G.R. No.

92989 July 8, 1991

PERFECTO DY, JR. petitioner, vs.COURT OF APPEALS, GELAC
TRADING INC., and ANTONIO V. GONZALES, respondents.
TOPIC: Ownership of collateral
DOCTRINE: Upon the mortgage of the property, the ownership of the
thing remains with the mortgagor, and he is entitled to the disposal or
alienation of the property, subject to the consent of the mortgagee.
But the effect of the absence of mortgagee's consent is not on the
validity of the sale but on the liability of the mortgagor.
FACTS: Perfecto Dy (petitioner) and William Dy were brothers. William
Dy purchased a truck and a farm tractor through financing extended
by Libra Finance. Both the truck and the tractor were mortgaged to
Libra as security for the loan.
Perfecto Dy wanted to buy the tractor from his brother so he wrote a
letter to Libra stating his willingness to assume the mortgage. Libra's
manager approved the request.
William Dy executed a deed of absolute sale, but at this time the
tractor was in the possession of Libra due to William's failure to pay
the amortization.
Perfecto offered to pay, but Libra would not release the tractor,
instead Libra insisted Perfecto to pay the loans for both the tractor
and the truck first.
Then, their sister Carol came in to the rescue and paid for the full
amount so that the tractor and the truck would be released.
But Libra still would not release the tractor until the clearing of the
out-of-town check.
In the meanwhile, in connection to another pending collection case
against William Dy, the sheriff was able to seize and levy the tractor
while still in the possession of Libra. The tractor was sold in public
auction where Gelac Trading appeared to be the only bidder. Later,
Gelac sold the tractor to Antonio (respondents).
RTC: judgment in favor of the petitioner Perfecto. Ordered Antonio to

return the tractor.

CA: reversed the decision of RTC and reasoned that the tractor still
belongs to William Dy when it was seized and levied.
ISSUE: Whether the ownership of the tractor had already passed to
Perfecto Dy at the time it was seized and levied by the sheriff.
HELD: YES
Respondent's claim: ownership had not passed since there was no
constructive delivery. The check needs to clear first or be encashed
before the consummation of the sale. This is unmerited. The court
ruled that the clearing of the check produced the extinguishment of
the obligation of the mortgagor and released the chattle mortgage. It
was not determinative of the consummation of the sale.
The mortgagor did not part with the ownership of the thing when he
gave the property as a security. Mortgagor continues to be the owner
and still has the power to alienate the property mortgaged, but it is
subject to mortgagee's consent. Absent the consent, the sale is not
affected but the mortgagor shall be liable.
Libra's consent was sought when Perfecto wrote Libra of his intention
to purchase William's truck, and the manager replied positively.
Therefore, the sale was valid as between the brothers, as well as with
the mortgagee Libra.
The ownership of the thing is passed on the the vendor upon delivery.
And when the sale is made through public instrument, there is
delivery upon the execution thereof. (art. 1498)
The ownership is also passed on upon by mere consent or agreement
when the thing cannot be passed on physically as when it is in the
possession of others at the time of sale. (art. 1499)
In the instant case, actual delivery cannot be made but there was a
constructive delivery upon the execution of the public instrument or
upon agreement of the parties when the thing cannot be immediately
transferred at the time of sale.
The contention of the respondent that the vendor must first have the
control of the thing before he can deliver the same is to no avail.

Where a third person purchased the mortgaged property, he

automatically steps into the shoes of the mortgagor. His right of
ownership shall be subject to the mortgage. In the case at bar,
Perfecto expressly volunteered to assume the loan obligation.
OTHER ISSUE: While it is true that Willian and Perfecto are brothers, it
does not give rise to the presumption that the sale is fraudulent.
DISPOSITIVE: Petition is granted, decision of RTC is reinstated.

G.R. No. L-17500 May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND
PACIFIC CO. OF MANILA, plaintiffs-appellants, vs.DAHICAN
LUMBER COMPANY, DAHICAN AMERICAN LUMBER
CORPORATION and CONNELL BROS. CO. (PHIL.), defendantsappellants.
TOPIC: Object of the Real Estate Mortgage: After Acquired Properties
Atlantic Atlantic Gulf & Pacific Company
DALCO Dahican Lumber Company
DAMCO Dahican American Lumber Company
Peoples Bank Peoples Bank and Trust Company
Export-Import Export-Import Bank of Washington DC

FACTS: Atlantic sold and assigned all its concession rights in dahican
lumber to DALCO for $500,000. $50,000 was paid as downpayment.
DALCO obtained a loan from Peoples Bank for P200,000. DALCO also
obtained a loan for $250,000 from Export-Import, with Peoples Bank
as the trustor. DALCO and DAMCO (foreign stockholder of DALCO)
issued notes all payable to Peoples Bank.
To secure the loans, DALCO, it mortgage its five parcels of land in
Camarines Norte in favor of Peoples Bank. DALCO also mortgage the
same properties to Atlantic. Both mortgages were reistered.
Moreover, the mortgage agreement contained a provision extending
the mortgage to include properties to be acquired in the future (after
acquired properties).
In addition, DALCO also pledged 7,290 of its own shares of stocks, and
DAMCO pledged 9,286 of its own shares to Peoples Bank.
DALCO and DAMCO defaulted in payment of the promissory notes.
Peoples Bank required DALCO to submit a list of its properties

(machineries, equipment, spare parts) including the after-acquiredproperties, but DALCO failed to submit.
Instead, DALCO issued a resolution agreeing to rescind its purchase of
properties from CONNEL and DAMCO, since there's an outstanding
amount due to them.
Upon knowing this, Peoples Bank and Atlantic commenced foreclosure
proceedings against DALCO and DAMCO. They also applied for an
appointment of a Receiver, but the court discharged the Receiver.
The Court ordered the sale of all the machineries, equipment and
supplies. The same was sold for P175,000. The Court treated that
one-half of this amount was from the sale of properties that are
undebated, and the other half was from after-acquired-properties. The
Court ruled that both the plaintiffs and the Defendant DAMCO plus
intervenor CONNEL were entitled to the sum realized above
(P175,000).
The plaintiffs found this disagreeable and contended that the
proceeds from the sale of the after-acquired properties and the
undebated properties were subject to the deed of mortgage
mentioned; that the P175,000 should be awarded exclusively to the
plaintiffs.
The defendants, on the other hand, contended that the notes sued
were not yet due when the foreclosure proceedings was commenced.
Further, the after-acquired properties were not registered in
accordance with the Chattel Mortgage Law.
ISSUE: (1) Whether the after-acquired properties are covered by and
subject to the deeds of mortgage or foreclosure?
(2) Whether the mortgages were valid inspite of the fact that it was
not registered in accordance with Chattel Mortgage Law?
(3) Whether DAMCO and CONNEL, as unpaid sellers had superior
rights over after-acquired properties than the mortgagee?
HELD:
(1) YES. On the deeds of mortgage, it is very clear that all properties
of every nature taken in exchange or replacement, as well as building,

machineries, fixture, constructed or installed or attached, or used in

connection with the premises shall immediately become subject to
lien of mortgages in the same manner as if they are already included
therein at the time of their execution. Such stipulation is neither
unlawful or immoral.
(2) YES. It is contended by the defendants that inorder to affect the
third persons, a chattel mortgage must be registered and must
describe the mortgaged chattels and personal properties sufficiently
to enable the parties and any other person to identify them. This is
not applicable in this case.
From the circumstances of the present case, the characterization of
the after-acquired properties are real properties was made not only by
one of the parties but by both, by expressly and unequivocally
agreeing that they shall automatically become subject to the lien of
the estate mortgages executed by them. Article 2127 is applicable
which acknowledges extension of mortgage to accessions and
improvements.
(3) NO. That would be valid only if it were true that DAMCO and
CONNEL were the suppliers of the after-acquired properties. The
auditors found out that neither DAMCO nor CONNEL had supplied any
goods of which they respectively claimed.
DISPOSITIVE: The appealed judgment is modified.