Chattel Mortgage

List of Cases
Makati Leasing and Finance Corporation v. Wearever Textile Mills ........................................26 Filipinas Marble Corporation v. Intermediate Appellate Court ....................................................27 Allied Banking Corporation v. Honorable Emilio V. Salas.................................................................28 Servicewide Specialists, Incorporated v. Intermediate Appellate Court .............................29 Bicol Savings & Loan Association v. Jaime Guinhawa..............................................................30 BA Finance Corporation v. Court of Appeals ..31 Manolo P. Cerna v. Court of Appeals ...............32 Filinvest Credit Corporation v. Court of Appeals ...............................................................................33 Acme Shoe, Rubber & Plastic Corporation v. Court of Appeals ..................................................34 Cebu International Finance Corporation v. Court of Appeals ...............................................35

Makati Leasing and Finance Corporation v. Wearever Textile Mills May 16, 1983 L-58469 Facts: Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement in favor of Makati Leasing and Finance Corporation in order to obtain financial accommodations. To secure the collection of the receivables assigned, Wearever executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range. Upon Wearever’s default, Makati Leasing filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into premises of Wearever and was not able to effect the seizure of the aforedescribed machinery. Makati Leasing Special Commercial Laws

thereafter filed a complaint for judicial foreclosure. Acting on Makati Leasing's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently restrained upon Wearever’s filing of a motion for reconsideration. After several incidents, the lower court finally issued an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of Wearever’s to enforce said writ. The lower court reaffirmed its stand upon wearever’s filing of a further motion for reconsideration. The sheriff enforcing the seizure order, repaired to the premises Wearever’s and removed the main drive motor of the subject machinery. The Court of appeals set aside orders of the Lower Court and ordered the return of the main drive motor of the machinery. It held that the subject machinery cannot be subject of replevin because it is a real property pursuant to Article 415 of the Civil Code. Therefore Chattel Mortgage constituted upon it is null and void.

Issue: Whether or not the subject machinery is a real property or a personal property to subject it to chattel mortgage

Ruling: Where a chattel mortgage is constituted on machinery attached to the ground the machinery is to be considered as a personal property and the chattel mortgage constituted thereon is not null and void regardless of who owns the land. A property attached to the ground like a house of strong materials, may be considered as personal property for purposes of executing a chattel mortgage thereon as long Page 26

the mortgage is nevertheless binding between the parties. In essence. Filipinas marble. leaving Filipinas Marble desolate and devastated. Ruling” In accordance with Article 2125 of the Civil Code. DBP granted the loan subject. the Filipinas Marble seeks the annulment of the deeds of mortgage and Special Commercial Laws Issues: 1. Bancom and its directors/ officers mismanaged and misspent the loan. Intermediate Appellate Court May 30. may not be likewise treated as such. which is movable in its nature and becomes immobilized only by destination or purpose. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage. 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 Filipinas Marble’s properties in Metro Manila and in Romblon. The Filipinas Marble further prayed that pending the trial on the merits of the case. it is indispensable.Article 2125 of the Civil Code. instead of helping Filipinas Marble get back on its feet. 2125.Chattel Mortgage as the parties to the contract so agree and no innocent third party will be prejudiced thereby. it also got back with its left hand. Bancom resigned with the approval of DBP even before the expiration of the management contract. Filipinas Marble Corporation v. Machineries arrived in the Philippines but alleged not delivered to Filipinas Marble. In addition to the requisites stated in article 2085. Also. The mortgage was not registered. If there was no valid contract of loan for failure of consideration. Inc. DBP completely abandoned Filipinas Marble’s project and proceeded to foreclose the properties mortgage without previous demand or notice. Whether or not the non-registration of the Chattel Mortgage affects its validity. [Bancom] and that the loan be secured by a mortgage. and that. to sixty onerous conditions. there is absolutely no reason why a machinery. among which are: Filipinas Marble shall have to enter into a management contract with respondent Bancom Systems Control. in order that a mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. however. whether or not the mortgage can exist or stand by itself being a mere accessory contract. however. 1986 L-68010 Facts: Filipinas Marble Corporation applied for a loan with Development Bank of the Philippines (DBP) in its desire to develop the fun potentials of its mining claims and deposits and to finance acquisition of machinery. . it clearly provides that the non-registration of the mortgage does not affect the immediate parties. there was failure of consideration with regard to the execution of said deeds as the loan was never delivered to the Filipinas Marble. cannot invoke the above provision to nullify the chattel Page 27 . 2. deed of assignment because there was no loan at all to secure since what DBP "lent" to Filipinas Marble with its right hand. If the instrument is not recorded. It states: Art.

Salas December 13.. respondent Judge rendered the assailed Order. -However. It appears. 1988 L-49081 Facts: General Bank and Trust Company granted Gencor Marketing. Allegedly to protect Allied Banking’s rights over the personal properties in question. upon teaming of the Notice sent by City Sheriff Tabbada for the sale of the foreclosed personal properties in question. Clarencio S. may not legally be foreclosed and sold at auction by the Sheriff of Quezon City. that prior to the extrajudicial foreclosure effected by Allied Banking involving the personal properties in question. doing business under the firm name of Gencor Printing and as such. Dr. a time loan evidenced by a Promissory Note executed by the latter through its President. MBTC filed an Urgent Motion to Enjoin the Sheriff of Quezon City from foreclosing and selling at public auction the said properties.Tabbada. Tabbada levied upon the afore-described mortgaged personal properties in question and issued the corresponding Notice of Sheriff s Sale. Meanwhile. alleging that these same personal properties had been previously levied upon by the Deputy sheriff of Branch I of the Court of First Instance of Rizal. On maturity date of the Loan and allegedly after several subsequent extensions of time for Gencor to settle its account. Inc. enjoining the public sale of the extra judicially foreclosed properties. Gencor failed to pay its obligations either to General Bank and Trust Company or to Allied Banking which took over the affairs and/or acquired all the assets and assumed the liabilities of General Bank and Trust Company.Chattel Mortgage mortgage it executed in favor of respondent DBP. Metropolitan Bank and Trust Company filed a Third Party Claim with the Quezon City Sheriff 's Office over the personal properties in question levied upon and sought to be sold at public auction by City Sheriff A. Yujuico. over Allied Banking's opposition. against Clarencio Yujuico and Jesus Yujuico. The Deed of Chattel Mortgage was duly recorded in the Chattel Mortgage Registry of Quezon City. Yujuico. The City Sheriff of Quezon City. a Deed of Chattel Mortgage was executed by Gencor Marketing in favor of General Bank and Trust Company involving the personal properties. Thus. Honorable Emilio V. alleging that the printing machineries and equipment previously levied and attached by the Sheriff of Rizal Belonged exclusively to defendant Clarencio S. Metropolitan Bank and Trust Company filed an action for a sum of money in the amount of with preliminary attachment Special Commercial Laws Page 28 . As security for the time loan and pursuant to a resolution of the Board of Directors of Gencor Marketing. a writ of preliminary attachment was issued in said case and the Sheriff of the Court of First Instance of Rizal levied upon the personal properties in question. through Deputy Sheriff A. Allied Banking Corporation v. pursuant to a Writ of Attachment issued by herein respondent Judge Emilio V. Allied banking’s counsel entered a special appearance during the scheduled hearing for the exclusive purpose of opposing MBTC’s motion on jurisdictional grounds and gross irregularity of procedure amounting to lack of jurisdiction. Salas. Allied Banking extrajudicially foreclosed the aforesaid Chattel Mortgage and requested the City Sheriff of Quezon City to effect the said foreclosure. however.

Filinvest Credit Corporation likewise reassigned said credit in favor of petitioner Servicewide Specialists. Siton executed a promissory note in favor of Car Traders Philippines. Servicewide Specialists. the promissory note and chattel mortgage executed by respondent Galicano Siton was first assigned by Car Traders Philippines. together with accrued interest thereon shall at once become due and demandable. alleged the fact that he has bought the motor Vehicle from Galicano Siton. being the new debtor. Inc. that as such successor. He also manifested that the Answer he has filed in his behalf should likewise serve as a responsive pleading for his co-defendant Galicano Siton. Siton executed a Chattel Mortgage over the subject motor vehicle in favor of Car Traders Philippines. identifying himself as the "John Doe" in the Complaint. 74553 Facts: v." After the service of summons. he stepped into the rights and obligations of the seller. and that it would be tedious and impractical to effect a change of transfer of ownership as that would require a new credit investigation as to the capacity and worthiness of Atty. the total principal sum then remaining unpaid. As further security. The further suggestion given by Atty. private respondent as attaching creditor acquired the properties in question subject to petitioner's mortgage lien as it existed thereon at the time of the attachment. that he has religiously paid the installments as stipulated upon in the promissory note. Inc. Galicano Siton purchased from Car Traders Philippines. expressly stipulating that the face value of the note shall "be payable. inasmuch as he is in possession of the subject vehicle. There are additional stipulations in the Promissory Note consisting of. before the projected sale. Villa is that the account should be maintained in the name of Galicano Siton.R. The credit covered by Special Commercial Laws Page 29 . Siton failed to pay. De Dumo. without need of notice of demand. What may be attached by private respondent as creditor of said chattel mortgagor is only the equity or right of redemption of the mortgagor. that if default is made in the payment of any of the installments or interest thereon. Siton and de Dumo were accordingly advised that the verbal information given to the corporation would suffice. Subsequently. among others. No. The remaining balance includes not only the remaining principal obligation but also advance interests and premiums for motor vehicle insurance policies. Said defendant. a vehicle and paid a downpayment of the price. Atty. Inc. Incorporated Intermediate Appellate Court June 8. filed his Answer with Counterclaim and with Opposition to the prayer for a Writ of Replevin. and respondent Siton was advised of this second assignment. 1989 G. Inc. The lien of petitioner's chattel mortgage over the mortgaged properties in question superior to the levy on attachment made on the same by MBTC as creditor of chattel mortgagor Clarencio Yujuico. they went to a certain. Villa of Filinvest Credit Corporation advising the latter of the intended sale and transfer. in instalments. Servicewide Specialist filed this action against Galicano Siton and "John Doe.. Inc.Chattel Mortgage Ruling: The chattel mortgage lien attaches to the property wherever it may be. in favor of Filinvest Credit Corporation. that de Dumo and Siton testified that. Thus. Justiniano de Dumo.

We cannot ignore the findings. the appellant herein can not evade or ignore the collection if the creditor sued upon the promissory note. the principal borrower Victorio Depositario put up as security a chattel mortgage which was a Yamaha Motorcycle. -There is no dispute that the Deed of Chattel Mortgage executed between Siton and the petitioner requires the written consent of the latter as mortgagee in the sale or transfer of the mortgaged vehicle. he is obliged under pain of penal liability. as neither the mortgagee nor its predecessors has given written or verbal consent thereto pursuant to the deed of Chattel Mortgage. Jaime Guinhawa August 20. Petitioner BISLA (plaintiff therein) filed a complaint for the recovery of a sum of money constituting the deficiency. acting as solidary co-maker. the appellee chose the chattel mortgage and collect therefrom of which mortgage the appellant was never a party and Page 30 . affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage. installments under the promissory note. then. while they subsist.Chattel Mortgage Issue: Whether or not the mortgagee is bound by the deed of sale by the mortgagor in favour of a third person. If it is true that petitioner has not acquiesced in the sale. the instruments of mortgage are binding. therefore. not only upon the parties executing them but also upon those who later. The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person. prompt inquiries were made by private respondents with Filinvest Credit Corporation regarding any possible future sale of the mortgaged property. and that it was upon the advice of the company's credit lawyer that such a verbal notice is sufficient and that it would be convenient if the account would remain in the name of the mortgagor Siton. it should have inquired as to why de Dumo's checks were being used to pay Siton's obligations. Said motorcycle was eventually foreclosed by reason of the failure of Depositario and private respondent Guinhawa to pay the loan. Ruling: The rule is settled that the chattel mortgagor continues to be the owner of the property. where BISLA made a demand to pay the same. however. and therefore. But what did the creditor do? Instead of proceeding upon the promissory note of which the appealing co-maker stands as solidary debtor. No. to secure the written consent of the mortgagee. As a result of the foreclosure. has the power to alienate the same. 1982. Thus. 62415 Facts: Victorio Depositario together with private respondent Jaime Guinhawa. there was a deficiency in the amount.R. took a loan from petitioner Bicol Savings and Loan Association every 19th day of each month beginning July 1980 until maturity on June 19. 1990 G. To secure the payment of the foregoing loan obligation. CFI upon appeal stated that It is not disputed that a creditor can exact or collect payment of the indebtedness from any of the solidary debtors in a promissory note of which a co-maker assumes a character of one. acquire the properties referred to therein. by purchase or otherwise. Even the personal checks of de Dumo were accepted by petitioner as payment of some of the Special Commercial Laws Bicol Savings & Loan Association v. that before the sale. however.

A. the herein appellee. four-door sedan. Finance Corporation. Finance Corporation. Cuady in favor of Supercars. the Cuadys owe B. the bringing of another action to compel the surety to fulfill his obligation under the agreement. Said obligation was evidenced by a promissory note executed by Sps. Under the terms and conditions of the said insurance coverage. Hence a petition was filed. it was held that foreclosure of mortgage precludes any further action against the debtor and his guarantor. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. Finance Corporation requesting the Page 31 Issue: Whether or not bringing of an action against principal debtor to enforce payment is inconsistent with bringing of another action to compel surety to fulfill obligation Ruling: Under Article 1216 of the Civil Code. Parenthetically.Chattel Mortgage having a deficiency therein. so long as the debt has not been fully collected.A.maker is also a surety (Art. Supercars. assigned the promissory note. Court of Appeals August 27. Finance Corporation and to the insurer. The motor vehicle figured in an accident and was badly damaged. No. and does not preclude. Inc. the Cuady spouses constituted a chattel mortgage on the aforementioned motor vehicle. Article 2080 of the Civil Code which is relied on by private respondent has no application to the case at bar since his liability here is as a surety not as a guarantor. The Cuadys asked the B. Zenith Insurance Corporation. And therefore. he may be proceeded against by the principal debtor. Finance Corporation. which amount covered the cost of one unit of Ford Escort 1300. Special Commercial Laws . a credit. Inc. 82040 Facts: Spouses Manuel Cuady and Lilia Cuady obtained from Supercars. But instead of heeding the request of the Cuadys. BA Finance Corporation v. any loss under the policy shall be payable to the B. as the assignee of the mortgage lien obtained the renewal of the insurance coverage over the aforementioned motor vehicle for the with Zenith Insurance Corporation. The unfortunate happening was reported to the B. Finance. Finance Corporation to consider the same as a total loss.. B. would like to collect from the promissory note. 1991 G. Finance Corporation.A.A. where the private respondent binds himself solidarily with the principal debtor to pay the latter's debt. In a case of Identical setting. Inc.R.A. the B. if any.A. and to claim from the insurer the face value of the car insurance policy and apply the same to the payment of their remaining account and give them the surplus thereof. when the Cuadys failed to renew said insurance coverage themselves. the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. to B.A. 2047) and that under the law.A. The Cuadys made partial payment leaving an un paid balance. obligating themselves to pay the latter or order. the bringing of an action against the principal debtor to enforce the payment of the obligation is not inconsistent with. To secure the faithful and prompt compliance of the obligation under the said promissory note.In addition thereto. The Cuadys wrote B. Private respondent as solidary co. together with the chattel mortgage. the creditor.

Cerna v. the assignee of the Special Commercial Laws Issues: 1. This prompted Leviste to a file a collection suit against Delgado and Cerna as solidary debtors. Whether or not a third party. in such case. and to collect from the latter the proceeds of insurance to the extent of its interests. 48359 Facts: Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note.A. Finance Corporation the aforementioned powers and prerogatives.A. Finance Corporation did not respond favorably to their request. When B. Anent the latter. In granting B. Cerna.A. The period lapsed without Delgado paying the loan. Finance Corporation is bound by its acceptance to carry out the agency. Thus. And acting as the attorney-infact. Delgado executed a chattel mortgage over a Willy's jeep owned by him.Chattel Mortgage latter to pursue their prior instruction of enforcing the total loss provision in the insurance coverage. is solidarily liable with the principal debtor. he also mortgage a "Taunus' car owned by the latter. In view of THe failure of the Cuadys to pay the remaining installments on the note. 1993 Issue: Whether or not the mortgagor has waived its rights to collect the unpaid balance of the mortgage on the promissory note for failure of the former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the chattel mortgage G. follow-up. mortgage Agreement is bound by the same stipulation and if the assignee failed to file and prosecute the insurance claim when the car was damaged totally. Cerna filed a Motion to Dismiss on the ground of lack of cause of action against Cerna and the death of Delgado. receipts and documents to the Insurance Company as may be necessary to prove the claim. compromise or settle insurance claims. Manolo P. he could no longer foreclose the mortgage. to sign execute and deliver the corresponding papers. Finance Corporation was constituted attorney-in-fact with full power and authority to file. Manolo P. under Article 1884 of the Civil Code of the Philippines. Cerna claimed that the claim should be filed in the proceedings for the settlement of Delgado's estate as the action did not survive Delgado's death. B.R. through its non-performance. who is not a debtor under the note but mortgaged his property to secure the payment of the loan of another. may suffer. No. Page 32 . he also stated that since Leviste already opted to collect on the note. the Cuady spouses created in the former's favor an agency. in the event that the mortgaged car suffers any loss or damage. prosecute. the principal in the case at bar. the mortgagor is relieved from his obligation to pay as he suffered a loss because of the failure of the mortgagee to file the claim. Court of Appeals March 30.A. B. Moreover. the Cuadys stopped paying their monthly installments on the promissory note. B. Finance Corporation sued them. Ruling: Under the deed of chattel mortgage. the Cuadys. worded as follows: On the same date.A. and is liable for damages which.

. defendant spouses filed a counterbond. assigned its rights and interests over the said instruments to Filinvest Finance and Leasing Corporation. in installments. Special Commercial Laws Page 33 . Court of Appeals September 27. could not now run after petitioner for the satisfaction of the debt.The Special Power of Attorney did not make petitioner a mortgagor. Leviste was pursuing a money claim against a deceased person. The truck was brought by such persons all the way back to Metro Manila. Facts: Spouses Edilberto and Marciana Tadiaman purchased a 10-wheeler Izusu cargo truck from Jordan Enterprises. Filinvest Credit Corporation v. Subsequently. Whether or not a mortgagee who opted to collect may still foreclose the mortgage. to pay the loan. which in turn assigned them to plaintiff-appellant Filinvest Credit Corporation..Chattel Mortgage 2. the spouses Tadiaman defaulted in the payment of the installments due on the promissory note. a writ of replevin was issued. but who turned out to be employees of the plaintiff-appellant. 1995 G.R. the creditors has recourse on the principal debtor. and the lower court ordered the return of the truck. Inc. 115902 Ruling: There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. in Quezon City. having chosen to file the collection suit. And the liabi Lity of the third-party mortgagors extends only to the property mortgaged. Leviste. Inc. Said spouses executed a Promissory note payable in 24 monthly installments in favor of Jordan Enterprises. This is even more true in this case because of the death of the principal debtor. and plaintiff-appellant filed an action for replevin and damages against them with the court below. and when they finally recovered the truck. This was not immediately implemented because the defendant spouses were met with delaying tactics of the plaintiffappellant. Delgado. Should there be any deficiency. they found the same to be "cannibalized". It is only upon the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. Because of the said actuations of Filinvest Credit the spouses Tadiaman filed a counter claim for damages. Jordan Enterprises. A chattel mortgage may be "an accessory contract" to a contract of loan. The signatory to the principal contract — loan — remains to be primarily bound. by persons who Represented themselves to be special sheriffs of the court. Inc. Thereafter. but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is. No. Upon motion of the plaintiff-appellant. All it did was to authorized Delgado to mortgage certain properties belonging to petitioner Hence. and a Chattel Mortgage over the motor vehicle purchased to secure the payment of the promissory note. and the truck was seized in the province of Isabela..

Rubber & Plastic Corporation v. as a security for a corporate loan in the amount of P3M. where the right is Special Commercial Laws Acme Shoe. The conclusion is clear that for the recovery of possession. However. The debtor. covered by four promissory notes. Rubber and Plastic Corporation. that the debt is paid. is a point upon which we express no opinion. the bank extended another loan to the corporation in the amount of P1M. the bank applied for Page 34 . upon being indemnified by the creditor. we think. Thereupon. as it is manifest that the sheriff or other officer proceeding under the authority of the language already quoted from section 14 of the Chattel Mortgage Law. No.R." and it might be supposed that an officer. the creditor must proceed along the usual channels by action in court. and the existence of this fact may naturally be the subject of controversy. His possession in this situation is as fully entitled to protection as that of any other person. Again. executed a chattel mortgage in favor of Producers Bank of the Philippines. and no intention on the part of the law-making body to impose such a duty can be implied. of course. Ruling: The reason why the law does not allow the creditor to possess himself of the mortgaged property with violence and against the will of the debtor is to be found in the fact that the creditor's right of possession is conditioned upon the fact of default. And.It will be observed that the law places the responsibility of conducting the sale upon "a public officer. 103576 Facts: Chua Pac. or that for some other reason the alleged default is nonexistent. president and general manager of Acme Shoe. without force. can seize the property where the creditor could not. This suggestion is. To allow the creditor to seize the property against the will of the debtor would make the former to a certain extent both judge and executioner in his own cause — a thing which is inadmissible. becomes pro hac vice the mere agent of the creditor. Accordingly. This was also paid on the due date. Subsequently.7M. Filinvest admitted that it cannot acquire possession of the mortgaged vehicle in an orderly or peaceful manner. the corporation was unable to pay this at maturity. The P3M was paid. in the absence of unequivocal agreement in the contract itself or express provision to that effect in the statute. could safely proceed to take the property from the debtor. the appropriate action to recover possession preliminary to the extrajudicial foreclosure of a chattel mortgage. and rightly or wrongly. such as the sheriff.Chattel Mortgage Issue: Whether or not Filinvest is liable disputed. Court of Appeals August 22. Whether the sheriff. during and after the constitution of the mortgage. may claim in good faith. 1996 G. the corporation obtained additional financial accommodations totaling P2. by filing it. The chattel mortgage contained a clause that provided for the mortgage to stand as security for all other obligations contracted before. for instance. Filinvest did in fact institute such an action and obtained a writ of replevin. and in the language of article 446 of the Civil Code he must be respected therein. Replevin is. There is nothing in this provision which creates a specific duty on the part of the officer to seize the mortgaged property. it should have left the enforcement of the writ in accordance with Rule 60 of the Rules of Court which it had voluntarily invoked.

ipso facto. No. He. authorizing the latter to sell the cargo vessel owned by Dy and christened LCT "Asiatic.000.R.00 and P150. In contracts of real security. For its part. 107554 Facts: Ruling Contracts of security are either personal or real.000. P600. the placing of movable property in the possession of the creditor. such as a pledge. In contracts of personal security. null and void. character of the agreement.00. then the property encumbered can be alienated for the payment of the obligation. since the payment was not made in cash. such as a guaranty or suretyship. it was specifically stipulated in the deed of sale that the "LCT Asiatic shall not be registered or transferred to Robert Ong until complete paymentThereafter. and thereafter to the principal of his credit — upon the essential condition that if the obligation becomes due and the debtor defaults. which was handwritten on the original deed of sale does not appear on Ong's copies.00.000. that fulfillment is secured by an encumbrance of property — in pledge. The lower court ultimately dismissed the case and ordered the extra-judicial foreclosure of mortgage. then the contract is automatically extinguished proceeding from the accessory Special Commercial Laws Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay. a mortgage or an antichresis. Ong obtained possession of the subject vessel so he could begin deriving economic benefits therefrom. if owing. The aforequoted condition. however. by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest. Hence.Chattel Mortgage an extra-judicial foreclosure of mortgage. and in antichresis. As the law so puts it. likewise. Ang Tay sold the subject vessel to private respondent Robert Ong (Ong) for P900. once the obligation is complied with. Contrary to the aforementioned agreements and without the knowledge of Ang Tay. the corporation filed an action for injunction with prayer for damages. in chattel mortgage by the execution of the corresponding and substantially in teh form prescribed by law.000. but that should the obligation be duly paid. Issue: Whether or not extra-judicial foreclosure of the chattel mortgage is proper Cebu International Finance Corporation v. 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." On 28 April 1987. 1997 G. through a Deed of Absolute Sale. this appeal. Ong paid the purchase price by issuing three (3) checks in the following amounts: P150. then the contract of security becomes. Ong had his copies of the deed of sale (on which the Page 35 . Court of Appeals February 13. by the execution of a public instrument encumbering the real property covered thereby. in real estate mortgage. However.00. the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety).

Cebu International filed a motion for intervention but withdrew the same. Although this rule generally pertains to real property. Issue: Whether or not Cebu International Finance Corporation is a mortgagee in good faith whose lien over the mortgaged vessel should be respected Ruling: The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion. particularly registered land. The trial court issued a writ of replevin and the subject vessel was seized and subsequently delivered to Ang Tay. has no obligation to undertake further investigation. However. even if the mortgagor is not the rightful owner of or does not have a valid title to the Special Commercial Laws Page 36 . The vessel was seized and placed in the custody of the trial court. Cebu International filed a separate case for replevin and damages against Ong and "John Doe" (Ang Tay). Ang Tay posted a counterbond and the vessel was returned to his possession. the mortgagee or transferee in good faith is nonetheless entitled to protection. Hence. Instead. it may also be applied by analogy to personal property." As a result thereof. Ong presented the notarized deed to the Philippine Coast Guard which subsequently issued him a Certificate of Ownershipand a Certificate of Philippine Register over the subject vessel on 27 May 1987. mortgaged property. Ang Tay and Jacinto Dy filed a civil case for rescission and replevin with damages against Ong and his wife.Chattel Mortgage aforementioned prohibition does not appear) notarized on 18 May 1987. -The trial court granted petitioner's prayer for replevin. Ong also succeeded in having the name of the vessel changed to LCT "Orient Hope.

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