714

SUPREME COURT REPORTS ANNOTATED

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
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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 anencumbrance
of propertyin 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 creditupon 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 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 sensesit
cannot, therefore, experience physical suffering and mental anguish.We find no
merit in petitioner corporations 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 lifeall 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 othersthe virtues of humility and of respect and concern for
others must still live on even in an age of materialism.The Court invites counsels
attention to the admonition inGuerrero 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
717
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 petitioners 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 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.
2Ibid., p. 34.
3Ibid.
4 Associate Justice Consuelo Ynares Santiago, ponente, with Associate Justices Ricardo
L. Pronove, Jr. and Nicolas P. Lapea, Jr., concurring.
719
VOL. 260, AUGUST 22, 1996
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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 respondents motion to dismiss.
The Court denied petitioners 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 perpetuaor
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 thepersonal 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 propertyin pledge, the placing of movable property in
the possession of the creditor; inchattel 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 Courts 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
creditupon 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.
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VOL. 260, AUGUST 22, 1996
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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. Grio-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
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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 corporations 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 lifeall of which cannot be suffered by respondent
bank as an artificial person.20
While Chua Pac is included in the case, the complaint, however, clearly
states that he has merely been so named as a party inrepresentation of
petitioner corporation.
Petitioner corporations counsel could be commended for his zeal in
pursuing his clients cause. It instead turned out to be, however, a source
of disappointment for this Court to read in petitioners reply to private
respondents comment on the petition his so-called One Final Word; viz:
________________
16 Being merely accessory in nature, it cannot exist independently of the principal
obligation.
17 Petitioners Memorandum, p. 5; Rollo, p. 119.
18 Complaint, p. 6; Record, p. 9.
19 236 SCRA 602.
20 At p. 607.
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VOL. 260, AUGUST 22, 1996
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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 counsels 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.
724
724
SUPREME COURT REPORTS ANNOTATED
People vs. Broncano
Padilla, J., No part in view of lessor-lessee relationship with
respondent bank.
Bellosillo, J., On leave.
Judgments of respondent court and court a quo set aside.
Notes.Replevin is the appropriate action to recover possession
preliminary to the extrajudicial foreclosure of a chattel mortgage.
(Filinvest Credit Corporation vs. Court of Appeals, 248 SCRA 549[1995])
The mortgagee, upon the mortgagors default, is constituted an
attorney-in-fact of the mortgagor enabling such mortgagee to act for and in
behalf of the owner and the fact that the defendant is not privy to the
chattel mortgage is inconsequential. (BA Finance Corporation vs. Court of
Appeals, 258 SCRA 102 [1996])
o0o
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