SUPREME COURT REPORTS ANNOTATED
then the property encumbered can be alienated for the payment
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
G.R. No. 103576. August 22, 1996.*
ACME SHOE, RUBBER & PLASTIC CORPORATION and
CHUA PAC, petitioners, vs. HON. COURT OF APPEALS,
PRODUCERS BANK OF THE PHILIPPINES and
REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
Actions; Appeals; Pleadings and Practice; Except in
criminal cases where the penalty of reclusion perpetua or death
is imposed which the Court so reviews as a matter of course, an
appeal from judgments of lower courts is not a matter of right
but of sound judicial discretion; Technical and procedural rules
are intended to help secure, not suppress, substantial evidence
and a deviation from the rigid enforcement of the rules may be
allowed to attain the prime objective for, after all, the
dispensation of justice is the core reason for the existence of
courts.—Except in criminal cases where the penalty
of reclusion perpetua or death is imposed which the Court so
reviews as a matter of course, an appeal from judgments of
lower courts is not a matter of right but of sound judicial
discretion. The circulars of the Court prescribing technical and
other procedural requirements are meant to weed out
unmeritorious petitions that can unnecessarily clog the docket
and needlessly consume the time of the Court. These technical
and procedural rules, however, are intended to help secure, not
suppress, substantial justice. A deviation from the rigid
enforcement of the rules may thus be allowed to attain the prime
objective for, after all, the dispensation of justice is the core
reason for the existence of courts. In this instance, once again,
the Court is constrained to relax the rules in order to give way
to and uphold the paramount and overriding interest of justice.
_______________
*
FIRST DIVISION.
715
VOL. 260, AUGUST 22, 1996
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
Contracts; Chattel Mortgages; Contracts of security are
either personal or real—in the former, the faithful performance
of the obligation by the principal debtor is secured by the
personal commitment of another while in the latter, that
fulfillment is secured by an encumbrance of property.—
Contracts of security are either personal or real. In contracts of
personal security, such as a guaranty or a sure-tyship, the
faithful performance of the obligation by the principal debtor is
secured by the personal commitment of another (the guarantor
or surety). In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by
an encumbrance of property—in pledge, the placing of
movable property in the possession of the creditor;
in chattel mortgage, by the execution of the corresponding deed
substantially in the form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering
the real property covered thereby; and in antichresis, 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, if owing, and thereafter to
the principal of his credit—upon the essential condition that if
the principal obligation becomes due and the debtor defaults,
of the obligation, but that should the obligation be duly paid,
then the contract is automatically extinguished proceeding from
the accessory character of the agreement. As the law so puts it,
once the obligation is complied with, then the contract of
security becomes, ipso facto, null and void.
Same; Same; While a pledge, real estate mortgage, or
antichre-sis 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.—
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.
716
716 SUPREME COURT REPORTS ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
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.
Damages; Corporations; A corporation, being an
artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses—it
715
cannot, therefore, experience physical suffering and mental
anguish.—We find no merit in petitioner corporation’s other
prayer that the case should be remanded to the trial court for a
specific finding on the amount of damages it has sustained “as
a result of the unlawful action taken by respondent bank against
it.” This prayer is not reflected in its complaint which has
merely asked for the amount of P3,000,000.00 by way of moral
damages. In LBC Express, Inc. vs. Court of Appeals, we have
said: “Moral damages are granted in recompense for physical
suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and
having existence only in legal contemplation, has no feelings,
no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be
experienced only by one having a nervous system and it flows
from real ills, sorrows, and griefs of life—all of which cannot
be suffered by respondent bank as an artificial person.”
Courts; Attorneys; Lawyers should bear in mind their
basic duty to observe and maintain the respect due to the courts
of justice and judicial officers and to insist on similar conduct
by others—the virtues of humility and of respect and concern
for others must still live on even in an age of materialism.—The
Court invites counsel’s attention to the admonition in Guerrero
v. Villamor, thus: “(L)awyers x x x should bear in mind their
basic duty ‘to observe and maintain the respect due to the courts
of justice and judicial officers and x x x (to) insist on similar
conduct by others.’ This respectful attitude towards the court is
to be observed, ‘not for the sake of the temporary incumbent of
the judicial office, but for the maintenance of its supreme
importance.’ And it is ‘through a scrupulous preference for
respectful language that a lawyer best demonstrates his
observance of the respect due to the courts and judicial officers
x x x.’ ” The vir-
717
VOL. 260, AUGUST 22, 1996
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
tues of humility and of respect and concern for others
must still live on even in an age of materialism.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Sotto & Sotto Law Offices for petitioners.
R.C. Domingo, Jr. & Associates for Producers Bank of
the Philippines.
VITUG, J.:
Would it be valid and effective to have a clause in a chattel
mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred? This question is the
core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of
co-petitioner “Acme Shoe, Rubber & Plastic Corporation,”
executed on 27 June 1978, for and in behalf of the company, a
chattel mortgage in favor of private respondent Producers Bank
of the Philippines. The mortgage stood by way of security for
petitioner’s corporate loan of three million pesos
(P3,000,000.00). A provision in the chattel mortgage agreement
was to this effect—
“(c) If the MORTGAGOR, his heirs, executors or
administrators shall well and truly perform the full obligation
or obligations above-stated according to the terms thereof, then
this mortgage shall be null and void. x x x.
“In case the MORTGAGOR executes subsequent
promissory note or notes either as a renewal of the former note,
as an extension thereof, or as a new loan, or is given any other
kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments
on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new
contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or
718
718 SUPREME COURT REPORTS ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
accommodations were existing on the date thereof. This
mortgage shall also stand as security for said obligations and
any and all other obligations of the MORTGAGOR to the
MORTGAGEE of whatever kind and nature, whether such
obligations have been contracted before, during or after the
constitution of this mortgage.”1
In due time, the loan of P3,000,000.00 was paid by petitioner
corporation. Subsequently, in 1981, it obtained from respondent
bank additional financial accommodations totalling
P2,700,000.00.2 These borrowings were on due date also fully
paid.
On 10 and 11 January 1984, the bank yet again extended to
petitioner corporation a loan of one million pesos
(P1,000,000.00) covered by four promissory notes for
P250,000.00 each. Due to financial constraints, the loan was not
settled at maturity.3 Respondent bank thereupon applied for an
717
extrajudicial foreclosure of the chattel mortgage, hereinbefore
cited, with the Sheriff of Caloocan City, prompting petitioner
corporation to forthwith file an action for injunction, with
damages and a prayer for a writ of preliminary injunction,
before the Regional Trial Court of Caloocan City (Civil Case
No. C-12081). Ultimately, the court dismissed the complaint
and ordered the foreclosure of the chattel mortgage. It held
petitioner corporation bound by the stipulations, aforequoted,
of the chattel mortgage.
Petitioner corporation appealed to the Court of
Appeals4 which, on 14 August 1991, affirmed, “in all respects,”
the decision of the court a quo. The motion for reconsideration
was denied on 24 January 1992.
The instant petition interposed by petitioner corporation
was initially denied on 04 March 1992 by this Court for hav-
_______________
1
Rollo, p. 45.
2
Ibid., p. 34.
3
Ibid.
4
Associate Justice Consuelo Ynares
Santiago, ponente, with Associate Justices Ricardo L. Pronove,
Jr. and Nicolas P. Lapeña, Jr., concurring.
719
VOL. 260, AUGUST 22, 1996
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
ing been insufficient in form and substance. Private respondent
filed a motion to dismiss the petition while petitioner
corporation filed a compliance and an opposition to private
respondent’s motion to dismiss. The Court denied petitioner’s
first motion for reconsideration but granted a second motion for
reconsideration, thereby reinstating the petition and requiring
private respondent to comment thereon.5
Except in criminal cases where the penalty of reclusion
perpetua or death is imposed6 which the Court so reviews as a
matter of course, an appeal from judgments of lower courts is
not a matter of right but of sound judicial discretion. The
circulars of the Court prescribing technical and other procedural
requirements are meant to weed out unmeritorious petitions that
can unnecessarily clog the docket and needlessly consume the
time of the Court. These technical and procedural rules,
however, are intended to help secure, not suppress, substantial
justice. A deviation from the rigid enforcement of the rules may
thus be allowed to attain the prime objective for, after all, the
dispensation of justice is the core reason for the existence of
courts. In this instance, once again, the Court is constrained to
relax the rules in order to give way to and uphold the paramount
and overriding interest of justice.
 Contracts of security are either personal or real. In contracts
of personal security, such as a guaranty or a suretyship, the
faithful performance of the obligation by the principal debtor is
secured by the personal commitment of another (the guarantor
or surety). In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by
an encumbrance of property—in pledge, the placing of
movable property in the possession of the creditor;
in chattel mortgage, by the execution of the corresponding deed
substantially in the form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering
the real property covered thereby; and in antichresis, by a
written instrument granting to the creditor the right to receive
the
______________
5
In the Court’s resolution, dated 27 May 1992, Rollo, p. 91.
6
Sec. 5 (2) (d), Art. VIII, 1987 Constitution.
720
720 SUPREME COURT REPORTS ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
fruits of an immovable property with the obligation to apply
such fruits to the payment of interest, if owing, and thereafter to
the principal of his credit—upon the essential condition that if
the principal obligation becomes due and the debtor defaults,
then the property encumbered can be alienated for the payment
of the obligation,7 but that should the obligation be duly paid,
then the contract is automatically extinguished proceeding from
the accessory character8 of the agreement. As the law so puts it,
once the obligation is complied with, then the contract of
security becomes, ipso facto, null and void.9
While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these
future debts are accurately described,10 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.11 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.
_____________
7
See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and
2140, Civil Code.
8
See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA
515.
9
See Sec. 3, Act 1508.
10
See Mojica vs. Court of Appeals, 201 SCRA 517; Lim
Julian vs. Lutero, 49 Phil. 703.
11
Act No. 1508.
721
VOL. 260, AUGUST 22, 1996
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
A chattel mortgage, as hereinbefore so intimated, must comply
substantially with the form prescribed by the Chattel Mortgage
Law itself. One of the requisites, under Section 5 thereof, is an
affidavit of good faith. While it is not doubted that if such an
affidavit is not appended to the agreement, the chattel mortgage
would still be valid between the parties (not against third
persons acting in good faith12), the fact, however, that the statute
has provided that the parties to the contract must execute an oath
that—
“x x x (the) mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one
not entered into for the purpose of fraud.”13
makes it obvious that the debt referred to in the law is a current,
not an obligation that is yet merely contemplated. In the chattel
mortgage here involved, the only obligation specified in the
chattel mortgage contract was the P3,000,000.00 loan which
petitioner corporation later fully paid. By virtue of Section 3 of
the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or terminated.
In Belgian Catholic Missionaries, Inc. vs. Magallanes Press,
Inc., et al.,14 the Court said—
“x x x 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.”15
The significance of the ruling to the instant problem would be
that since the 1978 chattel mortgage had ceased to exist coin-
________________
12
See Philippine Refining Co. vs. Jarque, 61 Phil. 229.
13
Civil Code, Vol. 3, 1990 Edition by Ramon C. Aquino
and Carolina C. Griño-Aquino, pp. 610-611.
14
49 Phil. 647.
15
At p. 655. This ruling was reiterated in Jaca vs. Davao
Lumber Company, 113 SCRA 107.
722
722 SUPREME COURT REPORTS ANNOTATED
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
cidentally with the full payment of the P3,000,000.00
loan,16 there no longer was any chattel mortgage that could
cover the new loans that were concluded thereafter.
We find no merit in petitioner corporation’s other prayer
that the case should be remanded to the trial court for a specific
finding on the amount of damages it has sustained “as a result
of the unlawful action taken by respondent bank against
it.”17 This prayer is not reflected in its complaint which has
merely asked for the amount of P3,000,000.00 by way of moral
damages.18 In LBC Express, Inc. vs. Court of Appeals,19 we
have said:
“Moral damages are granted in recompense for physical
suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and
having existence only in legal contemplation, has no feelings,
no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be
experienced only by one having a nervous system and it flows
from real ills, sorrows, and griefs of life—all of which cannot 724
be suffered by respondent bank as an artificial person.” 20
724 SUPREME COURT REPORTS ANNOTATED
While Chua Pac is included in the case, the complaint, however,
clearly states that he has merely been so named as a party People vs. Broncano
in representation of petitioner corporation. Padilla, J., No part in view of lessor-lessee
Petitioner corporation’s counsel could be commended for relationship with respondent bank.
his zeal in pursuing his client’s cause. It instead turned out to Bellosillo, J., On leave.
be, however, a source of disappointment for this Court to read Judgments of respondent court and court a quo set aside.
in petitioner’s reply to private respondent’s comment on the Notes.—Replevin is the appropriate action to recover
petition his so-called “One Final Word;” viz: possession preliminary to the extrajudicial foreclosure of a
________________ chattel mortgage. (Filinvest Credit Corporation vs. Court of
16
Appeals, 248 SCRA 549 [1995])
Being merely accessory in nature, it cannot exist The mortgagee, upon the mortgagor’s default, is constituted
independently of the principal obligation. an attorney-in-fact of the mortgagor enabling such mortgagee
17
Petitioner’s Memorandum, p. 5; Rollo, p. 119. to act for and in behalf of the owner and the fact that the
18
Complaint, p. 6; Record, p. 9. defendant is not privy to the chattel mortgage is
19
236 SCRA 602. inconsequential. (BA Finance Corporation vs. Court of
20
At p. 607. Appeals, 258 SCRA 102 [1996])
723
——o0o——
VOL. 260, AUGUST 22, 1996 723
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals
“In simply quoting in toto the patently erroneous decision of the
trial court, respondent Court of Appeals should be required to
justify its decision which completely disregarded the basic laws
on obligations and contracts, as well as the clear provisions of
the Chattel Mortgage Law and well-settled jurisprudence of this
Honorable Court; that in the event that its explanation is wholly
unacceptable, this Honorable Court should impose appropriate
sanctions on the erring justices. This is one positive step in
ridding our courts of law of incompetent and dishonest
magistrates especially members of a superior court of appellate
jurisdiction.”21 (Italics supplied)
The statement is not called for. The Court invites counsel’s
attention to the admonition in Guerrero vs. Villamor;22 thus:
“(L)awyers x x x should bear in mind their basic duty ‘to
observe and maintain the respect due to the courts of justice and
judicial officers and x x x (to) insist on similar conduct by
others.’ This respectful attitude towards the court is to be
observed, ‘not for the sake of the temporary incumbent of the
judicial office, but for the maintenance of its supreme
importance.’ And it is ‘through a scrupulous preference for
respectful language that a lawyer best demonstrates his
observance of the respect due to the courts and judicial officers
x x x.’ ”23
The virtues of humility and of respect and concern for others
must still live on even in an age of materialism.
WHEREFORE, the questioned decisions of the appellate
court and the lower court are set aside without prejudice to the
appropriate legal recourse by private respondent as may still be
warranted as an unsecured creditor. No costs. Atty. Francisco
R. Sotto, counsel for petitioners, is admonished to be
circumspect in dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
________________

21
Rollo, p. 113.
22
179 SCRA 355, 362.
23
At p. 362.
 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
G.R. No. 120098. October 2, 2001.*
RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS,
EVER TEXTILE MILLS, INC. and MAMERTO R.
VILLALUZ, respondents.
G.R. No. 120109. October 2, 2001*
PHILIPPINE BANK OF COMMUNICATIONS,
petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE
MILLS and MAMERTO R. VILLALUZ, respondents.
Appeals: The jurisdiction of the Supreme Court in a
petition for review on certiorari under Rule 45 of the Revised
Rules of Court is limited to reviewing only errors of law, not of
fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is
based on misapprehension of facts.—Well settled is the rule
that the jurisdiction of the Supreme Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of
Court is limited to reviewing only errors of law, not of fact,
unless the factual findings complained of are devoid of support
by the evidence on record or the assailed judgment is based on
misapprehension of facts. This rule is applied more stringently
when the findings of fact of the RTC is affirmed by the Court
of Appeals.
Property; Mortgages; The nature of the disputed
machineries, i.e., that they were heavy, bolted or cemented on
the real property mortgaged, does not make them ipso facto
immovable under Article 415 (3) and (5) of the New Civil Code,
as the parties’ intent has to be looked into.—Petitioners contend
that the nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable under
Article 415 (3) and (5) of the New Civil Code. This assertion,
however, does not settle the issue. Mere nuts and bolts do not
foreclose the controversy. We have to look at the parties’ intent.
While it is true that the controverted properties appear to be
immobile, a perusal of the contract of Real and Chattel
Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate
courts reached the same finding that the true intention of
PBCom and the owner, EVERTEX, is to treat machinery and
equipment as chattels.
______________
*
SECOND DIVISION.
325
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
Same; Same; Estoppel; Even if the properties are
immovable by nature, nothing detracts the parties from treating
them as chattels to secure an obligation under the principle of
estoppel.—Too, assuming arguendo that the properties in
question are immovable by nature, nothing detracts the parties
from treating it as chattels to secure an obligation under the
principle of estoppel. As far back as Navarro v. Pineda, 9
SCRA 631 (1963), an immovable may be considered a personal
property if there is a stipulation as when it is used as security in
the payment of an obligation where a chattel mortgage is
executed over it, as in the case at bar.
Same; Same; Same; Where the facts, taken together,
evince the conclusion that the parties’ intention is to treat the
units of machinery as chattels, a fortiori, the after-acquired
properties, which are of the same description as the units
referred to earlier, must also be treated as chattels.—In the
instant case, the parties herein: (1) executed a contract styled as
“Real Estate Mortgage and Chattel Mortgage,” instead of just
“Real Estate Mortgage” if indeed their intention is to treat all
properties included therein as immovable, and (2) attached to
the said contract a separate “LIST OF MACHINERIES &
EQUIPMENT.” These facts, taken together, evince the
conclusion that the parties’ intention is to treat these units of
machinery as chattels. A fortiori, the contested after-acquired
properties, which are of the same description as the units
enumerated under the title “LIST OF MACHINERIES &
EQUIPMENT,” must also be treated as chattels.
Same; Same; Chattel Mortgage; A chattel mortgage shall
be deemed to cover only the property described therein and not
like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary
notwithstanding.—Accordingly, we find no reversible error in
the respondent appellate court’s ruling that inasmuch as the
subject mortgages were intended by the parties to involve
chattels, insofar as equipment and machinery were concerned,
the Chattel Mortgage Law applies, which provides in Section 7
thereof that: “a chattel mortgage shall be deemed to cover only
the property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed in
the same depository as the property originally mortgaged,
anything in the mortgage to the contrary notwithstanding.” And,
since the disputed machineries were acquired in 1981 and could
not have been involved in the 1975 or 1979 chattel mortgages,
it was consequently an error on the part of the Sheriff to include
subject machineries with the properties enumerated in said
chattel mortgages.
326
326 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
Sales; Purchaser in Good Faith; Well-settled is the rule
that the person who asserts the status of a purchaser in good
faith and for value has the burden of proving such assertion.—
Petitioner Tsai also argued that assuming that PBCom’s title
over the contested properties is a nullity, she is nevertheless a
purchaser in good faith and for value who now has a better right
than EVERTEX. To the contrary, however, are the factual
findings and conclusions of the trial court that she is not a
325
purchaser in good faith. Well-settled is the rule that the person
who asserts the status of a purchaser in good faith and for value
has the burden of proving such assertion. Petitioner Tsai failed
to discharge this burden persuasively.
Same; Same; A purchaser in good faith and for value is
one who buys the property of another without notice that some
other person has a right to or interest in such property and pays
a full and fair price for the same, at the time of purchase, or
before he has notice of the claims or interest of some other
person in the property.—A purchaser in good faith and for
value is one who buys the property of another without notice
that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time
of purchase, or before he has notice of the claims or interest of
some other person in the property. Records reveal, however,
that when Tsai purchased the controverted properties, she knew
of respondent’s claim thereon. As borne out by the records, she
received the letter of respondent’s counsel, apprising her of
respondent’s claim, dated February 27, 1987. She replied
thereto on March 9, 1987. Despite her knowledge of
respondent’s claim, she proceeded to buy the contested units of
machinery on May 3, 1988. Thus, the RTC did not err in finding
that she was not a purchaser in good faith.
Same; Land Titles; Torrens System; The defense of
indefeasibility of Torrens Title refers to sale of lands and not to
sale of properties situated therein; The mere fact that the lot
where a factory and disputed properties stand in a person’s
name does not automatically make such person the owner of
everything found therein.—Petitioner Tsai’s defense of
indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers
to sale of lands and not to sale of properties situated therein.
Likewise, the mere fact that the lot where the factory and the
disputed properties stand is in PBCom’s name does not
automatically make PBCom the owner of everything found
therein, especially in view of EVERTEX’s letter to Tsai
enunciating its claim.
327
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
Laches; Doctrine of Stale Demands; The doctrine of stale
demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal
rights.—Petitioners’ defense of prescription and laches is less
than convincing. We find no cogent reason to disturb the
consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches
does not apply. Note that upon petitioners’ adamant refusal to
heed EVERTEX’s claim, respondent company immediately
filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure
or neglect on its part, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence,
could or should have been done earlier. The doctrine of stale
demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal
rights. Moreover, except for very strong reasons, this Court is
not disposed to apply the doctrine of laches to prejudice or
defeat the rights of an owner.
Damages; In determining actual damages, the court
cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best
evidence obtainable regarding the actual amount of loss.—
Basic is the rule that to recover actual damages, the amount of
loss must not only be capable of proof but must actually be
proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual
amount thereof. However, the allegations of respondent
company as to the amount of unrealized rentals due them as
actual damages remain mere assertions unsupported by
documents and other competent evidence. In determining actual
damages, the court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof
and on the best evidence obtainable regarding the actual amount
of loss.
PETITIONS for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Eduardo C. Ong for petitioner R.L. Tsai.
Laogan, Silva, Baeza & Llantino Law Offices for
petitioner PBCom in G.R. No. 120109.
M.R. Villaluz & Associates for private respondents.
328
328 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of
Appeals in CA-G.R. CV No. 32986, affirming the decision2 of
the Regional Trial Court of Manila, Branch 7, in Civil Case No.
89-48265. Also assailed is respondent court’s resolution
denying petitioners’ motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc.
(EVERTEX) obtained a three million peso (P3,000,000.00)
loan from petitioner Philippine Bank of Communications
(PBCom). As security for the loan, EVERTEX executed in
327
favor of PBCom, a deed of Real and Chattel Mortgage over the
lot under TCT No. 372097, where its factory stands, and the
chattels located therein as enumerated in a schedule attached to
the mortgage contract. The pertinent portions of the Real and
Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx
The MORTGAGOR(S) hereby transfers) and convey(s), by
way of First Mortgage, to the MORTGAGEE, x x x certain
parcel(s) of land, together with all the buildings and
improvements now existing or which may hereafter exist
thereon, situated in x x x.
“Annex A”
(Real and Chattel Mortgage executed by Ever Textile Mills
in favor of PBCommunications—continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-
Tompkins made in Hongkong:
Serial Numbers Size of Machines
xxx
_______________
1
Rollo, G.R. No. 120109, pp. 23-45.
2
Id., at 23-24.
 329 On November 19, 1982, due to business reverses, EVERTEX
VOL. 366, OCTOBER 2, 2001 filed
329 insolvency proceedings docketed as SP Proc. No. LP-
3091-P before the defunct Court of First Instance of Pasay City,
Tsai vs. Court of Appeals Branch XXVIII. The CFI issued an order on November 24,
1982 declaring the corporation insolvent. All its assets were
1. B.Sixteen (16) sets of Vayrow Knitting Machines taken into the custody of the Insolvency Court, including the
made in Taiwan. collateral, real and personal, securing the two mortgages as
abovementioned.
xxx In the meantime, upon EVERTEX’s failure to meet its
obligation to PBCom, the latter commenced extrajudicial
1. C.Two (2) Circular Knitting Machines made in West foreclosure proceedings against EVERTEX under Act 3135,
Germany. otherwise known as “An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate
Mortgages” and Act 1506 or “The Chattel Mortgage Law.” A
xxx
Notice of Sheriffs Sale was issued on December 1, 1982.
On December 15, 1982, the first public auction was held
1. D.Four (4) Winding Machines. where petitioner PBCom emerged as the highest bidder and a
Certificate of Sale was issued in its favor on the same date. On
xxx December 23, 1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued a Certificate
SCHEDULE “A” of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over
1. I.TCT # 372097—RIZAL the lot and all the properties in it. In November 1986, it leased
the entire factory premises to petitioner Ruby L. Tsai for
xxx P50,000.00 a month. On May 3, 1988, PBCom sold the factory,
lock, stock and barrel to Tsai for P9,000,000.00, including the
contested machineries.
1. II.Any and all buildings and improvements now On March 16, 1989, EVERTEX filed a complaint for
existing or hereafter to exist on the above-mentioned annulment of sale, reconveyance, and damages with the
lot. Regional Trial Court against PBCom, alleging inter alia that
2. III.MACHINERIES & EQUIPMENT situated, the extrajudicial foreclosure of subject mortgage was in
located and/or installed on the above-mentioned lot violation of the Insolvency Law. EVERTEX claimed that no
located at x x x rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over
1. (a)Forty eight sets (48) Vayrow Knitting Machines x x such assets sold to her, and should reconvey the assets.
x Further, EVERTEX averred that PBCom, without any legal
2. (b)Sixteen sets (16) Vayrow Knitting Machines x x x or factual basis, appropriated the contested properties, which
3. (c)Two (2) Circular Knitting Machines x x x were not included in the Real and Chattel Mortgage of
4. (d)Two (2) Winding Machines x x x November 26,
5. (e)Two (2) Winding Machines x x x 331
VOL. 366, OCTOBER 2, 2001
1. IV.Any and all replacements, substitutions, additions,
Tsai vs. Court of Appeals
increases and accretions to above properties.
1975 nor in the Chattel Mortgage of April 23, 1979, and neither
were those properties included in the Notice of Sheriff’s Sale
x x x3 dated December 1, 1982 and Certificate of Sale dated December
On April 23, 1979, PBCom granted a second loan of 15, 1982.
P3,356,000.00 to EVERTEX. The loan was secured by a The disputed properties, which were valued at
Chattel Mortgage over personal properties enumerated in a list P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1
attached thereto. These listed properties were similar to those Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment
listed in Annex A of the first mortgage deed. and 1 Heatset Equipment.
After April 23, 1979, the date of the execution of the second The RTC found that the lease and sale of said personal
mortgage mentioned above, EVERTEX purchased various properties were irregular and illegal because they were not duly
machines and equipments. foreclosed nor sold at the December 15, 1982 auction sale since
_______________ these were not included in the schedules attached to the
mortgage contracts. The trial court decreed:
3
Folder of Exhibits, pp. 5-12. WHEREFORE, judgment is hereby rendered in favor of
plaintiff corporation and against the defendants:
330
330 SUPREME COURT REPORTS ANNOTATED 1. 1.Ordering the annulment of the sale executed by
defendant Philippine Bank of Communications in
Tsai vs. Court of Appeals
favor of defendant Ruby L. Tsai on May 3, 1988
 insofar as it affects the personal properties listed in
par. 9 of the complaint, and their return to the
plaintiff corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days
from finality of this decision;
2. 2.Ordering the defendants to pay jointly and severally
the plaintiff corporation the sum of P5,200,000.00 as
compensation for the use and possession of the
properties in question from November 1986 to
February 1991 and P100,000.00 every month
thereafter, with interest thereon at the legal rate per
annum until full payment;
3. 3.Ordering the defendants to pay jointly and severally
the plaintiff corporation the sum of P50,000.00 as
and for attorney’s fees and expenses of litigation;
4. 4.Ordering the defendants to pay jointly and severally
the plaintiffcorporation the sum of P200,000.00 by
way of exemplary damages;
5. 5.Ordering the dismissal of the counterclaim of the
defendants; and
6. 6.Ordering the defendants to proportionately pay the
costs of suit.
SO ORDERED.4
______________
4
Rollo, G.R. No. 120109, pp. 23-24.
332
332 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
Dissatisfied, both PBCom and Tsai appealed to the Court of
Appeals, which issued its decision dated August 31, 1994, the
dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award
for exemplary damages, and reduction of the actual damages,
from P100,000.00 to P20,000.00 per month, from November
1986 until subject personal properties are restored to appellees,
the judgment appealed from is hereby AFFIRMED, in all other
respects. No pronouncement as to costs.5
Motion for reconsideration of the above decision having been
denied in the resolution of April 28, 1995, PBCom and Tsai
filed their separate petitions for review with this Court.
In G.R. No. 120098, petitioner Tsai ascribed the following
errors to the respondent court:
I PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN EFFECT MAKING A CONTRACT
FOR THE PARTIES BY TREATING THE 1981 ACQUIRED
MACHINERIES AS CHATTELS INSTEAD OF REAL
PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF
REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN HOLDING THAT THE DISPUTED
1981 MACHINERIES ARE NOT REAL PROPERTIES
DEEMED PART OF THE MORTGAGE—DESPITE THE
CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE
RULINGS OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN DEEMING PETITIONER A
PURCHASER IN BAD FAITH.
_______________
5
Id. at 45.
333
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
IV
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL
DAMAGES, ATTORNEY’S FEES AND EXPENSES OF
LITIGATION—FOR WANT OF VALID FACTUAL AND
LEGAL BASIS.
V
THE HONORABLE COURT OF APPEALS (SECOND
DIVISION) ERRED IN HOLDING AGAINST
PETITIONER’S ARGUMENTS ON PRESCRIPTION AND
LACHES.6
In G.R. No. 120109, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE
MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE
COMPLAINT BELOW AS PERSONAL PROPERTY
OUTSIDE OF THE 1975 DEED OF REAL ESTATE
MORTGAGE AND EXCLUDED THEM FROM THE REAL
PROPERTY EXTRAJUDICIALLY FORECLOSED BY
PBCOM DESPITE THE PROVISION IN THE 1975 DEED
THAT ALL AFTER-ACQUIRED PROPERTIES DURING
THE LIFETIME OF THE MORTGAGE SHALL FORM
PART THEREOF, AND DESPITE THE UNDISPUTED
FACT THAT SAID MACHINERIES ARE BIG AND
HEAVY, BOLTED OR CEMENTED ON THE REAL
PBCOM, AND WERE ASSESSED FOR REAL ESTATE
TAX PURPOSES?
II.
CAN PBCOM, WHO TOOK POSSESSION OF THE
MACHINERIES IN QUESTION IN GOOD FAITH,
EXTENDED CREDIT FACILITIES TO EVER TEXTILE
MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28,
WHO HAD SPENT FOR MAINTENANCE AND SECURITY
ON THE DISPUTED MACHINERIES AND HAD TO PAY
ALL THE BACK TAXES OF EVER TEXTILE MILLS BE
LEGALLY COMPELLED TO RETURN TO EVER THE
SAID MACHINERIES OR IN LIEU THEREOF BE
ASSESSED DAMAGES. IS THAT SITUATION
TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT? 7
_______________
6
Rollo, G.R. No. 120098, pp. 23-25.
7
Rollo, G.R. No. 120109. pp. 9-10.
334
334 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
The principal issue, in our view, is whether or not the inclusion
of the questioned properties in the foreclosed properties is
proper. The secondary issue is whether or not the sale of these
properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect
made a contract for the parties by treating the 1981 acquired
units of machinery as chattels instead of real properties within
their earlier 1975 deed of Real and Chattel Mortgage or 1979
deed of Chattel Mortgage.8 Additionally, Tsai argues that
respondent court erred in holding that the disputed 1981
machineries are not real properties.9 Finally, she contends that
the Court of Appeals erred in holding against petitioner’s
arguments on prescription and laches10 and in assessing
petitioner actual damages, attorney’s fees and expenses of
litigation, for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in
affirming the lower court’s judgment decreeing that the pieces
of machinery in dispute were not duly foreclosed and could not
be legally leased nor sold to Ruby Tsai. It further argued that
the Court of Appeals’ pronouncement that the pieces of
machinery in question were personal properties have no factual
and legal basis. Finally, it asserts that the Court of Appeals erred
in assessing damages and attorney’s fees against PBCom.
In opposition, private respondents argue that the
controverted units of machinery are not “real properties” but
chattels, and, therefore, they were not part of the foreclosed real
properties, rendering the lease and the subsequent sale thereof
to Tsai a nullity.12
Considering the assigned errors and the arguments of the
parties, we find the petitions devoid of merit and ought to be
denied.
Well settled is the rule that the jurisdiction of the Supreme
Court in a petition for review on certiorari under Rule 45 of the
Revised Rules of Court is limited to reviewing only errors of
law,
_______________
8
Rollo, G.R. No. 120098, p. 25.
9
Id. at 33.
10
Id. at 49.
11
Id. at 44.
12
Id. at 133.
335
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
not of fact, unless the factual findings complained of are devoid
of support by the evidence on record or the assailed judgment
is based on misapprehension of facts.13 This rule is applied
more stringently when the findings of fact of the RTC is
affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and
affirmed by the Court of Appeals that are decisive of the issues:
(1) the “controverted machineries” are not covered by, or
included in, either of the two mortgages, the Real Estate and
Chattel Mortgage, and the pure Chattel Mortgage; (2) the said
machineries were not included in the list of properties appended
to the Notice of Sale, and neither were they included in the
Sheriff’s Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed
machineries, i.e., that they were heavy, bolted or cemented on
the real property mortgaged by EVERTEX to PBCom, make
them ipso facto immovable under Article 415 (3) and (5) of the
New Civil Code. This assertion, however, does not settle the
issue. Mere nuts and bolts do not foreclose the controversy. We
have to look at the parties’ intent.
While it is true that the controverted properties appear to be
immobile, a perusal of the contract of Real and Chattel
Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate
courts reached the same finding that the true intention of
PBCom and the owner, EVERTEX, is to treat machinery and
equipment as chattels. The pertinent portion of respondent
appellate court’s ruling is quoted below:
As stressed upon by appellees, appellant bank treated the
machineries as chattels; never as real properties. Indeed, the
1975 mortgage contract, which was actually real and chattel
mortgage, militates against appellants’ posture. It should be
noted that the printed form used by appellant bank was mainly
for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in
_______________
13
Congregation of the Religious of the Virgin Mary v. Court
of Appeals, 291 SCRA 385, 391-392 (1998).
14
Manlapaz vs. Court of Appeals, 147 SCRA 236, 239
(1987).
15
Rollo, G.R. No. 120109, pp. 62-63.
336
336 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
capital letters, immediately following the printed caption of
mortgage, of the phrase “real and chattel.” So also, the
“machineries and equipment” in the printed form of the bank
had to be inserted in the blank space of the printed contract and
connected with the word “building” by typewritten slash marks.
Now, then, if the machineries in question were contemplated to
be included in the real estate mortgage, there would have been
no necessity to ink a chattel mortgage specifically mentioning
as part III of Schedule A a listing of the machineries covered
thereby. It would have sufficed to list them as immovables in
the Deed of Real Estate Mortgage of the land and building
involved.
As regards the 1979 contract, the intention of the parties is
335 and beyond question. It refers solely to chattels. The
clear
inventory list of the mortgaged properties is an itemization of
sixty-three (63) individually described machineries while the
schedule listed only machines and 2,996,880.50 worth of
finished cotton fabrics and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless,
erroneous or uncorroborated by the evidence on record, we find
no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are
immovable by nature, nothing detracts the parties from treating
it as chattels to secure an obligation under the principle of
estoppel. As far back as Navarro v. Pineda, 9 SCRA
631 (1963), an immovable may be considered a personal
property if there is a stipulation as when it is used as security in
the payment of an obligation where a chattel mortgage is
executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract
styled as “Real Estate Mortgage and Chattel Mortgage,” instead
of just “Real Estate Mortgage” if indeed their intention is to
treat all properties included therein as immovable, and (2)
attached to the said contract a separate “LIST OF
MACHINERIES & EQUIPMENT.” These facts, taken
together, evince the conclusion that the parties’ intention is to
treat these units of machinery as chattels. A fortiori, the
contested after-acquired properties, which are of the same
description as the units enumerated under the title “LIST OF
MACHINERIES & EQUIPMENT,” must also be treated as
chattels.
_______________
16
Rollo, G.R. No. 120098, pp. 68-69.
337
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
Accordingly, we find no reversible error in the respondent
appellate court’s ruling that inasmuch as the subject mortgages
were intended by the parties to involve chattels, insofar as
equipment and machinery were concerned, the Chattel
Mortgage Law applies, which provides in Section 7 thereof that:
“a chattel mortgage shall be deemed to cover only the property
described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository
as the property originally mortgaged, anything in the mortgage
to the contrary notwithstanding.”
And, since the disputed machineries were acquired in 1981
and could not have been involved in the 1975 or 1979 chattel
mortgages, it was consequently an error on the part of the
Sheriff to include subject machineries with the properties
enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is
void, no valid title passed in its favor. Consequently, the sale
thereof to Tsai is also a nullity under the elementary principle
of nemo dat quod non habet, one cannot give what one does not
have.17
Petitioner Tsai also argued that assuming that PBCom’s title
over the contested properties is a nullity, she is nevertheless a
purchaser in good faith and for value who now has a better right
than EVERTEX.
To the contrary, however, are the factual findings and
conclusions of the trial court that she is not a purchaser in good
faith. Well-settled is the rule that the person who asserts the
status of a purchaser in good faith and for value has the burden
of proving such assertion.18 Petitioner Tsai failed to discharge
this burden persuasively.
Moreover, a purchaser in good faith and for value is one
who buys the property of another without notice that some other
person has a right to or interest in such property and pays a full
and fair price for the same, at the time of purchase, or before he
has notice
_______________
17
Segura vs. Segura, 165 SCRA 368, 375 (1988); Noel vs.
Court of Appeals, G.R. No. 59550, 240 SCRA 78, 88 (1995).
18
Mathay v. Court of Appeals, 295 SCRA 556, 575 (1988).
338
338 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
of the claims or interest of some other person in the
property.19 Records reveal, however, that when Tsai purchased
the controverted properties, she knew of respondent’s claim
thereon. As borne out by the records, she received the letter of
respondent’s counsel, apprising her of respondent’s claim,
dated February 27, 1987.20 She replied thereto on March 9,
1987.21 Despite her knowledge of respondent’s claim, she
proceeded to buy the contested units of machinery on May 3,
1988. Thus, the RTC did not err in finding that she was not a
purchaser in good faith.
Petitioner Tsai’s defense of indefeasibility of Torrens Title
of the lot where the disputed properties are located is equally
unavailing. This defense refers to sale of lands and not to sale
of properties situated therein. Likewise, the mere fact that the
lot where the factory and the disputed properties stand is in
PBCom’s name does not automatically make PBCom the owner
337
of everything found therein, especially in view of EVERTEX’s
letter to Tsai enunciating its claim.
Finally, petitioners’ defense of prescription and laches is
less than convincing. We find no cogent reason to disturb the
consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the
reglementary period. Here, in our view, the doctrine of laches
does not apply. Note that upon petitioners’ adamant refusal to
heed EVERTEX’s claim, respondent company immediately
filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure
or neglect on its part, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence,
could or should have been done earlier. The doctrine of stale
demands would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his legal
rights. Moreover, except for very strong reasons, this Court is
not disposed to apply the doctrine of laches to prejudice or
defeat the rights of an owner.22
_______________
19
Diaz-Duarte vs. Ong, 298 SCRA 388, 397 (1998).
20
Exhibit “U”, Folder of Exhibits, p. 64.
21
Exhibit “V”, Id. at 66.
22
Noel vs. Court of Appeals, 240 SCRA 78, 90 (1995).
339
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
As to the award of damages, the contested damages are the
actual compensation, representing rentals for the contested units
of machinery, the exemplary damages, and attorney’s fees.
 As regards said actual compensation, the RTC awarded
P100,000.00 corresponding to the unpaid rentals of the
contested properties based on the testimony of John Chua, who
testified that the P100,000.00 was based on the accepted
practice in banking and finance, business and investments that
the rental price must take into account the cost of money used
to buy them. The Court of Appeals did not give full credence to
Chua’s projection and reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount
of loss must not only be capable of proof but must actually be
proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual
amount thereof.23 However, the allegations of respondent
company as to the amount of unrealized rentals due them as
actual damages remain mere assertions unsupported by
documents and other competent evidence. In determining actual
damages, the court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof
and on the best evidence obtainable regarding the actual amount
of loss.24 However, we are not prepared to disregard the
following dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is
nothing on record warranting the said award of P5,200,000.00,
representing monthly rental income of P100,000.00 from
November 1986 to February 1991, and the additional award of
P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence,
consisting of the testimonies of Jonh (sic) Chua and Mamerto
Villaluz, is shy of what is necessary to substantiate the actual
damages allegedly sustained by appellees, by way of unrealized
rental income of subject machineries and equipments.
_______________
23
Ace Haulers Corporation v. CA, et al., G.R. No. 127934,
August 23, 2000, p. 11, 338 SCRA 572.
24
Barzaga vs. Court of Appeals, 268 SCRA 105, 113-114
(1997).
340
340 SUPREME COURT REPORTS ANNOTATED
Tsai vs. Court of Appeals
The testimony of John Cua (sic) is nothing but an opinion or
projection based on what is claimed to be a practice in business
and industry. But such a testimony cannot serve as the sole basis
for assessing the actual damages complained of. What is more,
there is no showing that had appellant Tsai not taken possession
of the machineries and equipments in question, somebody was
willing and ready to rent the same for P100,000.00 a month.
xxx
Then, too, even assuming arguendo that the said
machineries and equipments could have generated a rental
income of P30,000.00 a month, as projected by witness
Mamerto Villaluz,’the same would have been a gross income.
Therefrom should be deducted or removed, expenses for
maintenance and repairs. . . . Therefore, in the determination of
the actual damages or unrealized rental income sued upon, there
is a good basis to calculate that at least four months in a year,
the machineries in dispute would have been idle due to absence
of a lessee or while being repaired. In the light of the foregoing
rationalization and computation, We believe that a net
unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to
EVERTEX which the Court of Appeals deleted. But according
to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence,
however, shows otherwise.
It is a requisite to award exemplary damages that the
wrongful act must be accompanied by bad faith,26 and the guilty
acted in a wanton, fraudulent, oppressive, reckless or
malevolent manner.27 As previously stressed, petitioner Tsai’s
act of purchasing the controverted properties despite her
knowledge of EVERTEX’s claim was oppressive and subjected
the already insolvent respondent to gross disadvantage.
Petitioner PBCom also received the same letters of Atty.
Villaluz, responding thereto on March 24, 1987.28 Thus,
PBCom’s act of taking all the properties found in the factory of
the financially handicapped respondent, including those proper-
_______________
25
Rollo, G.R. No. 120109, pp. 43-44.
26
“J” Marketing Corp. vs. Sia, Jr., 285 SCRA 580, 583-
584 (1998).
27
Cervantes vs. Court of Appeals, 304 SCRA 25, 33 (1997).
28
Exhibit “X”, Folder of Exhibits, p. 69.
341
VOL. 366, OCTOBER 2, 2001
Tsai vs. Court of Appeals
ties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are in agreement
with the RTC that an award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is,
however, excessive. Article 2216 of the Civil Code provides
that no proof of pecuniary loss is necessary for the adjudication
of exemplary damages, their assessment being left to the
discretion of the court in accordance with the circumstances of
each case.29 While the imposition of exemplary damages is
justified in this case, equity calls for its reduction. In Inhelder
Corporation v. Court of Appeals, G.R. No. L-52358, 122
SCRA 576, 585, (May 30, 1983), we laid down the rule that
judicial discretion granted to the courts in the assessment of
damages must always be exercised wrtti balanced restraint and
measured objectivity. Thus, here the award of exemplary
damages by way of example for the public good should be
reduced to P100,000.00.
By the same token, attorney’s fees and other expenses of
litigation may be recovered when exemplary damages are
awarded.30 In our view, RTC’s award of P50,000.00 as
attorney’s fees and expenses of litigation is reasonable, given
the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed
decision and resolution of the Court of Appeals in CA-G.R. CV
No. 32986 are AFFIRMED WITH MODIFICATIONS.
Petitioners Philippine Bank of Communications and Ruby L.
Tsai are hereby ordered to pay jointly and severally Ever Textile
Mills, Inc., the following: (1) P20,000.00 per month, as
compensation for the use and possession of the properties in
question from November 198631 until subject personal
properties are restored to respondent corporation; (2)
[No. 34385. September 21, 1931]
ALEJANDRA TORRES ET AL., plaintiffs and
appellees, vs. FRANCISCO LIMJAP, Special Administrator
of the estate of the deceased Jose B. Henson, defendant and
appellant.
[No. 34386. September ,21, 1931]
SABINA VERGARA VDA. DE TORRES ET AL., plaintiffs
and appellees, vs. FRANCISCO LIMJAP, Special
Administrator of the estate of the deceased Jose B. Henson,
defendant and appellant.
CHATTEL MORTGAGE; PROPERTY COVERED
THEREBY; AFTER-ACQUIRED PROPERTY.—A
stipulation in the chattel mortgage, extending its scope and
effect to after-acquired property, is valid and binding where
the after-acquired property is in renewal of, or in
substitution for, goods on hand when the mortgage was
executed, or is purchased with the proceeds of the sale of
such goods. (11 C. J., p. 436.) A mortgage may, by express
stipulations, be drawn to cover goods put in stock in place
of others sold out from time to time. A mortgage may be
made to include future acquisitions of goods to be added to
the original stock mortgaged, but the mortgage must
expressly provide that such -future acquisitions shall be
held as included in the mortgage. Where a mortgage
covering the stock in trade, furniture, and fixtures in the
mortgagor's store provides that "all goods, stock in trade,
furniture, and fixtures hereafter purchased by the mortgagor
shall be included in and covered by the mortgage," the
mortgage covers all after-acquired property of the classes
mentioned, and, upon foreclosure, such property may be
taken and sold by the mortgagee the same as the property in
possession of the mortgagor at the time the mortgage was
executed. (Vol. I, Cobbey on Chattel Mortgages, sec. 361,
pp. 474, 475.)
APPEAL from a judgment of the Court of First Instance of
Manila. Albert, J.
The facts are stated in the opinion of the court.
Duran, Lim & Tuason for appellant.
Guevara, Francisco & Recto for appellees.
142
142 PHILIPPINE REPORTS ANNOTATED
Torres vs. Limjap
JOHNSON, J.:
These two actions were commenced in the Court of First
Instance of Manila on April 16, 1930, for the purpose of
securing from the defendant the possession of two drug stores
located in the City of Manila, covered by two chattel mortgages
executed by the deceased Jose B. Henson in favor of the
plaintiffs.
In the first case the plaintiffs alleged that Jose B. Henson,
in his lifetime, executed in their favor a chattel mortgage
(Exhibit A) on his drug store at Nos. 101-103 Calle Rosario,
known as Farmacia Henson, to secure a loan of P7,000,
although it was made to appear in the instrument that the loan
was for P20,000.
In the second case the plaintiffs alleged that they were the
heirs of the late Don Florentino Torres; and that Jose B.
Henson, in his lifetime, executed in favor of Don
Florentino Torres a chattel mortgage (also Exhibit A) on his
three drug stores known as Henson's Pharmacy, Farmacia
Henson and Botica Hensonina, to secure a loan of P50,000,
which was later reduced to P26,000, and for which, Henson's
Pharmacy at Nos. 71-73 Escolta, remained as the only security
by agreement of the parties.
In both cases the plaintiffs alleged that the defendant
violated the terms of the mortgage and that, in consequence
thereof they became entitled to the possession of the chattels
and to foreclose their mortgages thereon. Upon the petition of
the plaintiffs and after the filing of the necessary bonds, the
court issued in each case an order directing the sheriff of the
City of Manila to take immediate possession of said drug stores.
The defendant filed practically the same answer to both
complaints. He denied generally and specifically the plaintiffs'
allegations, and set up the following special defenses:
(1) That the chattel mortgages (Exhibit A, in G. R. No.
34385 and Exhibit A, in G. R. No. 34386) are null and void for
lack of sufficient particularity in the description of the property
mortgaged; and
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VOL. 56, SEPTEMBER 21, 1931
Torres vs. Limjap
(2) That the chattels which the plaintiffs sought to recover were
not the same property described in the mortgage.
The defendant also filed a counterclaim for damages in the
sum of. P20,000 in the first case and P100,000 in the second
case.
Upon the issue thus raised by the pleadings, the two causes
were tried together by agreement of the parties. After hearing
the evidence adduced during the trial and on July 17, 1930, the
Honorable Mariano Albert, judge, in a very carefully prepared
opinion, arrived at the conclusion (a) that the defendant
defaulted in the payment of interest on the loans secured by the
mortgages, in violation of the terms thereof; (b) that by reason
of said failure said mortgages became due, and (c) that the
plaintiffs, as mortgagees, were entitled to the possession of the
drug stores Farmacia Henson at Nos. 101-103 Calle Rosario and
Henson's Pharmacy at Nos. 71-73 Escolta. Accordingly, a
judgment was rendered in favor of the plaintiffs and against the
def endant, confirming the attachment of said drug stores by the
sheriff of the City of Manila and the delivery thereof to the
plaintiffs, The dispositive part of the decision reads as follows:
"En virtud de todo lo expuesto, el Juzgado dicta sentencia
confirmando en todas sus partes las órdenes de fechas 16 y 17
de abril del presente año, dictadas en las causas Nos. 37096 y
37097, respectivamente, y declara definitiva la entrega hecha a
los demandantes por el Shériff de Manila de las boticas en
cuestión. Se condena en costas al demandado en ambas causas."
From that judgment the defendant appealed, and now makes the
following assignments of error:
1. "I.The lower court erred in failing to make a finding
on the question of the sufficiency of the description
of the chattels mortgaged and in failing to hold that
the chattel mortgages were null and void for lack of
particularity in the description of the chattels
mortgaged.
144
144 PHILIPPINE REPORTS ANNOTATED
Torres vs. Limjap
1. "II.The lower court erred in refusing to allow the
defendant to introduce evidence tending to show that
the stock of merchandise found in the two drug stores
was not in existence or owned by the mortgagor at
the time of the execution of the mortgages in
question.
2. "III.The lower court erred in holding that the
administrator of the deceased is now estopped from
contesting the validity of the mortgages in question.
3. "IV.The lower court erred in failing to make a finding
on the counterclaims of the defendant."
With reference to the first assignment of error, we deem it
unnecessary to discuss the question therein raised, inasmuch as
according to our view on the question of estoppel, as we shall
hereinafter set forth in our discussion of the third assignment of
error, the defendant is estopped from questioning the validity of
these chattel mortgages.
In his second assignment of error the appellant attacks the
validity of the stipulation in said mortgages authorizing the
mortgagor to sell the goods covered thereby and to replace them
with other goods thereafter acquired. He insists that a
stipulation authorizing the disposal and substitution of the
chattels mortgaged does not operate to extend the mortgage to
after-acquired property., and that such stipulation is in
contravention of the express provision of the last paragraph of
section 7 of Act No. 1508, which reads as follows:
"A chattel mortgage shall be deemed to cover only the property
described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as
the property originally mortgaged, anything in the mortgage to
the contrary notwithstanding."
In order to give a correct construction to the above-quoted
provision of our Chattel Mortgage Law (Act No. 1508), the
spirit and intent of the law must first be ascertained. When said
Act was placed on our statute books by the United States
Philippine Commission on July 2, 1906, the primary aim of that
law-making body was undoubtedly to
145
VOL. 56, SEPTEMBER 21, 1931
Torres vs. Limjap
promote business and trade in these Islands and to give impetus
to the economic development of the country. Bearing this in
mind, it could not have been the intention of the Philippine
Commission to apply the provision of section 7 above quoted
to stores open to the public f or retail business, where the goods
are constantly sold and,substituted with new stock, such as drug
stores, grocery stores, dry-goods stores, etc. If said provision
were intended to apply to this class of business, it would be
practically impossible to constitute a mortgage on such stores
without closing them, contrary to the very spirit and purpose of
said Act. Such a construction would bring about a handicap to
trade and business, would restrain the circulation of capital, and
would defeat the purpose for which the law was enacted, to wit,
the promotion of business and the economic development of the
country.
In the interpretation and construction of a statute the intent
of the law-maker should always be ascertained and given effect,
and courts will not follow the letter of a statute when it leads
away from the true intent and purpose of the Legislature and to
conclusions inconsistent with the spirit of the Act. On this
subject, Sutherland, the foremost authority on statutory
construction, says:
"The Intent of a Statute is the Law.—If a statute is valid it is to
have effect according to the purpose and intent of the lawmaker.
The intent is the vital part, the essence of the law, and the
primary rule of construction 19 to ascertain and give effect to
that intent. The intention of the legislature in enacting a law is
the law itself, and must be enforced when ascertained, although
it may not be consistent with the strict letter of the statute.
Courts will not follow the letter of a statute when it leads away
from the true intent and purpose of the legislature and to
conclusions inconsistent with the general purpose of the act.
Intent is the spirit which gives life to a legislative enactment. In
construing statutes the proper course is to start out and follow
the true intent of the legislature and
146
146 PHILIPPINE REPORTS ANNOTATED
Torres vs. Limjap
to adopt that sense which harmonizes best with the context and
promotes in the fullest manner the apparent policy and objects
of the legislature." (Vol. II Sutherland, Statutory Construction,
pp. 693-695.)
A stipulation in the mortgage, extending its scope and effect
to after-acquired property, is valid and binding—
"* * * where the after-acquired property is in renewal of, or
in substitution for, goods on hand when the mortgage was
executed, or is purchased with the proceeds of the sale of such
goods, etc." (11 C. J., p. 436.)
Cobbey, a well-known authority on Chattel Mortgages,
recognizes the validity of stipulations relating to after-acquired
and substituted chattels. His views are based on the decisions of
the supreme courts of several states of the Union. He says:
"A mortgage may, by express stipulations, be drawn to cover
goods put in stock in place of others sold out from time to time.
A mortgage may be made to include future acquisitions of
goods to be added to the original stock mortgaged, but the
mortgage must expressly provide that such future acquisitions
shall be held as included in the mortgage. * * * Where a
mortgage covering the stock in trade, furniture, and fixtures in
the mortgagor's store provides that 'all goods, stock in trade,
145
furniture, and fixtures hereafter purchased by the mortgagor
shall be included in and covered by the mortgage,' the mortgage
covers all after-acquired property of the classes mentioned, and,
upon foreclosure, such property may be taken and sold by the
mortgagee the same as the property in possession of the
mortgagor at the time the mortgage was executed." (Vol. I,
Cobbey on Chattel Mortgages, sec. 361, pp. 474, 475.)
In harmony with the foregoing, we are of the opinion (a) that
the provision of the last paragraph of section 7 of Act No. 1508
is not applicable to drug stores, bazars and all other stores in the
nature of a revolving and floating business; (b) that the
stipulation in the chattel mortgages
147
VOL. 56, SEPTEMBER 21, 1931
El Oriente, Fabrica de Tabacos, Inc., vs. Posadas
in question, extending their effect to after-acquired property, is
valid and binding; and (c) that the lower court committed no
error in not permitting the defendant-appellant to introduce
evidence tending to show that the goods seized by the sheriff
were in the nature of after-acquired property.
With reference to the third assignment of error, we agree
with the lower court that, from the facts of record, the def
endant-appellant is estopped from contesting the validity of the
mortgages in question. This feature of the case has been very
ably and fully discussed by the lower court in its decision, and
said discussion is made, by reference, a part of this opinion.
As to the fourth assignment of error regarding the
counterclaims of the defendant-appellant, it may be said that in
view of the conclusions reached by the lower court, which are
sustained by this court, the lower court committed no error in
not making any express finding as to said counterclaims. As a
matter of form, however, the counterclaims should have been
dismissed, but as the trial court decided both cases in favor of
the plaintiffs and confirmed and ratified the orders directing the
sheriff to take possession of the chattels on behalf of the
plaintiffs, there was, in effect, a dismissal of the defendant's
counterclaims.
For all of the foregoing, we are of the opinion and so hold
that the judgment appealed from is in accordance with the facts
and the law, and the same should be and is hereby affirmed,
with costs. So ordered.
Avanceña, C.
J., Street, Malcolm, Villamor, Ostrand, Romualdez, Villa-
Real, and Imperial, JJ., concur.
Judgment affirmed.