Acme Schoe v CA [ G.R. No. 103576, August 22, 1996 ] Ponente: Vitug, J.

Digest By: Roxas Doctrine: While a pledge, real estate mortgage, or antichresis may secure after incurred obligations so long as these future debts are accurately described, a chattel mortgage, can only cover obligations existing at the time the mortgage is constituted. Facts: - [1978] Chua Pac, the president& General manager of Petitioner Acme Shoe, Rubber& Plastic Corporation executed for the company a chattel mortgage [exact property was not mentioned] in favour of Respondent Producers Bank (PBP). - (1st loan) The chattel mortgage stood by way of security for Acmes corporate loan of Php3 million. - A provision in the chattel Mortgage contract stated: - (c) In case the MORTGAGOR (Acme) 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, xxx. this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. - This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR(Acme) to the MORTGAGEE (PBP) of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage. - The loan of Php 3m was paid by Acme. - [1981] (2nd loan) Acme borrowed an additional 2.7m, these were paid on their due date. - [1984] (3rd loan) Again Acme borrowed an additional 1m covered by 4 promissory notes for 250,000 each. However due to their financial constraints, Acme was not able to pay the laon at maturity. - PBP applied for extrajudicial foreclosure to the chattel mortgage before the Sheriff of Caloocan City. - Acme in response filed an action for injunction w/ damages& Preliminary injunction before the RTC of Caloocan. - RTC dismissed the complaint and ordered the foreclosure. - Acme appealed to the CA which affirmed the RTC and ordered foreclosure. - Acme Petitioned to the SC. It was initially denied for being insufficient in form and substance. The SC further denied the 1st MR of Acme, but granted the 2nd MR, hence this case. Issue: WON The chattel mortgage can be made to cover new loans concluded after the completion of the original chattel mortgage? SA: NO. Since the [1978] Chattel mortgage ceased to exist upon the full payment of the 1st loan (3m) there was no longer any chattel mortgage that could cover the new loans.

Ratio: - 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 - In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property 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, but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory character. Thus if the original obligation is complied with, the contract of security, becomes ipso factro, null and void. - 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. Section 5 of Act 1508, The Chattel mortgage law itself requires parties to execute an oath that: 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. - Such clause makes it clear that the debt referred to is a current obligation,not one that is merely contemplated. - In the chattel mortgage involved here, the only obligation specified in the contract was the 3m loan, which was later fully paid. Section 3 of Act 1508 states that the payment of the obligation automatically renders the chattel mortgage void or terminated. - The SC citing the case of Belgian Catholic Missonaries v Magallanes Pres explained that 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. - In the present case since the 1978 Chattel mortgage ceased to exist upon the full payment of the 1st loan (3m) there was no longer any chattel mortgage that could cover the new loans. Side issues: - Acme is not entitled to Moral damages. - Atty. Sotto, counsel for petitioners is admonished for stating in his pleading before the SC that the CA judge an incompetent and dishonest magistrate Held: RTC & CA Judgements set aside. Chattel Mortgage was terminated in 1978, foreclosure is not proper.