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#1 FILIPINAS MARBLE CORP vs.

IAC loan because it is petitioner’s contention that there was no loan at all to
GR # L-68101| May 30, 1986 secure since what DBP “lent” to petitioner with its right hand, it also got
Petition: Petition for Review back with its left hand; and that, there was failure of consideration with
Petitioner: Filipinas Marble Corporation regard to the execution of said deeds as the loan was never delivered to
Respondent: The Honorable Intermediate Appellate Court, The Honorable the petitioner.
Candido Villanueva, Presiding Judge of Br. 144, RTC, Makati, Development Bank  Petitioner further prayed issue a restraining order and then a writ of
of The Philippines (DBP), Bancom SystemsControl, Inc. (Bancom), Don Ferry, preliminary injunction against the sheriffs to enjoin the latter from
Casimero proceeding with the foreclosure and sale of the petitioner’s properties
Tanedo, Eugenio Palileo, Alvaro Torio, Jose T. Pardo, Rolando Atienza, Simon A.  RTC ruled for DBP and Bancom.
Mendoza, Sheriff Norvell R. Lim,  CA upheld RTC ruling
Art. 2125 and Art. 2140
ISSUE/S
DOCTRINE An unregistered chattel mortgage is a valid one 1. W/N a chattel mortgage needs to be registered to be binding on the parties -
NO
FACTS
 Filipinas Marble Corp alleged that it applied for a loan in the amount of PROVISIONS
$5,000,000.00 with respondent Development Bank of the Philippines Art. 2125. In addition to the requisites stated in article 2085, it is indispensable,
(DBP) in its desire to develop the full potentials of its mining claims and in order that a mortgage may be validly constituted that the document in which it
deposits; that DBP granted the loan subject, however, to sixty onerous appears be recorded in the Registry of Property. If the instrument is not recorded,
conditions, among which are: (a) petitioner shall have to enter into a the mortgage is nevertheless binding between the parties.
management contract with respondent Bancom Systems Control, Inc.
[Bancom]; (b) DBP shall be represented by no less than six (6) regular Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel
directors, three (3) to be nominated by Bancom and three (3) by DBP, in Mortgage Register as a security for the performance of an obligation. If the
Filipinas Marble’s board, one of whom shall continue to be the chairman movable, instead of being recorded, is delivered to the creditor or a third person,
of the board; (c) the key officers/executives [the President and the officers the contract is a pledge and not a chattel mortgage.
for finance, marketing and purchasing] to be chosen by Bancom for the
corporation shall be appointed only with DBP’s prior approval and all RULING & RATIO
these officers are to be made directly responsible to DBP; and (d) the $5 No.
million loan shall be secured by: 1) a final mortgage on the following
assets with a total approved value of P48,630,756.00; We, however, reject the petitioner’s argument that since the chattel mortgage
 Pursuant to these conditions, the petitioner entered into a management involved was not registered, the same is null and void. Article 2125 of the Civil
contract with Bancom whereby the latter agreed to manage the plaintiff Code clearly provides that the nonregistration of the mortgage does not affect the
company for a period of three years; that under the management immediate parties. It states:
agreement, the affairs of the petitioner were placed under the complete
control of DBP and Bancom, including the disposition and disbursement “Art. 2125. In addition to the requisites stated in article 2085, it is
of the $5,000,000 or P37,500,000 loan; that the respondents and their indispensable, in order that a mortgage may be validly constituted that
directors/officers mismanaged and misspent the loan, after which the document in which it appears be recorded in the Registry of Property.
Bancom resigned with the approval of DBP even before the expiration If the instrument is not recorded, the
date of the management contract, leaving petitioner desolate and mortgage is nevertheless binding between the parties. xxx “
devastated; that among the acts and omissions of the respondents are the
following: (a) failure to purchase all the necessary machinery and The petitioner cannot invoke the above provision to nullify the chattel mortgage it
equipment needed by the petitioner’s project for which the approved loan executed in favor of respondent DBP.
was intended;
 That instead of helping petitioner get back on its feet, DBP completely
abandoned the petitioner’s project and proceeded to foreclose the DISPOSITION
properties mortgaged to it by petitioner without previous demand or WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The
notice. orders of the Intermediate Appellate Court dated April 17, 1984 and July 3, 1984
 Petitioner in its complaint seeks the Annulment of deeds of mortgage are hereby ANNULLED and SET ASIDE. The trial court is ordered to proceed
which it executed in favor of DBP in order to secure the $5,000,000.00 with the trial on the merits of the main case. In the meantime, the temporary
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restraining order issued by this Court on July 23, 1984 shall remain in force until interest per annum to Navarro (90) days from receipt of the Order which
the merits of the main case are resolved. further ordered defendant to deliver immediately to the Provincial
Sheriff of Tarlac the personal properties used as security.

#2 NAVARRO vs. PINEDA ISSUE


Petitioner: Conrado Navarro Whether or not the residential house, subject to mortgage can be
Respondent: Rufino Pineda and Juana Gonzales considered a chattel and still remain valid

DOCTRINE Where a house stands on a rented land belonging to another person, HELD
it may be the subject-matter of a chattel mortgage as personal or movable Yes the house can be considered a chattel.
property if so stipulated in the document of mortgage, and in an action by the
mortgagee for foreclosure, the validity of the chattel mortgage cannot be assailed Where a house stands on a rented land belonging to another person, it
by one of the parties to the contract of mortgage. may be the subject-matter of a chattel mortgage as personal or movable
property if so stipulated in the document of mortgage, and in an action by
FACTS the mortgagee for foreclosure, the validity of the chattel mortgage cannot
be assailed by one of the parties to the contract of mortgage.
Defendants Rufino G. Pineda and his mother Juana Gonzales, borrowed
from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable after 6 The trial court did not predicate its decision declaring the deed of chattel
months. To secure the indebtedness, Rufino executed a document mortgage valid solely on the ground that the house mortgaged was
captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", erected on the land which belonged to a third person, but also and
whereby Juana Gonzales, by way of Real Estate Mortgage hypothecated principally on the doctrine of estoppel, in that “the parties have so
a parcel of land, belonging to her, registered with the Register of Deeds of expressly agreed” in the mortgage to consider the house as chattel “for its
Tarlac and Rufino by way of Chattel Mortgage, mortgaged his two-story smallness and mixed materials of sawali and wood”. In construing Arts.
residential house, erected on a lot belonging to Atty. Vicente Castro and 334 and 335 of the Spanish Civil Code (corresponding to Arts. 415 and
one motor truck, registered in his name. 416, N.C.C.), for purposes of the application of the Chattel Mortgage
Law, it was held that under certain conditions, “a property may have a
When the mortgage debt became due and payable, the defendants, after character different from that imputed to it in said articles. It is
demands made on them, failed to pay. They, however, asked and were undeniable that the parties to a contract may by agreement, treat as
granted an extension up to June 30, 1960. Came June 30, defendants personal property that which by nature would be real property”
again failed to pay and, for the second time, asked for another extension,
which was given, up to July 30, 1960. In the second extension, defendant In the case at bar, the house in question was treated as personal or
Pineda in a document entitled “Promise”, categorically stated that in the movable property, by the parties to the contract themselves. In the deed
remote event he should fail to make good the obligation on such date, the of chattel mortgage, appellant Rufino G. Pineda conveyed by way of
defendant would no longer ask for further extension and there would be “Chattel Mortgage” “my personal properties”, a residential house and a
no need for any formal demand, and plaintiff could proceed to take truck. The mortgagor himself grouped the house with the truck, which is,
whatever action he might desire to enforce his rights, under the said inherently a movable property.
mortgage contract. In spite of said promise, defendants, failed and.
refused to pay the obligation. DISPOSITION
CONFORMABLY WITH ALL THE FOREGOING, the decision
In due course, the plaintiff filed a complaint for foreclosure of the appealed from, should be, as it is hereby affirmed, with costs
mortgage and for damages. While the case is being heard, the parties against appellants.
submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and
Chattel Mortgages and leaving the only issue in the case as whether or
not the residential house, subject of the mortgage can be considered a
Chattel.

Despite such stipulation of facts, the lower court later on ruled and
ordered defendants to pay the amount owing plus 12% compounded
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# 3 Northern Motors v. Coquia (Short title) ISSUE/S
GR # L-40018 | August 29, 1975 2. W/N Northern Motors has a better right to the possession
Petition: Petition for review on certiorari
Petitioner: NORTHERN MOTORS, INC. RULING & RATIO
Respondent: The Honorable Jorge R. Coquia, , Honesto Ong, the Sheriff of 1. Yes
Manila, Dominador Q. Cacpal, the Acting Executive Sheriff of Manila, - The sheriff wrongfully levied upon the mortgaged taxicabs and
Intervenor: Filinvest Credit Corporation erroneously took possession of them. He could have levied only upon the
right or equity of redemption pertaining to the Manila Yellow Taxicab
FACTS Co., Inc . as chattel mortgagor and judgment debtor, because that was
- Manila Yellow Taxicab Co., Inc. purchased from Northern Motors, Inc, the only leviable or attachable property right of the company in the
200 Holden Torana cars and executed chattel mortgages on the cars as mortgaged taxicabs.
security for the promissory notes covering the balance of the price. o After a chattel mortgage is executed, there remains in the
o The notes and the chattel mortgages for 172 cars were assigned mortgagor a mere right of redemption (Tizon vs. Valdez).
to Filinvest Credit Corporation. - To levy upon the mortgagor's incorporeal right or equity of redemption, it
- Tropical Commercial Co., Inc. obtained a judgment against Manila was not necessary for the sheriff to have taken physical possession of the
Yellow Taxicab Co., Inc. in another Civil Case. Part of that judgment was mortgaged taxicabs.
eventually assigned to Honesto Ong. - It would have sufficed if he furnished the chattel mortgagor, Manila
- To satisfy the judgment credit, the sheriff levied upon 20 taxicabs, of Yellow Taxicab Co., Inc., with a copy of the writ of execution and served
which, 8 were mortgaged to Northern and 12 to Filinvest Credit. upon it a notice that its right or equity of redemption in the mortgaged
- Northern and Filinvest filed the corresponding third-party claims with taxicabs was being levied upon pursuant to that writ.
the sheriff and Tropical posted indemnity bonds. On that same day, the - Levying upon the property itself is distinguishable from levying on the
cars were sold at public auction. The lower court cancelled the indemnity judgment debtor's interest in it. Justice Imperial noted that if the only
bonds without notice to the third-party claimants. attachable interest of a chattel mortgagor in a mortgaged car was his
- The sheriff subsequently made an additional levy on 35 mortgaged right of redemption and if the purchaser at the execution sale could not
taxicabs to satisfy the unpaid balance of the judgment. Of those, 7 were acquire anything except such right of redemption, then the purchaser
mortgaged to Northern while 28 were to Filinvest. was "not entitled to the actual possession and delivery of the automobile
- Again, Northern and Filinvest filed third-party claims. The lower court without first paying" the mortgage debt.
refused to reinstate the indemnity bonds. It ruled that the chattel - In this case what the sheriff could have sold at public auction was merely
mortgagee was not entitled to the possession of the mortgaged taxicabs the mortgagor's right or equity of redemption. The sheriff and the
by the mere fact of the execution of the mortgage and that the mortgage judgment creditor are deemed to have constructive notice of the chattel
lien followed the chattel whoever might be its actual possessor. mortgages on the taxicabs. As a consequence of the registration of the
- Northern Motors, Inc. then filed with SC a certiorari petition to annul mortgages, Northern Motors, Inc. had the symbolical possession of the
the resolution and to stop the second auction sale. taxicabs.
- SC issued a restraining order against the scheduled auction sale, the writ - If the judgment creditor, Tropical or the assignee, Ong, bought the
of execution and the disposition of the proceeds of the first execution sale. mortgagor's equity of redemption at the auction sale, then it would step
Filinvest was allowed to intervene in the action. into the shoes of the mortgagor, Manila Yellow Taxicab Co., Inc. and be
- Subsequently, the petition was denied and the restraining order was able to redeem the vehicles from Northern Motors, Inc., the mortgagee,
dissolved. SC ruled that the mortgagee's remedy is to vindicate its claim by paying the mortgage debt.
in a proper action as provided in the Rules of Court, and that its - Article 2140 of the Civil Code, in defining a chattel mortgage as the
mortgage lien attached to the taxicabs wherever they might be. recording of personal property in the Chattel Mortgage Register as
- Upon motion of Northern Motors, Inc. on the ground that the decision security for the performance of an obligation, has adhered to the
had not yet become final, the restraining order was maintained. Filinvest equitable conception of that contract.
did not file any more a motion for reconsideration because it had entered - At the same time, article 2140 has preserved the distinction between
into a compromise with Ong for the release of twenty-eight taxicabs. pledge and chattel mortgage which was blurred by section 4 of the
- Northern Motors, Inc. contends that as chattel mortgagee and unpaid Chattel Mortgage Law when it provided that in a chattel mortgage" the
vendor, it has the better right to the possession of the mortgaged taxicabs possession of the property is delivered to and retained by the mortgagee"
and that claims should be resolved in the case where the writ of or, if no such possession is delivered, the mortgage should be recorded in
execution was issued and not in a separate action which allegedly would the proper registry of deeds.
be an ineffective remedy.
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- Historically, it is not proper that the contract of pledge, as one of the four #4 TSAI vs. CA
real contracts of the jus civile (the others being mutuum, commodatum Petitioner: Ruby L. Tsai
and depositum) should be absorbed by the chattel mortgage contract. Respondent: Court of Appeals, Ever Textile Mills, Inc, (EVERTEX), and
- Under section 4 of the Chattel Mortgage Law, it was held that the Memento R. Villaruz
registration of the chattel mortgage was tantamount to the symbolical 366 SCRA 324 | G.R. No. 120098
delivery of the possession of the mortgaged chattel to the mortgagee, a
symbolical delivery which was equivalent to actual delivery. DOCTRINE
- The equity of redemption of the mortgagor will pass to the purchaser at Sec. 7 of the Chattel Mortgage Law - A chattel mortgage shall be deemed to cover
an execution sale (Tizon vs. Valdez and Morales, 48 Phil. 910, 914). only the property described therein and not like or substituted property thereafter
- Inasmuch as what remains to the mortgagor is only the equity of acquired by the mortgagor and placed in the same depository as the property
redemption, it follows that the right of the judgment or attaching originally mortgaged, anything in the mortgage to the contrary notwithstanding.
creditor, who purchased the mortgaged chattel at an execution sale, is
subordinate to the lien of the mortgagee who has in his favor a valid FACTS
chattel mortgage. • On November 26, 1975, EVERTEX obtained a 3m loan from PBCom and as
- Justice Moreland in a case observed that "no one can take the title away security for the loan, a deed of Real and Chattel Mortgage over the subject lot,
from the mortgagee except the mortgagor and he only in the manner where a factory stands, and the chattels located therein as enumerated in the
prescribed by the mortgage itself and that the general statement is schedule of the mortgage contract.
therefore correct that after the execution of a chattel mortgage and its • On April 23, 1979, 2nd loan of 3.356m was availed of by EVERTEX which was
registry as required by law, nobody can obtain an interest in that secured by a Chattel Mortgage over personal properties in a list attached
property adverse to that of the mortgagee". thereto. The listed properties were similar to those listed in the first mortgage
- That the chattel mortgagee has the symbolical possession and that he deed.
has the preferential right to have physical possession is inferable from • After the date of execution of the 2nd mortgage, EVERTEX purchased various
article 319 of the Revised Penal Code which penalizes any person who machines and equipments.
knowingly removes the mortgaged chattel to any province or city other • Later, EVERTEX filed for insolvency proceedings was declared insolvent by the
than the one in which it was located at the time of the execution of the CFI. All its assets were taken into the custody, including the securities, both
mortgage, without the written consent of the mortgagee or his executors, real and personal.
administrators or assigns. It penalizes also any mortgagor who sells or • Due to the failure of EVERTEX to meet its obligation, PBCom commenced
pledges the mortgaged chattel without the consent of the mortgagee extrajudicial foreclosure.
written on the back of the register of deeds of the province where such o PBCom was the highest bidder and consolidated ownership
chattel is located. over the lot and all the properties in it.
- The purpose of the Chattel Mortgage Law is to promote business and o PBCom leased the entire factory premises and eventually sold
trade and to give impetus to the country's economic development. In the it to Tsai, which included everything, even the contested
business world the chattel mortgage has greatly facilitated sales of goods machineries.
and merchandise. • EVERTEX filed a complaint for annulment of sale, reconveyance, and
- Sales of merchandise would be sluggish and insubstantial if the Chattel damages with the RTC against PBCom and alleged the ff:
Mortgage Law could not protect dealers against the defaults and o That there was no legal basis for the appropriation of the
delinquencies of their customers and if the mortgagee's lien could be contested properties which were not included in the Real and
nullified by the maneuvers of an unsecured judgment creditor of the Chattel Mortgage and neither were they included in the Notice
chattel mortgagor. It is not right nor just that the lien of a secured of Sheriff’s sale.
creditor should be rendered nugatory by a wrongful execution engineered o That the extrajudicial foreclosure of the subject mortgage was
by an unsecured creditor. in violation of the Insolvency Law, therefore no right to the
properties are transmitted to Tsai.
DISPOSITION • RTC and CA ruled in favor of EVERTEX.
WHEREFORE, the decision of March 21, 1975 is reconsidered and set aside.
Respondent Sheriff is directed to deliver to Northern Motors, Inc. (a) the proceeds Hence, this petition.
of the execution sale held on December 18, 1974 for the eight taxicabs mortgaged
to it less the expenses of execution and (b) the seven taxicabs which were levied
upon by him and which are also mortgaged to the corporation.

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ISSUE/S MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L.
1. W/N the inclusion of the questioned in the forecloses properties are Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc., the
proper - NO following: (1) P20,000.00 per month, as compensation for the use and possession
2. (LTD/Property Issue) W/N the sale of the properties to Tsai were valid - of the properties in question from November 198631 until subject personal
NO properties are restored to respondent corporation; (2) P100,000.00 by way of
exemplary damages, and (3) P50,000.00 as attorney’s fees and litigation expenses.
Costs against petitioners.
RULING & RATIO SO ORDERED.
1. NO
- The “controverted machineries” are not covered by, or included in, #5 CEBU INTERNATIONAL FINANCE CORP. vs COURT OF APPEALS
either of the two mortgages, the Real Estate and Chattel Mortgage, and G.R. No. 107554 February 13, 1997
the pure Chattel Mortgage; and the said machineries were not included Petition: PETITION FOR REVIEW ON CERTIORARI
in the list of properties appended to the Notice of Sale, and neither were Petitioner: CEBU INTERNATIONAL FINANCE CORPORATION
they included in the Sheriff’s Notice of Sale of the foreclosed properties. Respondent: COURT OF APPEALS, ROBERT ONG and ANG TAY
o Even if the fact the machineries were heavy, bolted or
cemented on the real property mortgaged, does not make them DOCTRINE The prevailing jurisprudence is that a mortgagee has a right to rely
ipso facto immovable under Article 415 (3) and (5) of the New in good faith on the certificate of title of the mortgagor to the property given as
Civil Code, as the parties’ intent has to be looked into. security and in the absence of any sign that might arouse suspicion, mortgagee
o Where the facts, taken together, evince the conclusion that the has no obligation to undertake further investigation.
parties’ intention is to treat the units of machinery as chattels,
a fortiori, the after-acquired properties, which are of the same FACTS
description as the units referred to earlier, must also be
treated as chattels. 1. Jacinto Dy executed a Special Power of Attorney in favor of private
2. NO respondent Ang Tay, authorizing the latter to sell the cargo vessel owned
- “Nemo dat quod non habet - One Cannot give what one does not have.” \ by Dy and christened LCT “Asiatic.” Through a Deed of Absolute Sale,
•As the auction sale of the subject properties to PBCom is void, no Ang Tay sold the subject vessel to Robert Ong (Ong). Ong paid the
valid title can therefore pass to Tsai’s favor. purchase price by issuing three (3) checks However, since the payment
• A purchaser in good faith and for value is one who buys the was not made in cash, it was specifically stipulated in the deed of sale
property of another without notice that some other person has a that the “LCT Asiatic shall not be registered or transferred to Robert Ong
right to or interest in such property and pays a full and fair price until complete payment.”
for the same, at the time of purchase, or before he has notice of the 2. Thereafter, Ong obtained possession of the subject vessel so he could
claims or interest of some other person in the property. begin deriving economic benefits therefrom. He, likewise, obtained copies
• Records reveal, however, that when Tsai purchased the of the unnotarized deed of sale allegedly to be shown to the banks to
controverted properties, she knew of respondent’s claim thereon. As enable him to acquire a loan to replenish his (Ong’s) capital. The
borne out by the records, she received the letter of respondent’s aforequoted condition, however, which was handwritten on the original
counsel, apprising her of respondent’s claim, dated February 27, deed of sale does not appear on Ong’s copies.
1987. She replied thereto on March 9, 1987. Despite her knowledge 3. Contrary to the aforementioned agreements and without the knowledge
of respondent’s claim, she proceeded to buy the contested units of of Ang Tay, Ong had his copies of the deed of sale (on which the
machinery on May 3, 1988. aforementioned prohibition does not appear) notarized. Ong presented
• The defense of indefeasibility of Torrens Title refers to sale of lands the notarized deed to the Philippine Coast Guard which subsequently
and not to sale of properties situated therein. The mere fact that issued him a Certificate of Ownership and a Certificate of Philippine
the lot where a factory and disputed properties stand in a person’s Register over the subject vessel. Ong also succeeded in having the name
name does not automatically make such person the owner of of the vessel changed to LCT “Orient Hope.”
everything found therein. 4. Using the acquired vessel, Ong acquired a loan from Cebu
International Finance Corporation to be paid in installments as
evidenced by a promissory note of even date. As security for the
WHEREFORE, the petitions are DENIED. The assailed decision and resolution loan, Ong executed a chattel mortgage over the subject vessel,
of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH which mortgage was registered with the Philippine Coast Guard
and annotated on the Certificate of Ownership.
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5. Ong defaulted in the payment of the monthly installments. aforementioned documents state that Ong is already the absolute owner of the
Consequently, Cebu International Finance Corporation sent him a letter subject vessel. Obviously, therefore, paragraph 3 of the said contract was filled up
demanding delivery of the mortgaged vessel for foreclosure or in the by mistak
alternative to pay the balance pursuant to paragraph 11 of the deed of 2. YES
chattel mortgage.
6. Meanwhile, the two checks paid by Ong to Ang Tay for the Purchase of The prevailing jurisprudence is that a mortgagee has a right to rely in good faith
the subject vessel bounced. Ang Tay’s search for the elusive Ong and all on the certificate of title of the mortgagor to the property given as security and in
attempts to confer with him proved to be futile. A subsequent the absence of any sign that might arouse suspicion, has no obligation to
investigation and inquiry with the Office of the Coast Guard revealed undertake further investigation. Hence, even if the mortgagor is not the rightful
that the subject vessel was already in the name of Ong, in violation of the owner of or does not have a valid title to the mortgaged property, the mortgagee
express undertaking contained in the original deed of sale. or transferee in good faith is nonetheless entitled to protection. Although this rule
7. As a result thereof, Ang Tay and Jacinto Dy filed a civil case for generally pertains to real property, particularly registered land, it may also be
rescission and replevin with damages against Ong and his wife which applied by analogy to personal property, in this case specifically, since shipowners
was granted. are, likewise, required by law to register their vessels with the Philippine Coast
8. Cebu International Finance Corp. filed a separate case for replevin and Guard.
damages against Ong and Ang Tay in the same court.
The chattel mortgage constituted on a vessel by Ong who was able to register the
Trial Court: It ruled in favor of Ang Tay and Jacinto Dy. Moreover, it vessel in his name despite the agreement with the Ang Tay that the vessel would
declared the chattel mortgage on the subject vessel null and void and not be so registered until after full payment of the price which do not appear in
ordered petitioner and Ong to pay Ang Tay damages. the Ong’s copy of the deed of sale is VALID for the mortgagee has the right to rely
CA: It affirmed Trial Court’s ruling. in good faith on the certificate of registration.

ISSUES 3. NO

1. W/N the chattel mortgage contract between Cebu International Finance Corp The special affidavit of good faith, on the other hand, is required only for the
and Ong is valid and subsisting. purpose of transforming an already valid mortgage into a "preferred mortgage."
2. W/N Cebu International Finance Corporation is a mortgagee in good faith Thus, the abovementioned affidavit is not necessary for the validity of the chattel
whose lien over the mortgaged vessel should be respected. mortgage itself but only to give it a preferred status.
3. W/N Cebu International Finance Corporation’s failure to provide the SPECIAL
AFFIDAVIT OF GOOD FAITH required in Sec 4 of PD No. 1521 is necessary for DISPOSITION
the validity of the chattel mortgage. WHEREFORE, this Court GRANTS the Petition for Review and REVERSES the
questioned decision and resolution of the Court of Appeals. The validity of the
RULING chattel mortgage on the vessel LCT ORIENT HOPE is hereby upheld without
prejudice to whatever legal remedies private respondent Ang Tay may have
1. YES against private respondent Robert Ong in the premises.

The key lies in the certificate of ownership issued in Ong's name (which, along
with the deed of sale, he submitted to petitioner as proof that he is the owner of
the ship he gave as security for his loan). It was plainly stated therein that the
ship LCT "Orient Hope" ex "Asiatic," by means of a Deed of Absolute, was "sold
and transferred by Jacinto Dy to Robert Ong." There can be no dispute then that
it was Dy who was the seller and Ong the buyer of the subject vessel. Coupled
with the fact that there is no evidence of any transaction between Jacinto Dy or
Ang Tay and petitioner, it follows that petitioner's role in the picture is properly
and logically that of a creditor-mortgagee and not owner-seller. It is paragraph
2 of the mortgage contract which accurately expresses the true nature of
the transaction between petitioner and Ong -- that it is a simple loan
with chattel mortgage. The amount petitioner loaned to Ong does not represent
the balance of any purchase price since, as we have previously discussed, the
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#6 LILIUS v MANILA ROAD COMPANY
G.R. No. 42551, September 4, 1935 ISSUE WON the reference to a mortgage appearing in a public document in a
APPEAL on CERTIORARI judgment, entitled to preference under article 1924 of the Civil Code. - NO
APPELLESS: ALEKO E. LILIUS, for himself and as guardian ad litem of
his minor child, Brita Marianne Lilius, and SONJA MARIA LILIUS RULING/RATIO
DEFENDANT: MANILA RAILROAD COMPANY
INTERVENORS – APPELLANTS: LAURA LINDLEY SHUMAN, MANILA NO. This reference in said judgment to a mortgage is not competent or
WINE MERCHANTS, LTD., BANK OF THE PHILIPPINE ISLANDS AND satisfactory evidence as against third persons upon which to base a finding that
MANILA MOTOR CO., INC. the Manila Motor Company's credit evidenced by a public document within the
INTERVENORS – APPELLESS: W.H. WATEROUS, M. MARFORI, JOHN R. meaning of article 1924 of the Civil Code. If the Manila motor Co., Inc., desired to
MCFIE, JR., ERLANGER & GALINGER, INC., PHILIPPINE EDUCATION CO., rely upon a public document in the form of a mortgage as establishing its
INC., HAMILTON BROWN SHOE CO., ESTRELLA DEL NORTE and EASTERN preference in this case, it should have offered that document in evidence, so that
& PHILIPPINE SHIPPING AGENCIES, LTD. the court might satisfy itself as to its nature and unquestionably fix the date of its
execution.
DOCTRINE A chattel does not have to be acknowledged before a notary public.
As against creditors and subsequent encumbrances, the law does require an Granting that a mortgage existed between the Manila Motor Co., Inc.,
affidavit of good faith appended to the mortgage and recorded with it. and Aleko E. Lilius, this does not warrant the conclusion that the instrument
evidencing that mortgage is a public document entitled to preference under article
FACTS 1924 of the Civil Code. Under section 5 of Act No. 1507 as amended by Act No.
2496, a chattel does not have to be acknowledge before a notary public. As against
(1) In a separate case, Lilius successfully won against Manila Road creditors and subsequent encumbrances, the law does require an affidavit of good
Company. In that case, the Trial Court and the SC awarded Lilius the faith appended to the mortgage and recorded with it. A chattel mortgage may,
amount of Php 33,525.03 as damages. [ The case filed by Lilius was due however, be valid as between the parties without such an affidavit of good faith.
to the damages sustained by Lilius when Manila Road Company’s train In 11 Corpus Juris, 482, the rule is expressly stated that as between the parties
collided with the car of Lilius] and as to third persons who have no rights against the mortgagor, no affidavit of
(2) Lilius sustained permanent damages due to the accident and thus not good faith is necessary. It will thus be seen that under the law, a valid mortgage
able to meet his obligations. The intervenors – appellants therefore may exist between the parties without its being evidenced by a public document.
interfere to satisfy their claims against Lilius with the awarded amount
for damages. DISPOSITION
(3) In this present case, the intervenors – appellants appealed the order
of the Court of First Instance of Manila fixing the degree of preference of The court, therefore, committed no error in holding that the claim of the Manila
the claimants and distributing the proceeds of the judgment. Motor Co., Inc., was inferior in preference to those of the appellees in this case.
This appellant's assignments of error are overulled.
(Focus is on Manila Motor Co., since its appeal is based on Chattel
Mortgage)

(4) For its part, Manila Motor Co., Inc. claims that the lower court erred in
not holding their claims, evidenced by public instruments and final
judgment, as preferred over all other claims against Aleko E. Lilius.
(5) In support of its claim of preference against the fund of Aleko E. Lilius
was a certified copy of its judgment against him in a separate civil case
(Civil Case no. 41159), together with a certified copy of the writ of
execution and the garnishment issued by virtue of said judgment.
(6) The alleged public document evidencing its claims was not
offered, Manila Motor Co merely assume its credit is evidenced
by a public document dated May 10, 1931, the court on Case no.
41159 refers to a mortgage appearing in the evidence, as the
basis of its judgment, without mentioning the date of the
execution of the exhibit
7
#7 ACME CORP vs. CA justice. A deviation from the rigid enforcement of the
GR # 103576| August 22, 1996 rules may thus be allowed to attain the prime objective
Petition: Petition for review on certiorari for, after all, the dispensation of justice is the core
Petitioner: ACME SHOE, RUBBER & PLASTIC CORPORATION and reason for the existence of courts. In this instance, once
CHUA PAC again, the Court is constrained to relax the rules in
Respondent: HON. COURT OF APPEALS, PRODUCERS BANK OF THE order to give way to and uphold the paramount and
PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY overriding interest of justice.

Hence, this petition.


FACTS
- Chua Pac, the president and general manager of Acme Shoe, Rubber & ISSUE/S
Plastic Corporation,executed on 27 June 1978, for and in behalf of the 3. W/N the chattel mortgage and its foreclosure is valid
company, a chattel mortgage in favor of private respondent Producers
Bank of the Philippines. This was security for the P3 million corporate RULING & RATIO
loan. 2. NO.
o Stipulated: "In case the MORTGAGOR executes subsequent - While a pledge, real estate mortgage, or antichresis may exceptionally
promissory note or notes either as a renewal of the former note, secure after-incurred obligations so long as these future debts are
as an extension thereof, or as a new loan, or is given any other accurately described, a chattel mortgage, however, can only cover
kind of accommodations such as overdrafts, letters of credit, obligations existing at the time the mortgage is constituted.
acceptances and bills of exchange, releases of import shipments - Although a promise expressed in a chattel mortgage to include debts that
on Trust Receipts, etc., this mortgage shall also stand as are yet to be contracted can be a binding commitment that can be
security for the payment of the said promissory note or compelled upon, the security itself, however, does not come into existence
notes and/or accommodations without the necessity of or arise until after a chattel mortgage agreement covering the newly
executing a new contract and this mortgage …. This contracted debt is executed either by concluding a fresh chattel mortgage
mortgage shall also stand as security for said obligations and or by amending the old contract conformably with the form prescribed by
any and all other obligations of the MORTGAGOR to the the Chattel Mortgage Law.
MORTGAGEE of whatever kind and nature, whether such - A chattel mortgage, as hereinbefore so intimated, must comply
obligations have been contracted before, during or after the substantially with the form prescribed by the Chattel Mortgage Law
constitution of this mortgage." itself. One of the requisites, under Section 5 thereof, is an affidavit of
- This loan was paid and obtained from Producers Bank additional good faith. While it is not doubted that if such an affidavit is not
financial accommodations totaling P2.7 million in 1981. Said loan was appended to the agreement, the chattel mortgage would still be valid
also paid when it became due. between the parties (not against third persons acting in good faith), the
- In 1984, bank the again extended another loan of a million pesos covered fact, however, that the statute has provided that the parties to the
by 4 promissory notes (250k each). The loan was not paid at maturity, contract must execute an oath that –
due to financial constraints. o "x x x (the) mortgage is made for the purpose of securing the
- Producers Bank then filed for extrajudicial foreclosure of the chattel obligation specified in the conditions thereof, and for no other
mortgage with the Sheriff of Caloocan, prompting Acme to forthwith file purpose, and that the same is a just and valid obligation, and
an action for injunction, with damages and a prayer for a writ of one not entered into for the purpose of fraud."
preliminary injunction, before the Caloocan RTC. - In the chattel mortgage here involved, the only obligation specified in the
- RTC: Dismissed. chattel mortgage contract was the P3,000,000.00 loan.
o Corporation bound by the stipulations, aforequoted, of the - In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.,
chattel mortgage. the Court said –
- CA: Affirmed. o "x x x A mortgage that contains a stipulation in regard to future
- The instant petition in the SC was initially denied for being insufficient advances in the credit will take effect only from the date the same
in form and substance, but Acme filed a compliance with the motion for are made and not from the date of the mortgage."
reconsideration which was denied. Only the second MR was granted. - The significance of the ruling to the instant problem would be that since
o Reason for granting second MR: the 1978 chattel mortgage had ceased to exist coincidentally with the full
 These technical and procedural rules, however, are payment of the P3,000,000.00 loan, there no longer was any chattel
intended to help secure, not suppress, substantial mortgage that could cover the new loans that were concluded thereafter.
8
DISPOSITION
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.

Notes:
Atty. Sotto, the counsel of petitioners, was admonished by the Court because of
this reply:
"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."

9
#8 SERVICEWIDE SPECIALISTS vs. CA 4. W/N the consent of debtor-mortgaggee is necessary to bind him to the
G.R. No 116363 | 320 SCRA 478 | December 10, 1999 assignment of a credit
Petition: PETITION for review on certiorari
Petitioner: SERVICEWIDE SPECIALISTS, INCORPORATED, RULING & RATIO
Respondent: CA, JESUS PONCE, and ELIZABETH PONCE
1. NO. only notice is necessary.
DOCTRINE When the mortgagee assigned the mortgage, it is necessary to give - When the credit was assigned to SERVICEWIDE, only notice to but not
notice to the mortgagor and NOT CONSENT. But when the mortgagor wish to the consent of the PECSONs was necessary to bind the latter.
sell or alienate the property mortgage, the consent of mortgagee is necessary. - Applying Article 1627 of the Civil Code, the assignment made to
SERVICEWIDE includes the accessory rights such as the mortgage.
FACTS - Article 2141, states that the provisions concerning a contract of pledge
shall be applicable to a chattel mortgage, such as the one at bar, insofar
- Sometime in 1975, Sps. Atty. Jesus and Elizabeth PONCE bought on as there is no conflict with the Chattel Mortgage Law.
installment a Vehicle from Tecson Enterprises. o a thing pledged may be alienated by the pledgor or owner “with
o To secure payment they executed a promissory note and a the consent of the pledgee.”
chattel mortgage on the vehicle. o This provision is in accordance with Act No. 1508 which provides
 registered in the Registry of Deeds and LTO that “a mortgagor of personal property shall not sell or pledge
- Tecson Enterprises executed a DEED OF ASSIGNMENT of the said such property, or any part thereof, mortgaged by him without
promissory note and chattel mortgage in favor of FILINVEST with the consent of the mortgagee in writing on the back of the
conformity of Sps. PONCE. mortgage and on the margin of the record thereof in the office
- In 1976, Sps. PONCE transferred and delivered the vehicle to Conrado where such mortgage is
Tecson by way of sale with assumption of mortgage.
- FILINVEST assigned all its rights and interest to SERVICEWIDE DISPOSITION
without notice to Sps. PONCE WHEREFORE, the decision of the Court of Appeals is REVERSED and SET
- Sps. PONCE failed to pay. Thus, SERVICEWIDE filed a complaint for ASIDE. The decision of the Regional Trial Court is AFFIRMED and
replevin. REINSTATED. Respondents Jesus Ponce and Elizabeth Ponce are ORDERED to
pay petitioner, jointly and severally
PONCE’s contention:
- they had already returned the car to Conrado Tecson pursuant to the
Deed of Sale with Assumption of Mortgage.
- invoked Article 1626 of the Civil Code which provides that “the debtor
who, before having knowledge of the assignment, pays his creditor shall
be released from the obligation.”

TC: Sps. PECSON are liable and ordered Conrado Tecson to reimburse them.
CA: reversed and set aside on the ground that SPS PECSON were not notified of
the assignment of promissory note and chattel mortgage.

Hence, this petitition.

ISSUE/S

10
#9 PASCUAL v. UNIVERSAL MOTOR CORPS
GR # L-27862 | November 20, 1974 ISSUE/S
Petitioner: Lorenzo Pascual and Leonila Torres W/N Universal can claim for deficiency judgment as against PDP
Respondent: Universal Motors Corporation Transit’s guarantors (Pascual and Torres) - NO

DOCTRINE Foreclosure of chattel mortgage precludes any further action against RULING & RATIO
the debtor and his guarantor. No.

FACTS A similar argument has been answered by this Court in this wise: “(T)o sustain
 Pascual and Torres executed the real estate mortgage subject matter of appellant’s argument is to overlook the fact that if the guarantor should be
this complaint to secure the payment of the indebtedness of PDP Transit, compelled
Inc. for the purchase of five (5) units of Mercedez Benz trucks but to pay the balance of the purchase price, the guarantor will in turn be entitled to
plaintiffs’ guarantee is not to exceed P50,000.00 which is the value of the recover what she has paid from the debtor vendee (Art. 2066, Civil Code); so that
mortgage. ultimately, it will be the vendee who will be made to bear the payment of the
 PDP Transit, Inc., plaintiffs’ principal, had paid to the defendant balance of the price, despite the earlier foreclosure of the chattel mortgage given
Universal Motors Corporation the sum of P92,964.91, thus leaving a by him. Thus, the protection given by Article 1484 would be indirectly subverted,
balance of P68,641.69 including interest due and public policy overturned.”
 The aforementioned obligation guaranteed by the plaintiffs under the
Real Estate Mortgage, subject of this action, is further secured by DISPOSITION
separate deeds of chattel mortgages on the Mercedez Benz units covered The decision appealed from is affirmed, with costs against the defendant-
by the aforementioned invoices in favor of the defendant Universal appellant.
Motors Corporation.
 Defendant Universal Motors Corporation filed a complaint against PDP
Transit, Inc. before the Court of First Instance of Manila with a petition
for a writ of Replevin, to collect the balance due under the Chattel
Mortgages and to repossess all the units sold to plaintiffs’ principal PDP
Transit, Inc. including the five (5) units guaranteed under the subject
Real (Estate) Mortgage.
 Universal Motors Corporation was able to repossess all the units sold to
the latter, including the five (5) units guaranteed by the subject real
estate mortgage, and to foreclose all the chattel mortgages constituted
thereon, resulting in the sale of the trucks at public auction.
 With the foregoing background, the spouses Lorenzo Pascual and Leonila
Torres, the real estate mortgagors, filed an action in the Court of First
Instance of Quezon City for the cancellation of the mortgage they
constituted on two (2) parcels of land in favor of the Universal Motors
Corporation to guarantee the obligation of PDP Transit, Inc. to the extent
of P50,000. The court rendered judgment for the plaintiffs, ordered the
cancellation of the mortgage
 Unsatisfied with the decision, defendant interposed the present appeal.
 Universal Motors contends that what article 1484 withholds from the
vendor is the right to recover any deficiency from the purchaser after the
foreclosure of the chattel mortgage and not a recourse to the additional
security put up by a third party to guarantee the purchaser’s
performance of his obligation.

11
#10 SERVICEWIDE SPECIALISTS, INC. vs. INTERMEDIATE
APPELLATE COURT The RTC ordered defendants to pay the jointly and severally the plaintiff
Petitioner: Servicewide Specialists, Inc. the remaining balance on the motor vehicle.
Private Respondent: Galicano Siton
The IAC rendered judgment affirming in toto the decision of the trial
DOCTRINE The chattel mortgagor continues to be the owner of the property, court.
and therefore, has the power to alienate the same; however, he is obliged under
pain of penal liability, to secure the written consent of the mortgagee. Hence, the instant petition.

The absence of the written consent of the mortgagee to the sale of the mortgaged ISSUE
property in favor of a third person, therefore, affects not the validity of the sale Whether or not the sale between the mortgagor Siton and De Dumo was
but only the penal liability of the mortgagor under the Revised Penal Code and void, as the sale is prohibited under the provisions of the Deed of Chattel
the binding effect of such sale on the mortgagee under the Deed of Mortgage. Mortgage, the Chattel Mortgage Act (Act 1508) and the Revised Penal
Code.

HELD
FACTS Yes it’s valid.

Siton purchased from Car Traders Philippines, Inc. a vehicle a two-door There is no dispute that the Deed of Chattel Mortgage executed between
Mitsubishi Celeste and paid P25,000.00 as downpayment of the price. Siton and the petitioner requires the written consent of the latter as
The remaining balance of P68,400.00, includes not only the remaining mortgagee in the sale or transfer of the mortgaged vehicle. We cannot
principal obligation but also advance interests and premiums for motor ignore the findings, however, that before the sale, prompt inquiries were
vehicle insurance policies. made by private respondents with Filinvest Credit Corporation regarding
any possible future sale of the mortgaged property; and that it was upon
He executed a promissory note expressly stipulating the remaining the advice of the company’s credit lawyer that such a verbal notice is
obligation shall be payable without the need of notice of demand, and in sufficient and that it would be convenient if the account would remain in
installment basis for 36 months ( P1,900/month) due and payable on the the name of the mortgagor Siton.
14th day of each month starting September 14, 1979, thru and inclusive
of August 14,1982. As further Security Siton executed a Chattel Even the personal checks of de Dumo were accepted by petitioner as
Mortgage over the subject motor vehicle in favor of Car Traders payment of some of the installments under the promissory note. If it is
true that petitioner has not acquiesced in the sale, then, it should have
The credit covered by the promissory note and chattel mortgage executed inquired as to why de Dumo’s checks were being used to pay Siton’s
by Siton was first assigned by Car Traders Philippines, Inc. in favor of obligations.
Filinvest Credit Corporation which the latter reassigned to Servicewide
Specialists, Inc. Further, it is worthy to note that despite the arguments of petitioner that
it is not bound by the sale of the vehicle to de Dumo, and that the latter
Alleging that Siton failed to pay the part of the installment which fell is a stranger to the transaction between Filinvest and Siton,
due, the petitioner filed this action against Galicano Siton and “John nevertheless, it admitted de Dumo’s obligation as purchaser of the
Doe.” property when it named the latter as one of the defendants in the lower
court.
After the service of summons, Justiniano de Dumo, identifying himself as
the “John Doe” in the Complaint, inasmuch as he is in possession of the In view of the foregoing, We find it correct to hold both the respondents
subject vehicle, filed his Answer with Counterclaim and with Opposition Galicano Siton and Justiniano de Dumo liable for their obligations to
to the prayer for a Writ of Replevin. Said defendant, alleged the fact that petitioner herein. In the case at bar, the purchase of the car by
he has bought the motor vehicle from Siton that as such successor, he respondent de Dumo from respondent Siton does not necessarily imply
stepped into the rights and obligations of the seller; that he has the extinguishment of the liability of the latter. Since it was neither
religiously paid the installments as stipulated upon in the promissory established nor shown that Siton was released from responsibility under
note. He also manifested that the Answer he has filed in his behalf the promissory note, the same does not constitute novation by
should likewise serve as a responsive pleading for his co-defendant Siton. substitution of debtors under Article 1293 of the Civil Code. Likewise,
12
the fact that petitioner company accepts payments from a third person
like respondent de Dumo, who has assumed the obligation, will result
merely to the addition of debtors and not novation. Hence, the creditor
may therefore enforce the obligation against both debtors.

DISPOSITION

ACCORDINGLY, the petition is GRANTED and the assailed decision of


the Court of Appeals dated April 25, 1986 is hereby REVERSED and
SET ASIDE, and a new one entered, ordering the private respondents
Galicano Siton and Justiniano de Dumo, jointly to pay to petitioner
Servicewide Specialists, Incorporated, the total sum of the remaining
unpaid balance on the promissory note with interest thereon at fourteen
percent per annum from January 25, 1982 until fully paid, as well as
stipulated attorney’s fees and liquidated damages; and to reimburse to
petitioner the sum of P3,859.90 for the premium payments on the
insurance policies over the subject vehicle. Costs against private
respondents.

SO ORDERED.

13
Cordova vs REYES DAWAY LIM BERNARDO
LINDO ROSALES LAW OFFICES ISSUE/S
GR # 146555 | July 3, 2007 5. W/N Cordova is a creditor of Philfinance
Petition: Petition For Review on Certiorari 6. W/N he is a preferred or ordinary creditor and can he recover the full value of his
Petitioner: Jose Cordova CSPI shares or merely 15% thereof like all other ordinary creditors of Philfinance
Respondent: REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, 7. W/N he is entitled to legal interest
ATTY. WENDELL CORONEL and the SECURITIES AND EXCHANGE
COMMISSION
RULING & RATIO
DOCTRINE 3. YES
- The SC just reiterated the SEC and CA decision.
FACTS o SEC:Petitioner is seeking the return of his CSPI shares which, for the
- Sometime in 1977 and 1978, Jose C. Cordova bought from Philippine present, is no longer possible, considering that the same had already been
Underwriters Finance Corporation (Philfinance) certificates of stock of sold by the respondents, the proceeds of which are ADMITTEDLY
Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of various commingled with the assets of PHILFINANCE.
other corporations. He was issued a confirmation of sale.
This being the case, [petitioner] is now but a claimant for the value of
- The shares were physically delivered by Philfinance to Filmanbank and those shares. As a claimant, he shall be treated as an ordinary creditor in
Philtrust Bank, as custodian banks, to hold these shares in behalf of and for so far as the value of those certificates is concerned.
the benefit of Cordova.
- On June 18, 1981, Philfinance was placed under receivership by the SEC. o CA: Concomitantly, petitioners filing of his claim over the subject CSPI
Thereafter, Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. shares before the SEC in the liquidation proceedings bound him to the
Wendell Coronel were appointed as liquidators. terms and conditions thereof. He cannot demand any special treatment
- In 1991, without the knowledge and consent of Cordova and without [from] the liquidator, for this flies in the face of, and will contravene, the
authority from the SEC, private respondents withdrew the CSPI shares from Supreme Court dictum that when a corporation threatened by bankruptcy is
the custodian banks and sold the shares to Northeast Corporation and taken over by a receiver, all the creditors shall stand on equal footing. Not
one of them should be given preference by paying one or some [of] them
included the proceeds thereof in the funds of Philfinance.
ahead of the others. This is precisely the philosophy underlying the
- When Cordova learned of the sale, he lodged a complaint with private suspension of all pending claims against the corporation under receivership.
respondents but the latter ignored it, prompting him to file, on May 6, 1997, a The rule of thumb is equality in equity
formal complaint against private respondents in the receivership proceedings 4. Ordinary Creditor
with the SEC, for the return of the shares. a. SAY THIS PARA LEGIT: The Civil Code provisions on concurrence and
- The SEC approved a 15% rate of recovery for Philfinances creditors and preference of credits are applicable to the liquidation proceedings.
investors. On May 13, 1997, the liquidators began the process of settling the b. Petitioner argues that he was a preferred creditor because private
claims against Philfinance, from its assets. respondents illegally withdrew his CSPI shares from the custodian
- The SEC initially dismissed Cordova’s complaint. But reversed itself in a banks and sold them without his knowledge and consent and without
resolution and granted Cordova’s claims. authority from the SEC. He quotes Article 2241 (2) of the Civil Code:
- But since the shares had already been sold and the proceeds commingled
with the other assets of Philfinance, Cordova’s status was converted into that With reference to specific movable property of the debtor, the following claims or
of an ordinary creditor for the value of such shares. Thus, it ordered private liens shall be preferred:
respondents to pay the amount of P5,062,500 representing 15% of the
monetary value of his CSPI shares plus interest at the legal rate from the xxx xxx xxx
time of their unauthorized sale.
(2) Claims arising from misappropriation, breach of trust, or malfeasance by
- SEC later deleted the award for legal interest, as it would be unfair to other
public officials committed in the performance of their duties, on the movables,
claimants. money or securities obtained by them;
- Cordova appealed to the CA.
- CA: Affirmed SEC decision. xxx xxx xxx
o It agreed that petitioner was indeed the owner of the CSPI shares c. Article 2241 refers only to specific movable property. His claim was for
but the recovery of such shares had become impossible. It also the payment of money, which, as already discussed, is generic property
declared that the clarificatory order merely harmonized the and not specific or determinate.
dispositive portion with the body of the resolution. d. Considering that petitioner did not fall under any of the provisions
applicable to preferred creditors, he was deemed an ordinary creditor
Hence, this petition. under Article 2245:
14
Credits of any other kind or class, or by any other right or title not comprised in computation of legal interest shall, in any case, be on the
the four preceding articles, shall enjoy no preference. amount of finally adjudged.
e. This being so, Article 2251 (2) states that:
3. When the judgment of the court awarding a sum of
Common credits referred to in Article 2245 shall be paid pro rata regardless of money becomes final and executory, the rate of legal
dates.
interest, whether the case falls under paragraph 1 or
f. Like all the other ordinary creditors or claimants against Philfinance, he
paragraph 2, above, shall be 12% per annum from such
was entitled to a rate of recovery of only 15% of his money claim.
finality until its satisfaction, this interim period being
5. NO.
deemed to be by then an equivalent to a forbearance of
- The guidelines for awarding interest were laid down in Eastern Shipping
credit.
Lines, Inc. v. CA:
- Under this ruling, Cordova was not entitled to legal interest of 12% per
annum (from demand) because the amount owing to him was not a loan or
I. When an obligation, regardless of its source, i.e., law, contracts,
forbearance of money.
quasi-contracts, delicts or quasi-delicts is breached, the
- Neither was he entitled to legal interest of 6% per annum under Article 2209
contravenor can be held liable for damages. The provisions under
of the Civil Codesince this provision applies only when there is a delay in the
Title XVIII on "Damages" of the Civil Code govern in determining
payment of a sum of money.
the measure of recoverable damages.
- This was not the case here. In fact, petitioner himself manifested before the
CA that the SEC (as liquidator) had already paid him P5,062,500
II. With regard particularly to an award of interest in the concept of
representing 15% of P33,750,000.
actual and compensatory damages, the rate of interest, as well as
o Considering that petitioner had already received the amount of
the accrual thereof, is imposed, as follows:
P5,062,500, the obligation of the SEC as liquidator of Philfinance
was totally extinguished.
1. When the obligation is breached, and it consists in the
o Same
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have DISPOSITION
been stipulated in writing. Furthermore, the interest due
WHEREFORE, the petition is hereby DENIED.
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of NOTES
interest shall be 12% per annum to be computed from (For the badfaith of the respondents)
default, i.e., from judicial or extrajudicial demand under
We note that there is an undisputed finding by the SEC and CA that private
and subject to the provisions of Article 1169 of the Civil
respondents sold the subject shares without authority from the SEC. Petitioner
Code. evidently has a cause of action against private respondents for their bad faith
and unauthorized acts, and the resulting damage caused to him.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can
be established with reasonable certainty.

Accordingly, where the demand is established with


reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made,
the interest shall begin to run only from the date of the
judgment of the court is made (at which time the
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the

15
#12 PDIC v. BIR (Short title) - RTC: Denied MR. PDIC should still secure the necessary tax clearance
GR # 158261 | December 18, 2006 in order for it to be cleared of all its tax liabilities as regardless of what
Petition: Petition for review on certiorari under Rule 45 of the Rules of Court law covers the liquidation of closed banks, still these banks are subject to
Petitioner: Philippine Deposit Insurance Corporation payment of taxes mandated by law.
Respondent: Bureau Of Internal Revenue - Hence, this petition

FACTS ISSUE/S
- In 1986, a special examination of Rural Bank of Bokod (Benguet), Inc 8. W/N BBI, as represented by its liquidator, PDIC, still needs to secure a tax
(RBBI) was conducted by the Supervision and Examination Sector (SES) clearance from the BIR before the RTC could approve the Project of
of BSP, wherein various loan irregularities were uncovered. Distribution of the assets of RBBI
- In a letter, the SES required the RBBI management to infuse fresh
capital into the bank, within 30 days from date of the advice, and to RULING & RATIO
correct all the exceptions noted. 6. NO
- However, up to the termination of the subsequent general examination, - Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No.
no concrete action was taken by the RBBI management. 1 regulate the relations only as between the SEC and the BIR, making a
- In view of the irregularities noted and the insolvent condition of RBBI, certificate of tax clearance a prior requirement before the SEC could
the members of the RBBI Board of Directors were called for a conference approve the dissolution of a corporation.
at the BSP. - RBBI was placed under receivership and ordered liquidated by the BSP,
- Only one RBBI Director, a certain Mr. Wakit, attended the conference, not the SEC; and the SEC is not even a party in the said case.
and the examination findings and related recommendations were - The Corporation Code is a general law applying to all types of
discussed with him. corporations, while the New Central Bank Act regulates specifically
- In a letter, receipt of which was acknowledged by Mr. Wakit, the SES banks and other financial institutions, including the dissolution and
warned the RBBI Board of Directors that, unless substantial remedial liquidation thereof. As between a general and special law, the latter shall
measures are taken to rehabilitate the bank. prevail.
- Despite repeated notices, the SES received no word from RBBI. - The liquidation of RBBI is undertaken according to Section 30 of the New
- Subsequently, the Monetary Board of the BSP decided to put RBBI on Central Bank Act which lays down the proceedings for receivership and
receivership. liquidation of a bank.
- A memorandum and report were submitted by the Director of the SES - The said provision is silent as regards the securing of a tax clearance
concluding that the RBBI remained in insolvent financial condition and from the BIR and such cannot compel the Court to apply by analogy the
it can no longer safely resume business with the depositors, creditors, tax clearance requirement since the dissolution of a corporation by the
and the general public. SEC is totally different from the receivership and liquidation of a bank
- The Monetary Board ordered the liquidation of the bank and designated by the BSP.
the Director as liquidator. - The Court cannot simply replace "SEC" with the "BSP" for to do so would
- The liquidator then caused the filing with the RTC of a Petition for be to read into the law and the regulations something that is simply not
Assistance in the Liquidation of RBBI and the Monetary Board there, and would be tantamount to judicial legislation.
transferred to Philippine Deposit Insurance Corporation (PDIC) the - The alleged purpose of the BIR in requiring the liquidator PDIC to secure
receivership/liquidation of RBBI. a tax clearance is to enable it to determine the tax liabilities of the closed
- PDIC then filed a Motion for Approval of Project of Distribution of the bank. but what the BIR should have requested from the RTC is for PDIC
assets of RBBI, in accordance with Section 31, in relation to Section 30, to submit the final return of RBBI, a duty by PDIC provided for in
of Republic Act No. 7653, otherwise known as the New Central Bank Act. Section 30(C) of the Tax Code in conjunction with Section 54.
- During the hearing, BIR manifested that PDIC should secure a tax - The filing by PDIC of a final tax return, on behalf of RBBI, should
clearance certificate from the appropriate BIR Regional Office, pursuant already address the concern of the BIR and would already enable the
to Section 52(C) of Republic Act No. 8424, or the Tax Code of 1997, before latter to determine if RBBI still had outstanding tax liabilities.
it could proceed with the dissolution of RBBI. - There is unreasonableness and impossibility in requiring a tax clearance
- RTC: Issued an order directing PDIC to comply with the Tax Code and before the approval by the RTC of the Project of Distribution of the assets
held in abeyance the Motion for Approval of Project of Distribution. of the RBBI.
- MR filed by PDIC arguing that the Tax Code does not cover closed o The BIR can only issue a certificate of tax clearance when the
banking institutions like RBBI as the law that covers liquidation of taxpayer had completely paid off his tax liabilities. The
closed banks is the new Central Bank Law.
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certificate of tax clearance attests that the taxpayer no longer (b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax
has any outstanding tax obligations to the Government. return of RBBI, in accordance with the first paragraph of Section 52(C), in
o Should the BIR find that RBBI still had outstanding tax connection with Section 54, of the Tax Code of 1997; and
liabilities, PDIC will not be able to pay the same because the (c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc.
Project of Distribution of the assets of RBBI remains No. 91-SP-0060 in order to determine all the claims of the creditors, including
unapproved by the RTC; that of the National Government, as determined and presented by the BIR; and,
o And, if RBBI still had outstanding tax liabilities, the BIR will pursuant to such determination, and guided accordingly by the provisions of the
not issue a tax clearance; but, without the tax clearance, the Civil Code on preference of credit, to review and approve the Project of
Project of Distribution of assets, which allocates the payment for Distribution of the assets of RBBI.
the tax liabilities, will not be approved by the RTC. It will be a
chicken-and-egg dilemma. SO ORDERED.
- The Government, in this case, cannot generally claim preference of
credit, and receive payment ahead of the other creditors of RBBI.
o Duties, taxes, and fees due the Government enjoy priority only
when they are with reference to a specific movable property,
under Article 2241(1) of the Civil Code, or immovable property,
under Article 2242(1) of the same Code.
- However, with reference to the other real and personal property of the
debtor, sometimes referred to as "free property," the taxes and
assessments due the National Government, other than those in Articles
2241(1) and 2242(1) of the Civil Code, will come only in ninth place in the
order of preference.
- Thus, the recourse of the BIR, after assessing the final return and
examining all other pertinent documents of RBBI, and making a
determination of the latter’s outstanding tax liabilities, is to present its
claim, on behalf of the National Government, before the RTC during the
liquidation proceedings.
- The BIR is expected to prove and substantiate its claim, in the same
manner as the other creditors. It is only after the RTC allows the claim of
the BIR, together with the claims of the other creditors, can a Project for
Distribution of the assets of RBBI be finalized and approved.
- PDIC, then, as liquidator, may proceed with the disposition of the assets
of RBBI and pay the latter’s financial obligations, including its
outstanding tax liabilities. And, finally, only after such payment, can the
BIR issue a certificate of tax clearance in the name of RBBI.
- The evident void in current statutes and regulations as to the relations
among the BIR, as tax collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver and liquidator of
banks ordered closed by the BSP, is not for this Court to fill in. It is up to
the legislature to address the matter through appropriate legislation,
and to the executive to provide the regulations for its implementation.

DISPOSITION
WHEREFORE, in view of the foregoing, this Court rules as follows –
(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and
13 May 2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in
Spec. Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been
rendered with grave abuse of discretion;

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