
1 Table (large) with 5 chairs.
1 Radio-phono (Zenith, 8 tubes).
2 Showcases (big, with mirrors).
1 Rattan sala set with 4 chairs, 1 table and 3
sidetables .
1 Wooden drawer.
1 Tocador (brown with mirror).
1 Aparador .
2 Beds (single type).
1 Freezer (deep freeze).
1 Gas range (magic chef, with 4 burners).
1 Freezer (G.E.).
On January 31, 1957, the plaintiff-appellant Saldana filed a
third-party claim asserting that the above-described
properties levied are subject to his chattel mortgage of May
8, 1953. In virtue thereof, the sheriff released only some of
the property originally included in the levy of January 28,
1957, to wit:
1 Radio, Zenith, cabinet type.
8 Tables, stateside.
32 Chromiun chairs, stateside.
1 G.E. Deep freezer.
To proceed with the execution sale of the rest of the
properties still under levy, the defendants-appellees Hospital
de San Juan de Dios, Inc. and the Philippine Guaranty Co.,
Inc., executed an indemnity bond to answer for any damages
that plaintiff might suffer. Accordingly, on February 13, 1957,
the said properties were sold to the defendant hospital as the
highest bidder, for P1,500.00.
Appellants claims that the phrase in the chattel mortgage
contract — "and all other furnitures, fixtures and equipment
found in the said premises", validly and sufficiently covered
within its terms the personal properties disposed of in the
auction sale, as to warrant an action for damages by the
plaintiff mortgagee.
There is merit in appellant's contention. Section 7 of Act No.
1508, commonly and better known as the Chattel Mortgage
Law, does not demand a minute and specific description of
every chattel mortgaged in the deal of mortgage but only
requires that the description of the properties be such "as to
enable the parties in the mortgage, or any other person, after
reasonable inquiry and investigation to identify the same".
Gauged by this standard, general description have been held
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Cases
by this Court. (See Stockholder vs. Ramirez, 44 Phil., 993;
Pedro de Jesus vs.Guam Bee Co., Inc., 72 Phil., 464).
A similar rule obtains in the United States courts and
decisions there have repeatedly upheld clauses of general
import in mortgages of chattels other than goods for trade,
and containing expressions similar to that of the contract now
before us. Thus, "and all other stones belonging to me and
all other goods and chattels" (Russel vs. Winne, 97 Am. Dec.
755); "all of the property of the said W.W. Allen used or
situated upon the leased premises" (Dorman vs.Crooks
State Bank, 64 A.L.R. 614); "all goods in the store where
they are doing business in E. City, N.C." (Davis vs. Turner,
120 Fed. 605); "all and singular the goods, wares, stock, iron
tools manufactured articles and property of every description,
being situated in or about the shop or building now occupied
by me in Howley Stree" (Winslow vs. Merchants Ins. Co., 38
Am. Dec. 368,) were held sufficient description, on the theory
that parol evidence could supplement it to render
identification rule is expressed in Walker vs. Johnson (Mont.)
1254 A.L.R. 937:
The courts and textbook writers have developed
several rules for determination of the sufficiency of
the description in a chattel mortgage. The rules are
general in nature and are different where the
controversy is between the parties to the mortgage
from the situation where third parties with out
actual notice come in. In 11 C.J. 457, it is said: "Ad
against third persons the description in the
mortgage must point out its subject matter so that
such person may identify the chattels observed,
but it is not essential that the description be so
specific that the property may be identified by it
alone, if such description or means of identification
which, if pursued will disclose the property
conveyed." In 5 R.C.L. 423 the rule is stated that a
description which will enable a third person, aided
by inquires which the instrument itself suggest to
identify the property is sufficiently definite." In
1 Jones on Chattel Mortgages and Conditional
Sales, Bowers Edition, at page 95 the writer says:
"As to them (third persons), the description is
sufficient if it points to evidence whereby the
precise thing mortgaged may be ascertained with
certainty." Here there is nothing in the description
"873 head of sheep" from which anyone, the
mortgagee or third persons, could ascertain with
any certainty what chattels were covered by the
mortgage.
Averell B. Abrasaldo – II-Sanchez Roman
In many instances the courts have held the which appears inconsistent with the definitive character of
description good where, though otherwise faulty, the rulings invoked.
the mortgage explicity states that the property is in
the possession of the mortgagor, and especially
We find that the ground for the appealed order (lack of cause
where it is the only property of that kind owned by
of action) does not appear so indubitable as to warrant a
him.
dismissal of the action without inquiry into the merits and
without the description in the deed of mortgage
The specifications in the chattel mortgage contract in the (Nico vs.Blanco, 81 Phil., 213; Zobel vs. Abreau, 52 Off.
instant case, we believe, in substantial compliance with the Gaz., 3592).
"reasonable description rule" fixed by the chattel Mortgage
Act. We may notice in the agreement, moreover, that the
Wherefore, the orders appealed from are set aside and the
phrase in question is found after an enumeration of other
case remanded to the lower court for further proceedings.
specific articles. It can thus be reasonably inferred therefrom
Costs against appellee.
that the "furnitures, fixture and equipment" referred to are
properties of like nature, similarly situated or similarly used in
the restaurant of the mortgagor located in front of the San G.R. No. 42551           September 4, 1935
Juan de Dos Hospital at Dewey Boulevard, Pasay City,
which articles can be definitely pointed out or ascertain by
ALEKO E. LILIUS, for himself and as guardian ad
simple inquiry at or about the premises. Note that the
litem of his minor child, Brita Marianne Lilius, and
limitation found in the last paragraph of section 7 of the
SONJA MARIA LILIUS, plaintiffs-appellees, 
Chattel Mortgage Law1 on "like or subsituated properties"
vs.
make reference to those "thereafter acquired by the
MANILA RAILROAD COMPANY, defendant. 
mortgagor and placed in the same depository as the property
LAURA LINDLEY SHUMAN, MANILA WINE MERCHANTS,
originally mortgaged", not to those already existing and
LTD., BANK OF THE PHILIPPINE ISLANDS AND MANILA
originally included at the date of the constitution of the chattel
MOTOR CO., INC., intervenors-appellants, and
mortgage. A contrary view would unduly impose a more rigid
W.H. WATEROUS, M. MARFORI, JOHN R. MCFIE, JR.,
condition than what the law prescribes, which is that the
ERLANGER & GALINGER, INC., PHILIPPINE EDUCATION
description be only such as to enable identification after a
CO., INC., HAMILTON BROWN SHOE CO., ESTRELLA
reasonable inquiry and investigation.
DEL NORTE and EASTERN & PHILIPPINE SHIPPING
AGENCIES, LTD., intervenors-appellees.
The case of Giberson vs. A.N. Jureidini Bros., 44 Phil., 216,
219, cited by the appellees and the lower court, cannot be
GODDARD, J.:
likened to the case at bar, for there, what were sought to be
mortgaged included two stores wit all its merchandise,
effects, wares, and other bazar goods which were being In this case Laura Lindley Shuman, the Manila Wine
constantly disposed of and replaced with new supplies in Merchants, Ltd., the Bank of the Philippine Islands and the
connection with the business, thereby making any particular Manila Motor Co., Inc., have appealed from an order of the
or definite identification either impractical or impossible under Court of First Instance of Manila fixing the degree of
the circumstances. Here, the properties deemed overed preference of the claimants and distributing the proceeds of
were more or less fixed, or at least permanently situated or the judgment of this court in the case of Lilius vs. Manila
used in the premises of the mortgagor's restaurant. Railroad Co. (59 Phil., 758), the amount of which judgment
in the sum of P33,525.03, including interest and costs, was
deposited by the railroad company with the clerk of the lower
The rule in the Jureidini case is further weakened by the
court in that case. After deducting the attorneys' fees in the
court's observation that (44 Phil., p. 220) —
sum of P8,016.88, which is not questioned, the net amount in
the hands of the clerk of the lower court pertaining to each of
Moreover, if there should exist any doubts on the the plaintiffs in the original action is follows:
questions we have just discussed, they should be
treshed out in the insolvency proceedings,
Aleko E. Lilius P13,181.33
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Sonja Maria Lilius 8,218.54
Brita Marianne Lilius 4,109.28
There was a total of twenty-eight claimants to these funds,
whose claims were presented and decided without objection
in the original case in the lower court.
The trial court in its order from which these appeals are
taken, allowed:
(a) As against the sum of P8,218.54, separately awarded to
the plaintiff Sonja Lilius, the following claims or portions
thereof in the order stated:
One-half of the claim of Dr. W.H. Waterous P1,500.00
by virtue of a written assignment of March
9, 1933, by the said Sonja Maria Lilius to
him
One-third of the claim of the appellant 661.13
Laura Lindley 
Shuman by virtue of a joint judgement
obtained by her on August 10, 1933, in the
Case No. 44254 of the Court of First
Instance of Manila, against the said Sonja
Maria Lilius, Aleko E. Lilius and Brita
Marianne Lilius
One-third of the claim of the St. Paul's 518.19
Hospital by  The claim of John R. McFie, Jr., by virtue of
virtue of a joint written assignment of
September 21, 1933, by the said Sonja
Maria Lilius, Aleko E. Lilius and Brita
Marianne Lilius to it
and the balance of the award was ordered paid to the said
Brita Marianne Lilius, and
(b) As against the sum of P4,109.28, separately awarded to
the plaintiff Brita Marriane Lilius, the following claims or
portions thereof in the order stated:
One-third of the claim of Laura P661.13
Averell B. Abrasaldo – II-Sanchez Roman
Lindley Shuman by virtue of a joint Estrella del Norte 1,850.76
judgment obtained by her on August
10, 1933, in Case No. 44254 of the Eastern & Philippine Shipping Agencies, 432.15
Court of First Instance of Manila, Ltd.
against the said Brita Marianne
Lilius, Sonja Maria Lilius and Aleko
E. Lilius APPEAL OF LAURA LINDLEY SHUMAN
One-third of the claim of St. Paul's 518.18
Hospital by virtue  First assignments of error: "The lower court erred in holding
of a joint written assignment of that Dr. W.H. Waterous and Dr. M. Marfori had a claim
September 21, 1933, by the  against the plaintiff, Aleko E. Lilius superior to the claim of
said Brita Marianne Lilius, Sonia the appellant, Laura Lindley Shuman, against him."
Maria Lilius and Aleko 
E. Lilius One of the contentions of this appellant under this
assignment of error is that her claim, having been made the
basis of the plaintiffs' action and of the award for damages,
and the balance of the award was ordered paid to the said as shown in the original decision herein, should constitute,
Brita Marianne Lilius, and and does constitute a superior lien against the funds
awarded said plaintiffs, to those of any other claimants,
except the two doctors, the hospital and the other nurse, and
(c) As against the sum of P13,181.33, awarded to the plaintiff
that as to the claims of the two doctors, the hospital and the
Aleko E. Lilius, the following claims or portions thereof in the
other nurse the claim of this appellant has equal preference
order stated:
with their claims.
The other half of the claim of Dr. W.H. The following items were made the basis of a part of the
Waterous by virtue of the final judgement in judgment for damages awarded to the plaintiffs in the original
the original case, G.R. No. 39587 P1,500.00 action against the Manila Railroad Company:
The claim of Dr. M. Marfori, by virtue of the
final judgment in the original case, G.R. No. Por honorarios del Dr. Waterous (Exhibit N-
39587 250.00 2) P3,000.00
Por la primera cura hecha en el Hospital de
a written assignment to him by the said Calauang (Exhibit N-5) 250.00
Aleko E. Lilius of November 13, 1931 500.00
Por el alquiler de la ambulancia del Hospital
The balance of P10, 931.33 of the judgment General (Exhibit N-4) 10.00
pertaining to the said Aleko E. Lilius was
allowed and distributed by the lower court Por la estancia en el Hospital Saint Paul
proportionately among the following (Exhibit N-3) 3,355.00
claimants by virtue of their written
assignment of January 27, 1932: Por los servicios prestados por la enfermera
Laura Shuman (Exhibit N-6) 2,156.00
Erlanger & Galinger, Inc. 3,374.50
Por los servisios prestados por la enfermera
Philippine Education Co., Inc., 3,394.94 Alejandra Alcayaga (Exhibit N-9) 1,450.00
Hamilton Brown Shoe Co. 1,878.98 Porlos servicios prestados por la enfermera 240.00
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Carmen Villanueva (Exhibit N-11)
Por la perdida de la camara fotografica,
pluma fuente y lapiz (Exhibit N-1) 43.00
Por trajes dañados en el choque 131.00
Total 10,635.00
The trial court in that case directed the defendant Railroad
Company to pay P3,000 to Dr. Waterous and to pay to Dr.
Marfori P250, but failed to direct the defendant to pay the
corresponding sums to the other persons and entities
mentioned in the portion of the decision copied above.
It must be admitted that the amounts due Dr. Waterous and
the others mentioned is the original decision, including the
appellant Shuman, were all used as a basis for a part of the
judgment which plaintiffs secured against the defendants
Railroad Company.
From the foregoing it is clear that the claim of this appellant
rests upon the same ground as those of Doctors Waterous
and Marfori. She was also among those who rendered
services to plaintiffs in aid of their recover from the injuries
received by them in the accident for which damages were
awarded them in the case against the Railroad Company.
The fact that the trial court did not direct the defendant
Railroad Company to pay directly to this appellant the
amount of her claim does not modify or do away with her
equitable right to the same status as that given to the two
doctors mentioned above. The inevitable conclusion is that
the claims of Waterous and Marfori have no preference over
her claim for her services as a nurse. This assignment of
error should be and is hereby sustained.
This appellant in her second assignment of error contends
that the trial court erred in failing to allow her claim in the
sum of P61.94 as costs in the case in which judgment was
rendered in her favor against the herein plaintiffs-appellees.
The record shows that the reason for the disallowance of this
item was because no proof was offered as to the amount of
such costs. The only thing appearing in the transcript on this
point is the statement of counsel that the amount of costs in
case No. 44254, as shown by the bill of costs, was P6l.94.
Rule 38 of the Revised Rules of Courts of First Instance
requires that ". . . costs shall be taxed by the clerk on five
days' written notice given by the prevailing party to the
adverse party, with which notice given by the prevailing
Averell B. Abrasaldo – II-Sanchez Roman
party, verified by his oath or that of his attorney, shall be
served. . . ." The proper evidence, therefore, of the costs in
that case would have been the bill of costs and the taxation
of such costs by the clerk. In order to recover such costs in a
separate proceeding, such as this, evidence must be
presented as to the amount of the same. As there was no
evidence offered in this case as to the amount of said costs,
the lower court was correct in disallowing that item. This
assignment of error is overruled.
Under her third assignment of error this appellant contends
(1) that the funds separately awarded the wife, Sonja Maria
Lilius, partake of the nature of conjugal property, at least to
the extent of the sum of P800 awarded to her as interest on
the principal award of P10,000 made in her favor by the trial
court, and as such should respond for the support of the
family, including medical expenses and (2) that even
assuming that the sums awarded separately to Sonja Maria
Lilius are not conjugal property, but her own paraphernal
property, still under the provisions of the Civil Code payment
may be required out of said funds, her husband being
insolvent, under her liability for the medical expenses
incurred by her husband, one of the obligations imposed by
law upon the wife.
The second contention under this assignment of error can be
disposed of by calling attention to the fact that there is no
proof in this case that her husband is insolvent. It has not
been proved that Aleko E. Lilius had no other property
outside of the sum awarded to him in the case against the
Railroad Company.
APPEAL OF THE MANILA WINE MERCHANTS, LTD., AND
THE BANK OF THE PHILIPPINE ISLANDS.
The appellants, the Manila Wine Merchants. Ltd., and the
Bank of the Philippine islands also contend that the sum
separately awarded Sonja Maria Lilius is conjugal property
and therefore liable for the payment of the private debts of
her husband, Aleko E. Lilius, contracted during her marriage.
it is contended that the damages awarded for personal injury
are not classified as separate property of each of the
spouses in article 1396 of the Civil Code and they should
therefore be resumed conjugal. In answer to this, article
1401 of the same Code, in enumerating the property
belonging to the conjugal partnership, does not mention
damages for personal injury.
The question raised by these appellants is one of first
impression in this jurisdiction and apparently has never been
passed upon by the Supreme Court of Spain.
The following comment is found in Colin y Capitant, Vol. 6,
pages 217 and 218:
"No esta resuelta expresamente en la legislacion espa_¤_ola
la cuestion de si las indemnizaciones debidas por accidentes
del trabajo tienen la consideracion de gananciales o son
bienes particulares de los conyuges.
"Inclinan a la solucion de que estas indemnizaciones deben
ser consideradas como gananciales, el hecho de que la
sociedad pierde la capacidad de trabajo con el accidente,
que a ella le pertenece, puesto que de la sociedad son los
frutos de ese trabajo; en cambio, la consideracion de que de
igual manera que los bienes que sustituyen a los que cada
conyuge lleva al matrimonio como propios tienen el caracter
de propios, hace pensar que las indemnizaciones que
vengan a suplir la capacidad de trabajo aportada por cada
conyuge a la sociedad, deben ser juridicamente reputadas
como bienes propios del conyuge que haya sufrido el
accidente. Asi se Ilega a la misma solucion aportada por la
jurisprudencia francesa.".
From the above it appears that there are two distinct theories
as to whether damages rising from an injury suffered by one
of the spouses should be considered conjugal or separate
property of the injured spouse. The theory holding that such
damages should form part of the conjugal partnership
property is based wholly on the proposition, also advanced
by the Manila Wine Merchants, Ltd., that by the injury the
earning capacity of the injured spouse is diminished to the
consequent prejudice of the conjugal partnership.
Assuming the correctness of this theory, a reading of the
decision of this court in G. R. No. 39587 will show that the
sum of P10,000 was awarded to Sonja Maria Lilius "by way
of indemnity for patrimonial and moral damages." The
pertinent part of that decision on this point reads:
"Taking into consideration the fact that the plaintiff Sonja
Maria Lilius, wife of the plaintiff Aleko E. Lilius is-in the
language of the court, which saw her at the trial "young and
beautiful and the big scar, which she has on her forehead
caused by the lacerated wound received by her from the
accident, disfigures her face and that the fracture of her left
leg has caused a permanent deformity which renders it very
difficult for her to walk', and taking into further consideration
10
CREDIT TRANSACTIONS – PART 11: CHATTEL MORTGAGE (Articles 2140—2141) & THE CHATTEL MORTGAGE LAW (ACT 1508)
Cases
her social standing, neither is the sum of P10,000,
adjudicated to her by the said trial court by way, of indemnity
for patrimonial and moral damages, excessive.".
It should be added that the interest on that sum is part of the
damages "patrimonial and moral" awarded to Sonja Maria
Lilius.
Furthermore it appears in the decision of the trial court in G.
R. No. 39587 that Aleko E. Lilius claimed the sum of P10,000
as damages on account of the loss of the services of Sonja
Maria Lilius as secretary and translator, her particular work
as a member of the conjugal partnership. The trial court
disallowed this claim and neither of the plaintiffs in that case
appealed to this court.
In view of the foregoing it is held that the sum of P10,000
with interest thereon awarded to Sonja Maria Lilius as
damages is paraphernal property.
The third assignment of error of the appellant Shuman, the
second assignment of error of the appellant Bank of the
Philippine Islands and the sole assignment of error of the
appellant Manila Wine Merchants, Ltd., are overruled.
In its first assignment of error it is contended by the Bank of
the Philippines Islands that by virtue of its writ of garnishment
served on the Manila Railroad Company of February 8,
1933, it acquired a lilen superior to the preference granted by
article 1924 of the Civil Code to prior judgments. This error, if
at all, is however non-prejudicial as the record shows that all
the creditors declared by the court as having a right to
participate in the proceeds of the judgment in favor of Aleko
E. Lilius were so held by virtue of deeds of assignment
executed prior to the date of the service of notice of the
bank's writ of garnishment on the Manila Railroad Company.
These creditors are John R. McFie, jr., whose claim is based
on a deed of assignment dated November 13, 1931, and
Erlanger & Galinger, Philippine Education Co., Inc., Hamilton
Brown Shoe Co., Estrella del Norte and Eastern & Philippine
Shipping Agencies, Ltd., whose claims are based on a deed
of assignment dated November 17, 1931. As the record
shows that whatever was left of the judgment in favor of
Aleko E. Lilius is not sufficient to pay in full the credits of the
above mentioned creditors and furthermore, in view of the
fact that strictly speaking, there was no existing credit in
favor of Aleko E. Lilius to be garnished on February 3, 1933,
as it had been assigned, before that date, to his creditors,
this assignment of error, therefore, must be overruled.
Averell B. Abrasaldo – II-Sanchez Roman
APPEAL OF THE THE MANILA MOTOR CO., INC.
The two error assigned by this appellant read as follows:
"I. The lower court erred in considering the date of the date
judgment, Exhibit A, Manila Motor Co., Inc., instead of the
date of the public document upon which it was based in
determining the preference among the several claims filed
and litigated in this proceeding.
"ll. The lower court erred in not holding the claim of the
claimant-appellant, Manila Motor Co., Inc., preferred over all
other claims against Aleko E. Lilius evidenced by public
instruments and final judgments.".
The claimant has not proven that its credit is evidenced by a
public document within the meaning of article 1924 of the
Civil Code. The only evidence offered by the Manila Motor
Co., Inc., in support of its claim of preference against the
fund of Aleko E. Lilius was a certified copy of its judgment
against him in civil case No. 41159 of the Court of First
Instance of Manila, together with a certified copy of the writ
of execution and the garnishment issued by virtue of said
judgment. These documents appear in the record as Exhibits
A, B and C. The alleged public document evidencing its
claim was not offered in evidence and counsel of the Manila
Motor Co., Inc., merely stated at the hearing in the lower
court that its judgment was based on a public document
dated May 10, 1931. There is no explanation as to why it
was not presented as evidence along with Exhibits A, B, and
C. In their brief in this court, counsel for the Motor Co., Inc.,
merely assume that its credit is evidenced by a public
document dated may 10, 1931, because the court, in its
judgment in said civil case No. 41159, refers to a mortgage
appearing in the evidence as Exhibit A, as the basis of its
judgment, without mentioning the date of the execution of the
exhibit. This reference in said judgment to a mortgage is not
competent or satisfactory evidence as against third persons
upon which to base a finding that the Manila Motor
Company's credit evidenced by a public document within the
meaning of article 1924 of the Civil Code. This court is not
authorized to make use of that judgment as a basis for its
findings of fact in this proceeding. This is shown by the
decision of this court in the case of Martinez vs. Diza 920
Phil., 498). In that syllabus of that decision it is stated:
"1. COURTS OF FIRST INSTANCE; JUDGMENT IN
FORMER CIVIL ACTION AS BASIC FOR FINDINGS OF
FACT; ERROR.-A person who was not a party to a former
civil action, or who did not acquire his rights from one of the
parties thereto after the entry of judgment therein, is not
bound by such judgment; nor can it be used against him as a
basis for the findings of fact in a judgment rendered in a
subsequent action.".
But even if the court is authorized to accept the statement in
that judgment as a basis for its finding of fact in relation to
this claim, still it would not establish the claim of preference
of the Manila Motor Co., Inc. Granting that a mortgage
existed between the Manila Motor Co., Inc., and Aleko E.
Lilius, this does not warrant the conclusion that the
instrument evidencing that mortgage is a public document
entitled to preference under article 1924 of the Civil Code.
Under section 5 of Act No. 1507 as amended by Act No.
2496, a chattel does not have to be acknowledge before a
notary public. As against creditors and subsequent
encumbrances, the law does require an affidavit of good faith
appended to the mortgage and recorded with it. (See
Giberson vs. A. N. Jureidini Bros., 44 Phil., 216, and Betita
vs. Ganzon, 49 Phil., 87.) A chattel mortgage may, however,
be valid as between the parties without such an affidavit of
good faith. In 11 Corpus Juris, 482, the rule is expressly
stated that as between the parties and as to third persons
who have no rights against the mortgagor, no affidavit of
good faith is necessary. It will thus be seen that under the
law, a valid mortgage may exist between the parties without
its being evidenced by a public document. This court would
not be justified, merely from the reference by the lower court
in that case to a mortgage, in assuming that its date appears
in a public document. if the Manila motor Co., Inc., desired to
rely upon a public document in the form of a mortgagor as
establishing its preference in this case, it should have offered
that document in evidence, so that the court might satisfy
itself as to its nature and unquestionably fix the date of its
execution. There is nothing either in the judgment relied
upon or in the evidence to show the date of said mortgage.
The burden was upon the claimant to prove that it actually
had a public Code. It is essential that the nature and the date
of the document be established by competent evidence
before the court can allow a preference as against the other
parties to this proceeding. Inasmuch as the claimant failed to
establish its preference, based on a public document, the
lower court properly held that its claim against the said Aleko
E. Lilius was based on the final judgment in civil case No.
41159 of the Court of First Instance of Manila of May 3,
1932. The court, therefore, committed no error in holding that
the claim of the Manila Motor Co., Inc., was inferior in
preference to those of the appellees in this case.
This appellant's assignments of error are overulled.
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Cases
In view of the foregoing the following portion of the
dispositive part of the decision of the trial court is affirmed.
"Por estas consideraciones, se ordena y se decreta (a) que
del saldo de P8,219.54, que pertenece a Sonja Maria LIllius
y que se halla depositado en la Escribana del Juzgado, se
pague po el Escribano al Dr. W. H. Waterous la suma de mil
quinientos pesos (P1,500), a Laura L. Shuman, seiscientos
sesenta y un pesos con trece centavos (P661.13, y al St.
Paul's Hospital, quinientos diez y ocho pesos con diez y
ocho centavos (P518.18), y el remanente de cinco mil
cuatrocientos setenta y siete pesos con veinticuatro
centavos (P5,477.24), a Sonja Maria Lililus, o su apoderado;
(b) que del saldo de P4,109.28 que pretence a Brita
Marianne Lilius y que se halla deposito en la Escribania del
Juzgado, se pague por el Escribano a Laura Shuman, la
suma de seicientos sesenta y un pesos con trece centavos
(P661.13); y al St. Paul's Hospital, quinientos diez y ocho
pesos con diez y ocho centavos (P518.18)y, y el sado de
dos mil ochocientos sesenta y siete pesos con noventa y
siete centavos (P2,867.97), a Brita Marianne Lilius, por
conducto de su tutor;".
The remaining portion of the dispositive part of the decision
of the trial court is modified as follows:
"That from the sum of P13,181.33 pertaining to Aleko E.
Lilius, which is deposited with the clerk of the trial court, the
following claims shall first be paid:
Dr. W.H. P1,500.00
Waterous
Dr. M. Marfori 250.00
Laura Lindley 661.13
Shuman
John R. McFie, Jr. 500.00
and the balance of the sum pertaining to Aleko E. Lilius shall
be divided among the following entities in proportion to their
respective claims:
Amount of claim
Averell B. Abrasaldo – II-Sanchez Roman
Erlanger & Galinger, Inc. P3,672.76
Philippine Education Co., Inc. 3,695.20
Hamilton-Brown Shoe Co. 2045.00
Estrella del Norte 2,014.45
Eastern and Philippine Shipping 470.38
Agencies, Ltd.
So ordered without special pronouncement as to costs.
G.R. No. 107554 February 13, 1997
CEBU INTERNATIONAL FINANCE
CORPORATION, petitioner, 
vs.
COURT OF APPEALS, ROBERTO ONG AND ANG
TAY, respondents.  evidenced by a promissory note of even date.7
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the
Revised Rules of Court, petitioner seeks to set aside the
decision of the Court of Appeals in CA-G.R C.V. No. 26257
dated 2 July 1992 which affirmed the decision of the
Regional Trial Court in Civil Case No. CEB-6919, declaring
the chattel mortgage void and ordering petitioner and private
respondent Robert Ong to pay damages to private
respondent Ang Tay. The Court of Appeals' resolution dated
30 September 1992 is similarly impugned for denying
petitioner's motion for reconsideration.
Gleaned from the records are the following facts:
On 4 March 1987, Jacinto Dy executed a Special Power of
Attorney1 in favor of private respondent Ang Tay, authorizing
the latter to sell the cargo vessel Owned by Dy and
christened LCT "Asiatic."
On 28 April 1987, through a Deed of Absolute Sale,2 Ang
Tay sold the subject vessel to private respondent Robert
Ong (Ong) for P900,000.00. Ong paid the purchase price by
issuing three (3) checks in the following amounts:
P150,000.000, P600,000.00 and P150,000.00. 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." 3 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 on 18 May 1987.4 Ong presented the
notarized deed to the Philippine Coast Guard which
subsequently issued him a Certificate of Ownership 5 and a
Certificate of Philippine Register6 over the subject vessel on
27 May 1987. Ong also succeeded in having the name of the
vessel changed to LCT "Orient Hope."
On 29 October 1987, Ong acquired a loan from petitioner in
the amount of P496,008.00 to be paid in installments as
As security for the loan, Ong executed a chattel mortgage
over the subject vessel,8 which mortgage was registered with
the Philippine Coast Guard and annotated on the Certificate
of Ownership.9 In paragraph 3 of the Deed of Chattel
Mortgage, it was stated that:
3. The said sum of FOUR HUNDRED
NINETY SIX THOUSAND EIGHT ONLY
(496,008.00) represents the balance
due on of MORTGAGOR(S) from the
MORTGAGEE and is payable in the
office of the MORTGAGEE at Cebu City
or in the office of the latter's assignee, in
case the rights and interests of the
MORTGAGEE in the foregoing
mortgage are assigned to a third person,
under the terms of said promissory note,
as follows: (a) TWENTY THOUSAND
SIX HUNDRED SIXTY SEVEN ONLY**
Pesos (P20,667.00) on or before . . . . . .
and (b) the balance in Twenty Four (24)
equal successive monthly installments
on the . . . . . . day of each and every
succeeding month thereafter until the
amount is fully paid. The interest on the
foregoing installments shall be paid on
the same date that the installments
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Cases
become payable and additional interest The Court of Appeals affirmed the trial court's decision and SPECULATION, CONJECTURE, AND
at the rate of fourteen (14%) per Ong's petition for review before this Court was dismissed for SURMISE, WHEN IT DECLARED THAT
cent per annum will be charged on all lack of merit in a resolution dated 15 March 1993, THE CONTRACT BETWEEN CIFC AND
amounts, principal and interest, not paid ROBERT ONG WAS ONE OF SALE,
on due date. 10 (Emphasis ours.) AND NOT LOAN (MUTUUM) WITH
On the other hand, in CEB-6919, the subject of the present
MORTGAGE.
appeal, the trial court in a decision dated 14 February 1990,
Ong defaulted in the payment of the monthly installments. declared the chattel mortgage on the subject vessel null and
Consequently, on 11 May 1988, petitioner sent him a void and ordered petitioner and Ong to pay Ang Tay II
letter 11 demanding delivery of the mortgaged vessel for damages. The dispositive portion states, thus:
foreclosure or in the alternative to pay the balance of
THE RULING OF THE COURT OF
P437,802.00 pursuant to paragraph 11 of the deed of chattel
WHEREFORE, in view of all the APPEALS IS CONTRARY TO
mortgage. 12
foregoing, the chattel mortgage on the EXISTING AND WELL-SETTLED
vessel LCT ORIENT HOPE is declared JURISPRUDENCE THAT A
Meanwhile, the two checks (worth P600,000.00 and null and void, rendering its annotation MORTGAGEE HAS THE RIGHT TO
P150,000.00) paid by Ong to Ang Tay for the purchase of the and registration at the back of the RELY ON WHAT APPEARS IN THE
subject vessel bounced. Ang Tay's search for the elusive Certificate of Ownership and Certificate CERTIFICATE OF OWNERSHIP
Ong and all attempts to confer with him proved to be futile. A of Philippine Registry respectively, to be (TITLE).
subsequent investigation and inquiry with the Office of the of no force and effect.
Coast Guard revealed that the subject vessel was already in
III
the name of Ong, in violation of the express undertaking
Plaintiff CIFC and defendant Robert Ong
contained in the original deed of sale.
are hereby ordered to pay jointly and
THE DECISION OF THE COURT OF
severally to defendant Ang Tay the
APPEALS IS REPUGNANT TO THE
As a result thereof, on 13 January 1988, Ang Tay and following amounts: P50,000.00 as
CLEAR RULING OF THE HONORABLE
Jacinto Dy filed a civil case for rescission and replevin with unrealized income during the five-day
COURT THAT BETWEEN TWO
damages against Ong and his wife (docketed as Civil Case period when the vessel was take from
INNOCENT 
No. CEB-6565) with the Regional Trial Court of Cebu . City, Ang Tay's possession; P100,000.00,
Branch 10. The trial court issued a writ of replevin and the representing the premiums Ang Tay paid
subject vessel was seized and subsequently delivered to for the redelivery of the vessel to him PERSONS, THE ONE WHO MADE THE
Ang Tay. and other expenses; P10,000.00 as DAMAGE POSSIBLE BY HIS ACT OF
actual expenses for the recovery of the CONFIDENCE MUST BEAR THE
vessel; P100,000.00 as moral damages; LOSS. 16
On 9 March 1988, petitioner filed a motion for intervention
P50,000.00 as exemplary damages;
but withdrew the same on 29 April 1988. Instead, on 26 May
P40,000.00 as actual expenses in
1988, petitioner filed a separate case for replevin and We grant the petition.
attending trials and litigation expenses;
damages against Ong and "John Doe" (Ang Tay) with the
and P30,000.00 as attorney's fees.
same trial court, docketed as Civil Case No. CEB-6919.
In upholding the nullity of the chattel mortgage on the subject
vessel, the Court of Appeals declared thus:
SO ORDERED. 14
The trial court granted petitioner's prayer for replevin. The
vessel was seized and placed in the custody of the trial
In Par. 3 of the Chattel Mortgage
court. However, Ang Tay posted a counterbond and the On 2 July 1992, the Court of Appeals affirmed in toto the
Contract executed between appellants
vessel was returned to his possession. above mentioned decision. 15 Hence, the present petition for
CIFC and Robert Ong, it was made to
review on certiorari.
appear that the subject vessel was sold
On 3 October 1990 in CEB-6565, the trial court rendered a by the plaintiff Cebu International
decision in favor of Ang Tay and Jacinto Dy. The sale of the Petitioner enumerates the alleged errors oft he Court of Finance Corporation to Robert Ong on
subject vessel was rescinded, the registration of the vessel Appeals as follows: installment. However, there is no
with the Office of the Coast Guard and other government showing that appellant CIFC acquired
agencies in Ong's name nullified and the vessel's registration the vessel in question from either
I
in Dy's name revived. Ong was, likewise, ordered to pay Jacinto Dy or Ang Tay, the owner of
Jacinto Dy and Ang Tay actual damages for lost income, such vessel. Since, CIFC appears to
moral damages, attorney's fees and litigation THE COURT OF APPEALS ERRED IN have sold the vessel in question to Ong
expenses.13 BASING ITS DECISION ON on installment basis, the said contract is

Averell B. Abrasaldo – II-Sanchez Roman 13

CREDIT TRANSACTIONS – PART 11: CHATTEL MORTGAGE (Articles 2140—2141) & THE CHATTEL MORTGAGE LAW (ACT 1508)
Cases
null and void, because CIFC was never
the owner of the vessel.
Moreover, Robert Ong CIFC's
mortgagor, did not acquire ownership of
the vessel because of an express
stipulation in the Deed of Sale that the
vessel "shall not be registered or
transferred to Robert Ong until complete
payment." (Exh. "7-C-1".) Since Ong
clearly was not the owner of the vessel
at the time of the execution of the
mortgage, the said mortgage is null and
void on that ground.
Furthermore, the evidence on record
shows the chattel mortgage in question
did not comply with the requirements of
P.D. 1521, The Ship Mortgage Decree
of 1978. . . . 17
The Court of Appeals nullified the chattel mortgage contract
between petitioner and Ong because paragraph 3 of the said
contract (where it appeared that petitioner sold the subject
vessel to Ong on installment basis and that the amount
supposedly loaned to Ong represented the balance due on
the purchase price) seemed to indicate that the owner of the
vessel mortgaged was petitioner although it had been duly
established that another party (Jacinto Dy) was the true
owner thereof. 18
We disagree with the aforequoted ruling of the Court of
Appeals. The chattel mortgage contract should not be
viewed in such a myopic context. The key lies in the
certificate of ownership issued in Ong's name (which, along
with the deed of sale, he submitted to petitioner as proof that
he is the owner of the ship he gave as security for his loan).
It was plainly stated therein that the ship LCT "Orient Hope"
ex "Asiatic," by means of a Deed of Absolute Sale dated 28
April 1987, was "sold and transferred by Jacinto Dy to Robert
Ong." 19 There can be no dispute then that it was Dy who
was the seller and Ong the buyer of the subject vessel.
Coupled with the fact that there is no evidence euphony
transaction between Jacinto Dy or Ang Tay and petitioner, it
follows, therefore, that petitioner's role in the picture is
properly and logically that of a creditor-mortgagee and not
owner-seller. It is paragraph 2 of the mortgage
contract 20 which accurately expresses the true nature of the
transaction between petitioner and Ong--that it is a simple
loan with chattel mortgage. The amount petitioner loaned to
Ong does not represent the balance of any purchase price
Averell B. Abrasaldo – II-Sanchez Roman
since, as we have previously discussed, the aforementioned
documents state that Ong is already the absolute owner of
the subject vessel. Obviously, therefore, paragraph 3 of the
said contract was filled up by mistake. Considering that
petitioner used a form contract, it is not improbable that such
an oversight may have been committed--negligently but
unintentionally and without malice. As testified to by Mr.
Benjamin C. Alfaro, petitioner's Senior Vice President for
Operations they only use one form for several kinds of
transaction:
ATTY. UY: (TO WITNESS)
Q: Mr. Alfaro, as a financing institution, Cebu International
finance Corporation, how many kinds of lending transaction
do you have in a firm? Do you have financial leasing,
discounting or whatever? Can you explain briefly to the
Honorable Court? 
WITNESS:
A: We have direct loan transaction. We have financing
transaction and we have leasing transaction. Now, in the
leasing transaction, the document will show that we are the
owner of the equipment and we leased it out. In the financing
transaction, where we used the same Chattel Mortgage
instrument, there are three parties involved, the seller of the
equipment. And then, the seller of the equipment would sell
or assign the contract with the financing company. That is
the financing transaction. And in the simple loan transaction,
there appears only two parties involved, the borrower and
the lender.
ATTY. UY: (TO WITNESS)
Q: Now, Mr. Alfaro, the same document, Chattel Mortgage
will apply also to financing transaction, leasing transaction
and simple loan transaction?
WITNESS:
A: Simple loan and financing transactions.
ATTY. UY (TO WITNESS)
Q: Now, Mr. Alfaro, this paragraph 2 of Chattel Mortgage,
can this apply to a financing transaction?
WITNESS:
A: No, the paragraph 3 will be the one that is applicable to a
financing transaction. (Witness reading the document and
after reading continued) Paragraph 2 applies to both
financing and simple loan transaction.
ATTY. UY:
Q: And paragraph 3?
WITNESS:
A: Paragraph 3 applies to both financing and lending
transactions but paragraph 3 does not apply to Simple
lending transaction.
xxx xxx xxx 21
ATTY. LOGRONIO: (TO WITNESS)
Q: You do not affirm the assertion made by your counsel that
paragraph 3 arise only in case that your rights to a mortgage
were assigned by you to a third person, do you agree that
also?
WITNESS:
A: This form of chattel mortgage, in fact, you will notice that
the portion for mortgagor and mortgagee are all blank
because this is the same form which is used by the
company, used for the parties when there is a dealer
involved, when there is installment buyer involved and when
we come in as third party purchaser of the document
because as practiced by the different dealer, this is the same
form used between the buyer and the dealer of the motor
vehicle. After this is being consummated already, it is
assigned to a finance company and these are the same
documents used. Now, in this particular case, this becomes
already . . . this is a direct transaction between the finance
company and the borrower. We, the finance company
becomes the direct lender and Mr. Ong became the direct
borrower. As I explained earlier, this document is also the
form used between a dealer of a motor vehicle and an
installment buyer wherein after paying the down payment,
the unpaid balance which is secured by the chattel
mortgage, the promissory note, and the disclosure statement
14
CREDIT TRANSACTIONS – PART 11: CHATTEL MORTGAGE (Articles 2140—2141) & THE CHATTEL MORTGAGE LAW (ACT 1508)
Cases
and this document is sold to a third party and that is the The next issue for our determination is whether or not
finance company by the dealer. petitioner is a mortgagee in good faith whose lien over the
mortgaged vessel should be respected.
ATTY. LOGRONIO:
The prevailing jurisprudence is that a mortgagee has a right
to rely in good faith on the certificate of title of the mortgagor
Q: Up to this point, when you had the transaction with Mr.
to the property given as security and in the absence of any
Ong, this form that you executed, the Chattel Mortgage was
sign that might arouse suspicion, has no obligation to
in what kind of form that was already used by the company?
undertake further investigation. Hence, even if the mortgagor
is not the rightful owner of or does not have a valid title to the
WITNESS: mortgaged property, the mortgagee or transferee in good
faith is nonetheless entitled to protection. 23 Although this rule
generally pertains to real property, particularly registered
A: These are forms available to us. land, it may also be applied by analogy to personal property,
in this case specifically, since shipowners are, likewise,
ATTY. LOGRONIO: required by law to register their vessels with the Philippine
Coast Guard.
Q: This is a form used when there is a buyer and a ...
Private respondent Ang Tay, however, contends that the
aforementioned rule does not apply in the case at bar in the
WITNESS: face of the numerous "badges of bad faith" on the part of
petitioner.
A: Third party or direct borrowing lender.
Capitalizing on paragraph 3 of the chattel mortgage contract,
ATTY. LOGRONIO: Ang Tay argues as follows:
Q: And this refers to a direct borrower or lending transaction. . . . The fraud and conspiracy by Robert
Ong and some responsible employees
of CIFC against Jacinto Dy and Ang Tay
WITNESS:
are thus brought to the open by this
stipulation. Since CIFC appears in the
A: Yes. registered chattel mortgage to have sold
the vessel in question to Robert Ong,
the said contract is null and void
ATTY. LOGRONIO: because CIFC never for a second or a
moment became the owner of the
Q: No third party assignment has been involved so far? vessel. CIFC was the one who prepared
the chattel mortgage and the one who
registered the same without
WITNESS: contemporaneous or subsequent
correction or modification; it cannot, after
A: No. it notified the public by means of
registration that it acquired the vessel
and became its owner, now shy away
xxx xxx xxx 22 from a stipulation which is the heart and
nerve-center of the contract and which it
Accordingly, the chattel mortgage contract made and registered. This is both the
between petitioner and Ong is valid and subsisting. essence and consequence of estoppel.
Applicable is Article 1459 of the Civil
Code which provides inter-alia: ". . . the
vendor must have a right to transfer the
Averell B. Abrasaldo – II-Sanchez Roman
ownership thereof (the thing sold) at the
time it is delivered."
2. Robert Ong, CIFC's mortgagor, did
not acquire ownership of the vessel
because of an express stipulation which
he signed that the vessel "shall not be
registered or transferred to Robert Ong
until complete payment." (Exh. "7-C-1".)
This stipulation is expressly covered by
Article 1478 of the Civil Code: "The
parties may stipulate that ownership in
the thing shall not pass to the purchaser
until he has fully paid the price." Since
Ong clearly was not the owner of the
vessel at the time of the execution of the
mortgage, the said mortgage is null and
void on that ground. 24
Ang Tay's contentions are unmeritorious. As previously
discussed, paragraph 3 of the chattel mortgage contract was
erroneously but unintentionally filled up. The failure of
petitioner to exercise due care in filling up the necessary
provisions in the chattel mortgage contract does not,
however, amount to bad faith. It was a mere oversight and
not a deliberate and malicious act.
Petitioner's bad faith is further demonstrated, Ang Tay avers,
by its failure to comply with the following requirements of
P.D. No. 1521 or the Ship Mortgage Decree of 1978:
1) The loan secured by the mortgaged
vessel was not for any of purposes
specified in Sec. 2 of P.D. No. 1521, i.e.,
"financing the construction, acquisition,
purchase of vessels or initial operation
of vessels" 25 and that petitioner failed to
furnish the Central Bank a copy of the
mortgage; 26
2) The special affidavit of good faith
required in Sec. 4 of P.D. No. 1521 was
lacking; and
3) Ong failed to disclose his creditors
and lienors as provided in Sec. 6 of P.D.
No. 1521.
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Cases
There is no merit in private respondent's allegations. In the 9
November 1989 hearing, Ang Tay confirmed his statement in
his affidavit, executed in Civil Case No. CEB-6565, that Ong
wanted to obtain a loan to replenish his capital because he
had used up his money in the purchase of the subject
vessel 27 and that the ship was delivered to Ong so that he
could begin deriving economic benefits therefrom. 28 Mr.
Randolph Veloso petitioner's collector, processing clerk,
credit investigator and appraiser, further testified as follows:
x x x           x x x          x x x
Q: Do you know the purpose for that loan
A: Yes.
Q: What was his purpose?
A: He was going to mortgage the vessel to us.
Q: What was the purpose of the loan?
A: We don't usually ask our client what they will do with it.
Q: You don't ask the purpose?
A: It is understood that whenever a client approach the
institution he usually has a purpose for the money.
Q: Did not the corporation was what need has he for the
money?
A: He is going to use it for his business in the boat.
Q: And that is his only statement? What was his specific
statement?
ATTY. UY:
Already answered. He will use it in the business of his boat.
ATTY. LOGRONIO:
What was the purpose.
Averell B. Abrasaldo – II-Sanchez Roman
ATTY. UY:
Already answered Your Honor and besides it is immaterial.
ATTY. LOGRONIO:
Very material and it is important Your Honor as there is a
violation of the law. I am entitled to insist for the answer.
COURT:
Witness may answer, if he knows.
(TO WITNESS)
Q: Did he tell you what was the purpose?
A: For the business of the boat.
ATTY. LOGRONIO: (TO WITNESS)
Q: That's all, that he is going to use the money for the
business of the boat?
A: Yes.
xxx xxx xxx 29
From the foregoing, therefore, it can be readily deduced that
the loan was for the initial operation of the subject vessel and
thus falls under the purposes laid down in the Ship Mortgage
Decree.
The special affidavit of good faith, on the other hand, is
required only for the purpose of transforming an already valid
mortgage into a "preferred mortgage." 30 Thus, the
abovementioned affidavit is not necessary for the validity of
the chattel mortgage itself but only to give it a preferred
status.
As to the disclosure requirement in Sec. 6 of the Ship
Mortgage Decree, 31 it was intentional on Ong's part not to
inform petitioner that he had yet to pay in full the purchase
price of the subject vessel. Ong presented himself to
petitioner as the absolute owner of the LCT "Orient Hope" ex
"Asiatic." The Certificate of Ownership in Ong's name
showed that the ship was conveyed to him by means of a
Deed of Absolute Sale which gave the idea that the purchase
price had been fully paid and the sale completed.
Petitioner had every right to rely on the Certificate of
Ownership and Certificate of Philippine Register duly issued
by the Philippine Coast Guard in Ong's name. Petitioner had
no reason to doubt Ong's ownership over the subject vessel.
The documents presented by Ong, upon petitioner's
insistence before accepting the said vessel as loan security,
were all in order and properly issued by the duly constituted
authorities. There was no circumstance that might have
aroused petitioner's suspicion or alerted it to any infirmity
committed by Ong. It had no participation in and was not
privy to the sale transaction between Jacinto Dy (through
Ang Tay) and Ong. Petitioner, thus, had no obligation to
undertake further investigation since it had the necessary
documents to prove Ong's ownership. In addition petitioner
even took pains to inspect the subject vessel which was in
Ong's possession. Mr. Benjamin C. Alfaro testified thus: . . .
x x x           x x x          x x x
ATTY. LOGRONIO: 
Q: In your credit investigation of Mr. Robert Ong did you
have a chance yourself or any of your employees to verify
the condition and the location of the vessel at the very time?
WITNESS:
A: Yes.
ATTY. LOGRONIO:
Q: Will you tell the Court where was the vessel at the time
that he applied for a loan with your bank?
WITNESS:
A: It was under finishing touches in the drydock in . . . think in
Lapulapu or Mandaue.
ATTY. LOGRONIO:
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Cases
Q: So, more or less, you are sure that at the time that he A: Yes.
applied for a loan and you approved the same, this vessel
was still at the drydock?
xxx xxx xxx 32

WITNESS:
A: Yes finishing touches. In fact, it had pictures to support
the application. I don't know if we have it now.
ATTY. UY:
We have. (Counsel producing a picture of a vessel and
handing it to the witness).  copies of the deed 34 with Ang Tay's signature and had these
WITNESS: (Cont)
This is the picture of the vessel because we required him to
submit.
ATTY. LOGRONIO:
Q: You are referring to the picture which you asked the Court
to mark as Exhibit . . . .
ATTY. UY:
No, we are requesting now Your Honor. This has not been
marked yet. We asked that the picture showing the back
portion of the vessel, Orient Hope be marked as Exhibit "I"
and the picture showing the front portion of the vessel as
Exhibit "I-1".
COURT: (TO INTERPRETER)
Mark it.
ATTY. LOGRONIO: (TO WITNESS)
Q: So, at the time that the vessel was submitted to you as
collateral for the loan, the condition of the vessel was as it is
reflected in this exhibit? (Cross- examiner referring to the
picture).
Anent the last issue, although Ang Tay may also be an
innocent person, a similar victim of Ong's fraudulent
machinations, it was his act of confidence which led to the
present fiasco. Ang Tay readily agreed to execute a deed of
absolute sale in Ong's favor even though Ong had yet to
make a complete payment of the purchase price. It is true
that in the copy of the said deed submitted by Ang Tay there
was an undertaking that ownership will not vest in Ong until
full payment.33 However, Ong was able to obtain several
notarized without the aforementioned undertaking as
evidenced by the copy of the deed of sale presented by
petitioner. 35 The Deed of Absolute Sale consisted of two (2)
pages. The signatures of Ang Tay and Ong appeared only
on the first page of the deed. The Second page contained
the continuation of the acknowledgment and the undertaking.
Ong could have easily reproduced the second page without
the undertaking since this page was not signed by the
contracting parties. To complete the deception, Ang Tay
unwittingly allowed Ong to have possession of the ship.
Hence, in consonance with our ruling that:
. . . as between two innocent persons,
the mortgagee and the owner of the
mortgaged property, one of whom must
suffer the consequence of a breach of
trust, the one who made it possible by
his act of confidence must bear the
loss. 36
it is Ang Tay and his principal Jacinto Dy who
must, unfortunately, suffer the consequences
thereof. They are considered bound by the chattel
mortgage on the subject vessel.
WHEREFORE, this Court GRANTS the Petition for Review
and REVERSES the questioned decision and resolution of
the Court of Appeals. The validity of the chattel mortgage on
the vessel LCT ORIENT HOPE is hereby upheld without
prejudice to whatever legal remedies private respondent Ang
Tay may have against private1 respondent Robert Ong in the
premises.

SO ORDERED.
WITNESS:

Averell B. Abrasaldo – II-Sanchez Roman 17