BA Finance Corp vs.

CA GR 61464, May 28 1988

FACTS:
Augusto Yulo secured a loan from the petitioner in the amount of P591,003.59 as evidenced by
a promissory note he signed in his own behalf and as a representative of A&L Industries. Augusto
presented an alleged special power of attorney executed by his wife, Lily Yulo, who managed the
business and under whose name the said business was registered, purportedly authorized the
husband to procure the loan and sign the promissory note. 2 months prior the procurement of
the loan, Augusto left Lily and their children which in turn abandoned their conjugal home. When
the obligation became due and demandable, Augusto failed to pay the same.
The petitioner prayed for the issuance of a writ of attachment alleging that said spouses were
guilty of fraud consisting of the execution of Deed of Assignment assigning the rights, titles and
interests over a construction contract executed by and between the spouses and A. Soriano
Corporation. The writ hereby prayed for was issued by the trial court and not contented with the
order, petitioner filed a motion for the examination of attachment debtor alleging that the
properties attached by the sheriff were not sufficient to secure the satisfaction of any judgment
which was likewise granted by the court.

ISSUE: Whether A&L Industries can be held liable for the obligations contracted by the husband.

HELD: A&L Industries is a single proprietorship, whose registered owner is Lily Yulo. The said
proprietorship was established during the marriage and assets were also acquired during the
same. Hence, it is presumed that the property forms part of the conjugal partnership of the
spouses and be held liable for the obligations contracted by the husband. However, for the
property to be liable, the obligation contracted by the husband must have redounded to the benefit
of the conjugal partnership. The obligation was contracted by Augusto for his own benefit
because at the time he incurred such obligation, he had already abandoned his family and left
their conjugal home. He likewise made it appear that he was duly authorized by his wife in behalf
of the company to procure such loan from the petitioner. Clearly, there must be the requisite
showing that some advantage accrued to the welfare of the spouses.
Thus, the Court ruled that petitioner cannot enforce the obligation contracted by Augusto against
his conjugal properties with Lily. Furthermore, the writ of attachment cannot be issued against the
said properties and that the petitioner is ordered to pay Lily actual damages amouting to
P660,000.00.
Cerna vs. Court of Appeals "Solidary debtor" (D) vs. Creditor (P) GR L-4835
Summary: A debtor used the property of a third person to secure his loan. Upon non-payment of
the loan, the creditor sued for collection against the owner of the security alleging that the
mortgage created a solidary relationship between the debtor and the owner of the security.
Rule of Law: There is solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.
Facts: Debtor Celerino Delgado entered into a loan agreement with creditor Conrad Leviste (P)
covered by a promissory note. In addition to mortgaging his vehicle, Delgado also mortgaged
another vehicle owned by Manolo Cerna (D) to secure his loan.
The period lapsed without Delgado paying the loan. Leviste (P) filed a collection suit against
Delgado and Cerna (D) as solidary debtors. Cerna (D) filed a motion to dismiss case alleging lack
of cause of action against him because he was not a debtor under the promissory note and
secondly, that the case did not survive Delgado's death. However, Cerna's (D) motion was
dismissed.
On appeal, the court ruled that Cerna (D) and Delgado were solidary debtors and that the
mortgage created a joint and solidary obligation against Leviste (P).

Issues: Will the mortgage of a property owned by a third party to secure the debt of the debtor
make this third party solidarily liable with the debtor?

Ruling: No. Only Delgado signed the promissory note and accordingly, he was the only one bound
by the contract of loan. Nowhere did it appear in the promissory note that Cerna (D) was a co-
debtor. The law is clear that "contracts take effect only between the parties ... " (Article 1311, Civil
Code)
Cerna (D) was held solidarily liable for the debt allegedly because he was a co-mortgagor of the
principal debtor, Delgado. This ignores the basic precept that "there is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity." (Article 1207, Civil Code)
There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person
who secures the obligation of another by mortgaging his own property to be solidarily bound with
the principal obligor. A chattel mortgage may be "an accessory contract" (Banco de Oro vs.
Bayuga, 93 SCRA 443, 1979) to a contract of loan, but that fact alone does not make a third-party
mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation—that is, to
pay the loan. The signatory to the principal contract loan remains to be primarily bound. It is only
upon the default of the latter that the creditor may have recourse on the mortgagors by foreclosing
the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the
liability of the third-party mortgagors extends only to the property mortgaged. Should there be any
deficiency, the creditor has recourse on the principal debtor.
Mahoney v. Tuazon
Facts: D.J. Mahoney, receiver of the insolvency of P. Blanc, prayed the Court of First Instance of
Manila to cite Mariano Tuason to appear and explain before the court the reason why he had in
his custody the jewels of P Blanc.
P. Blanc, the owner of the jewels, entered into the said contract of pledge, delivering to the creditor
Mariano Tuason several jewels and other merchandise mentioned in the documents referred to,
for the purpose of securing the fulfillment of the obligation which he (Blanc) had contracted in
favor of the latter who had guaranteed the payment of a considerable amount of money which
Blanc owed to the Chartered Bank which amount Tuason had to pay, because of Blanc’s
obligation to do so.

Issue: WON a contract of chattel mortgage duly entered into is rendered null and void by an
additional stipulation among the contracting parties that in case of the debtor’s failure to comply
with the conditions agreed upon, the creditor would be authorized to retain the jewels and
merchandise pledged in half of their value and absolutely appropriating them to himself.

Held: No. If the mortgagor defaults in the payment of the secured debt or otherwise fails to comply
with the conditions of the mortgage, the creditor has no right to appropriate to himself the personal
property (Arts. 2141, 2088.) because he is permitted only to recover his credit from the proceeds
of the sale of the property at public auction through a public officer in the manner prescribed in
Section 14 of Act No. 1508. The vice of nullity which vitiates the additional agreement entered
into by the contracting parties authorizing the creditor to appropriate the property and effects
pledged in payment of his credit does not affect substantially the principal contract of chattel
mortgage with regard to its validity and efficacy, for the reason that the principal contract of pledge
or chattel mortgage having been perfected it can subsist although the contracting parties have
not agreed as to the manner the creditor could recover his credit from the value of the things
pledged, in case of the insolvency of the debtor, inasmuch as the law has expressly established
the procedure in order that the creditor may not be defrauded or deceived in his right to recover
his credit from the proceeds of the chattels retained by him as a security, in case the debtor does
not comply with his obligation, because, if the debtor could not pay his debt, there exists no just
or legal reason which prevents the creditor from recovering his credit from the proceeds of the
effects pledged sold at a sale effected in accordance with law.
Rizal Commercial Banking Corporation VS Royal Cargo Corporation G.R. No. 179756

FACTS:
Terrymanila Inc. filed a petition for voluntary insolvency with RTC of Bataan. One of its creditors
was RCBC (P3M secured by chattel mortgage) Royal Cargo Corporation, another creditor of
Terrymanila, filed an action before the RTC of Manila for collection of sum of money and
preliminarily attached "some" of Terrymanila's personal properties to secure the satisfaction of
judgment award of P296,662.16, exclusive of interests and atty's fees.
Bataan RTC declared Terry insolvent. Manila RTC judgment in favor of Royal Cargo.In the
meantime, RCBC sought in the insolvency proceedings at Bataan RTC permission to
extrajudicially foreclose the chattel mortgage- granted Provincial Sheriff scheduled the public
auction sale of mortgaged personal properties in Bataan. At the auction sale, RCBC was the sole
bidder, and purchased them for P1.5M.Royal Cargo filed a petition for annulment of auction sale
before Manila RTC, against the Provincial Sheriff of Bataan RTC and RCBC.- Questioned the
failure to duly notify Royal Cargo of the sale at least 10 days prior to the sale- Basis: Act No. 1508,
Sec. 14. Manila RTC judged in favor of Royal Cargo. CA affirmed and increased atty's fees and
awarded exemplary damages and interest on principal amount.

ISSUE: Whether Royal Cargo should have been notified of the foreclosure sale
HELD: NO, Sec. 13 of the Chattel Mortgage Law allows the would-be redemptioner to redeem
the mortgaged property only BEFORE its sale. The redemption cited in Sec. 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 conditions of the mortgage, but before the sale of property, to
clear it from encumbrance of the mortgage.
Royal Cargo attached Terry's equity of redemption.
Thus, it had to be informed of the date of sale of mortgaged assets for it to exercise such equity
of redemption over some of those foreclosed properties. Royal Cargo was aware of the auction
sale. It was informed about the Order of the insolvency court that granted leave to RCBC to
foreclose the chattel mortgage. Its negligence or omission to exercise its equity of redemption
within a reasonable time, or even on the day of auction sale, warrants a presumption that it had
either abandoned it or opted not to assert it.
Royal Cargo was not prejudiced by the auction sale. Terry had sufficient, unencumbered assets
to cover obligations owing to its other creditors RCBC had a superior lien over the mortgaged
assets. The right of those who acquire properties should not and cannot be superior to that of a
creditor, who has in his favor an instrument of mortgage, executed with the formalities of law, in
good faith, and without the least indication of fraud. Right of Royal Cargo was subordinate to the
lien of the mortgagee, who has in his favor a valid chattel mortgage