RCBC v. ROYAL CARGO J.

Gutierrez Petitioner: Rizal Commercial Banking Corporation Respondents: Royal Cargo Corporation FACTS: Terrymanila Inc. filed a petition for voluntary insolvency with RTC of Bataan. One of its creditors was RCBC (P3M secured by chattel mortgage) Royal Cargo Corporation, another creditor of Terrymanila, filed an action before the RTC of Manila for collection of sum of money and preliminarily attached "some" of Terrymanila's personal properties to secure the satisfaction of judgment award of P296,662.16, exclusive of interests and atty's fees. Bataan RTC declared Terry insolvent Manila RTC judgment in favor of Royal Cargo In the meantime, RCBC sought in the insolvency proceedings at Bataan RTC permission to extrajudicially foreclose the chattel mortgage - granted Provincial Sheriff scheduled the public auction sale of mortgaged personal properties in Bataan. At the auction sale, RCBC was the sole bidder, and purchased them for P1.5M. Royal Cargo filed a petition for annulment of auction sale before Manila RTC, against the Provincial Sheriff of Bataan RTC and RCBC. - Questioned the failure to duly notify Royal Cargo of the sale at least 10 days prior to the sale - Basis: Act No. 1508, Sec. 14 Manila RTC judged in favor of Royal Cargo CA affirmed and increased atty's fees and awarded exemplary damages and interest on principal amount ISSUES/HELD: (1) WON Royal Cargo should have been notified of the foreclosure sale - NO Petitioner: Chattel Mortgage Law only allows an attaching creditor or judgment creditor to "redeem" the mortgage, BEFORE the holding of the auction. SC: Agrees. Sec. 13 of the Chattel Mortgage Law allows the would-be redemptioner to redeem the mortgaged property only BEFORE its sale. The redemption cited in Sec. 13 partakes of an equity of redemption, which is the right of the mortgagor to redeem the mortgaged property after his default in the performance of conditions of the mortgage, but before the sale of property, to clear Royal Cargo was not prejudiced by the auction sale - Terry had sufficient, unencumbered assets to cover obligations owing to its other creditors RCBC had a superior lien over the mortgaged assets - The right of those who acquire properties should not and cannot be superior to that of a creditor, who has in his favor an instrument of mortgage, executed with the formalities of law, in good faith, and without the least indication of fraud - Right of Royal Cargo was subordinate to the lien of the mortgagee, who has in his favor a valid chattel mortgage (2) WON RCBC was guilty of constructive fraud in failing to provide Royal Cargo with a 10-day notice - NO Foreclosure suits may be initiated even during insolvency proceedings, as long as leave must first be obtained from the insolvency court, as what RCBC did. it from encumbrance of the mortgage. Royal Cargo attached Terry's equity of redemption. Thus it had to be informed of the date of sale of mortgaged assets for it to exercise such equity of redemption over some of those foreclosed properties. Royal Cargo was aware of the auction sale - It was informed about the Order of the insolvency court that granted leave to RCBC to foreclose the chattel mortgage. - Its negligence or omission to exercise its equity of redemption within a reasonable time, or even on the day of auction sale, warrants a presumption that it had either abandoned it or opted not to assert it