Jaca v.

Davao Lumber Company

Facts: Sometime in 1954, herein parties-litigants entered into an agreement
whereby plaintiffs may secure, by way of advances, either cash or materials, foodstuffs,
and/or equipment from the defendant corporation; that the payment of such account was
to be made either in cash and/or by plaintiff's turning over all the logs that they produce
in the aforesaid concession to the defendant, and in the latter case, the current prices,
either export or domestic, of the logs at the time of their delivery was to be considered;
that while the aforesaid business relationship between the parties was subsisting,
defendant made plaintiff Urbano Jaca execute in its favor a chattel mortgage, a copy of
which instrument. however, plaintiffs were never furnished but that as far as they can
recollect the primary conditions of such chattel mortgage were that plaintiffs would turn
over to defendant corporation all the logs they may produce from the aforesaid concession
the same to be priced either as export or domestic and their value to be applied by
defendant to, and be credited for, the account of plaintiff's indebtedness, and further
that in case of need, plaintiffs may secure, by way of advances, either cash, foodstuffs,
materials or equipment's, under an "open credit account"; that under the aforementioned
"open credit account" relationship between the plaintiffs and defendant, orders were
secured by plaintiffs, by way of advances, from the defendant, this to be paid by them
with plaintiffs' production from their concession, liquidating those old accounts and
keeping all accounts current.
Issue: WON the chattel mortgage is valid.
Held: No. A stipulation that the security is for the payment of obligations contracted
before and which may hereafter be contracted by mortgagor is void. This deed of chattel
mortgage is void because it provides that the security stated therein is for the payment
of any and all obligations herein before contracted and which may hereafter be contracted
by the Mortgagor in favor of the Mortgagee.

Mahoney v. Tuazon
Facts: D.J. Mahoney, receiver of the insolvency of P. Blanc, prayed the Court of First
Instance of Manila to cite Mariano Tuason to appear and explain before the court the
reason why he had in his custody the jewels of P Blanc.
P. Blanc, the owner of the jewels, entered into the said contract of pledge,
delivering to the creditor Mariano Tuason several jewels and other merchandise mentioned
in the documents referred to, for the purpose of securing the fulfillment of the obligation
which he (Blanc) had contracted in favor of the latter who had guaranteed the payment of
a considerable amount of money which Blanc owed to the Chartered Bank which amount
Tuason had to pay, because of Blancs obligation to do so.

Issue: WON a contract of chattel mortgage duly entered into is rendered null and void by
an additional stipulation among the contracting parties that in case of the debtors failure
to comply with the conditions agreed upon, the creditor would be authorized to retain the
jewels and merchandise pledged in half of their value and absolutely appropriating them to
himself.
Held: No.
If the mortgagor defaults in the payment of the secured debt or otherwise
fails to comply with the conditions of the mortgage, the creditor has no right to
appropriate to himself the personal property (Arts. 2141, 2088.) because he is permitted
only to recover his credit from the proceeds of the sale of the property at public auction
through a public officer in the manner prescribed in Section 14 of Act No. 1508.

Makati Leasing and Finance Corp. vs. Weaver Textile Mills, Inc.,
Machinery and house of mixed materials treated by parties
personal property and no innocent third person will be prejudiced thereby.

as

Pameca Wood Treatment Plant v. CA, 310 SCRA 28

Facts: Pameca loaned P2million from DBP and executed a promissory note, secured by its
inventory of furniture and equipment. A month before the mortgage contract, its supposed
market value was P2.5milion. They defaulted, so DBP extrajudicially foreclosed on the
chattels. It was the only bidder so it was able to buy it for around P322,000. Then for the
deficiency, it filed a complaint against Pameca and its solidary debtors (Teveses and
Pulido) according to the promissory note it signed
The RTC-Makati ordered Pameca to pay the P4mil. CA affirmed.
Issues/Held:
WON an action can be instituted for deficiency of a debt after foreclosure of the chattel
mortgage.
In pledge, the sale of the thing pledged extinguishes the entire principal obligation
such that the pledgor may no longer recover the proceeds of the sale in excess of the
amount of the principal obligation. Section 14 of the Chattel Mortgage Law, on the other
hand, expressly entitles the mortgagor to the balance of the proceeds upon satisfaction of
the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor
mortgagee from retaining the excess of the sale proceeds, there is a corollary obligation
on the part of the debtor-mortgagor to pay the deficiency in case of a reduction in the
price at public auction.
WON public auction sale is void on the grounds of fraud and inadequacy of price.

The mere fact that the mortgagee was the sole bidder for the mortgaged
property in the public sale does not warrant the conclusion that the transaction was
attended with fraud. Fraud is a serious allegation that requires full and convincing
evidence.

Tizon vs. Valdez and Morales

Facts: This action was instituted Domiciano Tizon against Emiliano J. Valdez and Luis
Morales, the latter in the character of sheriff of Tarlac Province, for the purpose of
obtaining a declaration to the effect that the plaintiff is the owner of certain chattels,
consisting chiefly of a steam engine and boiler, and to require the defendants to deliver
the same to the plaintiff, with damages for the detention thereof and costs.
The personal property which is the subject of this action formerly belonged to one
Leon Sibal, Sr., by whom it was mortgaged, on September 14, 1920, to the defendant
Valdez. On October 7, 1920, this mortgage was filed in the office of the register of the
Province of Tarlac and was thereupon duly registered in the registry of chattel mortgages.
On May 18, 1921, Sibal again mortgaged the same chattels to the plaintiff, Domiciano
Tizon, whose mortgage was likewise duly registered in the chattel mortgage registry of
Tarlac in June, 1921. When the stipulated date of payment arrived Sibal defaulted in the
making of payment, and Valdez thereupon instituted a civil action (case No. 2301) to
recover the indebtedness, in connection with which he sued out a writ of attachment and
on June 24, 1921, caused the same to be levied upon the property which is the subject of
this action. The property, however, was not retained by the attaching officer for the
reason that Tizon gave a counter bond and lifted the attachment. The end of this civil
action was that, on March 7, 1923, Valdez recovered of Sibal the sum of P19,026.24, with
interest at 12 per centum per annum on P15,187.12 from August 1, 1921. Upon this
judgment Valdez caused an execution to be issued, which, on April 24, 1924, was levied
upon the property now in question, being the same property included in Valdez's chattel
mortgage.
Meanwhile Domiciano Tizon, proceeding under his own mortgage, had caused the sheriff to
sell the same property in a foreclosure proceeding conducted in conformity with the
provisions of the Chattel Mortgage law (Act No. 1508, sec. 14). The sale in these
proceedings was effected on June 28, 1923, Tizon becoming purchaser for the
consideration of P1,000. As purchaser at his own foreclosure sale, Tizon assumed
possession of the property, and it was found in his possession when the sheriff levied upon
it by virtue of the execution issued in the civil case No. 2301, above mentioned. At the
time this levy was made, or soon thereafter, Tizon filed a claim with the sheriff, asserting
that the property belonged to him and was not liable to be taken upon an execution
directed against Sibal. The sheriff, however, under indemnity from Valdez, retained the
property and sold it in due course at an execution sale, Valdez becoming purchaser at the

price of P500. Pursuant to this sale Valdez now took possession, and Tizon presently
instituted the present action.
Issue: WON the petitioner as the second mortgagee can recover the property.
Held: Generally, no.
Before payment of debt. After a chattel mortgage is executed, there remains in
the mortgagor a mere right of redemption and only this right passes to the second
mortgagee in case of a second mortgage. As between the first and second mortgagees,
therefore, the latter can only recover the property from the former by paying him the
mortgage debt. Even when the second mortgagee goes through the formality of an
extrajudicial foreclosure, the purchaser acquires no more than the right of redemption
from the first mortgagee.
After payment of debt. If the only leviable or attachable interest of a chattel
mortgagor in a mortgaged property is his right of redemption, it follows that the judgment
or attaching creditor who purchased the property at the execution sale could not acquire
anything except such right of redemption. He is not entitled to the actual possession and
delivery of the property without first paying the mortgage debt.