#1 FILIPINAS MARBLE CORP vs.
IAC Petitioner further prayed issue a restraining order and then a writ of
GR # L-68101| May 30, 1986
Petition: Petition for Review
Petitioner: Filipinas Marble Corporation
Respondent: The Honorable Intermediate Appellate Court, The Honorable Candido
Villanueva, Presiding Judge of Br. 144, RTC, Makati, Development Bank of The
Philippines (DBP), Bancom SystemsControl, Inc. (Bancom), Don Ferry, Casimero
Tanedo, Eugenio Palileo, Alvaro Torio, Jose T. Pardo, Rolando Atienza, Simon A.
Mendoza, Sheriff Norvell R. Lim,
Art. 2125 and Art. 2140
DOCTRINE An unregistered chattel mortgage is a valid one
FACTS
Filipinas Marble Corp alleged that it applied for a loan in the amount of
$5,000,000.00 with respondent Development Bank of the Philippines (DBP)
in its desire to develop the full potentials of its mining claims and deposits
that DBP granted the loan subject, however, to sixty onerous conditions,
among which are: (a) petitioner shall have to enter into a management
contract with respondent Bancom Systems Control, Inc. [Bancom] (b) DBP
shall be represented by no less than six (6) regular directors, three (3) to be
nominated by Bancom and three (3) by DBP, in Filipinas Marbles board, one
of whom shall continue to be the chairman of the board (c) the key
officers/executives [the President and the officers for finance, marketing and
purchasing] to be chosen by Bancom for the corporation shall be appointed
only with DBPs prior approval and all these officers are to be made directly
responsible to DBP and (d) the $5 million loan shall be secured by: 1) a final
mortgage on the following assets with a total approved value of
P48,630,756.00
Pursuant to these conditions, the petitioner entered into a management
contract with Bancom whereby the latter agreed to manage the plaintiff
company for a period of three years that under the management agreement,
the affairs of the petitioner were placed under the complete control of DBP
and Bancom, including the disposition and disbursement of the $5,000,000
or P37,500,000 loan that the respondents and their directors/officers
mismanaged and misspent the loan, after which Bancom resigned with the
approval of DBP even before the expiration date of the management
contract, leaving petitioner desolate and devastated that among the acts
and omissions of the respondents are the following: (a) failure to purchase
all the necessary machinery and equipment needed by the petitioners
project for which the approved loan was intended
That instead of helping petitioner get back on its feet, DBP completely
abandoned the petitioners project and proceeded to foreclose the properties
mortgaged to it by petitioner without previous demand or notice.
Petitioner in its complaint seeks the Annulment of deeds of mortgage which
it executed in favor of DBP in order to secure the $5,000,000.00 loan
because it is petitioners contention that there was no loan at all to secure
since what DBP lent to petitioner with its right hand, it also got back with its
left hand and that, there was failure of consideration with regard to the
execution of said deeds as the loan was never delivered to the petitioner.
preliminary injunction against the sheriffs to enjoin the latter from proceeding
with the foreclosure and sale of the petitioners properties
RTC ruled for DBP and Bancom.
CA upheld RTC ruling
ISSUE/S
1. W/N a chattel mortgage needs to be registered to be binding on the parties - NO
PROVISIONS
Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in
order that a mortgage may be validly constituted that the document in which it
appears be recorded in the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation. If the movable,
instead of being recorded, is delivered to the creditor or a third person, the contract is
a pledge and not a chattel mortgage.
RULING & RATIO
No.
We, however, reject the petitioners argument that since the chattel mortgage
involved was not registered, the same is null and void. Article 2125 of the Civil Code
clearly provides that the nonregistration of the mortgage does not affect the
immediate parties. It states:
Art. 2125. In addition to the requisites stated in article 2085, it is
indispensable, in order that a mortgage may be validly constituted that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the
mortgage is nevertheless binding between the parties. xxx
The petitioner cannot invoke the above provision to nullify the chattel mortgage it
executed in favor of respondent DBP.
DISPOSITION
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The
orders of the Intermediate Appellate Court dated April 17, 1984 and July 3, 1984 are
hereby ANNULLED and SET ASIDE. The trial court is ordered to proceed with the
trial on the merits of the main case. In the meantime, the temporary restraining order
issued by this Court on July 23, 1984 shall remain in force until the merits of the main
case are resolved.
1
#2 NAVARRO vs. PINEDA
Petitioner: Conrado Navarro
Respondent: Rufino Pineda and Juana Gonzales
DOCTRINE Where a house stands on a rented land belonging to another person, it
may be the subject-matter of a chattel mortgage as personal or movable property if so
stipulated in the document of mortgage, and in an action by the mortgagee for
foreclosure, the validity of the chattel mortgage cannot be assailed by one of the
parties to the contract of mortgage.
FACTS
Defendants Rufino G. Pineda and his mother Juana Gonzales, borrowed
from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable after 6
months. To secure the indebtedness, Rufino executed a document
captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES",
whereby Juana Gonzales, by way of Real Estate Mortgage hypothecated a
parcel of land, belonging to her, registered with the Register of Deeds of
Tarlac and Rufino by way of Chattel Mortgage, mortgaged his two-story
residential house, erected on a lot belonging to Atty. Vicente Castro and one
motor truck, registered in his name.
When the mortgage debt became due and payable, the defendants, after
demands made on them, failed to pay. They, however, asked and were
granted an extension up to June 30, 1960. Came June 30, defendants again
failed to pay and, for the second time, asked for another extension, which
was given, up to July 30, 1960. In the second extension, defendant Pineda in
a document entitled Promise, categorically stated that in the remote event
he should fail to make good the obligation on such date, the defendant would
no longer ask for further extension and there would be no need for any
formal demand, and plaintiff could proceed to take whatever action he might
desire to enforce his rights, under the said mortgage contract. In spite of said
promise, defendants, failed and. refused to pay the obligation.
In due course, the plaintiff filed a complaint for foreclosure of the mortgage
and for damages. While the case is being heard, the parties submitted a
Stipulation of Facts, wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel Mortgages
and leaving the only issue in the case as whether or not the residential
house, subject of the mortgage can be considered a Chattel.
Despite such stipulation of facts, the lower court later on ruled and ordered
defendants to pay the amount owing plus 12% compounded interest per
annum to Navarro (90) days from receipt of the Order which further ordered
defendant to deliver immediately to the Provincial Sheriff of Tarlac the
personal properties used as security.
ISSUE
Whether or not the residential house, subject to mortgage can be considered
a chattel and still remain valid
HELD
Yes the house can be considered a chattel.
Where a house stands on a rented land belonging to another person, it may
be the subject-matter of a chattel mortgage as personal or movable property
if so stipulated in the document of mortgage, and in an action by the
mortgagee for foreclosure, the validity of the chattel mortgage cannot be
assailed by one of the parties to the contract of mortgage.
The trial court did not predicate its decision declaring the deed of chattel
mortgage valid solely on the ground that the house mortgaged was erected
on the land which belonged to a third person, but also and principally on the
doctrine of estoppel, in that the parties have so expressly agreed in the
mortgage to consider the house as chattel for its smallness and mixed
materials of sawali and wood. In construing Arts. 334 and 335 of the
Spanish Civil Code (corresponding to Arts. 415 and 416, N.C.C.), for
purposes of the application of the Chattel Mortgage Law, it was held that
under certain conditions, a property may have a character different from that
imputed to it in said articles. It is undeniable that the parties to a contract
may by agreement, treat as personal property that which by nature would be
real property
In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel
mortgage, appellant Rufino G. Pineda conveyed by way of Chattel
Mortgage my personal properties, a residential house and a truck. The
mortgagor himself grouped the house with the truck, which is, inherently a
movable property.
DISPOSITION
CONFORMABLY WITH ALL THE FOREGOING, the decision
appealed from, should be, as it is hereby affirmed, with costs
against appellants.
2
# 3 Northern Motors v. Coquia (Short title)
GR # L-40018 | August 29, 1975
Petition: Petition for review on certiorari
Petitioner: NORTHERN MOTORS, INC.
Respondent: The Honorable Jorge R. Coquia, , Honesto Ong, the Sheriff of Manila,
Dominador Q. Cacpal, the Acting Executive Sheriff of Manila, Intervenor: Filinvest
Credit Corporation
FACTS
- Manila Yellow Taxicab Co., Inc. purchased from Northern Motors, Inc, 200
Holden Torana cars and executed chattel mortgages on the cars as security
for the promissory notes covering the balance of the price.
o The notes and the chattel mortgages for 172 cars were assigned to
Filinvest Credit Corporation.
- Tropical Commercial Co., Inc. obtained a judgment against Manila Yellow
Taxicab Co., Inc. in another Civil Case. Part of that judgment was eventually
assigned to Honesto Ong.
- To satisfy the judgment credit, the sheriff levied upon 20 taxicabs, of which,
8 were mortgaged to Northern and 12 to Filinvest Credit.
- Northern and Filinvest filed the corresponding third-party claims with the
sheriff and Tropical posted indemnity bonds. On that same day, the cars
were sold at public auction. The lower court cancelled the indemnity bonds
without notice to the third-party claimants.
- The sheriff subsequently made an additional levy on 35 mortgaged taxicabs
to satisfy the unpaid balance of the judgment. Of those, 7 were mortgaged to
Northern while 28 were to Filinvest.
- Again, Northern and Filinvest filed third-party claims. The lower court refused
to reinstate the indemnity bonds. It ruled that the chattel mortgagee was not
entitled to the possession of the mortgaged taxicabs by the mere fact of the
execution of the mortgage and that the mortgage lien followed the chattel
whoever might be its actual possessor.
- Northern Motors, Inc. then filed with SC a certiorari petition to annul the
resolution and to stop the second auction sale.
- SC issued a restraining order against the scheduled auction sale, the writ of
execution and the disposition of the proceeds of the first execution sale.
Filinvest was allowed to intervene in the action.
- Subsequently, the petition was denied and the restraining order was
dissolved. SC ruled that the mortgagee's remedy is to vindicate its claim in a
proper action as provided in the Rules of Court, and that its mortgage lien
attached to the taxicabs wherever they might be.
- Upon motion of Northern Motors, Inc. on the ground that the decision had
not yet become final, the restraining order was maintained. Filinvest did not
file any more a motion for reconsideration because it had entered into a
compromise with Ong for the release of twenty-eight taxicabs.
- Northern Motors, Inc. contends that as chattel mortgagee and unpaid
vendor, it has the better right to the possession of the mortgaged taxicabs
and that claims should be resolved in the case where the writ of execution
was issued and not in a separate action which allegedly would be an
ineffective remedy.
ISSUE/S
2. W/N Northern Motors has a better right to the possession
RULING & RATIO
1. Yes
- The sheriff wrongfully levied upon the mortgaged taxicabs and erroneously
took possession of them. He could have levied only upon the right or equity
of redemption pertaining to the Manila Yellow Taxicab Co., Inc . as chattel
mortgagor and judgment debtor, because that was the only leviable or
attachable property right of the company in the mortgaged taxicabs.
o After a chattel mortgage is executed, there remains in the
mortgagor a mere right of redemption (Tizon vs. Valdez).
- To levy upon the mortgagor's incorporeal right or equity of redemption, it was
not necessary for the sheriff to have taken physical possession of the
mortgaged taxicabs.
- It would have sufficed if he furnished the chattel mortgagor, Manila Yellow
Taxicab Co., Inc., with a copy of the writ of execution and served upon it a
notice that its right or equity of redemption in the mortgaged taxicabs was
being levied upon pursuant to that writ.
- Levying upon the property itself is distinguishable from levying on the
judgment debtor's interest in it. Justice Imperial noted that if the only
attachable interest of a chattel mortgagor in a mortgaged car was his right of
redemption and if the purchaser at the execution sale could not acquire
anything except such right of redemption, then the purchaser was "not
entitled to the actual possession and delivery of the automobile without first
paying" the mortgage debt.
- In this case what the sheriff could have sold at public auction was merely the
mortgagor's right or equity of redemption. The sheriff and the judgment
creditor are deemed to have constructive notice of the chattel mortgages on
the taxicabs. As a consequence of the registration of the mortgages,
Northern Motors, Inc. had the symbolical possession of the taxicabs.
- If the judgment creditor, Tropical or the assignee, Ong, bought the
mortgagor's equity of redemption at the auction sale, then it would step into
the shoes of the mortgagor, Manila Yellow Taxicab Co., Inc. and be able to
redeem the vehicles from Northern Motors, Inc., the mortgagee, by paying
the mortgage debt.
- Article 2140 of the Civil Code, in defining a chattel mortgage as the recording
of personal property in the Chattel Mortgage Register as security for the
performance of an obligation, has adhered to the equitable conception of
that contract.
- At the same time, article 2140 has preserved the distinction between pledge
and chattel mortgage which was blurred by section 4 of the Chattel Mortgage
Law when it provided that in a chattel mortgage" the possession of the
property is delivered to and retained by the mortgagee" or, if no such
possession is delivered, the mortgage should be recorded in the proper
registry of deeds.
- Historically, it is not proper that the contract of pledge, as one of the four real
contracts of the jus civile (the others being mutuum, commodatum and
depositum) should be absorbed by the chattel mortgage contract.
- Under section 4 of the Chattel Mortgage Law, it was held that the registration
of the chattel mortgage was tantamount to the symbolical delivery of the
possession of the mortgaged chattel to the mortgagee, a symbolical delivery
which was equivalent to actual delivery.
3
 - The equity of redemption of the mortgagor will pass to the purchaser at an
execution sale (Tizon vs. Valdez and Morales, 48 Phil. 910, 914).
- Inasmuch as what remains to the mortgagor is only the equity of redemption,
it follows that the right of the judgment or attaching creditor, who purchased
the mortgaged chattel at an execution sale, is subordinate to the lien of the
mortgagee who has in his favor a valid chattel mortgage.
- Justice Moreland in a case observed that "no one can take the title away
from the mortgagee except the mortgagor and he only in the manner
prescribed by the mortgage itself and that the general statement is therefore
correct that after the execution of a chattel mortgage and its registry as
required by law, nobody can obtain an interest in that property adverse to
that of the mortgagee".
- That the chattel mortgagee has the symbolical possession and that he has
the preferential right to have physical possession is inferable from article 319
of the Revised Penal Code which penalizes any person who knowingly
removes the mortgaged chattel to any province or city other than the one in
which it was located at the time of the execution of the mortgage, without the
written consent of the mortgagee or his executors, administrators or assigns.
It penalizes also any mortgagor who sells or pledges the mortgaged chattel
without the consent of the mortgagee written on the back of the register of
deeds of the province where such chattel is located.
- The purpose of the Chattel Mortgage Law is to promote business and trade
and to give impetus to the country's economic development. In the business
world the chattel mortgage has greatly facilitated sales of goods and
merchandise.
- Sales of merchandise would be sluggish and insubstantial if the Chattel
Mortgage Law could not protect dealers against the defaults and
delinquencies of their customers and if the mortgagee's lien could be
nullified by the maneuvers of an unsecured judgment creditor of the chattel
mortgagor. It is not right nor just that the lien of a secured creditor should be
rendered nugatory by a wrongful execution engineered by an unsecured
creditor.

DISPOSITION
WHEREFORE, the decision of March 21, 1975 is reconsidered and set aside.
Respondent Sheriff is directed to deliver to Northern Motors, Inc. (a) the proceeds of
the execution sale held on December 18, 1974 for the eight taxicabs mortgaged to it
less the expenses of execution and (b) the seven taxicabs which were levied upon by
him and which are also mortgaged to the corporation.

4
#4 TSAI vs. CA
Petitioner: Ruby L. Tsai
Respondent: Court of Appeals, Ever Textile Mills, Inc, (EVERTEX), and Memento
R. Villaruz
366 SCRA 324 | G.R. No. 120098
DOCTRINE
Sec. 7 of the Chattel Mortgage Law - A chattel mortgage shall be deemed to cover
only the property described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding.
FACTS
On November 26, 1975, EVERTEX obtained a 3m loan from PBCom and as
security for the loan, a deed of Real and Chattel Mortgage over the subject lot,
where a factory stands, and the chattels located therein as enumerated in the
schedule of the mortgage contract.
On April 23, 1979, 2nd loan of 3.356m was availed of by EVERTEX which was
secured by a Chattel Mortgage over personal properties in a list attached thereto.
The listed properties were similar to those listed in the first mortgage deed.
After the date of execution of the 2nd mortgage, EVERTEX purchased various
machines and equipments.
Later, EVERTEX filed for insolvency proceedings was declared insolvent by the
CFI. All its assets were taken into the custody, including the securities, both real
and personal.
Due to the failure of EVERTEX to meet its obligation, PBCom commenced
extrajudicial foreclosure.
o PBCom was the highest bidder and consolidated ownership over
the lot and all the properties in it.
o PBCom leased the entire factory premises and eventually sold it
to Tsai, which included everything, even the contested
machineries.
EVERTEX filed a complaint for annulment of sale, reconveyance, and damages
with the RTC against PBCom and alleged the ff:
o That there was no legal basis for the appropriation of the
contested properties which were not included in the Real and
Chattel Mortgage and neither were they included in the Notice of
Sheriffs sale.
o That the extrajudicial foreclosure of the subject mortgage was in
violation of the Insolvency Law, therefore no right to the properties
are transmitted to Tsai.
RTC and CA ruled in favor of EVERTEX.
Hence, this petition.
ISSUE/S
1. W/N the inclusion of the questioned in the forecloses properties are proper -
NO
2. (LTD/Property Issue) W/N the sale of the properties to Tsai were valid - NO
RULING & RATIO
1. NO
- The controverted machineries are not covered by, or included in, either of
the two mortgages, the Real Estate and Chattel Mortgage, and the pure
Chattel Mortgage; and the said machineries were not included in the list of
properties appended to the Notice of Sale, and neither were they included
in the Sheriffs Notice of Sale of the foreclosed properties.
o Even if the fact the machineries were heavy, bolted or cemented
on the real property mortgaged, does not make them ipso facto
immovable under Article 415 (3) and (5) of the New Civil Code, as
the parties intent has to be looked into.
o Where the facts, taken together, evince the conclusion that the
parties intention is to treat the units of machinery as chattels, a
fortiori, the after-acquired properties, which are of the same
description as the units referred to earlier, must also be treated as
chattels.
2. NO
- Nemo dat quod non habet - One Cannot give what one does not have. \
As the auction sale of the subject properties to PBCom is void, no valid
title can therefore pass to Tsais favor.
A purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same, at the time
of purchase, or before he has notice of the claims or interest of some
other person in the property.
Records reveal, however, that when Tsai purchased the controverted
properties, she knew of respondents claim thereon. As borne out by
the records, she received the letter of respondents counsel, apprising
her of respondents claim, dated February 27, 1987. She replied
thereto on March 9, 1987. Despite her knowledge of respondents
claim, she proceeded to buy the contested units of machinery on May
3, 1988.
The defense of indefeasibility of Torrens Title refers to sale of lands
and not to sale of properties situated therein. The mere fact that the lot
where a factory and disputed properties stand in a persons name
does not automatically make such person the owner of everything
found therein.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the
Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS.
Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered
to pay jointly and severally Ever Textile Mills, Inc., the following: (1) P20,000.00 per
month, as compensation for the use and possession of the properties in question from
November 198631 until subject personal properties are restored to respondent
corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as
attorneys fees and litigation expenses. Costs against petitioners.
SO ORDERED.
#5 CEBU INTERNATIONAL FINANCE CORP. vs COURT OF APPEALS
5
G.R. No. 107554 February 13, 1997
Petition: PETITION FOR REVIEW ON CERTIORARI
Petitioner: CEBU INTERNATIONAL FINANCE CORPORATION
Respondent: COURT OF APPEALS, ROBERT ONG and ANG TAY
DOCTRINE The prevailing jurisprudence is that a mortgagee has a right to rely in
good faith on the certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, mortgagee has no
obligation to undertake further investigation.
FACTS
1. Jacinto Dy executed a Special Power of Attorney in favor of private
respondent Ang Tay, authorizing the latter to sell the cargo vessel owned by
Dy and christened LCT Asiatic. Through a Deed of Absolute Sale, Ang Tay
sold the subject vessel to Robert Ong (Ong). Ong paid the purchase price by
issuing three (3) checks However, since the payment was not made in cash,
it was specifically stipulated in the deed of sale that the LCT Asiatic shall not
be registered or transferred to Robert Ong until complete payment.
2. Thereafter, Ong obtained possession of the subject vessel so he could begin
deriving economic benefits therefrom. He, likewise, obtained copies of the
unnotarized deed of sale allegedly to be shown to the banks to enable him to
acquire a loan to replenish his (Ongs) capital. The aforequoted condition,
however, which was handwritten on the original deed of sale does not
appear on Ongs copies.
3. Contrary to the aforementioned agreements and without the knowledge of
Ang Tay, Ong had his copies of the deed of sale (on which the
aforementioned prohibition does not appear) notarized. Ong presented the
notarized deed to the Philippine Coast Guard which subsequently issued him
a Certificate of Ownership and a Certificate of Philippine Register over the
subject vessel. Ong also succeeded in having the name of the vessel
changed to LCT Orient Hope.
4. Using the acquired vessel, Ong acquired a loan from Cebu
International Finance Corporation to be paid in installments as
evidenced by a promissory note of even date. As security for the loan,
Ong executed a chattel mortgage over the subject vessel, which
mortgage was registered with the Philippine Coast Guard and
annotated on the Certificate of Ownership.
5. Ong defaulted in the payment of the monthly installments. Consequently,
Cebu International Finance Corporation sent him a letter demanding delivery
of the mortgaged vessel for foreclosure or in the alternative to pay the
balance pursuant to paragraph 11 of the deed of chattel mortgage.
6. Meanwhile, the two checks paid by Ong to Ang Tay for the Purchase of the
subject vessel bounced. Ang Tays search for the elusive Ong and all
attempts to confer with him proved to be futile. A subsequent investigation
and inquiry with the Office of the Coast Guard revealed that the subject
vessel was already in the name of Ong, in violation of the express
undertaking contained in the original deed of sale.
7. As a result thereof, Ang Tay and Jacinto Dy filed a civil case for rescission
and replevin with damages against Ong and his wife which was granted.
8. Cebu International Finance Corp. filed a separate case for replevin and
damages against Ong and Ang Tay in the same court.
Trial Court: It ruled in favor of Ang Tay and Jacinto Dy. Moreover, it declared
the chattel mortgage on the subject vessel null and void and ordered
petitioner and Ong to pay Ang Tay damages.
CA: It affirmed Trial Courts ruling.
ISSUES
1. W/N the chattel mortgage contract between Cebu International Finance Corp and
Ong is valid and subsisting.
2. W/N Cebu International Finance Corporation is a mortgagee in good faith whose
lien over the mortgaged vessel should be respected.
RULING
1. YES
The key lies in the certificate of ownership issued in Ong's name (which, along with
the deed of sale, he submitted to petitioner as proof that he is the owner of the ship
he gave as security for his loan). It was plainly stated therein that the ship LCT "Orient
Hope" ex "Asiatic," by means of a Deed of Absolute, was "sold and transferred by
Jacinto Dy to Robert Ong." There can be no dispute then that it was Dy who was the
seller and Ong the buyer of the subject vessel. Coupled with the fact that there is no
evidence of any transaction between Jacinto Dy or Ang Tay and petitioner, it follows
that petitioner's role in the picture is properly and logically that of a creditor-mortgagee
and not owner-seller. It is paragraph 2 of the mortgage contract which accurately
expresses the true nature of the transaction between petitioner and Ong -- that
it is a simple loan with chattel mortgage. The amount petitioner loaned to Ong
does not represent the balance of any purchase price since, as we have previously
discussed, the aforementioned documents state that Ong is already the absolute
owner of the subject vessel. Obviously, therefore, paragraph 3 of the said contract
was filled up by mistak
2. YES
The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on
the certificate of title of the mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of or does
not have a valid title to the mortgaged property, the mortgagee or transferee in good
faith is nonetheless entitled to protection. Although this rule generally pertains to real
property, particularly registered land, it may also be applied by analogy to personal
property, in this case specifically, since shipowners are, likewise, required by law to
register their vessels with the Philippine Coast Guard.
The chattel mortgage constituted on a vessel by Ong who was able to register the
vessel in his name despite the agreement with the Ang Tay that the vessel would not
be so registered until after full payment of the price which do not appear in the Ongs
copy of the deed of sale is VALID for the mortgagee has the right to rely in good faith
on the certificate of registration.
6
DISPOSITION
WHEREFORE, this Court GRANTS the Petition for Review and REVERSES the
questioned decision and resolution of the Court of Appeals. The validity of the chattel
mortgage on the vessel LCT ORIENT HOPE is hereby upheld without prejudice to
whatever legal remedies private respondent Ang Tay may have against private
respondent Robert Ong in the premises.

7
#6 LILIUS v MANILA ROAD COMPANY
G.R. No. 42551, September 4, 1935
APPEAL on CERTIORARI
APPELLESS: ALEKO E. LILIUS, for himself and as guardian ad litem of his
minor child, Brita Marianne Lilius, and SONJA MARIA LILIUS
DEFENDANT: MANILA RAILROAD COMPANY
INTERVENORS APPELLANTS: LAURA LINDLEY SHUMAN, MANILA WINE
MERCHANTS, LTD., BANK OF THE PHILIPPINE ISLANDS AND MANILA MOTOR
CO., INC.
INTERVENORS APPELLESS: W.H. WATEROUS, M. MARFORI, JOHN R. MCFIE,
JR., ERLANGER & GALINGER, INC., PHILIPPINE EDUCATION CO., INC.,
HAMILTON BROWN SHOE CO., ESTRELLA DEL NORTE and EASTERN &
PHILIPPINE SHIPPING AGENCIES, LTD.
DOCTRINE A chattel does not have to be acknowledged before a notary public. As
against creditors and subsequent encumbrances, the law does require an affidavit of
good faith appended to the mortgage and recorded with it.
FACTS
(1) In a separate case, Lilius successfully won against Manila Road Company.
In that case, the Trial Court and the SC awarded Lilius the amount of Php
33,525.03 as damages. [ The case filed by Lilius was due to the damages
sustained by Lilius when Manila Road Companys train collided with the car
of Lilius]
(2) Lilius sustained permanent damages due to the accident and thus not able
to meet his obligations. The intervenors appellants therefore interfere to
satisfy their claims against Lilius with the awarded amount for damages.
(3) In this present case, the intervenors appellants appealed the order of the
Court of First Instance of Manila fixing the degree of preference of the
claimants and distributing the proceeds of the judgment.
NO. This reference in said judgment to a mortgage is not competent or
satisfactory evidence as against third persons upon which to base a finding that the
Manila Motor Company's credit evidenced by a public document within the meaning
of article 1924 of the Civil Code. If the Manila motor Co., Inc., desired to rely upon a
public document in the form of a mortgage as establishing its preference in this case,
it should have offered that document in evidence, so that the court might satisfy itself
as to its nature and unquestionably fix the date of its execution.
Granting that a mortgage existed between the Manila Motor Co., Inc., and
Aleko E. Lilius, this does not warrant the conclusion that the instrument evidencing
that mortgage is a public document entitled to preference under article 1924 of the
Civil Code. Under section 5 of Act No. 1507 as amended by Act No. 2496, a chattel
does not have to be acknowledge before a notary public. As against creditors and
subsequent encumbrances, the law does require an affidavit of good faith appended
to the mortgage and recorded with it. A chattel mortgage may, however, be valid as
between the parties without such an affidavit of good faith. In 11 Corpus Juris, 482,
the rule is expressly stated that as between the parties and as to third persons who
have no rights against the mortgagor, no affidavit of good faith is necessary. It will
thus be seen that under the law, a valid mortgage may exist between the parties
without its being evidenced by a public document.
DISPOSITION
The court, therefore, committed no error in holding that the claim of the Manila Motor
Co., Inc., was inferior in preference to those of the appellees in this case. This
appellant's assignments of error are overulled.

(Focus is on Manila Motor Co., since its appeal is based on Chattel Mortgage)

(4) For its part, Manila Motor Co., Inc. claims that the lower court erred in not
holding their claims, evidenced by public instruments and final judgment, as
preferred over all other claims against Aleko E. Lilius.
(5) In support of its claim of preference against the fund of Aleko E. Lilius was a
certified copy of its judgment against him in a separate civil case (Civil Case
no. 41159), together with a certified copy of the writ of execution and the
garnishment issued by virtue of said judgment.
(6) The alleged public document evidencing its claims was not offered,
Manila Motor Co merely assume its credit is evidenced by a public
document dated May 10, 1931, the court on Case no. 41159 refers to a
mortgage appearing in the evidence, as the basis of its judgment,
without mentioning the date of the execution of the exhibit

ISSUE WON the reference to a mortgage appearing in a public document in a

judgment, entitled to preference under article 1924 of the Civil Code. - NO

RULING/RATIO
8
#7 ACME CORP vs. CA
GR # 103576| August 22, 1996
Petition: Petition for review on certiorari
Petitioner: ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC
Respondent: HON. COURT OF APPEALS, PRODUCERS BANK OF THE
PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY
FACTS
- Chua Pac, the president and general manager of 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. This was security for the P3 million corporate loan.
o Stipulated: "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 . 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."
- This loan was paid and obtained from Producers Bank additional financial
accommodations totaling P2.7 million in 1981. Said loan was also paid when
it became due.
- In 1984, bank the again extended another loan of a million pesos covered by
4 promissory notes (250k each). The loan was not paid at maturity, due to
financial constraints.
- Producers Bank then filed for extrajudicial foreclosure of the chattel
mortgage with the Sheriff of Caloocan, prompting Acme to forthwith file an
action for injunction, with damages and a prayer for a writ of preliminary
injunction, before the Caloocan RTC.
- RTC: Dismissed.
o Corporation bound by the stipulations, aforequoted, of the chattel
mortgage.
- CA: Affirmed.
- The instant petition in the SC was initially denied for being insufficient in form
and substance, but Acme filed a compliance with the motion for
reconsideration which was denied. Only the second MR was granted.
o Reason for granting second MR:
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.
Hence, this petition.
ISSUE/S
3. W/N the chattel mortgage and its foreclosure is valid
RULING & RATIO
2. NO.
- 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.
- 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 faith), the fact, however, that the statute has provided
that the parties to the contract must execute an oath that
o "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."
- In the chattel mortgage here involved, the only obligation specified in the
chattel mortgage contract was the P3,000,000.00 loan.
- In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., the
Court said
o "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."
- The significance of the ruling to the instant problem would be that since the
1978 chattel mortgage had ceased to exist coincidentally with the full
payment of the P3,000,000.00 loan, there no longer was any chattel
mortgage that could cover the new loans that were concluded thereafter.
DISPOSITION
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.
9
Notes:
Atty. Sotto, the counsel of petitioners, was admonished by the Court because of this
reply:
"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."

10
#8 SERVICEWIDE SPECIALISTS vs. CA
G.R. No 116363 | 320 SCRA 478 | December 10, 1999
Petition: PETITION for review on certiorari
Petitioner: SERVICEWIDE SPECIALISTS, INCORPORATED,
Respondent: CA, JESUS PONCE, and ELIZABETH PONCE
DOCTRINE When the mortgagee assigned the mortgage, it is necessary to give
notice to the mortgagor and NOT CONSENT. But when the mortgagor wish to sell or
alienate the property mortgage, the consent of mortgagee is necessary.
FACTS
- Sometime in 1975, Sps. Atty. Jesus and Elizabeth PONCE bought on
installment a Vehicle from Tecson Enterprises.
o To secure payment they executed a promissory note and a chattel
mortgage on the vehicle.
registered in the Registry of Deeds and LTO
- Tecson Enterprises executed a DEED OF ASSIGNMENT of the said
promissory note and chattel mortgage in favor of FILINVEST with conformity
of Sps. PONCE.
- In 1976, Sps. PONCE transferred and delivered the vehicle to Conrado
Tecson by way of sale with assumption of mortgage.
- FILINVEST assigned all its rights and interest to SERVICEWIDE without
notice to Sps. PONCE
- Sps. PONCE failed to pay. Thus, SERVICEWIDE filed a complaint for
replevin.
RULING & RATIO
1. NO. only notice is necessary.
- When the credit was assigned to SERVICEWIDE, only notice to but not the
consent of the PECSONs was necessary to bind the latter.
- Applying Article 1627 of the Civil Code, the assignment made to
SERVICEWIDE includes the accessory rights such as the mortgage.
- Article 2141, states that the provisions concerning a contract of pledge shall
be applicable to a chattel mortgage, such as the one at bar, insofar as there
is no conflict with the Chattel Mortgage Law.
o a thing pledged may be alienated by the pledgor or owner with the
consent of the pledgee.
o This provision is in accordance with Act No. 1508 which provides
that a mortgagor of personal property shall not sell or pledge such
property, or any part thereof, mortgaged by him without the consent
of the mortgagee in writing on the back of the mortgage and on the
margin of the record thereof in the office where such mortgage is
DISPOSITION
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE.
The decision of the Regional Trial Court is AFFIRMED and REINSTATED.
Respondents Jesus Ponce and Elizabeth Ponce are ORDERED to pay petitioner,
jointly and severally

PONCEs contention:
- they had already returned the car to Conrado Tecson pursuant to the Deed
of Sale with Assumption of Mortgage.
- invoked Article 1626 of the Civil Code which provides that the debtor who,
before having knowledge of the assignment, pays his creditor shall be
released from the obligation.

TC: Sps. PECSON are liable and ordered Conrado Tecson to reimburse them.
CA: reversed and set aside on the ground that SPS PECSON were not notified of the
assignment of promissory note and chattel mortgage.

Hence, this petitition.

ISSUE/S
4. W/N the consent of debtor-mortgaggee is necessary to bind him to the
assignment of a credit

11
#9 PASCUAL v. UNIVERSAL MOTOR CORPS
GR # L-27862 | November 20, 1974 RULING & RATIO
Petitioner: Lorenzo Pascual and Leonila Torres No.
Respondent: Universal Motors Corporation
A similar argument has been answered by this Court in this wise: (T)o sustain
DOCTRINE Foreclosure of chattel mortgage precludes any further action against the appellants argument is to overlook the fact that if the guarantor should be compelled
debtor and his guarantor. to pay the balance of the purchase price, the guarantor will in turn be entitled to
recover what she has paid from the debtor vendee (Art. 2066, Civil Code) so that
FACTS ultimately, it will be the vendee who will be made to bear the payment of the balance
Pascual and Torres executed the real estate mortgage subject matter of this of the price, despite the earlier foreclosure of the chattel mortgage given by him.
complaint to secure the payment of the indebtedness of PDP Transit, Inc. for Thus, the protection given by Article 1484 would be indirectly subverted, and public
the purchase of five (5) units of Mercedez Benz trucks but plaintiffs policy overturned.
guarantee is not to exceed P50,000.00 which is the value of the mortgage.
PDP Transit, Inc., plaintiffs principal, had paid to the defendant Universal DISPOSITION
Motors Corporation the sum of P92,964.91, thus leaving a balance of The decision appealed from is affirmed, with costs against the defendant-appellant.
P68,641.69 including interest due
The aforementioned obligation guaranteed by the plaintiffs under the Real
Estate Mortgage, subject of this action, is further secured by separate deeds
of chattel mortgages on the Mercedez Benz units covered by the
aforementioned invoices in favor of the defendant Universal Motors
Corporation.
Defendant Universal Motors Corporation filed a complaint against PDP
Transit, Inc. before the Court of First Instance of Manila with a petition for a
writ of Replevin, to collect the balance due under the Chattel Mortgages and
to repossess all the units sold to plaintiffs principal PDP Transit, Inc.
including the five (5) units guaranteed under the subject Real (Estate)
Mortgage.
Universal Motors Corporation was able to repossess all the units sold to the
latter, including the five (5) units guaranteed by the subject real estate
mortgage, and to foreclose all the chattel mortgages constituted thereon,
resulting in the sale of the trucks at public auction.
With the foregoing background, the spouses Lorenzo Pascual and Leonila
Torres, the real estate mortgagors, filed an action in the Court of First
Instance of Quezon City for the cancellation of the mortgage they constituted
on two (2) parcels of land in favor of the Universal Motors Corporation to
guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The
court rendered judgment for the plaintiffs, ordered the cancellation of the
mortgage
Unsatisfied with the decision, defendant interposed the present appeal.
Universal Motors contends that what article 1484 withholds from the vendor
is the right to recover any deficiency from the purchaser after the foreclosure
of the chattel mortgage and not a recourse to the additional security put up
by a third party to guarantee the purchasers performance of his obligation.

ISSUE/S
W/N Universal can claim for deficiency judgment as against PDP Transits
guarantors (Pascual and Torres) - NO

12
#10 SERVICEWIDE SPECIALISTS, INC. vs. INTERMEDIATE APPELLATE COURT
Petitioner: Servicewide Specialists, Inc.
Private Respondent: Galicano Siton
DOCTRINE The chattel mortgagor continues to be the owner of the property, and
therefore, has the power to alienate the same; however, he is obliged under pain of
penal liability, to secure the written consent of the mortgagee.
The absence of the written consent of the mortgagee to the sale of the mortgaged
property in favor of a third person, therefore, affects not the validity of the sale but
only the penal liability of the mortgagor under the Revised Penal Code and the
binding effect of such sale on the mortgagee under the Deed of Mortgage.
FACTS
Siton purchased from Car Traders Philippines, Inc. a vehicle a two-door
Mitsubishi Celeste and paid P25,000.00 as downpayment of the price. The
remaining balance of P68,400.00, includes not only the remaining principal
obligation but also advance interests and premiums for motor vehicle
insurance policies.
He executed a promissory note expressly stipulating the remaining obligation
shall be payable without the need of notice of demand, and in installment
basis for 36 months ( P1,900/month) due and payable on the 14th day of
each month starting September 14, 1979, thru and inclusive of August
14,1982. As further Security Siton executed a Chattel Mortgage over the
subject motor vehicle in favor of Car Traders
The credit covered by the promissory note and chattel mortgage executed by
Siton was first assigned by Car Traders Philippines, Inc. in favor of Filinvest
Credit Corporation which the latter reassigned to Servicewide Specialists,
Inc.
Alleging that Siton failed to pay the part of the installment which fell due, the
petitioner filed this action against Galicano Siton and John Doe.
After the service of summons, Justiniano de Dumo, identifying himself as the
John Doe in the Complaint, inasmuch as he is in possession of the subject
vehicle, filed his Answer with Counterclaim and with Opposition to the prayer
for a Writ of Replevin. Said defendant, alleged the fact that he has bought
the motor vehicle from Siton that as such successor, he stepped into the
rights and obligations of the seller; that he has religiously paid the
installments as stipulated upon in the promissory note. He also manifested
that the Answer he has filed in his behalf should likewise serve as a
responsive pleading for his co-defendant Siton.
The RTC ordered defendants to pay the jointly and severally the plaintiff the
remaining balance on the motor vehicle.
The IAC rendered judgment affirming in toto the decision of the trial court.
Hence, the instant petition.
ISSUE
Whether or not the sale between the mortgagor Siton and De Dumo was
void, as the sale is prohibited under the provisions of the Deed of Chattel
Mortgage, the Chattel Mortgage Act (Act 1508) and the Revised Penal Code.
HELD
Yes its valid.
There is no dispute that the Deed of Chattel Mortgage executed between
Siton and the petitioner requires the written consent of the latter as
mortgagee in the sale or transfer of the mortgaged vehicle. We cannot
ignore the findings, however, that before the sale, prompt inquiries were
made by private respondents with Filinvest Credit Corporation regarding any
possible future sale of the mortgaged property; and that it was upon the
advice of the companys credit lawyer that such a verbal notice is sufficient
and that it would be convenient if the account would remain in the name of
the mortgagor Siton.
Even the personal checks of de Dumo were accepted by petitioner as
payment of some of the installments under the promissory note. If it is true
that petitioner has not acquiesced in the sale, then, it should have inquired
as to why de Dumos checks were being used to pay Sitons obligations.
Further, it is worthy to note that despite the arguments of petitioner that it is
not bound by the sale of the vehicle to de Dumo, and that the latter is a
stranger to the transaction between Filinvest and Siton, nevertheless, it
admitted de Dumos obligation as purchaser of the property when it named
the latter as one of the defendants in the lower court.
In view of the foregoing, We find it correct to hold both the respondents
Galicano Siton and Justiniano de Dumo liable for their obligations to
petitioner herein. In the case at bar, the purchase of the car by respondent
de Dumo from respondent Siton does not necessarily imply the
extinguishment of the liability of the latter. Since it was neither established
nor shown that Siton was released from responsibility under the promissory
note, the same does not constitute novation by substitution of debtors under
Article 1293 of the Civil Code. Likewise, the fact that petitioner company
accepts payments from a third person like respondent de Dumo, who has
assumed the obligation, will result merely to the addition of debtors and not
novation. Hence, the creditor may therefore enforce the obligation against
both debtors.
DISPOSITION
ACCORDINGLY, the petition is GRANTED and the assailed decision of the
Court of Appeals dated April 25, 1986 is hereby REVERSED and SET
ASIDE, and a new one entered, ordering the private respondents Galicano
Siton and Justiniano de Dumo, jointly to pay to petitioner Servicewide
Specialists, Incorporated, the total sum of the remaining unpaid balance on
13
the promissory note with interest thereon at fourteen percent per annum
from January 25, 1982 until fully paid, as well as stipulated attorneys fees
and liquidated damages; and to reimburse to petitioner the sum of P3,859.90
for the premium payments on the insurance policies over the subject vehicle.
Costs against private respondents.

SO ORDERED.

14
#11 Cordova vs REYES DAWAY LIM BERNARDO
LINDO ROSALES LAW OFFICES
GR # 146555 | July 3, 2007
Petition: Petition For Review on Certiorari
Petitioner: Jose Cordova
Respondent: REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES,
ATTY. WENDELL CORONEL and the SECURITIES AND EXCHANGE
COMMISSION
DOCTRINE
FACTS
- Sometime in 1977 and 1978, Jose C. Cordova bought from Philippine
Underwriters Finance Corporation (Philfinance) certificates of stock of
Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of various
other corporations. He was issued a confirmation of sale.
- The shares were physically delivered by Philfinance to Filmanbank and
Philtrust Bank, as custodian banks, to hold these shares in behalf of and for
the benefit of Cordova.
- On June 18, 1981, Philfinance was placed under receivership by the SEC.
Thereafter, Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty.
Wendell Coronel were appointed as liquidators.
- In 1991, without the knowledge and consent of Cordova and without
authority from the SEC, private respondents withdrew the CSPI shares from
the custodian banks and sold the shares to Northeast Corporation and
included the proceeds thereof in the funds of Philfinance.
- When Cordova learned of the sale, he lodged a complaint with private
respondents but the latter ignored it, prompting him to file, on May 6, 1997, a
formal complaint against private respondents in the receivership proceedings
with the SEC, for the return of the shares.
- The SEC approved a 15% rate of recovery for Philfinances creditors and
investors. On May 13, 1997, the liquidators began the process of settling the
claims against Philfinance, from its assets.
- The SEC initially dismissed Cordovas complaint. But reversed itself in a
resolution and granted Cordovas claims.
- But since the shares had already been sold and the proceeds commingled
with the other assets of Philfinance, Cordovas status was converted into that
of an ordinary creditor for the value of such shares. Thus, it ordered private
respondents to pay the amount of P5,062,500 representing 15% of the
monetary value of his CSPI shares plus interest at the legal rate from the
time of their unauthorized sale.
- SEC later deleted the award for legal interest, as it would be unfair to other
claimants.
- Cordova appealed to the CA.
- CA: Affirmed SEC decision.
o It agreed that petitioner was indeed the owner of the CSPI shares
but the recovery of such shares had become impossible. It also
declared that the clarificatory order merely harmonized the
dispositive portion with the body of the resolution.
Hence, this petition.
ISSUE/S
5. W/N Cordova is a creditor of Philfinance
6. W/N he is a preferred or ordinary creditor and can he recover the full value of his
CSPI shares or merely 15% thereof like all other ordinary creditors of Philfinance
7. W/N he is entitled to legal interest
RULING & RATIO
3. YES
- The SC just reiterated the SEC and CA decision.
o SEC:Petitioner is seeking the return of his CSPI shares which, for
the present, is no longer possible, considering that the same had
already been sold by the respondents, the proceeds of which are
ADMITTEDLY commingled with the assets of PHILFINANCE.
This being the case, [petitioner] is now but a claimant for the
value of those shares. As a claimant, he shall be treated as an
ordinary creditor in so far as the value of those certificates is
concerned.
o CA: Concomitantly, petitioners filing of his claim over the
subject CSPI shares before the SEC in the liquidation
proceedings bound him to the terms and conditions thereof. He
cannot demand any special treatment [from] the liquidator, for
this flies in the face of, and will contravene, the Supreme Court
dictum that when a corporation threatened by bankruptcy is taken
over by a receiver, all the creditors shall stand on equal footing. Not
one of them should be given preference by paying one or some [of]
them ahead of the others. This is precisely the philosophy
underlying the suspension of all pending claims against the
corporation under receivership. The rule of thumb is equality in
equity
4. Ordinary Creditor
a. SAY THIS PARA LEGIT: The Civil Code provisions on concurrence and
preference of credits are applicable to the liquidation proceedings.
b. Petitioner argues that he was a preferred creditor because private
respondents illegally withdrew his CSPI shares from the custodian
banks and sold them without his knowledge and consent and without
authority from the SEC. He quotes Article 2241 (2) of the Civil Code:
With reference to specific movable property of the debtor, the following
claims or liens shall be preferred:
xxx xxx xxx
(2) Claims arising from misappropriation, breach of trust, or
malfeasance by public officials committed in the performance of their
duties, on the movables, money or securities obtained by them;
xxx xxx xxx
15
 c. Article 2241 refers only to specific movable property. His claim was for
the payment of money, which, as already discussed, is generic property
and not specific or determinate.
d. Considering that petitioner did not fall under any of the provisions
applicable to preferred creditors, he was deemed an ordinary creditor
under Article 2245:
Credits of any other kind or class, or by any other right or title not
comprised in the four preceding articles, shall enjoy no preference.
e. This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata
regardless of dates.
f. Like all the other ordinary creditors or claimants against Philfinance, he
was entitled to a rate of recovery of only 15% of his money claim.
5. NO.
- The guidelines for awarding interest were laid down in Eastern Shipping
Lines, Inc. v. CA:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can
be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made,
the interest shall begin to run only from the date of the
judgment of the court is made (at which time the
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount of finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
- Under this ruling, Cordova was not entitled to legal interest of 12% per
annum (from demand) because the amount owing to him was not a loan or
forbearance of money.
- Neither was he entitled to legal interest of 6% per annum under Article 2209
of the Civil Codesince this provision applies only when there is a delay in the
payment of a sum of money.
- This was not the case here. In fact, petitioner himself manifested before the
CA that the SEC (as liquidator) had already paid him P5,062,500
representing 15% of P33,750,000.
o Considering that petitioner had already received the amount of
P5,062,500, the obligation of the SEC as liquidator of Philfinance
was totally extinguished.
o Same
DISPOSITION
WHEREFORE, the petition is hereby DENIED.
NOTES
(For the badfaith of the respondents)
We note that there is an undisputed finding by the SEC and CA that private
respondents sold the subject shares without authority from the SEC. Petitioner
evidently has a cause of action against private respondents for their bad faith
and unauthorized acts, and the resulting damage caused to him.
16
#12 PDIC v. BIR (Short title)
GR # 158261 | December 18, 2006
Petition: Petition for review on certiorari under Rule 45 of the Rules of Court
Petitioner: Philippine Deposit Insurance Corporation
Respondent: Bureau Of Internal Revenue
FACTS
- In 1986, a special examination of Rural Bank of Bokod (Benguet), Inc (RBBI)
was conducted by the Supervision and Examination Sector (SES) of BSP,
wherein various loan irregularities were uncovered.
- In a letter, the SES required the RBBI management to infuse fresh capital
into the bank, within 30 days from date of the advice, and to correct all the
exceptions noted.
- However, up to the termination of the subsequent general examination, no
concrete action was taken by the RBBI management.
- In view of the irregularities noted and the insolvent condition of RBBI, the
members of the RBBI Board of Directors were called for a conference at the
BSP.
- Only one RBBI Director, a certain Mr. Wakit, attended the conference, and
the examination findings and related recommendations were discussed with
him.
- In a letter, receipt of which was acknowledged by Mr. Wakit, the SES warned
the RBBI Board of Directors that, unless substantial remedial measures are
taken to rehabilitate the bank.
- Despite repeated notices, the SES received no word from RBBI.
- Subsequently, the Monetary Board of the BSP decided to put RBBI on
receivership.
- A memorandum and report were submitted by the Director of the SES
concluding that the RBBI remained in insolvent financial condition and it can
no longer safely resume business with the depositors, creditors, and the
general public.
- The Monetary Board ordered the liquidation of the bank and designated the
Director as liquidator.
- The liquidator then caused the filing with the RTC of a Petition for Assistance
in the Liquidation of RBBI and the Monetary Board transferred to Philippine
Deposit Insurance Corporation (PDIC) the receivership/liquidation of RBBI.
- PDIC then filed a Motion for Approval of Project of Distribution of the assets
of RBBI, in accordance with Section 31, in relation to Section 30, of Republic
Act No. 7653, otherwise known as the New Central Bank Act.
- During the hearing, BIR manifested that PDIC should secure a tax clearance
certificate from the appropriate BIR Regional Office, pursuant to Section
52(C) of Republic Act No. 8424, or the Tax Code of 1997, before it could
proceed with the dissolution of RBBI.
- RTC: Issued an order directing PDIC to comply with the Tax Code and held
in abeyance the Motion for Approval of Project of Distribution.
- MR filed by PDIC arguing that the Tax Code does not cover closed banking
institutions like RBBI as the law that covers liquidation of closed banks is the
new Central Bank Law.
- RTC: Denied MR. PDIC should still secure the necessary tax clearance in
order for it to be cleared of all its tax liabilities as regardless of what law
covers the liquidation of closed banks, still these banks are subject to
payment of taxes mandated by law.
- Hence, this petition
ISSUE/S
8. W/N BBI, as represented by its liquidator, PDIC, still needs to secure a tax
clearance from the BIR before the RTC could approve the Project of Distribution
of the assets of RBBI
RULING & RATIO
6. NO
- Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1
regulate the relations only as between the SEC and the BIR, making a
certificate of tax clearance a prior requirement before the SEC could approve
the dissolution of a corporation.
- RBBI was placed under receivership and ordered liquidated by the BSP, not
the SEC; and the SEC is not even a party in the said case.
- The Corporation Code is a general law applying to all types of corporations,
while the New Central Bank Act regulates specifically banks and other
financial institutions, including the dissolution and liquidation thereof. As
between a general and special law, the latter shall prevail.
- The liquidation of RBBI is undertaken according to Section 30 of the New
Central Bank Act which lays down the proceedings for receivership and
liquidation of a bank.
- The said provision is silent as regards the securing of a tax clearance from
the BIR and such cannot compel the Court to apply by analogy the tax
clearance requirement since the dissolution of a corporation by the SEC is
totally different from the receivership and liquidation of a bank by the BSP.
- The Court cannot simply replace "SEC" with the "BSP" for to do so would be
to read into the law and the regulations something that is simply not there,
and would be tantamount to judicial legislation.
- The alleged purpose of the BIR in requiring the liquidator PDIC to secure a
tax clearance is to enable it to determine the tax liabilities of the closed bank.
but what the BIR should have requested from the RTC is for PDIC to submit
the final return of RBBI, a duty by PDIC provided for in Section 30(C) of the
Tax Code in conjunction with Section 54.
- The filing by PDIC of a final tax return, on behalf of RBBI, should already
address the concern of the BIR and would already enable the latter to
determine if RBBI still had outstanding tax liabilities.
- There is unreasonableness and impossibility in requiring a tax clearance
before the approval by the RTC of the Project of Distribution of the assets of
the RBBI.
o The BIR can only issue a certificate of tax clearance when the
taxpayer had completely paid off his tax liabilities. The certificate of
tax clearance attests that the taxpayer no longer has any
outstanding tax obligations to the Government.
o Should the BIR find that RBBI still had outstanding tax liabilities,
PDIC will not be able to pay the same because the Project of
Distribution of the assets of RBBI remains unapproved by the RTC;
o And, if RBBI still had outstanding tax liabilities, the BIR will not
issue a tax clearance; but, without the tax clearance, the Project of
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 Distribution of assets, which allocates the payment for the tax
liabilities, will not be approved by the RTC. It will be a chicken-and-
egg dilemma.
- The Government, in this case, cannot generally claim preference of credit,
and receive payment ahead of the other creditors of RBBI.
o Duties, taxes, and fees due the Government enjoy priority only
when they are with reference to a specific movable property, under
Article 2241(1) of the Civil Code, or immovable property, under
Article 2242(1) of the same Code.
- However, with reference to the other real and personal property of the
debtor, sometimes referred to as "free property," the taxes and assessments
due the National Government, other than those in Articles 2241(1) and
2242(1) of the Civil Code, will come only in ninth place in the order of
preference.
- Thus, the recourse of the BIR, after assessing the final return and examining
all other pertinent documents of RBBI, and making a determination of the
latters outstanding tax liabilities, is to present its claim, on behalf of the
National Government, before the RTC during the liquidation proceedings.
- The BIR is expected to prove and substantiate its claim, in the same manner
as the other creditors. It is only after the RTC allows the claim of the BIR,
together with the claims of the other creditors, can a Project for Distribution
of the assets of RBBI be finalized and approved.
- PDIC, then, as liquidator, may proceed with the disposition of the assets of
RBBI and pay the latters financial obligations, including its outstanding tax
liabilities. And, finally, only after such payment, can the BIR issue a
certificate of tax clearance in the name of RBBI.
- The evident void in current statutes and regulations as to the relations
among the BIR, as tax collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver and liquidator of banks
ordered closed by the BSP, is not for this Court to fill in. It is up to the
legislature to address the matter through appropriate legislation, and to the
executive to provide the regulations for its implementation.

DISPOSITION
WHEREFORE, in view of the foregoing, this Court rules as follows
(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and 13
May 2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in Spec.
Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been rendered
with grave abuse of discretion;
(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of
RBBI, in accordance with the first paragraph of Section 52(C), in connection with
Section 54, of the Tax Code of 1997; and
(c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc. No.
91-SP-0060 in order to determine all the claims of the creditors, including that of the
National Government, as determined and presented by the BIR; and, pursuant to
such determination, and guided accordingly by the provisions of the Civil Code on
preference of credit, to review and approve the Project of Distribution of the assets of
RBBI.

SO ORDERED.

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