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Chattel Mortgage Cases
Chattel Mortgage Cases
Chattel Mortgage Cases
HELD:No. The Court ruled that the real transaction entered into by petitioner and
respondent was a contract of loan secured by a chattel mortgage. Pursuant to the
Chattel Mortgage Law, the debtor-mortgagor is entitled to the balance of the
proceeds, upon satisfaction of the principal loan and costs. Further, Chattel
Mortgage Law also bars the creditor-mortgagor from retaining the excess of the
sale proceeds.
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional
loan totalling P2,700,000.00 which was also duly paid.
Another loan was again extended (P1,000,000.00) covered by four promissory notes for
P250,000.00 each, but went unsettled prompting the bank to apply for an extrajudicial
foreclosure with the Sheriff.
HELD: NO. While a pledge, real estate mortgage, or antichresis may exceptionally
secure after-incurred obligations so long as these future debts are accurately described,
a chattel mortgage, however, can only cover obligations existing at the time the
mortgage is constituted.
Although a promise expressed in a chattel mortgage to include debts that are yet
to be contracted can be a binding commitment that can be compelled upon, the security
itself, however, does not come into existence or arise until after a chattel mortgage
agreement covering the newly contracted debt is executed either by concluding a fresh
chattel mortgage or by amending the old contract conformably with the form prescribed
by the Chattel Mortgage Law. A mortgage that contains a stipulation in regard to future
advances in the credit will take effect only from the date the same are made and not
from the date of the mortgage. Refusal on the part of the borrower to execute the
agreement so as to cover the after-incurred obligation can constitute an act of default on
the part of the borrower of the financing agreement whereon the promise is written but,
of course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.
The Court of Appeals acting on certiorari and prohibition proceedings filed by Wearever
ordered the return of the drive motor ruling that the machine in suit cannot be the
subject of replevin and moreso of a chattel mortgage because it is a real property as
defined by Art. 415 of the Civil Code, being attached to the ground by means of bolts
and the only way to remove it would be to drill out the concrete floor.
ISSUE: Whether or not the subject property of this case is real property
HELD: No. If a house of strong materials, like what was involved in the case of Tumalad
vs. Vicencio, may be considered as personal property for purposes of executing a
chattel mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by destination
or purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In rejecting Makati Leasings assertion on the applicability of the Tumalad doctrine, the
Court of Appeals lays stress on the fact that the house involved therein was built on a
land that did not belong to the owner of such house. But the law makes no distinction
with respect to the ownership of the land on which the house is built and we should not
lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by
the Wearever is indicative of intention and impresses upon the property the character
determined by the parties. As earlier pronounced by the Court, it is undeniable that the
parties to a contract may by agreement treat as personal property that which by nature
would be real property, as long as no interest of third parties would be prejudiced
thereby.
DY VS CA
GR No 92989 July 8, 1991
FACTS:Wilfredo Dy purchased a truck and farm tractor from Libra Finance and
Investment Corporation. Both truck and farm tractor were also mortgaged to Libra
Finance and Investment Corporation as security for a loan and as such, they took
possession of it. The brother of Wilfredo, Perfecto Dy and his sister Carol Dy-Seno
requested Libra that they be allowed to buy the property and assume the mortgage
debt. Libra agreed to the request.
Meanwhile, a collection suit was filed against Wilfredo Dy by Gelac Trading Inc. On the
strength of a writ of execution, the sheriff was able to obtain the tractor on the premises
of Libra. It was sold in a public auction in which Gelac Trading was the lone bidder.
Gelac subsequently sold it to one of their stockholders.
The respondents claim that at the time of the execution of the deed of sale, no
constructive delivery was effected since the consummation of the sale depended upon
the clearance and encashment of the check which was issued in payment of the subject
tractor.
ISSUE:Whether or not Wilfredo Dy was still the owner of the tractor when it was
obtained by Gelac Trading Inc. through the writ of execution.
HELD:No. Wilfredo Dy was no longer the owner of the subject tractor when it was
obtained by the sheriff because he already sold it to his brother Perfecto Dy.
Wilfredo Dy has the right to sell his property even though it was mortgaged because the
mortgagor in a chattel mortgage doesnt part with the ownership over the property
mortgaged as security. He is allowed to sell the property as long as there is consent
from the mortgagee such as in this case. But even if there is no consent given, the sale
would still be valid without prejudice to the criminal action against the mortgagor.
While it is true that Wilfredo Dy was not in actual possession and control of the subject
tractor, his right of ownership was not divested from him upon his default. Neither could
it be said that Libra was the owner of the subject tractor because the mortgagee can not
become the owner of or convert and appropriate to himself the property mortgaged.
(Article 2088, Civil Code) Said property continues to belong to the mortgagor.
When Wilfredo Dy sold the tractor, he already transferred the ownership of it because
the Civil Code states that the ownership of the thing sold is acquired by the vendee from
the moment it is delivered to him or in any other manner signing an agreement that the
possession is transferred from the vendor to the vendee. In the instant case, actual
delivery of the subject tractor could not be made but there was constructive delivery
already upon the execution of a public instrument which in this case is a deed of sale.
The payment of the check was actually intended to extinguish the mortgage obligation.
The sale of the subject tractor was consummated upon the execution of the public
instrument on September 4, 1979. At this time constructive delivery was already
effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was
levied upon by the sheriff in December, 1979. Well settled is the rule that only properties
unquestionably owned by the judgment debtor and which are not exempt by law from
execution should be levied upon or sought to be levied upon.
PAMECA VS CA
GR No 106435 July 14, 1999
FACTS: On April 17, 1980, PAMECA Wood Treatment Plant, Inc. obtained a loan of
P2,000,000.00 from respondent Development Bank of the Philippines. By virtue of this
loan, PAMECA, through its President, Herminio C. Teves, executed a promissory note
for the said amount, promising to pay the loan by installment. As security for the said
loan, a chattel mortgage was also executed over PAMECAs properties in Dumaguete
City to cover the whole value of the loan.
ISSUES:
1. Whether or not can an action be instituted for deficiency of a debt after
foreclosure of the chattel mortgage?
2. Whether or not the sale is void on ground of inadequacy of price
3. Whether or not the sale is void on ground of fraud because respondent is the
sole bidder
HELD:
1. The effects of foreclosure under the Chattel Mortgage Law run inconsistent with
those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the pledgor may no longer recover
proceeds of the sale in excess of the amount of the principal obligation, Section 14 of
the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the
proceeds, upon satisfaction of the principal obligation and costs.
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the
excess of the sale proceeds there is a corollary obligation on the part of the debtor-
mortgagee to pay the deficiency in case of a reduction in the price at public auction. As
explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co., while it is true
that section 3 of Act No. 1508 provides that a chattel mortgage is a conditional sale, it
further provides that it is a conditional sale of personal property as security for the
payment of a debt, or for the performance of some other obligation specified therein.
The lower court overlooked the fact that the chattels included in the chattel mortgage
are only given as security and not as a payment of the debt, in case of a failure of
payment.
2. NO. The Court are also unable to find merit in petitioner's submission that the
public auction sale is void on grounds of fraud and inadequacy of price. Petitioners
never assailed the validity of the sale in the RTC, and only in the Court of Appeals did
they attempt to prove inadequacy of price through the documents and inventory.
3. NO. Furthermore, the mere fact that respondent bank was the sole bidder for
the mortgaged properties in the public sale does not warrant the conclusion that the
transaction was attended with fraud. Fraud is a serious allegation that requires full and
convincing evidence, and may not be inferred from the lone circumstance that it was
only respondent bank that bid in the sale of the foreclosed properties. The sparseness
of petitioner's evidence in this regard leaves the Court no discretion but to uphold the
presumption of regularity in the conduct of the public sale.
After trial, the lower court found respondent spouses jointly and solidarily liable to
petitioner, however, the third party defendant Conrado Tecson was ordered to
reimburse the respondent spouses for the sum that they would pay to petitioner. On
appeal, the Court of Appeals reversed and set aside the judgment of the court a quo on
the principal ground that respondent spouses were not notified of the assignment of the
promissory note and chattel mortgage to petitioner.
One thing, however, that militates against the posture of respondent spouses is that
although they are not bound to obtain the consent of the petitioner before alienating the
property, they should have obtained the consent of Filinvest since they were already
aware of the assignment to the latter. So that, insofar as Filinvest is concerned, the
debtor is still respondent spouses because of the absence of its consent to the sale.
Worse, Filinvest was not even notified of such sale. Having subsequently stepped into
the shoes of Filinvest, petitioner acquired the same rights as the former had against
respondent spouses. The defenses that could have been invoked by Filinvest against
the spouses can be successfully raised by petitioner. Therefore, for failure of
respondent spouses to obtain the consent of Filinvest thereto, the sale of the vehicle to
Conrado R. Tecson was not binding on the former. When the credit was assigned by
Filinvest to petitioner, respondent spouses stood on record as the debtor-mortgagor.
On April 12, 1991, the Bataan RTC declared Terrymanila insolvent. On June 11,
1991, the Manila RTC, by Decision of even date, rendered judgment in the collection
case in favor of respondent.
Royal Cargo filed a petition for annulment of auction sale before Manila RTC,
against the Provincial Sheriff of Bataan RTC and RCBC. They questioned the failure to
duly notify Royal Cargo of the sale at least 10 days prior to the sale according to Sec.
14 of Act No. 1508.
ISSUE: Whether or not the mortgagee had the duty to notify the respondent of the
public auction sale.
HELD: Yes. Section 15 of Act No. 1508 provides that at least ten days' notice of the
time, place, and purpose of such sale has been posted at two or more public places in
such municipality, and the mortgagee, his executor, administrator, or assign, shall notify
the mortgagor or person holding under him and the persons holding subsequent
mortgages of the time and place of sale, either by notice in writing directed to him or left
at his abode, if within the municipality, or sent by mail if he does not reside in such
municipality, at least ten days previous to the sale.
However, even prior to receiving, through counsel, a mailed notice of the auction
sale on the date of the auction sale itself on June 16, 1992, respondent was already put
on notice of the impending foreclosure sale of the mortgaged chattels. Despite its
window of opportunity to exercise its equity of redemption, however, respondent chose
to be technically shrewd about its chances, preferring instead to seek annulment of the
auction sale, which was the result of the foreclosure of the mortgage, permission to
conduct which it had early on opposed before the insolvency court.
RESEARCHED CASES
Held: Yes. The Supreme Court ruled that it is true that the decision rendered in Civil
Case 33074 of the Court of First Instance of Manila provided for the sale at public
auction of the personal properties covered by the chattel mortgage executed in favor of
the Bank, but it is likewise true that said personal properties were sold at a private sale
by agreement between the parties. Besides, we see nothing illegal, immoral or against
public order in such agreement entered into freely and voluntarily. As the disposition of
the mortgaged personalities in a private sale was by agreement between the parties, it
is clear that appellants are now in estoppel to question it except on the ground of fraud
or duress pleas that they do not invoke. They do not even claim that the private sale
agreed upon had caused them substantial prejudice.
Facts: On August 15, 2005, Rosalina purchased a Hyundai Starex GRX Jumbo through
a loan granted by petitioner Equitable Savings Bank in the amount of P1,196,100.00. In
connection therewith, Palces executed a Promissory' Note with Chattel Mortgage in
favor of petitioner, stating Palces shall pay petitioner the aforesaid amount in 36-
monthly installments.
From September 18, 2005 to December 21, 2006, respondent paid the monthly
installment. However, she failed to pay the monthly installments in January and
February 2007. As the demand went unheeded, petitioner filed on March 7, 2007 a
complaint for the issuance of a writ of replevin to order the seizure of the subject vehicle
and its delivery to petitioner or in the alternative as when the recovery of the subject
vehicle cannot be effected, to render judgment ordering respondent to pay the
remaining balance of the loan.
Palces then maintained that in order to update her installment payments, she
paid petitioner the amounts of P70,000.00 on March 8, 2007 and P33,000.00 on March
20, 2007, or a total of P103,000.00. Despite the payments, Palces was surprised when
petitioner filed the complaint, resulting in the sheriff taking possession of the subject
vehicle.
RTC ruled in petitioner's favor and, accordingly, confirmed petitioner's right and
possession over the subject vehicle. Citing Article 1484 of the Civil Code, specifically
paragraph 3 thereof, the CA ruled that petitioner had already waived its right to recover
any unpaid installments when it sought and was granted a writ of replevin in order to
regain possession of the subject vehicle. As such, petitioner is no longer entitled to
receive respondent's late partial payments in the aggregate amount of P103,000.00.
Issue: Whether or not the mortgagee is entitled to the payment of late installments
while it is seeking the recovery of the subject of the mortgage.
Held: Yes. Article 1484 of the Civil Code governs the sale of personal properties in
installments. In this case, there was no vendor-vendee relationship between respondent
and petitioner. A judicious perusal of the records would reveal that respondent never
bought the subject vehicle from petitioner but from a third party, and merely sought
financing from petitioner for its full purchase price. Indubitably, a loan contract with the
accessory chattel mortgage contract - and not a contract of sale of personal property in
installments - was entered into by the parties with respondent standing as the debtor-
mortgagor and petitioner as the creditor-mortgagee. Therefore, the conclusion of the CA
that Article 1484 finds application in this case is misplaced, and thus, must be set aside.
Further, there is nothing in the Promissory Note with Chattel Mortgage that bars
petitioner from receiving any late partial payments from respondent. If at all, petitioner's
acceptance of respondent's late partial payments in the aggregate amount of
P103,000.00 will only operate to reduce her outstanding obligation to petitioner from
P664,500.00 to P561,500.00. Such a reduction in respondent's outstanding obligation
should be accounted for when petitioner conducts the impending foreclosure sale of the
subject vehicle. Once such foreclosure sale has been made, the proceeds thereof
should be applied to the reduced amount of respondent's outstanding obligation, and
the excess of said proceeds, if any, should be returned to her.
Facts: Petitioner Union Bank of the Philippines (Union Bank) is a universal banking
corporation organized and existing under Philippine laws.
Respondents Winwood Apparel, Inc. (Winwood) and Wingyan Apparel, Inc. (Wingyan)
are domestic corporations engaged in the business of apparel manufacturing. Both
respondent corporations are owned and operated by respondent Alain Juniat (Juniat), a
French national based in Hongkong. Respondent Nonwoven Fabric Philippines, Inc.
(Nonwoven) is a Philippine corporation engaged in the manufacture and sale of various
types of nonwoven fabrics.]
On September 3, 1992, petitioner filed with the Regional Trial Court (RTC) of Makati,
Branch 57, a Complaint with prayer for the issuance of ex-parte writs of preliminary
attachment and replevin against Juniat, Winwood, Wingyan, and the person in
possession of the mortgaged motorized sewing machines and equipment. Petitioner
alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a
promissory note dated April 11, 1992 and a Chattel Mortgage dated March 27, 1992
over several motorized sewing machines and other allied equipment to secure their
obligation arising from export bills transactions to petitioner in the amount of
P1,131,134.35;
On September 10, 1992, the RTC issued writs of preliminary attachment and replevin in
favor of petitioner.
On September 28, 1992, Nonwoven filed an Answer, contending that the unnotarized
Chattel Mortgage executed in favor of petitioner has no binding effect on Nonwoven and
that it has a better title over the motorized sewing machines and equipment because
these were assigned to it by Juniat pursuant to their Agreement dated May 9, 1992.
Issue: Whether or not that unnotarized chattel mortgaged affects the cause of action of
the petitioner for collection of some of money.
Held: Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of
Wingyan and Winwood, in favor of petitioner does not bind Nonwoven. However, it must
be pointed out that petitioner's primary cause of action is for a sum of money with prayer
for the issuance of ex-parte writs of attachment and replevin against Juniat, Winwood,
Wingyan, and the person in possession of the motorized sewing machines and
equipment.Thus, the fact that the Chattel Mortgage executed in favor of petitioner was
not notarized does not affect petitioner's cause of action. Petitioner only needed to
show that the loan of Juniat, Wingyan and Winwood remains unpaid and that it is
entitled to the issuance of the writs prayed for. Considering that writs of attachment and
replevin were issued by the RTC.
SPOUSES DEO AGNER AND MARICON AGNER VS. BPI FAMILY SAVINGS BANK
G.R. No. 182963
Facts: On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner
executed a Promissory Note with Chattel Mortgage in favor of Citimotors, Inc. The
contract provides, among others, that: for receiving the amount of Php834, 768.00,
petitioners shall pay Php 17,391.00 every 15th day of each succeeding month until fully
paid; the loan is secured by a 2001 Mitsubishi Adventure Super Sport; and an interest of
6% per month shall be imposed for failure to pay each installment on or before the
stated due date.
On the same day, Citimotors, Inc. assigned all its rights, title and interests in the
Promissory Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN
AMRO), which, on May 31, 2002, likewise assigned the same to respondent BPI Family
Savings Bank, Inc.
For failure to pay four successive installments from May 15, 2002 to August 15, 2002,
respondent, through counsel, sent to petitioners a demand letter dated August 29, 2002,
declaring the entire obligation as due and demandable and requiring to pay
Php576,664.04, or surrender the mortgaged vehicle immediately upon receiving the
letter. As the demand was left unheeded, respondent filed on October 4, 2002 an action
for Replevin and Damages before the Manila Regional Trial Court (RTC).
A writ of replevin was issued. Despite this, the subject vehicle was not seized. Trial on
the merits ensued. On August 11, 2005, the Manila RTC Br. 33 ruled for the respondent
and ordered petitioners to jointly and severally pay the amount of Php576,664.04 plus
interest at the rate of 72% per annum from August 20, 2002 until fully paid, and the
costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the
lower courts decision and, subsequently, denied the motion for reconsideration; hence,
this petition.
Issue: Whether or not respondents remedy of resorting to both action of replevin and
collection of sum of money is contrary to the provision of Art. 1484 of the Civil Code and
the ruling in Elisco Tool Manufacturing Corporation vs. Court of Appeals
Held: The remedies provided for in Art. 1484 are alternative, not cumulative. The
exercise of one bars the exercise of the others. This limitation applies to contracts
purporting to be leases of personal property with option to buy by virtue of Art. 1485.
The condition that the lessor has deprived the lessee of possession or enjoyment of the
thing for the purpose of applying Art. 1485 was fulfilled in the Elisco case by the filing by
petitioner of the complaint for replevin to recover possession of movable property. By
virtue of the writ of seizure issued by the trial court, the deputy sheriff seized the vehicle
on August 6, 1986 and thereby deprived private respondents of its use. The car was not
returned to private respondent until April 16, 1989, after two (2) years and eight (8)
months, upon issuance by the Court of Appeals of a writ of execution.
Compared with Elisco, the vehicle subject matter of this case was never recovered and
delivered to respondent despite the issuance of a writ of replevin. As there was no
seizure that transpired, it cannot be said that petitioners were deprived of the use and
enjoyment of the mortgaged vehicle or that respondent pursued, commenced or
concluded its actual foreclosure. The trial court, therefore, rightfully granted the
alternative prayer for sum of money, which is equivalent to the remedy of "exacting
fulfillment of the obligation." Certainly, there is no double recovery or unjust enrichment
to speak of.
Facts: Elias Colarina bought on installment from Magna Financial Services Group, Inc.,
1 unit of Suzuki Multicab. After making a down payment, Colarina executed a
Promissory Note for the balance of P229,284. To secure payment thereof, Colarina
executed a chattel mortgage over the motor vehicle.
Issue: Whether or not a mortgagee may avail of the two remedies, payment of unpaid
balance and foreclosure of chattel mortgage?
Held: It is unmistakable from the Complaint that petitioner preferred to avail itself of the
first and third remedies under Article 1484, at the same time suing for replevin. For this
reason, the Court of Appeals justifiably set aside the decision of the RTC. Perusing the
Complaint, the petitioner, under its prayer number 1, sought for the payment of the
unpaid amortizations which is a remedy that is provided under Article 1484(1) of the
Civil Code, allowing an unpaid vendee to exact fulfillment of the obligation. At the same
time, petitioner prayed that Colarina be ordered to surrender possession of the vehicle
so that it may ultimately be sold at public auction, which remedy is contained under
Article 1484(3). Such a scheme is not only irregular but is a flagrant circumvention of
the prohibition of the law. By praying for the foreclosure of the chattel, Magna Financial
Services Group, Inc. renounced whatever claim it may have under the promissory note.