Handout on the Pawnshop Regulation Act (Presidential Decree No.
114)
What is the policy of PD 114? (Sec. 2)
Regulate establishment of pawnshops
Prevent and mitigate practices prejudicial to
public interest
Lay down requirements and standards
What is a pawnshop? (Sec. 3)
A pawnshop is a person or entity engaged in
the business of lending money on personal
property delivered as security for loans.
A pawnshop may be established as a single
proprietorship, a partnership or a corporation.
How do you register a pawnshop? (Sec. 5-6)
1)If a single proprietorship, get certificate of
registration from Department of Trade &
Industry.
2)If a partnership or corporation, submit articles
of partnership or articles of incorporation to the
Securities and Exchange Commission.
3)Get a business license from the city or
municipality where pawnshop is located.
4)Submit information sheet and requirements to
Bangko Sentral ng Pilipinas.
5)BSP will issue an Acknowledgment of
Registration (AOR). 1
How much capital is required? (Sec. 7)
The minimum paid-in capital is P100,000.
The prudential capital ratio or the ratio of total
capital to pledge loans is 50% provided total
pledge loans not exceed P 3 million. 2
If total pledge loans exceed P 3 million,
additional capital of 30% of pledge loans in
excess of P 3 million is required.
What is the citizenship requirement? (Sec. 8)
In a single proprietorship, only Filipino citizen
In partnership, 70% of capital must be owned
by Filipinos
In a corporation, 70% of voting capital stock is
owned by Filipinos or if non-stock corporation,
70% of members are Filipinos
What is a pawn? (Sec. 3)
A pawn is personal property delivered by the
pawner to the pawnee as security for a loan.
How do you pawn something?
1)Deliver personal property to pawnshop.
2)Pawnshop appraises the item.
3)Parties agree to the loan amount.
4)Pawnshop gives pawn ticket and money.
5)Pay debt with interest and redeem pawn.
How much can be loaned? (Sec. 9)
The amount of loan is agreed by the parties.
Amount not less than 30% of appraised value
of security unless pawner manifests in writing
desire to borrow lesser amount.
What are the charges? (Sec. 10)
Interest rates - no ceiling but not iniquitous,
unconscionable, or contrary to morals 3
Service charges - P5.00 maximum
It is unlawful for a pawnshop to divide the
pawn to collect greater interest and to require
additional charge as insurance premium.
What is a pawn ticket? (Sec. 12)
 A pawn ticket is the receipt for a pawn.
It states amount of loan, date of pawning, rate
of interest, name and residence of pawner.
How do you redeem a pawn? (Sec. 13)
Pay the debt with interest within 90 days from
the date of maturity of the loan.
How should pawnee notify pawner? (Sec. 14)
On or before expiry of redemption period
Pawnshop shall notify pawner in writing
Notice shall state date, hour and place of sale
Mode is by text/SMS, email, fax, or mail 4
What if a pawn is not redeemed? (Sec. 14)
If pawner fails to redeem, pawnbroker may
sell or dispose of article received in pawn.
How is a pawn sold or disposed? (Sec. 15)
The disposition must be by public auction in
his place of business or other public place
After notice to pawner and publication of sale
What is the notice requirement? (Sec. 15)
Published notice in two daily newspapers
During week preceding the date of sale
Notice contains name of pawnshop, owner,
address, hour and date of auction sale
In remote area, post notice in public places
How soon can a pawnshop close or transfer
its place of business? (Sec. 16)
No pawnbroker shall close or transfer his
place of business within three months
Following maturity of any loan or pledge
Before any pawn is sold or disposed
May transfer place of business within city or
municipality upon published notice
What is the BSP authorized to do? (Sec. 17)
Issue rules and regulations
Require from pawnshops reports
Exercise visitorial powers
Impose administrative sanctions
What are other duties of pawnshops?
Safeguard pawnshop assets 5
Exert ordinary diligence 6
Be Insured against fire 7
What are the penalties? (Sec. 18)
Fine: P100 to P1,000
Imprisonment: 30 days to 1 year
1 Sec. 4101P4, Manual of Regulation for Non-Bank Financial Institutions,
P Regulations (Regulations Governing Pawnshops) (MORP)
2 Sec. 4107P, MORP
3 Sec. 4303P, MORP
4 Sec. 4324P, MORP
5 Sec. 4141P, MORP
6 Sec. 4301P.1, MORP
G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY
COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA
VALINO, defendants.
Facts:
Valino & Valino were the owners and
possessors of a house of strong materials in
Rizal, which they purchased on installment
basis. To enable her to purchase on credit rice
from NARIC, Valino filed a bond (P11,000)
subscribed by Associated Insurance and
Surety Co Inc, and as a counter-guaranty,
Valino executed an alleged chattel mortgage
on the aforementioned house in favour of the
surety company. At the same time, the parcel
of land which the house was erected was
registered in the name of Philippine Realty
Corporation.
Valino, to secure payment of an indebtedness
(P12,000) executed a real estate mortgage
over the lot and the house in favour of Iya.
Valino failed to satisfy her obligation to
NARIC, so the surety company was
compelled to pay the same pursuant to the
undertaking of the bond. In turn, surety
company demanded reimbursement from
Valino, and as they failed to do so, the
company foreclosed the chattel mortgage over
the house. As a result, public sale was
conducted and the property was awarded to
the surety company.
The surety company then learned of the
existence of the real estate mortgage over the
lot and the improvements thereon; thus, they
prayed for the exclusion of the residential
house from the real estate mortgage and the
declaration of its ownership in virtue of the
award given during bidding.
Iya alleged that she acquired a real right over
the lot and the house constructed thereon,
and that the auction sale resulting from the
foreclosure of chattel mortgage was null and
void.
Surety company argued that as the lot on
which the house was constructed did not
belong to the spouses at the time the chattel
mortgage was executed, the house might be
considered as personal property, and they
prayed that the said building be excluded from
the real estate mortgage.
Issue:
There is no question over Iyas right over the
land by real estate mortgage; however, as the
building instructed thereon has been the
subject of two mortgages, controversy arise
as to which of these encumbrances should
receive preference over the other.
Held:
The building is subject to the real estate
mortgage, in favour of Iya. Iyas right to
foreclose not only the land but also the
building erected thereon is recognised.
While it is true that real estate connotes the
land and the building constructed thereon, it is
obvious that the inclusion of the building,
separate and distinct from the land, in the
enumeration of what may constitute real
properties (Article 415), could only mean that
a building is by itself an immovable property.
Moreover, in view of the absence of any
specific provision to the contrary, a building is
an immovable property irrespective of whether
or not said structure and the land on which it
is adhered to belong to the same owner.
A building certainly cannot be divested of its
character of a realty by the fact that the land
on which it is constructed belongs to another.
In the case at bar, as personal properties
could only be the subject of a chattel
mortgage and as obviously the structure in
question is not one, the execution of the
chattel mortgage covering said building is
clearly invalid and a nullity. While it is true that
said document was correspondingly
registered in Chattel Mortgage Registry of
Rizal, this act produced no effect whatsoever,
for where the interest conveyed is in the
nature of real property, the registration of the
document in the registry of chattels is merely
a futile act. Thus, the registration of the chattel
mortgage of a building of strong materials
produced no effect as far as the building is
concerned.
 EN BANC
G.R. No. L-9451 March 29, 1957
OLAF N. BORLOUGH, petitioner,
vs.
FORTUNE ENTERPRISES, INC. and THE
HONORABLE COURT OF APPEALS (2nd
DIVISION), respondents.
Arturo M. del Rosario and Alfredo G.
Fernando for petitioner.
Laurel & Salonga for respondents.
LABRADOR, J.:
Appeal by certiorari against a judgment of the
Court of Appeals, Second Division. The facts
of the case have been briefly stated as
follows:
On March 8, 1952, the United Car Exchange
sold to the Fortune Enterprises, Inc., the
following described car
Make: Chevrolet (1947); Plate No. 34-
1465
Type : Sedan; Motor No.
EAA-20834 (Exhibit D).
The same car was sold by the Fortune
Enterprises, Inc. to one Salvador Aguinaldo,
and for not having paid it in full, the latter
executed on the same date a promissory note
in the amount of P2,400 payable in 20
installments including interest thereon at 12
Republic of the Philippines
per cent per annum, the last of which
SUPREME COURT
installments fell due on January 9, 1953
Manila
(Exhibit "A").
To secure the payment of this note, Aguinaldo
executed a deed of chattel mortgage over said
car. The deed was duly registered in the office
of the Register of Deeds of Manila at 1:12
p.m. on March 11, 1952 (Exhibit "B"). As the
buyer-mortgagor defaulted in the payment of
the installments due, counsel for Fortune
Enterprises Inc. addressed a letter on May 16,
1952 (Exhibit "C"), requesting him to make the
necessary payment and to keep his account
up to date, to that no court action would be
resorted to.
It further appears that the above-described car
found its way again into the United Car
Exchange which sold the same in cash for
P4,000 to one O. N. Borlough on April 6,
1952. Accordingly, he registered it on the
following day with the Motor Vehicles Office.
(Decision, Court of Appeal.).
It also appears from the record that defendant
0. N. Borlough took possession of the vehicle
from the time he purchased it, On July 10,
1952, Fortune Enterprises, Inc. brought action
against Salvador Aguinaldo to recover the
balance of the purchase price. Borlough filed
a third-party complaint, claiming the vehicle.
Thereupon, Fortune Enterprises, Inc.
amended its complaint, including Borlough as
a defendant and alleging that he was in
connivance with Salvador Aguinaldo and was
unlawfully hiding and concealing the vehicle in
order to evade seizure by judicial process.
Borlough answered alleging that he was in
legal possession thereof, having purchased it
in good faith and for the full price of P4,000,
and that he had a certificate of registration of
the vehicle issued by the Motor Vehicles
Office, and he prayed for the dismissal of the
complaint, the return of the vehicle and for
damages against the plaintiff.
The vehicle was seized by the sheriff of
Manila on August 4, 1952 and was later sold
at public auction. The Court of First Instance
rendered judgment in favor of Borlough, and
against plaintiff, ordering the latter to pay
Borlough the sum of P4,000, with interest at 6
per cent per annum, from the date of the
seizure of the car on August 4, 1952, and in
addition thereto, attorney's fees in the sum of
P1,000.
Upon appeal to the Court of Appeals, this
court rendered judgment ordering that Emil B.
Fajardo pay Borlough P4,000 plus attorney's
fees and that plaintiff pay to Borlough any
amount received by it in excess of its credits
and judicial expenses. The reason for the
modification of the judgment is that the
mortgage was superior, being prior in point of
time, to whatever rights may have been
acquired by Borlough by reason of his
possession and by the registration of his title
in the Motor Vehicle Office.
The question involved in the appeal in this
case is one of law and may be stated thus: As
between a prior mortgage executed over a
motor vehicle, registered under the Chattel
Mortgage Law only, without annotation thereof
in the Motor Vehicles Office, and a
subsequent registration of the vehicle in the
Motor Vehicles Office accompanied by actual
possession of the motor vehicle, which should
prevail. While the question can be resolved by
the general principles found in the Civil Code
and expressly stated in Article 559, there is no
need resorting thereto (the general principles)
in view of the express provisions of the
Revised Motor Vehicles Law, which expressly
and specifically regulate the registration, sale
or transfer and mortgage of motor vehicles.
The following provisions of said law may help
decide the legal question now under
consideration:
SEC. 5 (c) Reports of motor vehicle sales.
On the first day of each month, every dealer in
motor vehicles shall furnish the Chief of the
Motor Vehicles Office a true report showing
the name and address of each purchase of a
motor vehicle during the previous month and
the manufacturer's serial number and motor
number; a brief description of the vehicle, and
such other information as the Chief of the
Motor Vehicles Office may require.
SEC. 5 (e) Report of mortgages. Whenever
any owner hypothecates or mortgage any
motor vehicle as surety for a debt or other
obligation, the creditor or person in whose
favor the mortgage is made shall, within seven
days, notify the Chief of the Motor Vehicles
Office in writing to the effect, stating the
registration number of the motor vehicle, date
of mortgage, names and addresses of both
parties, and such other information as the
Chief of the Motor Vehicles Office may
require. This notice shall be signed jointly by
the parties to the mortgage.
On termination, cancellation or foreclosure of
the mortgage, a similar written notice signed
by both parties, shall be forwarded to the
Chief of the Motor Vehicles Office by the
owner.
These notice shall be filed by the Chief of the
Motor Vehicles Office in the motor records,
and in the absence of more specific
information, shall be deemed evidence of the
true status of ownership of the motor vehicle.
(Revised Motor Vehicles Law.)
It is to be noted that under section 4 (b) of the
Revised Motor Vehicles Law the Chief of the
Motor Vehicles Office is required to enter or
record, among other things, transfers of motor
vehicles "with a view of making and keeping
the same and each all of them as accessible
as possible to and for persons and officers
properly interested in the same," and to "issue
such reasonable regulations governing the
search and examination of the documents and
records . . . as will be consistent with their
availability to the public and their safe and
secure prevention."
Two recording laws are here being invoked,
one by each contending party the Chattel
Mortgage Law (Act No. 1508), by the
mortgagor and the Revised Motor Vehicles
Law (Act No. 3992), by a purchaser in
possession. What effect did the passenger of
the Revised Motor Vehicles Law have on the
previous enactment?
The Revised Motor Vehicles Law is a special
legislation enacted to "amend and compile the
laws relative to motor vehicles," whereas the
Chattel Mortgage Law is a general law
covering mortgages of all kinds of personal
property. The former is the latest attempt to
assemble and compile the motor vehicle laws
of the Philippines, all the earlier laws on the
subject having been found to be very deficient
in form as well as in substance (Villar and De
Vega, Revised Motor Vehicles Law, p. 1); it
had been designed primarily to control the
registration and operation of motor vehicles
(section 2, Act No. 3992).
Counsel for petitioner contends that the
passage of the Revised Motor Vehicles Law
had the effect of repealing the Chattel
Mortgage Law, as regards registration of
motor vehicles and of the recording of
transaction affecting the same. We do not
believe that it could have been the intention of
the legislature to bring about such a repeal. In
the first place, the provisions of the Revised
Motor Vehicles Law on registration are not
inconsistent with does of the Chattel Mortgage
Law. In the second place, implied repeals are
not favored; implied repeals are permitted only
in cases of clear and positive inconsistency.
The first paragraph of section 5 indicates that
the provisions of the Revised Motor Vehicles
Law regarding registration and recording of
mortgage are not incompatible with a
mortgage under the Chattel Mortgage Law.
The section merely requires report to the
Motor Vehicles Office of a mortgage; it does
not state that the registration of the mortgage
under the Chattel Mortgage Law is to be
dispensed with. We have, therefore, an
additional requirements in the Revised Motor
Vehicles Law, aside from the registration of a
chattel mortgage, which is to report a
mortgage to the Motor Vehicles Office, if the
subject of the mortgage is a motor vehicle; the
report merely supplements or complements
the registration.
The recording provisions of the Revised Motor
Vehicles Law, therefore, are merely
complementary to those of the Chattel
Mortgage Law. A mortgage in order to affect
third persons should not only be registered in
the Chattel Mortgage Registry, but the same
should also be recorded in the motor Vehicles
Office as required by section 5 (e) of the
Revised Motor Vehicles Law. And the failure
of the respondent mortgage to report the
mortgage executed in its favor had the effect
of making said mortgage ineffective against
Borlough, who had his purchase registered in
the said Motor Vehicles Office.
On failure to comply with the statute, the
transferee's title is rendered invalid as against
a subsequent purchaser from the transferor,
who is enabled by such failure of compliance
to retain the indicia of ownership, such as a
subsequent purchaser in good faith, or a
purchaser from a conditional buyer in
possession; and the lien of a chattel mortgage
given by the buyer to secure a purchase
money loan never becomes effective in such
case as against an innocent purchaser. (60
Corpus Juris Secundum, p. 171.)
One holding a lien on a motor vehicle, in so
far as he can reasonably do so, must protect
himself and others thereafter dealing in good
faith by complying and requiring compliance
with the provisions of the laws concerning
certificates of title to motor vehicles, such as
statutes providing for the notation of liens or
claims against the motor vehicle certificate of
title or manufacturer's certificate, or for the
issuance to the mortgagee of a new certificate
of ownership. Where the lien holder has
satisfied himself that the existence of the lien
is recited in the certificate of title, he has done
all that the law contemplates that he should
do, and there is notice to the public of the
existing lien, which continues valid until the
record shows that it has been satisfied and a
new certificate issued on legal authority, even
through another certificate which does not
disclose the lien is procured as the result of
false statements made in the application
therefore, and the vehicle is purchased by a
bona fide purchaser.
The holder of a lien who is derelict in his duty
to comply and require compliance with the
statutory provisions acts at his own peril, and
must suffer the consequence of his own
negligence; and accordingly, he is not entitled
to the lien as against a subsequent innocent
purchaser filed as provided by other chattel
mortgage statutes. The rule is otherwise,
however, as against claimants not occupying
the position of innocent purchaser, such as a
judgment creditor, or one acquiring title with
actual notice of an unregistered lien, and the
statutes do not protect a purchaser holding
under registered title if a link in the title is
forgery. Moreover, such statute will not impair
vested rights of a mortgage under a chattel
mortgage duly recorded. (60 C.J.S., pp. 181-
182.)
The above authorities leave no room for doubt
that purchaser O. N. Borlough's right to the
vehicle as against the previous and prior
mortgage Fortune Enterprises, Inc., which
failed to record its lien in accordance with the
Revised Motor Vehicles Law, should be
upheld.
For the foregoing consideration, the judgment
of the Court of Appeals is hereby reversed
and that of the Court of First Instance
affirmed, with costs against respondent.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13194 January 29, 1960
BUENAVENTURA T. SALDANA, plaintiff-
appellant,
vs.
PHILIPPINE GUARANTY COMPANY, INC.,
et al., defendants-appellees.
Gatchalian & Padilla for appellant.
Emiliano Tabasondra for appellee
Company.Teodoro Padilla for the other
appellees.
REYES, J.B.L., J.:
This case arose from a complaint for damages
filed by Buenaventura Saldana (docketed as
Civil Case No. 32703 of the Court of First
Instance of Manila) that was dismissed by
order of the Court dated August 20, 1957, for
lack of sufficient cause of action. In another
order of September 30, 1957 of the same
court, plaintiff's motion for reconsideration was
denied, and the case was appealed to this
Court.
The facts are that on May 8, 1953, in order to
secure an indebtedness of P15,000.00,
Josefina Vda. de Aleazar executed in favor of
the plaintiff-appellant Buenaventura Saldana a
chattel mortgage covering properties
described as follows:
A building of strong materials, used for
restaurant business, located in front of the
San Juan de Dios Hospital at Dewey
Boulevard, Pasay City, and the following
personal properties therein contained:
1 Radio, Zenith, cabinet type.
1 Cooler.
1 Electric range, stateside, 4 burners.
1 Frigidaire, 8 cubic feet.
1 G.E. Deepfreezer.
8 Tables, stateside.
32 Chromium chairs, stateside.
1 Sala set upholstered, 6 pieces.
1 Bedroom set, 6 pieces.
And all other furniture's, fixtures or equipment
found in the said premises.
Subsequent to the execution of said mortgage
and while the same was still in force, the
defendant Hospital de San Juan de Dios, Inc.
obtained, in Civil Case No. 1930 of the
Municipal Court of Pasay City, a judgment
was duly Josewfina Vda. de Eleazar. A writ of
execution was duly issued and, on January
28, 1957, the same was served on the
judgment debtor by the sheriff of Pasay City;
whereupon the following properties of
Josefina Eleazar were levied upon:
8 Tables with 4 (upholstered) chairs each.
1 Table with 4 (wooden) chairs.
1 Table (large) with 5 chairs.
1 Radio-phono (Zenith, 8 tubes).
2 Showcases (big, with mirrors).
1 Rattan sala set with 4 chairs, 1 table and 3
sidetables .
1 Wooden drawer.
1 Tocador (brown with mirror).
1 Aparador .
2 Beds (single type).
1 Freezer (deep freeze).
1 Gas range (magic chef, with 4 burners).
1 Freezer (G.E.).
On January 31, 1957, the plaintiff-appellant
Saldana filed a third-party claim asserting that
the above-described properties levied are
subject to his chattel mortgage of May 8,
1953. In virtue thereof, the sheriff released
only some of the property originally included in
the levy of January 28, 1957, to wit:
1 Radio, Zenith, cabinet type.
8 Tables, stateside.
32 Chromiun chairs, stateside.
1 G.E. Deep freezer.
To proceed with the execution sale of the rest
of the properties still under levy, the
defendants-appellees Hospital de San Juan
de Dios, Inc. and the Philippine Guaranty Co.,
Inc., executed an indemnity bond to answer
for any damages that plaintiff might suffer.
Accordingly, on February 13, 1957, the said
properties were sold to the defendant hospital
as the highest bidder, for P1,500.00.
Appellants claims that the phrase in the
chattel mortgage contract "and all other
furnitures, fixtures and equipment found in the
said premises", validly and sufficiently
covered within its terms the personal
properties disposed of in the auction sale, as
to warrant an action for damages by the
plaintiff mortgagee.
There is merit in appellant's contention.
Section 7 of Act No. 1508, commonly and
better known as the Chattel Mortgage Law,
does not demand a minute and specific
description of every chattel mortgaged in the
deal of mortgage but only requires that the
description of the properties be such "as to
enable the parties in the mortgage, or any
other person, after reasonable inquiry and
investigation to identify the same". Gauged by
this standard, general description have been
held by this Court.
(See Stockholder vs. Ramirez, 44 Phil., 993;
Pedro de Jesus vs. Guam Bee Co., Inc., 72
Phil., 464).
A similar rule obtains in the United States
courts and decisions there have repeatedly
upheld clauses of general import in mortgages
of chattels other than goods for trade, and
containing expressions similar to that of the
contract now before us. Thus, "and all other
stones belonging to me and all other goods
and chattels" (Russel vs. Winne, 97 Am. Dec.
755); "all of the property of the said W.W.
Allen used or situated upon the leased
premises" (Dorman vs. Crooks State Bank, 64
A.L.R. 614); "all goods in the store where they
are doing business in E. City, N.C." (Davis vs.
Turner, 120 Fed. 605); "all and singular the
goods, wares, stock, iron tools manufactured
articles and property of every description,
being situated in or about the shop or building
now occupied by me in Howley Stree"
(Winslow vs. Merchants Ins. Co., 38 Am. Dec.
368,) were held sufficient description, on the
theory that parol evidence could supplement it
to render identification rule is expressed in
Walker vs. Johnson (Mont.) 1254 A.L.R. 937:
The courts and textbook writers have
developed several rules for determination of
the sufficiency of the description in a chattel
mortgage. The rules are general in nature and
are different where the controversy is between
the parties to the mortgage from the situation
where third parties with out actual notice come
in. In 11 C.J. 457, it is said: "Ad against third
persons the description in the mortgage must
point out its subject matter so that such
person may identify the chattels observed, but
it is not essential that the description be so
specific that the property may be identified by
it alone, if such description or means of
identification which, if pursued will disclose the
property conveyed." In 5 R.C.L. 423 the rule is
stated that a description which will enable a
third person, aided by inquires which the
instrument itself suggest to identify the
property is sufficiently definite." In 1 Jones on
Chattel Mortgages and Conditional Sales, Bowers Edition, at
page 95 the writer says: "As to them (third persons), the
description is sufficient if it points to evidence whereby the
precise thing mortgaged may be ascertained with certainty."
Here there is nothing in the description "873 head of sheep" from
which anyone, the mortgagee or third persons, could ascertain
with any certainty what chattels were covered by the mortgage.
In many instances the courts have held the
description good where, though otherwise
faulty, the mortgage explicity states that the
property is in the possession of the mortgagor,
and especially where it is the only property of
that kind owned by him.
The specifications in the chattel mortgage
contract in the instant case, we believe, in
substantial compliance with the "reasonable
description rule" fixed by the chattel Mortgage
Act. We may notice in the agreement,
moreover, that the phrase in question is found
after an enumeration of other specific articles.
It can thus be reasonably inferred therefrom
that the "furnitures, fixture and equipment"
referred to are properties of like nature,
similarly situated or similarly used in the
restaurant of the mortgagor located in front of
the San Juan de Dos Hospital at Dewey
Boulevard, Pasay City, which articles can be
definitely pointed out or ascertain by simple
inquiry at or about the premises. Note that the
limitation found in the last paragraph of
section 7 of the Chattel Mortgage Law1on "like
or subsituated properties" make reference to
those "thereafter acquired by the mortgagor
and placed in the same depository as the
property originally mortgaged", not to those
already existing and originally included at the
date of the constitution of the chattel
mortgage. A contrary view would unduly
impose a more rigid condition than what the
law prescribes, which is that the description
be only such as to enable identification after a
reasonable inquiry and investigation.
The case of Giberson vs. A.N. Jureidini Bros.,
44 Phil., 216, 219, cited by the appellees and
the lower court, cannot be likened to the case
at bar, for there, what were sought to be
mortgaged included two stores wit all its
merchandise, effects, wares, and other bazar
goods which were being constantly disposed
of and replaced with new supplies in
connection with the business, thereby making
any particular or definite identification either
impractical or impossible under the
circumstances. Here, the properties deemed
overed were more or less fixed, or at least
permanently situated or used in the premises
of the mortgagor's restaurant.
The rule in the Jureidini case is further
weakened by the court's observation that (44
Phil., p. 220)
Moreover, if there should exist any doubts on
the questions we have just discussed, they
should be treshed out in the insolvency
proceedings,
which appears inconsistent with the definitive
character of the rulings invoked.
We find that the ground for the appealed order
(lack of cause of action) does not appear so
indubitable as to warrant a dismissal of the
action without inquiry into the merits and
without the description in the deed of
mortgage (Nico vs. Blanco, 81 Phil., 213;
Zobel vs. Abreau, 52 Off. Gaz., 3592).
Wherefore, the orders appealed from are set
aside and the case remanded to the lower
court for further proceedings. Costs against
appellee.
G.R. No. 103576, Aug. 22,
1996
o Contracts of Security: Chattel
Mortgage
o The rule on after-incurred
obligations
o Is a corporation entitled to moral
damages?
o W/N extra-judicial foreclosure of
FACTS:
Chua Pac, president and general
manager of Acme Shoe, Rubber and
Plastic Corporation, executed a chattel
mortgage in favor of Producers Bank of
the Philippines, as a security for a
corporate loan in the amount of P3M.
The chattel mortgage contained a
clause that provided for the mortgage to
stand as security for all other obligations
contracted before, during and after the
constitution of the mortgage.
The P3M was paid. Subsequently, the
corporation obtained additional financial
accommodations totalling P2.7M. This
was also paid on the due date. Again,
the bank extended another loan to the
corporation in the amount of P1M,
covered by four promissory notes.
However, the corporation was unable to
pay this at maturity. Thereupon, the
bank applied for an extra-judicial
foreclosure of mortgage.
For its part, the corporation filed an
action for injunction with prayer for
damages. The lower court ultimately
dismissed the case and ordered the
extra-judicial foreclosure of mortgage.
Hence, this appeal.
ISSUEs:
the chattel mortgage is proper
o If not proper, W/N the corporation
is entitled to damages as a result of the
extra-judicial foreclosure
HELD:
Contracts of Security
Contracts of security are either personal
or real. In contracts of personal security,
such as a guaranty or suretyship, 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 an encumbrance of property
-- in pledge, the placing of movable
property in the possession of the
creditor; in chattel mortgage by the
execution of the corresponding and
substantially in teh 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 credit -- upon the
essential condition that if the 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.
After-incurred Obligations
While a pledge, real estate mortgage, or
antichresis may exceptionaly 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 covered the newly
contracted debt is executed either by
concluding a fresh chattel mortgage or
by amending the old contract
conformably with the Chattel Mortgage
Law. Refusal on the part of borrower to
execute the agreement so as to cover
the after-incurred obligation can
constitute as an act of default on the
part of the borrower of the financing
agreement wherein 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.
In the case at bar, the chattel mortgage
was terminated when payment for the
P3M loan was made so there was no
chattel mortgage to even foreclose at
the time the bank instituted the extra-
judicial foreclosure.
Damages
In its complaint, the corporation asked
for moral damages sustained "as a
result of the unlawful action taken by the
respondent bank against it." The court
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 and sorrows and
griefs of life -- all of which cannot be
suffered by respondent bank as an
artificial person.
"Although Chua Pac was included in the
case, he was only so named as a party
in representation of the corporation."
RCBC V. ROYAL CARGO CORPORATION,
(2009)
Right of Redemption
Issue: WON petitioner, as mortgagee, had the duty to
notify the respondent of the public auction sale.
Section 13 of the Chattel Mortgage
Law allows the would-be redemptioner thereunder to
redeem the mortgaged property only before its
sale. Consider the following pronouncement
in Paray:
[T]here is no law in our statute books
which vests the right of redemption
over personal property. Act No. 1508,
or the Chattel Mortgage
Law, ostensibly could have served as
the vehicle for any legislative intent to
bestow a right of redemption over
personal property, since that
law governs the extrajudicial sale of
mortgaged personal property, but the
statute is definitely silent on the point.
the right of redemption applies
to real properties, not personal
properties, sold on execution.
Unmistakably, the redemption cited in Section
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 the
conditions of the mortgage but before the sale of the
property to clear it from the encumbrance of the
mortgage. It is not the same as right of
redemption which is the right of the mortgagor to
redeem the mortgaged property after registration of
the foreclosure sale, and even after confirmation of
the sale.
While respondent had attached some of Terrymanilas
assets to secure the satisfaction of a P296,662.16
judgment rendered in another case, what it effectively
attached was Terrymanilas equity of
redemption. That respondents claim is much lower
than the P1.5 million actual bid of petitioner at the
auction sale does not defeat respondents equity of
redemption. Top Rate International Services, Inc. v.
IAC enlightens:
We, therefore, hold that
the appellate court did not commit
any error in ruling that there was no
over-levy on the disputed
properties. What was actually
attached by respondents was
Consolidated Mines right or
equity of redemption, an
incorporeal and intangible right, the
value of which can neither be
quantified nor equated with the
actual value of the properties upon
which it may be exercised.
Held: Having thus attached Terrymanilas equity of
redemption, respondent had to be informed of the
date of sale of the mortgaged assets for it to exercise
such equity of redemption over some of those
foreclosed properties, as provided for in Section 13.
However, even prior to receiving, through counsel, a
mailed notice of the auction sale on the date of the
auction sale itself on June 16, 1992, respondent was
already put on notice of the impending foreclosure
sale of the mortgaged chattels. Despite its window of
opportunity to exercise its equity of redemption,
however, respondent chose to be technically shrewd
about its chances, preferring instead to seek
annulment of the auction sale, which was the result of
the foreclosure of the mortgage, permission to
conduct which it had early on opposed before the
insolvency court. Its negligence or omission to
exercise its equity of redemption within a reasonable
time, or even on the day of the auction sale, warrants
a presumption that it had either abandoned it or
opted not to assert it. Equitable considerations thus
sway against it. To now allow respondent have its way
in annulling the auction sale and at the same time let
it proceed with its claims before the insolvency court
would neither rhyme with reason nor with justice.
In any event, even if respondent would have
participated in the auction sale and matched
petitioners bid, the superiority of petitioners
(mortgagee) lien over the mortgaged assets would
preclude respondent from recovering the chattels.
It has long been settled by
this Court that the right of those
who acquire said
properties should not and can
not be superior to that of the
creditor who has in his favor
an instrument of
mortgage executed with the
formalities of the law, in good
faith, and without the least
indication of fraud. In
purchasing it, with full knowledge
that such circumstances existed, it
should be presumed that he did so,
very much willing to respect the lien
existing thereon, since he should
not have expected that with the
purchase, he would acquire a better
 right than that which the vendor
then had.
It bears noting that the chattel mortgage in
favor of petitioner was registered more than two
years before the issuance of a writ of attachment over
some of Terrymanilas chattels in favor of respondent.
This is significant in determining who between
petitioner and respondent should be given preference
over the subject properties. Since the registration of a
chattel mortgage is an effective and binding notice to
other creditors of its existence and creates a real right
or lien that follows the property wherever it may
be, the right of respondent, as an attaching creditor or
as purchaser, had it purchased the mortgaged chattel
at the auction sale, is subordinate to the lien of the
mortgagee who has in his favor a valid chattel
mortgage.
Held: Petitioner is not liable for constructive fraud
for proceeding with the auction sale. Nor for
subsequently selling the chattel. For foreclosure suits
may be initiated even during insolvency proceedings,
as long as leave must first be obtained from the
insolvency court as what petitioner did.
PAMECA WOOD TREATMENT PLANT, INC. V.
CA, (1999)
Right to Surplus or Deficiency, Act. No 1508, Sec. 14
Section 14 of Act No. 1508, as amended, or
the Chattel Mortgage Law, states:
The officer making the sale shall, within 30 days
thereafter, make in writing a return of his doings and
file the same in the office of the Registry of Deeds
where the mortgage is recorded, and the Register of
Deeds shall record the same. The fees of the officer
for selling the property shall be the same as the case of
sale on execution as provided in Act 190, and the
amendments thereto, and the fees of the Register of
Deeds for registering the officers return shall be taxed
as a part of the costs of sale, which the officer shall
pay to the Register of Deeds. The return shall
particularly describe the articles sold, and state the
amount received for each article, and shall operate as
a discharge of the lien thereon created by the
mortgage. The proceeds of such sale shall be applied
to the payment:
1. first, of the costs and expenses of keeping
and sale, and then
2. to the payment of the demand or obligation
secured by such mortgage, and
3. the residue shall be paid to persons holding
subsequent mortgages in their order, and
4. the balance, after paying the mortgage,
shall be paid to the mortgagor or persons
holding under him on demand.
Pledge Chattel Mortgage
Article 2115 Act No. 1508
the sale of the thing entitles the mortgagor to
pledged extinguishes the the balance of the
entire principal proceeds, upon
obligation, such that the satisfaction of the
pledgor may no longer principal obligation and
recover proceeds of the costs
sale in excess of the
amount of the principal
obligation
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-mortgagee to pay the deficiency in case of a
reduction in the price at public auction.
The theory of the lower court would lead to the absurd
conclusion that if the chattels mentioned in the
mortgage, given as security, should sell for more than
the amount of the indebtedness secured, that the
creditor would be entitled to the full amount for which
it might be sold, even though that amount was greatly
in excess of the indebtedness. Such a result certainly
was not contemplated by the legislature when it
adopted Act No. 1508. There seems to be no reason
supporting that theory under the provision of the
law. The value of the chattels changes greatly from
time to time, and sometimes very rapidly. If, for
example, the chattels should greatly increase in value
and a sale under that condition should result in
largely overpaying the indebtedness, and if the
creditor is not permitted to retain the excess, then the
same token would require the debtor to pay the
deficiency in case of a reduction in the price of the
chattels between the date of the contract and a breach
of the condition.
And the fact that Act No. 1508 permits a private sale,
such sale is not, in fact, a satisfaction of the debt, to
any greater extent than the value of the property at
the time of the sale. The amount received at the time
of the sale, of course, always requiring good faith and
honesty in the sale, is only a payment, pro tanto, and
an action may be maintained for a deficiency in the
debt.