LOZADA, STEFANIE

INVOLUNTARY INSOLVENCY OF PAUL STROCHECKER, appellee, vs. ILDEFONSO RAMIREZ, creditor and appellant. WILLIAM EDMONDS, assignee. Lim & Lim for appellant. Ross & Lawrence and Antonio T. Carrascoso, jr., for the Fidelity & Surety Co. ROMUALDEZ, J.: The question at issue in this appeal is, which of the two mortgages here in question must be given preference? Is it the one in favor of the Fidelity & Surety Co., or that in favor of Ildefonso Ramirez. The first was declared by the trial court to be entitled to preference. In the lower court there were three mortgagees each of whom claimed preference. They were the two above mentioned and Concepcion Ayala. The latter's claim was rejected by the trial court, and from that ruling she did not appeal. There is no question as to the priority in time of the mortgage in favor of the Fidelity & Surety Co. which was executed on March 10, 1919, and registered in due time in the registry of property, that in favor of the appellant being dated September 22, 1919, and registered also in the registry. The appellant claims preference on these grounds: (a) That the first mortgage above-mentioned is not valid because the property which is the subject-matter thereof is not capable of being mortgaged, and the description of said property is not sufficient; and (b) that the amount due the appellant is a purchase price, citing article 1922 of the Civil Code in support thereof, and that his mortgage is but a modification of the security given by the debtor on February 15, 1919, that is, prior to the mortgage executed in favor of the Fidelity & Surety Co. As to the first ground, the thing that was mortgaged to this corporation is described in the document as follows: . . . his half interest in the drug business known as Antigua Botica Ramirez (owned by Srta. Dolores del Rosario and the mortgagor herein referred to as the partnership), located at Calle Real Nos. 123 and 125, District of Intramuros, Manila, Philippine Islands. With regard to the nature of the property thus mortgaged, which is one-half interest in the business above described, such interest is a personal property capable of appropriation and not included in the enumeration of real properties in article 335 of the Civil Code, and may be the subject of mortgage. All personal property may be mortgaged. (Sec. 2, Act No. 1508.) The description contained in the document is sufficient. The law (sec. 7, Act No. 1508) requires only a description of the following nature: The description of the mortgaged property shall be such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same. Turning to the second error assigned, numbers 1, 2, and 3 of article 1922 of the Civil Code invoked by the appellant are not applicable. Neither he, as debtor, nor the debtor himself, is in possession of the property

LOZADA, STEFANIE
mortgaged, which is, and since the registration of the mortgage has been, legally in possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508; Meyers vs. Thein, 15 Phil., 303.) In no way can the mortgage executed in favor of the appellant on September 22, 1919, be given effect as of February 15, 1919, the date of the sale of the drug store in question. On the 15th of February of that year, there was a stipulation about a persons security, but not a mortgage upon any property, and much less upon the property in question. Moreover, the appellant cannot deny the preferential character of the mortgage in favor of the Fidelity & Surety Co. because in the very document executed in his favor it was stated that his mortgage was a second mortgage, subordinate to the one made in favor of the Fidelity & Surety Co. The judgment appealed from is affirmed with costs against the appellant. So ordered.

LOZADA, STEFANIE
ALEJANDRA TORRES, ET AL., plaintiff-appellees, vs. FRANCISCO LIMJAP, Special Administrator of the estate of the deceased Jose B. Henson, defendantappellant. G.R. No. 34386 September 21, 1931

LOZADA, STEFANIE
Upon the issue thus raised by the pleadings, the two causes were tried together by agreement of the parties. After hearing the evidence adduced during the trial and on July 17, 1930, the Honorable Mariano Albert, judge, in a very carefully prepared opinion, arrived at the conclusion (a) that the defendant defaulted in the payment of interest on the loans secured by the mortgages, in violation of the terms thereof; (b) that by reason of said failure said mortgages became due, and (c) that the plaintiffs, as mortgagees, were entitled to the possession of the drug stores Farmacia Henson at Nos. 101-103 Calle Rosario and Henson's Pharmacy at Nos. 71-73 Escolta. Accordingly, a judgment was rendered in favor of the plaintiffs and against the defendant, confirming the attachment of said drug stores by the sheriff of the City of Manila and the delivery thereof to the plaintiffs. The dispositive part of the decision reads as follows: En virtud de todo lo expuesto, el Juzgado dicta sentencia confirmado en todas sus partes los ordenes de fechas 16 y 17 de abril de presente ano, dictadas en las causas Nos. 37096 y 37097, respectivamente, y declara definitiva la entrega hecha a los demandantes por el Sheriff de Manila de las boticas en cuestion. Se condena en costas al demandado en ambas causas. From the judgment the defendant appealed, and now makes the following assignments of error:

SABINA VERGARA VDA. DE TORRES, ET AL., plaintiffs-appellees, vs. FRANCISCO LIMJAP, Special Administration of the estate of the deceased Jose B. Henson, defendantappellant. Duran, Lim and Tuason for appellant. Guevara, Francisco and Recto for appellees. JOHNSON, J.: These two actions were commenced in the Court of First Instance of Manila on April 16, 1930, for the purpose of securing from the defendant the possession of two drug stores located in the City of Manila, covered by two chattel mortgages executed by the deceased Jose B. Henson in favor of the plaintiffs. In the first case the plaintiffs alleged that Jose B. Henson, in his lifetime, executed in their favor a chattel mortgage (Exhibit A) on his drug store at Nos. 101-103 Calle Rosario, known as Farmacia Henson, to secure a loan of P7,000, although it was made to appear in the instrument that the loan was for P20,000. In the second case the plaintiffs alleged that they were the heirs of the late Don Florentino Torres; and that Jose B. Henson, in his lifetime, executed in favor of Don Florentino Torres a chattel mortgage (also Exhibit A) on his three drug stores known as Henson's Pharmacy, Farmacia Henson and Botica Hensonina, to secure a loan of P50,000, which was later reduced to P26,000, and for which, Henson's Pharmacy at Nos. 71-73 Escolta, remained as the only security by agreement of the parties. In both cases the plaintiffs alleged that the defendant violated the terms of the mortgage and that, in consequence thereof they became entitled to the possession of the chattels and to foreclose their mortgages thereon. Upon the petition of the plaintiffs and after the filing of the necessary bonds, the court issued in each case an order directing the sheriff of the City of Manila to take immediate possession of said drug stores. The defendant filed practically the same answer to both complaints. He denied generally and specifically the plaintiffs' allegations, and set up the following special defenses: (1) That the chattel mortgages (Exhibit A, in G.R. No. 34385 and Exhibit A, in G.R. No. 34286) are null and void for lack of sufficient particularity in the description of the property mortgaged; and (2) That the chattels which the plaintiffs sought to recover were not the same property described in the mortgage. The defendant also filed a counterclaim for damages in the sum of P20,000 in the first case and P100,000 in the second case.

I. The lower court erred in failing to make a finding on the question of the sufficiency of the description of the chattels mortgaged and in failing to hold that the chattel mortgages were null and void for lack of particularity in the description of the chattels mortgaged. II. The lower court erred in refusing to allow the defendant to introduce evidence tending to show that the stock of merchandise found in the two drug stores was not in existence or owned by the mortgagor at the time of the execution of the mortgages in question. III. The lower court erred in holding that the administrator of the deceased is now estopped from contesting the validity of the mortgages in question. IV. The lower court erred in failing to make a finding on the counterclaims of the defendant. With reference to the first assignment of error, we deem it unnecessary to discuss the question therein raised, inasmuch as according to our view on the question of estoppel, as we shall hereinafter set forth in our discussion of the third assignment of error, the defendant is estopped from questioning the validity of these chattel mortgages. In his second assignment of error the appellant attacks the validity of the stipulation in said mortgages authorizing the mortgagor to sell the goods covered thereby and to replace them with other goods thereafter acquired. He insists that a stipulation authorizing the disposal and substitution of the chattels mortgaged does not operate to extend the mortgage to after-acquired property, and that such stipulation is in contravention of the express provision of the last paragraph of section 7 Act No. 1508, which reads as follows: 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. In order to give a correct construction to the above-quoted provision of our Chattel Mortgage Law (Act No. 1508), the spirit and intent of the law must first be ascertained. When said Act was placed on our statute books by the United States Philippine Commission on July 2, 1906, the primary aim of that law-making body was undoubtedly

LOZADA, STEFANIE
to promote business and trade in these Islands and to give impetus to the economic development of the country. Bearing this in mind, it could not have been the intention of the Philippine Commission to apply the provision of section 7 above quoted to stores open to the public for retail business, where the goods are constantly sold and substituted with new stock, such as drug stores, grocery stores, dry-goods stores, etc. If said provision were intended to apply to this class of business, it would be practically impossible to constitute a mortgage on such stores without closing them, contrary to the very spirit about a handicap to trade and business, would restrain the circulation of capital, and would defeat the purpose for which the law was enacted, to wit, the promotion of business and the economic development of the country. In the interpretation and construction of a statute the intent of the law-maker should always be ascertained and given effect, and courts will not follow the letter of a statute when it leads away from the true intent and purpose of the Legislature and to conclusions inconsistent with the spirit of the Act. On this subject, Sutherland, the foremost authority on statutory construction, says: The Intent of Statute is the Law. If a statute is valid it is to have effect according to the purpose and intent of the lawmaker. The intent is the vital part, the essence of the law, and the primary rule of construction is to ascertain and give effect to that intent. The intention of the legislature in enacting a law is the law itself, and must be enforced when ascertained, although it may not be consistent with the strict letter of the statute. Courts will not follow the letter of a statute when it leads away from the true intent and purpose of the legislature and to conclusions inconsistent with the general purpose of the act. Intent is the spirit which gives life to a legislative enactment. In construing statutes the proper course is to start out and follow the true intent of the legislature and to adopt that sense which harmonizes best with the content and promotes in the fullest manner the apparent policy and objects of the legislature. (Vol. II Sutherland, Statutory Construction, pp. 693-695.) A stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and binding . . . where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc. (11 C.J., p. 436.) Cobbey, a well-known authority on Chattel Mortgages, recognizes the validity of stipulations relating to afteracquired and substituted chattels. His views are based on the decisions of the supreme courts of several states of the Union. He says: "A mortgage may, by express stipulations, be drawn to cover goods put in stock in place of others sold out from time to time. A mortgage may be made to include future acquisitions of goods to be added to the original stock mortgaged, but the mortgage must expressly provide that such future acquisitions shall be held as included in the mortgage. ... Where a mortgage covering the stock in trade, furniture, and fixtures in the mortgagor's store provides that "all goods, stock in trade, furniture, and fixtures hereafter purchased by the mortgagor shall be included in and covered by the mortgage," the mortgage covers all after-acquired property of the classes mentioned, and, upon foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession of the mortgagor at the time the mortgage was executed." (Vol. I, Cobbey on Chattel Mortgages, sec. 361, pp. 474, 475.) In harmony with the foregoing, we are of the opinion (a) that the provision of the last paragraph of section 7 of Act No. 1508 is not applicable to drug stores, bazaars and all other stores in the nature of a revolving and floating business; (b) that the stipulation in the chattel mortgages in question, extending their effect to after-acquired property, is valid and binding; and (c) that the lower court committed no error in not permitting the defendantappellant to introduce evidence tending to show that the goods seized by the sheriff were in the nature of afteracquired property.

LOZADA, STEFANIE
With reference to the third assignment of error, we agree with the lower court that, from the facts of record, the defendant-appellant is estopped from contenting the validity of the mortgages in question. This feature of the case has been very ably and fully discussed by the lower court in its decision, and said discussion is made, by reference, a part of this opinion. As to the fourth assignment of error regarding the counterclaims of the defendant-appellant, it may be said that in view of the conclusions reached by the lower court, which are sustained by this court, the lower court committed no error in not making any express finding as to said counterclaims. As a matter of form, however, the counterclaims should have been dismissed, but as the trial court decided both cases in favor of the plaintiffs and confirmed and ratified the orders directing the sheriff to take possession of the chattels on behalf of the plaintiffs, there was, in effect, a dismissal of the defendant's counterclaims. For all of the foregoing, we are of the opinion and so hold that the judgment appealed from is in accordance with the facts and the law, and the same should be and is hereby affirmed, with costs. So ordered.

LOZADA, STEFANIE

LOZADA, STEFANIE
the ground by means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that the machine is real property by constituting a chattel mortgage thereon. A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the case to this Court for review by writ of certiorari. It is contended by private respondent, however, that the instant petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated. The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by respondent's representative. 1 Considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted by such return may not be sustained. The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a personality, while the respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by said respondent. A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled: Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee, and although this can not in itself alone determine the status of the property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the subject house as personality. Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate court did, the present case from the application of the abovequoted pronouncement. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage.

MAKATI LEASING and FINANCE CORPORATION, petitioner, vs. WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents. Loreto C. Baduan for petitioner. Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner. Jose V. Mancella for respondent.

DE CASTRO, J.: Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for reconsideration. It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range. Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court. Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration. On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main drive motor of the subject machinery. The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to

LOZADA, STEFANIE
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law. It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and impresses upon the property the character determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as no interest of third parties would be prejudiced thereby. Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom, From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the nature of the machinery and equipment involved therein as real properties never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling jurisprudential authority. WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent. SO ORDERED. SANTOS EVANGELISTA, petitioner, vs. ALTO SURETY & INSURANCE CO., INC., respondent. Gonzalo D. David for petitioner. Raul A. Aristorenas and Benjamin Relova for respondent. CONCEPCION, J.: This is an appeal by certiorari from a decision of the Court of Appeals.

LOZADA, STEFANIE

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No. 8235 of the Court of First, Instance of Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which levied upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista, who, on October 8, 1951, bought the house at public auction held in compliance with the writ of execution issued in said case. The corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of the period of redemption. When Evangelista sought to take possession of the house, Rivera refused to surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance Co., Inc. respondent herein and that the latter is now the true owner of said property. It appears that on May 10, 1952, a definite deed of sale of the same house had been issued to respondent, as the highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in favor respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said house, securing possession thereof, apart from recovering damages. In its answer, respondent alleged, in substance, that it has a better right to the house, because the sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter. Rivera, in effect, joined forces with respondent. After due trial, the Court of First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent to deliver the house in question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952, until said delivery, plus costs. On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved said respondent from the complaint, upon the ground that, although the writ of attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were immovable property, although in the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of Appeals held, "the order of attachment . . . should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:

LOZADA, STEFANIE
The property of the defendant shall be attached by the officer executing the order in the following manner: (e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or having in his possession or under his control, such credits or other personal property, or with, his agent, a copy of the order, and a notice that the debts owing by him to the defendant, and the credits and other personal property in his possession, or under his control, belonging to the defendant, are attached in pursuance of such order. (Emphasis ours.) However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera should have been attached in accordance with subsection (c) of said section 7, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelists could not have . . . validly purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof at the time he sold it at a public auction." Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this connection, it is not disputed that although the sale to the respondent preceded that made to Evangelists, the latter would have a better right if the writ of attachment, issued in his favor before the sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is real property or not. In the affirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the attachment should be made "by filing with the registrar of deeds a copy of the order, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any there be." Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal property, the levy upon which must be made in conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue before us is whether a house, constructed the lessee of the land on which it is built, should be dealt with, for purpose, of attachment, as immovable property, or as personal property. It is, our considered opinion that said house is not personal property, much less a debt, credit or other personal property not capable of manual delivery, but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on the soil) is immovable or real property, whether it is erected by the owner of the land or by usufructuary or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court. . . ." It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract (Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464). However, this view is good only insofar as the contracting parties are concerned. It is based, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable to strangers to said contract. Much less is it in point where there has been no contract whatsoever, with respect to the status of the house involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held: The question now before us, however, is: Does the fact that the parties entering into a contract regarding a house gave said property the consideration of personal property in their contract, bind the sheriff in advertising the property's sale at public auction as personal property? It is to be remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is also to be remembered that in practice it is the judgment creditor who points out to

LOZADA, STEFANIE
the sheriff the properties that the sheriff is to levy upon in execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house had conveyed it by way of chattel mortgage and, therefore, knew its consideration as personal property. These considerations notwithstanding, we hold that the rules on execution do not allow, and, we should not interpret them in such a way as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for example, as personal property, when they are, not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales on execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to the character, which the parties have given to it or desire to give it. When the rules speak of personal property, property which is ordinarily so considered is meant; and when real property is spoken of, it means property which is generally known as real property. The regulations were never intended to suit the consideration that parties may have privately given to the property levied upon. Enforcement of regulations would be difficult were the convenience or agreement of private parties to determine or govern the nature of the proceedings. We therefore hold that the mere fact that a house was the subject of the chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale of public auction. This ruling is demanded by the need for a definite, orderly and well defined regulation for official and public guidance and would prevent confusion and misunderstanding. We, therefore, declare that the house of mixed materials levied upon on execution, although subject of a contract of chattel mortgage between the owner and a third person, is real property within the purview of Rule 39, section 16, of the Rules of Court as it has become a permanent fixture of the land, which, is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.) The foregoing considerations apply, with equal force, to the conditions for the levy of attachment, for it similarly affects the public and third persons. It is argued, however, that, even if the house in question were immovable property, its attachment by Evangelista was void or ineffective, because, in the language of the Court of Appeals, "after presenting a Copy of the order of attachment in the Office of the Register of Deeds, the person who might then be in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or other copies thereof." This finding of the Court of Appeals is neither conclusive upon us, nor accurate. The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, in paragraph 3 of the complaint, that he acquired the house in question "as a consequence of the levy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment execution of judgment. He alleged, however, by way a of special defense, that the title of respondent "is superior to that of plaintiff because it is based on a public instrument," whereas Evangelista relied upon a "promissory note" which "is only a private instrument"; that said Public instrument in favor of respondent "is superior also to the judgment in Civil Case No. 8235"; and that plaintiff's claim against Rivera amounted only to P866, "which is much below the real value" of said house, for which reason it would be "grossly unjust to acquire the property for such an inadequate consideration." Thus, Rivera impliedly admitted that his house had been attached, that the house had been sold to Evangelista in accordance with the requisite formalities, and that said attachment was valid, although allegedly inferior to the rights of respondent, and the consideration for the sale to Evangelista was claimed to be inadequate.

LOZADA, STEFANIE
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only " for the reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the final deed executed by the sheriff in favor of respondent, the same became the "legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and for value"; (3) that respondent "took possession and control of said house"; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as neither took actual or constructive possession or control of the property at any time"; and (5) "that the alleged registration of plaintiff's attachment, certificate of sale and final deed in the Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is no registry of transactions covering houses erected on land belonging to or leased from another." In this manner, respondent claimed a better right, merely under the theory that, in case of double sale of immovable property, the purchaser who first obtains possession in good faith, acquires title, if the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the writ of attachment and the notice of attachment in favor of Evangelista should be considered unregistered, "as there is no registry of transactions covering houses erected on land belonging to or leased from another." In fact, said article 1544 of the Civil Code of the Philippines, governing double sales, was quoted on page 15 of the brief for respondent in the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it "has preference or priority over the sale of the same property" to Evangelista. In other words, there was no issue on whether copy of the writ and notice of attachment had been served on Rivera. No evidence whatsoever, to the effect that Rivera had not been served with copies of said writ and notice, was introduced in the Court of First Instance. In its brief in the Court of Appeals, respondent did not aver, or even, intimate, that no such copies were served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly admitted by the defendants, in their respective answers, and by their behaviour throughout the proceedings in the Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein (p. 26) that copies of said writ and notice were delivered to Rivera, simultaneously with copies of the complaint, upon service of summons, prior to the filing of copies of said writ and notice with the register deeds, and the truth of this assertion has not been directly and positively challenged or denied in the brief filed before us by respondent herein. The latter did not dare therein to go beyond making a statement for the first time in the course of these proceedings, begun almost five (5) years ago (June 18, 1953) reproducing substantially the aforementioned finding of the Court of Appeals and then quoting the same. Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an issue on whether or not copies of the writ of attachment and notice of attachment had been served upon Rivera; that the defendants had impliedly admitted-in said pleadings and briefs, as well as by their conduct during the entire proceedings, prior to the rendition of the decision of the Court of Appeals that Rivera had received copies of said documents; and that, for this reason, evidently, no proof was introduced thereon, we, are of the opinion, and so hold that the finding of the Court of Appeals to the effect that said copies had not been served upon Rivera is based upon a misapprehension of the specific issues involved therein and goes beyond the range of such issues, apart from being contrary to the aforementioned admission by the parties, and that, accordingly, a grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate. Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered affirming that of the Court of First Instance of Manila, with the costs of this instance against respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.

LOZADA, STEFANIE
FILIPINAS MABLE CORPORATION, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, THE HONORABLE CANDIDO VILLANUEVA, Presiding Judge of Br. 144, RTC, Makati, DEVELOPMENT BANK OF THE PHILIPPINES (DBP), BANCOM SYSTEMS CONTROL, INC. (Bancom), DON FERRY, CASIMERO TANEDO, EUGENIO PALILEO, ALVARO TORIO, JOSE T. PARDO, ROLANDO ATIENZA, SIMON A. MENDOZA, Sheriff NORVELL R. LIM, respondents. Vicente Millora for petitioner. Jesus A. Avencena and Bonifacio M. Abad for respondents.

GUTIERREZ, JR., J.: This petition for review seeks to annul the decision and resolution of the appellate court which upheld the trial court's decision denying the petitioner's prayer to enjoin the respondent from foreclosing on its properties. On January 19, 1983, petitioner Filipinas Marble Corporation filed an action for nullification of deeds and damages with prayer for a restraining order and a writ of preliminary injunction against the private respondents. In its complaint, the petitioner alleged in substance 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 fun 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 Filipinos Marble's 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 DBP's prior approval and all these officers are to be made directly responsible to DBP; DBP shall immediately designate Mr. Alvaro Torio, Assistant Manager of DBP's Accounting Department as DBP's Comptroller in the firm whose compensation shall be borne by Filipinas Marble; 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 ... ; 2) the joint and several signatures with Filipinas Marble of Mr. Pelagio M. Villegas, Sr., Trinidad Villegas, and Jose E. Montelibano and 3) assignment to DBP of the borrower firm's right over its mining claims; that pursuant to these above- mentioned and other "take it or leave it" 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 P37,600,000 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 petitioner's project for which the approved loan was intended; (b) failure to construct a processing plant; (c) abandonment of imported machinery and equipment at the pier, (d) purchase of unsuitable lot for the processing plant at Binan; (e) failure to develop even a square meter of the quarries in Romblon or Cebu; and (f) nearly causing the loss of petitioner's rights over its Cebu claims; and that instead of helping petitioner get back on its feet, DBP completely abandoned the petitioner's project and proceeded to foreclose the properties mortgaged to it by petitioner without previous demand or notice.

LOZADA, STEFANIE
In essence, the petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP in order to secure the $5,000,000.00 loan because it is petitioner's 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. The petitioner further prayed that pending the trial on the merits of the case, the trial court immediately issue a restraining order and then a writ of preliminary injunction against the sheriffs to enjoin the latter from proceeding with the foreclosure and sale of the petitioner's properties in Metro Manila and in Romblon. Respondent DBP opposed the issuance of a writ of preliminary injunction stating that under Presidential Decree No. 385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to P123,801,265.82 as against its total obligation of P151,957,641.72; that under the same decree, no court can issue any restraining order or injunction against it to stop the foreclosure since Filipinas Marble's arrearages had already reached at least twenty percent of its total obligations; that the alleged non-receipt of the loan proceeds by the petitioner could, at best, be accepted only in a technical sense because the money was received by the officers of the petitioner acting in such capacity and, therefore, irrespective of whoever is responsible for placing them in their positions, their receipt of the money was receipt by the petitioner corporation and that the complaint does not raise any substantial controversy as to the amount due under the mortgage as the issues raised therein refer to the propriety of the manner by which the proceeds of the loan were expended by the petitioner's management, the allegedly precipitate manner with which DBP proceeded with the foreclosure, and the capacity of the DBP to be an assignee of the mining lease rights. After a hearing on the preliminary injunction, the trial court issued an order stating: The Court has carefully gone over the evidence presented by both parties, and while it sympathizes with the plight of the plaintiff and of the pitiful condition it now has found itself, it cannot but adhere to the mandatory provisions of P.D. 385. While the evidence so far presented by the plaintiff corporation appears to be persuasive, the same may be considered material and relevant to the case. Hence, despite the impressive testimony of the plaintiff's witnesses, the Court believes that it cannot enjoin the defendant Development Bank of the Philippines from complying with the mandatory provisions of the said Presidential Decree. It having been shown that plaintiff's outstanding obligation as of December 31, 1982 amounted to P151,957,641.72 and with arrearages reaching up to 81 % against said total obligation, the Court finds the provisions of P.D. 385 applicable to the instant case. It is a settled rule that when the statute is clear and unambiguous, there is no room for interpretation, and all that it has to do is to apply the same. On appeal, the Intermediate Appellate Court upheld the trial court's decision and held: While petitioner concedes 'that Presidential Decree No. 385 applies only where it is clear that there was a loan or where the loan is not denied' (p. 14-petition), it disclaims receipt of the $5 million loan nor benefits derived therefrom and bewails the onerous conditions imposed by DBP Resolution No. 385 dated December 7, 1977, which allegedly placed the petitioner under the complete control of the private respondents DBP and Bancom Systems Control Inc. (Bancom, for short). The plausibility of petitioner's statement that it did Dot receive the $5 million loan is more apparent than real. At the hearing for injunction before the counsel for DBP stressed that $2,625,316.83 of the $5 million loan was earmarked to finance the acquisition of machinery, equipment and spare parts for petitioner's Diamond gangsaw which

LOZADA, STEFANIE
machineries were actually imported by petitioner Filipinas Marble Corporation and arrived in the Philippines. Indeed, a summary of releases to petitioner covering the period June 1978 to October 1979 (Exh. 2, Injunction) showed disbursements amounting to millions of pesos for working capital and opening of letter of credits for the acquisition of its machineries and equipment. Petitioner does not dispute that releases were made for the purchase of machineries and equipment but claims that such imported machineries were left to the mercy of the elements as they were never delivered to it. xxxxxxxxx Apart from the foregoing, petitioner is patently not entitled to a writ of preliminary injunction for it has not demonstrated that at least 20% of its outstanding arrearages has been paid after the foreclosure proceedings were initiated. Nowhere in the record is it shown or alleged that petitioner has paid in order that it may fall within the exception prescribed on Section 2, Presidential Decree No. 385. Dissatisfied with the appellate court's decision, the petitioner filed this instant petition with the following assignments of errors: 1. There being 'persuasive' evidence that the $5 million proceeds of the loan were not received and did not benefit the petitioner per finding of the lower court which should not be disturbed unless there is grave abuse of discretion, it must follow that PD 385 does not and cannot apply; 2. If there was no valid loan contract for failure of consideration, the mortgage cannot exist or stand by itself being a mere accessory contract. Additionally, the chattel mortgage has not been registered. Therefore, the same is null and void under Article 2125 of the New Civil Code; and 3. PD 385 is unconstitutional as a 'class legislation', and violative of the due process clause. With regard to the first assignment of error, the petitioner maintains that since the trial court found "persuasive evidence" that there might have been a failure of consideration on the contract of loan due to the manner in which the amount of $5 million was spent, said court committed grave abuse of discretion in holding that it had no recourse but to apply P.D. 385 because the application of this decree requires the existence of a valid loan which, however, is not present in petitioner's case. It likewise faults the appellate court for upholding the applicability of the said decree. Sections 1 and 2 of P.D. No. 385 respectively provide: Section 1. It shall be mandatory for government financial institutions after the lapse of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty (20%) of the total outstanding obligations, including interest and other charges, as appearing in the book of accounts and/or related records

LOZADA, STEFANIE
of the financial institution concerned. This shall be without prejudice to the exercise by the government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to foreclose on loans, credits, accommodations, and/or guarantees on which the arrearages are less than twenty percent (20%). Section 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower, and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. Presidential Decree No. 385 was issued primarily to see to it that government financial institutions are not denied substantial cash inflows, which are necessary to finance development projects all over the country, by large borrowers who, when they become delinquent, resort to court actions in order to prevent or delay the government's collection of their debts and loans. The government, however, is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government lending institutions who take over the management of a borrower corporation, lead that corporation to bankruptcy through mismanagement or misappropriation of its funds, and who, after ruining it, use the mandatory provisions of the decree to avoid the consequences of their misdeeds. The designated officers of the government financing institution cannot simply walk away and then state that since the loans were obtained in the corporation's name, then P.D. 385 must be peremptorily applied and that there is no way the borrower corporation can prevent the automatic foreclosure of the mortgage on its properties once the arrearages reach twenty percent (20%) of the total obligation no matter who was responsible. In the case at bar, the respondents try to impress upon this Court that the $5,000,000.00 loan was actually granted and released to the petitioner corporation and whatever the composition of the management which received the loan is of no moment because this management was acting in behalf of the corporation. The respondents also argue that since the loan was extended to the corporation, the releases had to be made to the then officers of that borrower corporation. Precisely, what the petitioner is trying to point out is that the DBP and Bancom people who managed Filipinas Marble misspent the proceeds of the loan by taking advantage of the positions that they were occupying in the corporation which resulted in the latter's devastation instead of its rehabilitation. The petitioner does not question the authority under which the loan was delivered but stresses that it is precisely this authority which enabled the DBP and Bancom people to misspend and misappropriate the proceeds of the loan thereby defeating its very purpose, that is, to develop the projects of the corporation. Therefore, it is as if the loan was never delivered to it and thus, there was failure on the part of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed. We cannot, at this point, conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent. This matter should rightfully be litigated

LOZADA, STEFANIE
below in the main action. Pending the outcome of such litigation, P.D. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan, even if only in part, then the foreclosure of the petitioner's properties under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross mistake. It would unduly prejudice the petitioner, its employees and their families. Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not, for the benefit of the petitioner be determined. Consequently, the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the presentation of evidence in a trial on the merits. As we have ruled in the case of Central Bank of the Philippines vs. Court of Appeals, (1 39 SCRA 46, 5253; 56): When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations, the obligation or promise of each party is the consideration for that of the othe. (Penacio vs. Ruaya, 110 SCRA 46 [1981]; ... xxxxxxxxx The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. Court of Appeals, 125 SCRA 122 [1983]. It may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs. Sherman, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure (Dow, et al. vs. Poore Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. C.J.S. p. 138). ... Under the admitted circumstances of this petition, we, therefore, hold that until the trial on the merits of the main case, P.D. 385 cannot be applied and thus, this Court can restrain the respondents from foreclosing on petitioner's properties pending such litigation. The respondents, in addition, assert that even if the $5 million loan were not existing, the mortgage on the properties sought to be foreclosed was made to secure previous loans of the petitioner with respondent and therefore, the foreclosure is still justified. This contention is untenable. Two of the conditions imposed by respondent DBP for the release of the $5 million loan embodied in its letter to petitioner dated December 21, 1977 state: A. The interim loan of $289,917.32 plus interest due thereon which was used for the importation of one Savage Diamond Gangsaw shall be liquidated out of the proceeds of this $5 million loan. In addition, FMC shall also pay DBP, out of the proceeds of above foreign currency loan, the past due amounts on obligation with DBP. xxxxxxxxx

LOZADA, STEFANIE
B. Conversion into preferred shares of P 2 million of FMCs total obligations with DBP as of the date the legal documents for this refinancing shall have been exempted or not later than 90 days from date of advice of approval of this accommodation. The above conditions lend credence to the petitioner's contention that the "original loan had been converted into 'equity shares', or preferred shares; therefore, to all intents and purposes, the only 'loan' which is the subject of the foreclosure proceedings is the $5 million loan in 1978. " As regards the second assignment of error, we agree with the petitioner that a mortgage is a mere accessory contract and, thus, its validity would depend on the validity of the loan secured by it. We, however, reject the petitioner's 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 non-registration 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. xxxxxxxxx The petitioner cannot invoke the above provision to nullify the chattel mortgage it executed in favor of respondent DBP. We find no need to pass upon the constitutional issue raised in the third assignment of error. We follow the rule started in Alger Electric, Inc. vs. Court of Appeals, (135 SCRA 37, 45). We see no necessity of passing upon the constitutional issues raised by respondent Northern. This Court does not decide questions of a constitutional nature unless absolutely necessary to a decision of a case. If there exists some other grounds of construction, we decide the case on a non- constitutional determination. (See Burton vs. United States, 196 U.S. 283; Siler vs. Luisville & Nashville R. Co., 123 U.S. 175; Berta College vs. Kentucky, 211 U.S. 45). 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. SO ORDERED. ALEKO E. LILIUS, ET AL., plaintiffs-appellants, vs. THE MANILA RAILROAD COMPANY, defendant-appellant. Harvey and O'Brien for plaintiffs-appellants. Jose C. Abreu for defendant-appellant. VILLA-REAL, J.:

LOZADA, STEFANIE

This case involves two appeals, one by the defendant the Manila Railroad Company, and the other by the plaintiffs Aleko E. Lilius et al., from the judgment rendered by the Court of First Instance of Manila, the dispositive part of which reads as follows: Wherefore, judgment is rendered ordering the defendant company to pay to the plaintiffs, for the purposes above stated, the total amount of P30,865, with the costs of the suit. And although the suit brought by the plaintiffs has the nature of a joint action, it must be understood that of the amount adjudicated to the said plaintiffs in this judgment, the sum of P10,000 personally belongs to the plaintiff Sonja Maria Lilius; the sum of P5,000, to the plaintiff Brita Marianne Lilius; the sum of P250, to Dr. Marfori of the Calauan Hospital, Province of Laguna, and the balance to the plaintiff Aleko E. Lilius. In support of its appeal, the appellant the Manila Railroad Company assigns nine alleged errors committed by the trial court in its said judgment, which will be discussed in the course of this decision. As a ground of their appeal, the appellants Aleko E. Lilius et al., in turn, assign two alleged errors as committed by the same court a quo in its judgment in question, which will be discussed later. This case originated from a complaint filed by Aleko E. Lilius et al., praying, under the facts therein alleged, that the Manila Railroad Company be ordered to pay to said plaintiffs, by way of indemnity for material and moral damages suffered by them through the fault and negligence of the said defendant entity's employees, the sum of P50,000 plus legal interest thereon from the date of the filing of the complaint, with costs. The defendant the Manila Railroad Company, answering the complaint, denies each and every allegation thereof and, by way of special defense, alleges that the plaintiff Aleko E. Lilius, with the cooperation of his wife and coplaintiff, negligently and recklessly drove his car, and prays that it be absolved from the complaint. The following facts have been proven at the trial, some without question and the others by a preponderance of evidence, to wit: The plaintiff Aleko E. Lilius has, for many years, been a well-known and reputed journalist, author and photographer. At the time of the collision in question, he was a staff correspondent in the Far East of the magazines The American Weekly of New York and The Sphere of London. Some of his works have been translated into various languages. He had others in preparation when the accident occurred. According to him, his writings netted him a monthly income of P1,500. He utilized the linguistic ability of his wife Sonja Maria Lilius, who translated his articles and books into English, German, and Swedish. Furthermore, she acted as his secretary.

LOZADA, STEFANIE
At about 7 o'clock on the morning of May 10, 1931, the plaintiff, his wife Sonja Maria Lilius, and his 4-year old daughter Brita Marianne Lilius, left Manila in their Studebaker car driven by the said plaintiff Aleko E. Lilius for the municipality of Pagsanjan, Province of Laguna, on a sight-seeing trip. It was the first time that he made said trip although he had already been to many places, driving his own car, in and outside the Philippines. Where the road was clear and unobstructed, the plaintiff drove at the rate of from 19 to 25 miles an hour. Prior thereto, he had made the trip as far as Calauan, but never from Calauan to Pagsanjan, via Dayap. He was entirely unacquainted with the conditions of the road at said points and had no knowledge of the existence of a railroad crossing at Dayap. Before reaching the crossing in question, there was nothing to indicate its existence and inasmuch as there were many houses, shrubs and trees along the road, it was impossible to see an approaching train. At about seven or eight meters from the crossing, coming from Calauan, the plaintiff saw an autotruck parked on the left side of the road. Several people, who seemed to have alighted from the said truck, were walking on the opposite side. He slowed down to about 12 miles an hour and sounded his horn for the people to get out of the way. With his attention thus occupied, he did not see the crossing but he heard two short whistles. Immediately afterwards, he saw a huge black mass fling itself upon him, which turned out to be locomotive No. 713 of the defendant company's train coming eastward from Bay to Dayap station. The locomotive struck the plaintiff's car right in the center. After dragging the said car a distance of about ten meters, the locomotive threw it upon a siding. The force of the impact was so great that the plaintiff's wife and daughter were thrown from the car and were picked up from the ground unconscious and seriously hurt. In spite of the efforts of engineer Andres Basilio, he was unable to stop the locomotive until after it had gone about seventy meters from the crossing. On the afternoon of the same day, the plaintiff's entered St. Paul's Hospital in the City of Manila where they were treated by Dr. Waterous. The plaintiff Aleko E. Lilius suffered from a fractured nose, a contusion above the left eye and a lacerated wound on the right leg, in addition to multiple contusions and scratches on various parts of the body. As a result of the accident, the said plaintiff was highly nervous and very easily irritated, and for several months he had great difficulty in concentrating his attention on any matter and could not write articles nor short stories for the newspapers and magazines to which he was a contributor, thus losing for some time his only means of livelihood. The plaintiff Sonja Maria Lilius suffered from fractures of the pelvic bone, the tibia and fibula of the right leg, below the knee, and received a large lacerated wound on the forehead. She underwent two surgical operations on the left leg for the purpose of joining the fractured bones but said operations notwithstanding, the leg in question still continues deformed. In the opinion of Dr. Waterous, the deformity is permanent in character and as a result the plaintiff will have some difficulty in walking. The lacerated wound, which she received on her forehead, has left a disfiguring scar. The child Brita Marianne Lilius received two lacerated wounds, one on the forehead and the other on the left side of the face, in addition to fractures of both legs, above and below the knees. Her condition was serious and, for several days, she was hovering between life and death. Due to a timely and successful surgical operation, she survived her wounds. The lacerations received by the child have left deep scars which will permanently disfigure her face, and because of the fractures of both legs, although now completely cured, she will be forced to walk with some difficulty and continuous extreme care in order to keep her balance. Prior to the accident, there had been no notice nor sign of the existence of the crossing, nor was there anybody to warn the public of approaching trains. The flagman or switchman arrived after the collision, coming from the station with a red flag in one hand and a green one in the other, both of which were wound on their respective sticks. The said flagman and switchman had many times absented himself from his post at the crossing upon the arrival of a train. The train left Bay station a little late and therefore traveled at great speed. Upon examination of the oral as well as of the documentary evidence which the parties presented at the trial in support of their respective contentions, and after taking into consideration all the circumstances of the case, this

LOZADA, STEFANIE
court is of the opinion that the accident was due to negligence on the part of the defendant-appellant company, for not having had on that occasion any semaphore at the crossing at Dayap, to serve as a warning to passersby of its existence in order that they might take the necessary precautions before crossing the railroad; and, on the part of its employees the flagman and switchman, for not having remained at his post at the crossing in question to warn passers-by of the approaching train; the stationmaster, for failure to send the said flagman and switchman to his post on time; and the engineer, for not having taken the necessary precautions to avoid an accident, in view of the absence of said flagman and switchman, by slackening his speed and continuously ringing the bell and blowing the whistle before arriving at the crossing. Although it is probable that the defendantappellant entity employed the diligence of a good father of a family in selecting its aforesaid employees, however, it did not employ such diligence in supervising their work and the discharge of their duties because, otherwise, it would have had a semaphore or sign at the crossing and, on previous occasions as well as on the night in question, the flagman and switchman would have always been at his post at the crossing upon the arrival of a train. The diligence of a good father of a family, which the law requires in order to avoid damage, is not confined to the careful and prudent selection of subordinates or employees but includes inspection of their work and supervision of the discharge of their duties. However, in order that a victim of an accident may recover indemnity for damages from the person liable therefor, it is not enough that the latter has been guilty of negligence, but it is also necessary that the said victim has not, through his own negligence, contributed to the accident, inasmuch as nobody is a guarantor of his neighbor's personal safety and property, but everybody should look after them, employing the care and diligence that a good father of a family should apply to his own person, to the members of his family and to his property, in order to avoid any damage. It appears that the herein plaintiff-appellant Aleko E. Lilius took all precautions which his skill and the presence of his wife and child suggested to him in order that his pleasure trip might be enjoyable and have a happy ending, driving his car at a speed which prudence demanded according to the circumstances and conditions of the road, slackening his speed in the face of an obstacle and blowing his horn upon seeing persons on the road, in order to warn them of his approach and request them to get out of the way, as he did when he came upon the truck parked on the left hand side of the road seven or eight meters from the place where the accident occurred, and upon the persons who appeared to have alighted from the said truck. If he failed to stop, look and listen before going over the crossing, in spite of the fact that he was driving at 12 miles per hour after having been free from obstacles, it was because, his attention having been occupied in attempting to go ahead, he did not see the crossing in question, nor anything, nor anybody indicating its existence, as he knew nothing about it beforehand. The first and only warning, which he received of the impending danger, was two short blows from the whistle of the locomotive immediately preceding the collision and when the accident had already become inevitable. In view of the foregoing considerations, this court is of the opinion that the defendant the Manila Railroad Company alone is liable for the accident by reason of its own negligence and that of its employees, for not having employed the diligence of a good father of a family in the supervision of the said employees in the discharge of their duties. The next question to be decided refers to the sums of money fixed by the court a quo as indemnities for damages which the defendant company should pay to the plaintiffs-appellants. With respect to the plaintiff-appellant Aleko E. Lilius, although this court believes his claim of a net income of P1,500 a month to be somewhat exaggerated, however, the sum of P5,000, adjudicated to him by the trial court as indemnity for damages, is reasonable. As to the sum of P10,635 which the court awards to the plaintiffs by way of indemnity for damages, the different items thereof representing doctor's fees, hospital and nursing services, loss of personal effects and torn clothing,

LOZADA, STEFANIE
have duly been proven at the trial and the sum in question is not excessive, taking into consideration the circumstances in which the said expenses have been incurred. Taking into consideration the fact that the plaintiff Sonja Maria Lilius, wife of the plaintiff Aleko E. Lilius is in the language of the court, which saw her at the trial "young and beautiful and the big scar, which she has on her forehead caused by the lacerated wound received by her from the accident, disfigures her face and that the fracture of her left leg has caused a permanent deformity which renders it very difficult for her to walk", and taking into further consideration her social standing, neither is the sum of P10,000, adjudicated to her by the said trial court by way of indemnity for patrimonial and moral damages, excessive. In the case of Gutierrez vs. Gutierrez (56 Phil., 177), the right leg of the plaintiff Narciso Gutierrez was fractured as a result of a collision between the autobus in which he was riding and the defendant's car, which fractured required medical attendance for a considerable period of time. On the day of the trial the fracture had not yet completely healed but it might cause him permanent lameness. The trial court sentenced the defendants to indemnify him in the sum of P10,000 which this court reduced to P5,000, in spite of the fact that the said plaintiff therein was neither young nor goodlooking, nor had he suffered any facial deformity, nor did he have the social standing that the herein plaintiffappellant Sonja Maria Lilius enjoys.1vvphi1.ne+ As to the indemnity of P5,000 in favor of the child Brita Marianne Lilius, daughter of Aleko E. Lilius and Sonja Maria Lilius, neither is the same excessive, taking into consideration the fact that the lacerations received by her have left deep scars that permanently disfigure her face and that the fractures of both her legs permanently render it difficult for her to walk freely, continuous extreme care being necessary in order to keep her balance in addition to the fact that all of this unfavorably and to a great extent affect her matrimonial future. With respect to the plaintiffs' appeal, the first question to be decided is that raised by the plaintiff Aleko E. Lilius relative to the insufficiency of the sum of P5,000 which the trial court adjudicated to him by way of indemnity for damages consisting in the loss of his income as journalist and author as a result of his illness. This question has impliedly been decided in the negative when the defendant-appellant entity's petition for the reduction of said indemnity was denied, declaring it to be reasonable. As to the amount of P10,000 claimed by the plaintiff Aleko E. Lilius as damages for the loss of his wife's services in his business as journalist and author, which services consisted in going over his writings, translating them into English, German and Swedish, and acting as his secretary, in addition to the fact that such services formed part of the work whereby he realized a net monthly income of P1,500, there is no sufficient evidence of the true value of said services nor to the effect that he needed them during her illness and had to employ a translator to act in her stead. The plaintiff Aleko E. Lilius also seeks to recover the sum of P2,500 for the loss of what is called Anglo-Saxon common law "consortium" of his wife, that is, "her services, society and conjugal companionship", as a result of personal injuries which she had received from the accident now under consideration. In the case of Goitia vs. Campos Rueda (35 Phil., 252, 255, 256), this court, interpreting the provisions of the Civil Marriage Law of 1870, in force in these Islands with reference to the mutual rights and obligations of the spouses, contained in articles 44-48 thereof, said as follows: The above quoted provisions of the Law of Civil Marriage and the Civil Code fix the duties and obligations of the spouses. The spouses must be faithful to, assist, and support each other. The husband must live with and protect his wife. The wife must obey and live with her husband and follow him when he changes his domicile or residence, except when he removes to a foreign country. . . .

LOZADA, STEFANIE
Therefore, under the law and the doctrine of this court, one of the husband's rights is to count on his wife's assistance. This assistance comprises the management of the home and the performance of household duties, including the care and education of the children and attention to the husband upon whom primarily devolves the duty of supporting the family of which he is the head. When the wife's mission was circumscribed to the home, it was not difficult to assume, by virtue of the marriage alone, that she performed all the said tasks and her physical incapacity always redounded to the husband's prejudice inasmuch as it deprived him of her assistance. However, nowadays when women, in their desire to be more useful to society and to the nation, are demanding greater civil rights and are aspiring to become man's equal in all the activities of life, commercial and industrial, professional and political, many of them spending their time outside the home, engaged in their businesses, industry, profession and within a short time, in politics, and entrusting the care of their home to a housekeeper, and their children, if not to a nursemaid, to public or private institutions which take charge of young children while their mothers are at work, marriage has ceased to create the presumption that a woman complies with the duties to her husband and children, which the law imposes upon her, and he who seeks to collect indemnity for damages resulting from deprivation of her domestic services must prove such services. In the case under consideration, apart from the services of his wife Sonja Maria Lilius as translator and secretary, the value of which has not been proven, the plaintiff Aleko E. Lilius has not presented any evidence showing the existence of domestic services and their nature, rendered by her prior to the accident, in order that it may serve as a basis in estimating their value. Furthermore, inasmuch as a wife's domestic assistance and conjugal companionship are purely personal and voluntary acts which neither of the spouses may be compelled to render (Arroyo vs. Vazquez de Arroyo, 42 Phil., 54), it is necessary for the party claiming indemnity for the loss of such services to prove that the person obliged to render them had done so before he was injured and that he would be willing to continue rendering them had he not been prevented from so doing. In view of the foregoing considerations this court is of the opinion and so holds: (1) That a railroad company which has not installed a semaphore at a crossing an does not see to it that its flagman and switchman faithfully complies with his duty of remaining at the crossing when a train arrives, is guilty of negligence and is civilly liable for damages suffered by a motorist and his family who cross its line without negligence on their part; (2) that an indemnity of P10,000 for a permanent deformity on the face and on the left leg, suffered by a young and beautiful society woman, is not excessive; (3) that an indemnity of P5,000 for a permanent deformity on the face and legs of a four-year old girl belonging to a well-to-do family, is not excessive; and (4) that in order that a husband may recover damages for deprivation of his wife's assistance during her illness from an accident, it is necessary for him to prove the existence of such assistance and his wife's willingness to continue rendering it had she not been prevented from so doing by her illness. The plaintiffs-appellants are entitled to interest of 6 percent per annum on the amount of the indemnities adjudicated to them, from the date of the appealed judgment until this judgment becomes final, in accordance with the provisions of section 510 of Act No. 190. Wherefore, not finding any error in the judgment appealed from, it is hereby affirmed in toto, with the sole modification that interest of 6 per cent per annum from the date of the appealed judgment until this judgment becomes final will be added to the indemnities granted, with the costs of both instances against the appellant. So ordered.

LOZADA, STEFANIE
W. R. GIBERSON, plaintiff-appellee, vs. A. N. JUREIDINI BROS., INC., defendant-appellant. Del Rosario and Del Rosario for appellant. McVean and Vickers and Block, Johnston and Greenbaum for appellee.

LOZADA, STEFANIE
the creditor no right to a preference. But, in this connection, appellant relies on Exhibit 1, which purports to be a chattel mortgage executed in the sum of P100,000 by H. Dialdas Motoomul and A. N. Jureidini Bros., Inc., on December 1, 1919, but not registered until May 5, 1921. The operative words in the alleged mortgage make reference to the list A, and the only description of the property contained in this list is: "1. A store No. 79 on Magallanes Street, municipality of Cebu, formerly belonging to T. Thakurdas, with all the merchandise, effects, wares, and other bazar goods contained on the said store. 2. A store No. 19 on Real Street, Iloilo, Panay, P. I., formerly belonging to Guillermo Asayas, with all the merchandise, effects, wares and other bazar goods contained in the said store." The document contains no oath as required by our Chattel Mortgage Law. The trial judge held, and properly, that Exhibit 1 was invalid because the oath required by law did not appear therein, and because the subject-matter was not described therein with sufficient particularity. The Chattel Mortgage Law, in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirements of an affidavit of good faith appended to the mortgage and recorded therewith. It has been held by reputable courts that the absence of the affidavits vitiates a mortgage as against creditors and subsequent encumbrancers. (People vs. Burns [1910], 161 Mich., 169; 137 A. S. R., 466, and notes; Deseret National Bank vs. Kidman [1903], 25 Utah, 379; 95 A. S. R., 856.) Section 7 of the Chattel Mortgage Law provides that "The description of the mortgage property shall be such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same." Identification of the mortgaged property would be impossible in this case.lawphil.net Moreover, if there should exist any doubt on the questions we have just discussed, they should be thrashed out in the insolvency proceedings. Our constant ruling has been that the court having possession of the property of the insolvent has ancillary jurisdiction to hear and determine all questions concerning the title, possession, or control of the same. (De Amuzategui vs. Macleod [1915], 33 Phil., 80; De Krafft vs. Velez [1916], 34 Phil., 854; Mitsui Bussan Kaisha vs. Hongkong & Shanghai Banking Corporation [1917], 36 Phil., 27.) With reference to the proper valuation of the merchandise, which is the subject of appellant's second and fourth assignments of error, we find sufficient evidence in the record to support the findings of the trial court. The documents of transfer did not accurately appraise the value of the property. As to the credits amounting to P16,892.72, assigned by H. K. Motoomul & Co. to the defendant, the evidence discloses that with the possible exception of P1,117.06 paid by Florentino Espiritu and P400 paid by Panjoomul Fulsidas, none of the rest have been collected. Hence, appellant's ninth assignment of error should be sustained in part. The assignee takes the property in the same plight and condition that the bankrupt held it. (Winsor vs. McLellan [1843], 2 Story 492; Fed. Cas. No. 17887; Stewart vs. Platt [1879], 101 U. S., 739.) Judgment is affirmed, with the sole modification that the defendant, under plaintiff's second cause of action, shall turn over to the plaintiff only such portions of the credits as have been realized, but the evidences of indebtedness shall pass to the receiver for such action as may be proper. Without special finding as to costs in this instance, it is so ordered.

MALCOLM, J.: This is an appeal from a judgment rendered by the Honorable Adolph Wislizenus, Judge of First Instance of Cebu, finding in favor of each of plaintiff's four causes of action, and authorizing the recovery by the plaintiff, the receiver in insolvency proceedings in civil case No. 3586, of various goods, wares, merchandise, credits, and money transferred by H. K. Motoomul & Co. to A. N. Jureidini Bros., Inc., on May 24, 1921, and June 13, 1921. H. K. Motoomul & Co. was, at the times mentioned in the complaint, a partnership doing business in the cities of Cebu and Iloilo. Sometime prior to May 24, 1921, the company became financially embarrassed. A. N. Jureidini Bros., Inc., a larger creditor of Motoomul & Co., became aware of the precarious condition of the latter, because of the diminishing payments on account of a debt. Ultimately, Motoomul & Co. delivered to Jureidini Brothers, on May 24, 1921, one of the debtor's Iloilo stores known as Bazar Aguila de Oro. On the same day also, credits receivable belonging to Motoomul & Co. were transferred to Jureidini Bros. Still later, on June 13, 1921, another stock of goods belonging to Motoomul & Co. passes to Jureidini Bros. The documents evidencing these transfer appears in the record. Within thirty days after these assignments were made, or, to be exact, on June 22, 1921, a number of creditors of H. K. Motoomul & Co. initiated successfully involuntary insolvency proceedings against it. Later, action was brought by the receiver appointed by the court, with the results above related. The above constitute the principal facts, which are accurately stated in the decision of the trial court. In so far as the ten assignments of error made in this court relate to question of fact, we may say, generally, that we agree with the findings of the trial judge. It would be possible to forego consideration of many of appellant's point, because he himself announces on page 46 of the bill of exceptions, "That the defendant has not filed the bond required by the court, because it agrees to the judgment being executed in accordance with law, except so far as concerns the second cause of action." We prefer, however, not to hold appellant to this allegation or admission in his own pleadings, and propose, therefore, to comment on the various assignments of error. Addressing attention directly to appellant's third, fifth, sixth, and eight assignments of error, the court clearly did not err in holding that the transfer or assignments must be revoked, because made for the purpose of giving A. N. Jureidini Bros., Inc., preference over the other creditors of H. K. Motoomul & Co. The provisions of section 70 of the Insolvency Law (Act No. 1956), were placed on the statute books to cover exactly such a situation, and to give equal rights to all of the creditors of the insolvent. The evidence discloses that A. N. Jureidini Bros., Inc. had reasonable cause to believe that H. K. Motoomul & Co. was insolvent. With reference to appellant's first and seventh assignments of error, no one denies that H. K. Motoomul & Co. was indebted to A. N. Jureidini Bros., Inc., for a considerable sum of money. This reason, alone, however, gives

LOZADA, STEFANIE
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY, respondents. DECISION VITUG, J.: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari. Petitioner Chua Pac, the president and general manager of co-petitioner "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. The mortgage stood by way of security for petitioner's corporate loan of three million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this effect "(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x. "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 shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. 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."i[1] In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent bank additional financial accommodations totalling P2,700,000.00.ii[2] These borrowings were on due date also fully paid. On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity.iii[3] Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage. Petitioner corporation appealed to the Court of Appealsiv[4] which, on 14 August 1991, affirmed, "in all respects," the decision of the court a quo. The motion for reconsideration was denied on 24 January 1992. The instant petition interposed by petitioner corporation was initially denied on 04 March 1992 by this Court for having been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while

LOZADA, STEFANIE
petitioner corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's first motion for reconsideration but granted a second motion for reconsideration, thereby reinstating the petition and requiring private respondent to comment thereon.v[5] Except in criminal cases where the penalty of reclusion perpetua or death is imposedvi[6] which the Court so reviews as a matter of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. The circulars of the Court prescribing technical and other procedural requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. 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. Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a 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 deed substantially in the 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 principal obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation,vii[7] but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory characterviii[8] 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.ix[9] While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described,x[10] 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.xi[11] Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon 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. 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 faithxii[12]), the fact, however, that the statute has provided that the parties to the contract must execute an oath that "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."xiii[13]

LOZADA, STEFANIE
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.,xiv[14] the Court said "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."xv[15] 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,xvi[16] there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter. We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against it."xvii[17] This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way of moral damages.xviii[18] In LBC Express, Inc. vs. Court of Appeals,xix[19] we have 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, sorrows, and griefs of life - all of which cannot be suffered by respondent bank as an artificial person."xx[20] While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named as a party in representation of petitioner corporation. Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the petition his so-called "One Final Word;" viz: "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."xxi[21] (Italics supplied.) The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. Villamor;xxii[22] thus: "(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due to the courts of justice and judicial officers and x x x (to) insist on similar conduct by others.' This respectful attitude towards the court is to be observed, `not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is `through a scrupulous preference for respectful language that a lawyer best demonstrates his observance of the respect due to the courts and judicial officers x x x.'"xxiii[23]

LOZADA, STEFANIE
The virtues of humility and of respect and concern for others must still live on even in an age of materialism. 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. Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts. SO ORDERED.

LOZADA, STEFANIE

LOZADA, STEFANIE

Serial Numbers Size of Machines RUBY L. TSAI, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, respondents. x---------------------------------------------------------x [G.R. No. 120109. October 2, 2001.] PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents. QUISUMBING, J.: xxx These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court's resolution denying petitioners' motion for reconsideration. On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel Mortgage are quoted below: MORTGAGE (REAL AND CHATTEL) xxx xxx xxx III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at . . . (a) Forty eight sets (48) Vayrow Knitting Machines . . . (b) Sixteen sets (16) Vayrow Knitting Machines . . . (c) Two (2) Circular Knitting Machines . . . (d) Two (2) Winding Machines . . . (e) Two (2) Winding Machines . . . IV. Any and all replacements, substitutions, additions, increases and accretions to above properties. xxx xxx xxx3 I. TCT # 372097 - RIZAL xxx xxx xxx xxx xxx SCHEDULE "A" xxx xxx xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan. xxx xxx xxx

C. Two (2) Circular Knitting Machines made in West Germany. xxx xxx xxx

D. Four (4) Winding Machines.

II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned lot.

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in . . . "Annex A" (Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications continued) LIST OF MACHINERIES & EQUIPMENT A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

LOZADA, STEFANIE

LOZADA, STEFANIE

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in Annex A of the first mortgage deed. After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments. On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned. In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982. On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day. On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries. On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets. Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982. The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment. The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached to the mortgage contracts. The trial court decreed: WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this decision; 2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation for the use and possession of the properties in question from November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at the legal rate per annum until full payment; 3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorney's fees and expenses of litigation; 4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of exemplary damages; 5. Ordering the dismissal of the counterclaim of the defendants; and 6. Ordering the defendants to proportionately pay the costs of suit. SO ORDERED.4 Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the dispositive portion of which reads: WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5 Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court. In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court: I THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE. II

LOZADA, STEFANIE

LOZADA, STEFANIE

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT. III THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH. IV THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND LEGAL BASIS. V THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6 In G.R. No. 120098, PBCom raised the following issues: I. DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES? II CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai is valid. For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that the disputed 1981 machineries are not real properties.9 Finally, she contends that the Court of Appeals erred in holding against petitioner's arguments on prescription and laches10 and in assessing petitioner actual damages, attorney's fees and expenses of litigation, for want of valid factual and legal basis. 11 Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the pieces of machinery in question were personal properties have no factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorney's fees against PBCom. In opposition, private respondents argue that the controverted units of machinery are not "real properties" but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12 Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be denied. Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.13 This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14 The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues: (1) 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; (2) the said machineries were not included in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed properties.15 Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties' intent. While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted below:

LOZADA, STEFANIE

LOZADA, STEFANIE

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage, militates against appellants' posture. It should be noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel." So also, the "machineries and equipment" in the printed form of the bank had to be inserted in the blank space of the printed contract and connected with the word "building" by typewritten slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved. As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16 In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record, we find no compelling reason to depart therefrom. Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the parties' intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels. Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "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." And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages. As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX. To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden persuasively. Moreover, 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. 19 Records reveal, however, that when Tsai purchased the controverted properties, she knew of respondent's claim thereon. As borne out by the records, she received the letter of respondent's counsel, apprising her of respondent's claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith. Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom's name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its claim. Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22 As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested units of machinery, the exemplary damages, and attorney's fees. As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on the accepted practice in banking and finance, business and investments that the rental price must take into account the cost of money used to buy them. The Court of Appeals did not give full credence to Chua's projection and reduced the award to P20,000.00. Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.23 However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding

LOZADA, STEFANIE

LOZADA, STEFANIE

the actual amount of loss.24 However, we are not prepared to disregard the following dispositions of the respondent appellate court: . . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of P100,000.00 per month thereafter. As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of unrealized rental income of subject machineries and equipments. The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in question, somebody was willing and ready to rent the same for P100,000.00 a month. xxx xxx xxx

By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of litigation is reasonable, given the circumstances in these cases. WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CAG.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 attorney's fees and litigation expenses. Costs against petitioners. SO ORDERED.

Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom should be deducted or removed, expenses for maintenance and repairs . . . Therefore, in the determination of the actual damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November 1986, is more realistic and fair.25 As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite to award exemplary damages that the wrongful act must be accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted properties despite her knowledge of EVERTEX's claim was oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties found in the factory of the financially handicapped respondent, including those properties not covered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is proper. The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the discretion of the court in accordance with the circumstances of each case. 29 While the imposition of exemplary damages is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary damages by way of example for the public good should be reduced to P100,000.00.

LOZADA, STEFANIE

LOZADA, STEFANIE

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MANILA INVESTMENT & CONSTRUCTION, INC. and CIPRIANO S. ALLAS defendants-appellants. Medina, Pajarillo, Magtalas and Sadao for plaintiff-appellee. Aristorenas, Relova and Opea for defendants-appellants.

accounted by plaintiff to the defendants in order that the same be properly and accordingly applied to the judgment. 2. That notwithstanding the aforesaid sale which was effected sometime in 1958, plaintiff never rendered an accounting of the proceeds of the sale of the mortgaged properties to the defendants; 3. That plaintiff has no cause of action in reviving the aforesaid judgment not until it has rendered proper accounting to the defendants of the proceeds of the aforesaid sale.

DIZON, J.: In Civil Case No. 33074 of the Court of First Instance of Manila, Branch XV entitled "Philippine National Bank vs. Manila Investment & Construction, Inc., et al.," decision was rendered on December 26, 1957, its dispositive portion being partly as follows: IN VIEW WHEREOF, judgment is rendered condemning defendants, jointly and severally, to pay plaintiff: (1) Under the first cause of action the sum of P88,939.48 with daily interest of P12,77385 plus 1/4% commission or P194.6689 for every 30 days or a fraction thereof, plus 10% on the principal as attorney's fees and the cost; (2) On the second cause of action the sum of P356,913.01, plus P48,464 03 and 1/4% or P629.31 for every 30 days or fraction thereof that the amount remain outstanding and unpaid plus 10% of the principal as attorney's fees, and the cost. In case of non-payment of the amounts adjudged, the decision also provided for the sale at public auction of the personal properties covered by the chattel mortgage executed by the defendants in favor of the plaintiff Bank, and for the disposition of the proceeds in accordance with law. After the decision had become executory, instead of having the mortgaged personal properties sold at public auction, the parties agreed to have them sold, and were in fact sold, at a private sale. The net proceeds obtained therefrom amounting to P256,941.70 were applied to the partial satisfaction of the above judgment. On August 11, 1964, that is, more than five years but less than ten years from the date when the decision aforesaid became executory, the Philippine National Bank filed in the same Court of First Instance of Manila an action to revive it. On October 21, 1964, the defendants filed their answer in which, after admitting some of the allegations of the complaint and denying others, they interposed the following affirmative defenses: 1. That sometime after the judgment rendered by the Court of First Instance of Manila in Civil Case No. 33074 became final and executory, plaintiff sold to various parties in a private sale the mortgaged properties specifically mentioned in the judgment to be foreclosed and sold at public auction hence the proceeds thereof must therefore be

Thereafter, the parties submitted a stipulation of facts, paragraph 3 thereof being of the following tenor: 3.That as of August 11, 1964, here remains the sum of P382,388.47 still unsatisfied which is arrived at in the manner specified in Annex "A". After the parties had submitted their respective memorandum, the court rendered on August 30, 196,6 the appealed decision whose dispositive portion reads as follows: WHEREFORE, the Court renders judgment ordering the defendants to pay the plaintiff, jointly and severally, the amount of THREE HUNDRED EIGHTY TWO THOUSAND THREE HUNDRED THIRTY EIGHT AND 47/100 (P382,338.47) PESOS, with interest at the legal rate from August 12, 1964 until fully paid. Costs against the defendants. The defendants appealed to secure a reversal of the above decision claiming firstly, that the action instituted below is not the proper remedy; secondly, that the private sale of the mortgaged personal properties was null and void, and lastly, that the appellee is not entitled to a deficiency judgment. We are of the opinion that, upon the facts of the case and the law thereto applicable, appellants' contentions are without merit. In relation to the first, it is true that the decision rendered in Civil Case 33074 of the Court of First Instance of Manila provided for the sale at public auction of the personal properties covered by the chattel mortgage executed in favor of the Bank, but it is likewise true that said personal properties were sold at a private sale by agreement between the parties. Besides, We see nothing illegal, immoral or against public order in such agreement entered into freely and voluntarily. In line with the provisions of the substantive law giving the contracting parties full freedom to contract provided their agreement is not contrary to law, morals, good customs, public order or public policy (Article 1306, Civil Code of the Philippines), We held in Philippine National Bank vs. De Poli thus: Under article 1255 of the Civil Code (Art. 1306 New Civil Code), the contracting parties may stipulate that in case of violation of the conditions of the mortgage contract, the creditor may sell, at private sale and without previous advertisement or notice, the whole or part of the good mortgaged for the purpose of applying the proceeds thereof on the payment of the debt. Said stipulation is not contrary to law or public order, and therefore it is valid. (Emphasis supplied).

LOZADA, STEFANIE

LOZADA, STEFANIE

As the disposition of the mortgaged personalities in a private sale was by agreement between the parties, it is clear that appellants are now in estoppel to question it except on the ground of fraud or duress pleas that they do not invoke. They do not even claim that the private sale agreed upon had caused them substantial prejudice. Appellants contend likewise that, instead of the action to revive the judgment rendered in its favor, the appellee Bank should have filed a motion in Civil Case 33074 of the Court of First Instance of Manila for the rendition of a deficiency judgment. It is to be borne in mind, in this connection, that the action for revival was instituted after the lapse of five but of less than ten years from the time the decision sought to be revived became executory. Having thus become stale or dormant, it was not subject to execution by mere motion. Consequently, before the judgment creditor could move for the rendition of a deficiency judgment and for the issuance of the corresponding writ of execution, it had to seek the revival of the decision in accordance with law. In Bank, etc. vs. Greene 61 Phil. 654, We held that "A judgment foreclosing a mortgage which has lost executory force by the lapse of five years may be revived by filing a complaint based thereon." This, precisely, is what the appellee Bank did. Technically, the original judgment, rendered by the Court of First Instance of Manila in Civil Case No. 33074 should have been literally revived, but the record shows that at the hearing of the action below the parties formally stipulated that the unpaid portion of the amount due under the decision in favor of the Bank was the sum of P383,388.47 only, after taking into account all the payments made by the judgment debtors up to the date the stipulation of facts was submitted to the lower court. Consequently, the deficiency judgment that may be rendered in Civil Case No. 33074 and the writ of execution that may be issued to enforce the same shall be only for said amount. Lastly, it is appellants' contention that the appellee Bank is not entitled to a deficiency judgment, invoking the provisions of Article 2115 of the new Civil Code. The issue thus raised was already resolved in the negative in Ablaza vs. Ignacio, G.R. No. L-11466, promulgated on March 23, 1958 where We said, inter alia, the following: We are of the opinion that the trial court is in error. It is clear from Article 2141 that the provisions of the New Civil Code on pledge shall apply to a chattel Mortgage only in so far as they are not counter to any provision of the Chattel Mortgage Law, otherwise the provisions of the latter will not apply. Here we find that the provisions of the Chattel Mortgage with regard to the effects of the foreclosure of a chattel mortgage are precisely contrary to the provisions of Article 2115 which were applied by the trial Court. xxx xxx xxx Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors in the question of chattel mortgages, have said, that in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action for the deficiency, if any should occur. 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. (Manila Trading and Supply Co., vs. Tamaraw Plantation Co., 47 Phil. 513; Emphasis supplied.)

It is clear, therefore, that the proceeds of the sale of the mortgaged personal properties of the herein appellants constitute only a pro tanto satisfaction of the monetary award made by the court and the appellee Bank is entitled to collect the balance. WHEREFORE, the decision appealed from is hereby affirmed, with costs.

LOZADA, STEFANIE

LOZADA, STEFANIE

SALVACION RIOSA, petitioner, vs. STILIANOPULOS, INC., respondent. Gloria and Gloria for petitioner. Andres C. Aguilar for respondent. DIAZ, J.: This petition for certiorari was filed to reverse the decision of the Court of Appeals rendered in CA-G.R. No. 44309 entitled, Stilianopulos, Inc. vs. Salvacion Riosa, which originated from the Court of First Instance of Albay as Civil Case No. 5708. In support of the remedy prayed for, the petitioner advances four propositions in her brief, to wit: (1) The parties cannot make any stipulation contrary to the express provisions of section 14 of Act No. 1508, otherwise known as the Chattel Mortgage Law. (2) Jurisdictional matters cannot be affected by any contract; (3) There was a failure to follow the necessary legal formalities at the public sale of the automobile in question; and (4) American jurisprudence and conscience, the public interest and considerations of morality dictate that the respondent take nothing from the petition in the light of the special circumstances of the case. The facts found established by the Court of Appeals may be briefly stated as follows: The respondent, which is a corporation organized under the laws of the Philippines, sold to the petitioner on May 10, 1929, for P2,000 which was not then paid, plus one used car, a five-passenger 1929 model Chevrolet International Sedan "AC", bearing factory No. 16857 and engine No. 119802. The petitioner turned over the used car to the respondent in partial payment of the Chevrolet purchased by her, and as to the P2,000, she executed a promissory note payable in monthly installments at an annual interest of 12 per cent from June 15, 1929, to January 15, 1931. To secure the payment of said note, the petitioner executed on May 10, 1929, a deed of mortgage under the provisions of the Chattel Mortgage Law, No. 1508, one of the clauses of which reads: It is further agreed, that in default of payment of the principal sum or any part thereof, or interest thereon, as and when the same shall become due and payable, the mortgagee may at once take and retain of all the said property and may remove it to the province in which is located the principal office of the mortgagee and may there proceed to enforce this mortgage in the manner provided by law, and in the event the mortgagor fail to deliver to the mortgagee immediately upon such default the property covered by this mortgage, then the mortgagee may proceed to sell such property forthwith, pursuant to section 14 of the Chattel Mortgage Law, without waiting for the expiration of the thirty-day period therein specified and without the ten-day notice therein provided for, the mortgagor hereby expressly waiving in the said event all right to such period and notice aforesaid and to any period or notice before sale to which (they) may be entitled under the law. In case of the

sale at public auction under foreclosure proceedings of the property herein mortgaged, or of any thereof, the mortgagee shall be entitled to bid for the property so sold; or for any part thereof and to have the amount of its bid applied to the payment of the obligation secured by this mortgage without requiring payment in cash of the amount of such bid, such mortgagee, to have the right furthermore, in case the amount realized at such sale or sales should not be sufficient to cover the entire indebtedness then due in accordance with the terms of this mortgage, together with the interest and legal expenses, to sue the mortgagor for such deficiency and recover judgment therefore. After paying P1,205.61, representing the total monthly payments made to the respondent from June, 1929, to May, 1930, plus P5.61 paid to the respondent in June of the year last mentioned, the petitioner failed to make any other payment. Accordingly, the sheriff, at the respondent's instance, took possession of the mortgaged Chevrolet car for the purpose of selling it at public auction as provided by law, notifying, however, the petitioner by registered mail sent on February 5, 1932, of what he then intended to do. The petitioner received the notice on the 10th of the said month and year, and the sale was effected by the sheriff, as she had been previously informed, on April 9, 1932, in the municipality of Legaspi, Albay, not that of Tabaco where the petitioner resided at the time and from where the car had been taken some days before by the said sheriff. As the respondent was the highest bidder at the public sale, having offered to pay P550 for the car, the same was adjudicated to said respondent. After the sale and the deduction of the proceeds thereof from the respondent's credit, there remained a balance to be paid by the petitioner in the amount of P575.10 plus stipulated interest thereon at 12 per cent per annum and the costs. The Court of Appeals also found as an established fact that the petitioner, after acquiring the Chevrolet car as above stated, equipped it with an electric lighter and a horn, for which she spent P1.50 and P8 respectively; that the said articles were included in the sale, and that one month before the sale the petitioner received from Paulino Samesa an offer of P1,000 for the car, which she refused. From a reading of the aforequoted clause of the mortgage executed by the petitioner in favor of the respondent, in connection with section 14 of Act No. 1508, it will be readily seen that the sale of the Chevrolet car in question was in accordance with the said clause and with the law. The said section reads in part: SEC. 14. The mortgagee, his executor, administrator, or assign, may, after thirty days from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides, or where the property is situated, provided at least ten days' notice of the time, place, and purpose of such sale has been posted at two or more public places in such municipality, and the mortgagee, his executor, administrator, or assign, shall notify the mortgagor or person holding under him and the persons holding subsequently mortgages of the time and place of sale, either by notice in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not reside in such municipality, at least ten days previous to the sale. It seems clear that the purpose of the law in providing for the requisites and procedure to be followed before proceeding to the sale of a mortgaged chattel under the provisions of the cited law, is plainly to protect the rights of the mortgagor. Nothing which took place in the case before us can be said to have affected the public interest or that of a third person. At most, all that it affected was the personal interest of the petitioner as mortgagor, and nothing else. In view thereof, the remedy prayed for does not lie and will not prosper, because it is a general principle, also clearly provided by law, that a person may waive any right conferred on him by law, unless such waiver is prohibited or is not authorized by law because against public interest or prejudicial to a third person.

LOZADA, STEFANIE

LOZADA, STEFANIE

Rights granted by law may be waived, provided such waiver be not contrary to public interest or public order, or prejudicial to a third person. (Article 4, Civil Code.) After a thorough examination and analysis of the clauses of the mortgage executed by the petitioner, particularly that quoted herein, we failed to find in the waiver contained therein anything which might be against public interest or prejudicial to a third person. If the sale was effected in Legaspi where the respondent had its main office, and not in Tabaco where the petitioner resided, it was because the latter so expressly agreed and consented thereto. The aforequoted clause of the mortgage deed clearly shows this. In the light of the facts and considerations above set out, we hold that the remedy sought does not lie. Wherefore, the petitioner is denied and the case is dismissed, with the costs to the petitioner. So ordered. An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs of suit. In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated as follows: 1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels unlawful; 2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of P298.54 as expenses of the foreclosure sale; 3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already settled its indebtedness to the PNB at the time the sale was effected, but also for the reason that the said sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage contract; 4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and 5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees. The antecedent facts of the case, as found by the trial court, are as follows: MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees. Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant. Tomas Besa and Jose B. Galang for defendants-appellees. ANGELES, J.:

LOZADA, STEFANIE

LOZADA, STEFANIE

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant PNB and the former offered real estate, machinery, logging and transportation equipments as collaterals. The application, however, was approved for a loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the aforementioned municipality. On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which would be on July 31, 1961. On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the plaintiff and so on the said date, the latter executed another promissory note wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961. The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958. On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the parcel of land, together with the improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground floor of the Court House in Daet, Camarines Norte. On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated. On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged chattels to be held on

November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban, Province of Camarines Norte. On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts, should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and the plaintiff would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an important negotiation was then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate said obligation. The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the plaintiff for its information and guidance. The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof was sent to the plaintiff. In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila. In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December 14, 1961. On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging the remittance of P738.59 with the advice, however, that as of that date the balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did not include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon and guarding fees, would be made.

LOZADA, STEFANIE

LOZADA, STEFANIE

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo. In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff giving it priority to repurchase the chattels acquired by the former at public auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of redemption and that it apply for the condonation of the attorney's fees. The plaintiff did not follow the advice but on the contrary it made known of its intention to file appropriate action or actions for the protection of its interests. On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was at first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk that he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound two truckloads of equipment. In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the "chattels" without court order, with the information that the company was then filing an action for damages against the PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok. Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal. We shall discuss the various points raised in appellant's brief in seriatim. The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is contended that its obligation under the terms of the two promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real property was effected, and not P58,213.51 as found by the trial court. There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per

promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum from the respective date of said notes "until paid". In the statement of account of the appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations became due, and on the basis of these compounded amounts charged additional delinquency interest on them up to September 22, 1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from the time the various amortizations of the loan became due until the real estate mortgage executed to secure the loan was extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of the new Civil Code which provides that interest due shall earn legal interest only from the time it is judicially demanded, and of Article 1959 of the same code which ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell into error when it awarded interest on accrued interests, without any agreement to that effect and before they had been judicially demanded. Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains that the same has no basis, factual or legal, and should not have been awarded. It likewise decries the award of attorney's fees which, according to the appellant, should not be deducted from the proceeds of the sale of the real property, not only because there is no express agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but also for the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the said extra-judicial foreclosure under consideration. There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court said: The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence how much was the expenses of the foreclosure sale although from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54. There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as expenses of the extra-judicial foreclosure sale. The court below committed error in applying the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the absence of evidence on record to support it. 1 It is true, as pointed out by the appellee bank, that courts should

LOZADA, STEFANIE

LOZADA, STEFANIE

take judicial notice of the fees provided for by law which need not be proved; but in the absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection with the extrajudicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for two day's work one for the preparation of the necessary notices of sale, and the other for conducting the auction sale and issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be set aside. But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily be revealed by an examination of the pertinent provision of the mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia: . . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all documents and to perform all acts requisite and necessary to accomplish said purpose and to appoint its substitute as such attorney-in-fact with the same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold possession of the same and the rents, benefits and profits derived from the mortgaged property before the sale, less the costs and expenses of the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00 exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized as rents and profits derived from the mortgaged property or from the proceeds realized from the sale of the said property and this mortgage shall likewise stand as security therefor. . . . We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of the second sentence, a reading of the whole context of the stipulation would readily show that it logically refers to extra-judicial foreclosure found in the first sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and pointed out by the appellant by reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the agreement. It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the extra-judicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the PNB did not actually spend anything by way of attorney's fees in connection with the sale. In support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither paid nor incurred any obligation to pay an attorney in connection with the foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not be allowed when the attorney conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary for all the legal services performed by him for the corporation. 3 These authorities are indeed enlightening; but they should not be applied in this case. The very same authority first cited suggests that said principle is not absolute, for there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone, considering the express agreement between the parties in the mortgage contract under which appellant became liable to pay the same. At any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable, considering that all that the branch attorney of the said bank did in

connection with the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte requesting the latter to sell the same in accordance with the provisions of Act 3135. The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection to it. Thus, this Court has explained: But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the terms, no matter how injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the amount due him under his contract without a deduction of the expenses caused by the delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source of speculative profit at the expense of the debtor. Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the payment of compensation for any other services. By express provision of section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his services; and even when an express contract is made the court can ignore it and limit the recovery to reasonable compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule from that announced in section 1091 of the Civil Code with reference to the obligation of contracts in general, where it is said that such obligation has the force of law between the contracting parties. Had the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note here in suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is obviously far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable. In order to enable the court to ignore an express contract for an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or unconscionable. 4 Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the court in administering impartial justice between the parties, and hence, the fees should be subject to judicial control. Nor should it be ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is between the debtor and the creditor, and not between attorney and client. As court have power to fix the fee as between attorney and client, it must necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6 In determining the compensation of an attorney, the following circumstances should be considered: the amount and character of the services rendered; the responsibility imposed; the amount of money or the value of the property affected by the controversy, or involved in the employment; the skill and experience called for in the performance of the service; the professional standing of the attorney; the results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that an attorney may properly charge a much larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-

LOZADA, STEFANIE

LOZADA, STEFANIE

judicially, and all that the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the work aforementioned. The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing discussion of the first two errors assigned, and for purposes of determining the total obligation of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the following illustration in support of this conclusion:1wph1.t A. I. Principal Loan (a) Promissory note dated August 2, 1956 (1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 (b) Promissory note dated October 19, 1956 (1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 II. III. Sheriff's fees [for two (2) day's work] Attorney's fee Total obligation as of Nov. 21, 1961 B. I. II. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 Additional amount remitted to the PNB on Dec. 18, 1961 Total amount of Payment made to PNB as of Dec. 18, 1961 Deduct: Total obligation to the PNB Excess Payment to the PNB P56,908.00 738.59 P57,646.59 P57,495.86 P 150.73 ======== P27,500.00 8,751.78 P15,500.00 4,734.08 10.00 1,000.00 P57,495.86

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we take into consideration the fact that the PNB must have been led to believe that the stipulated 10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on other grounds. That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date. These letters were followed by another letter to the appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage which provides as follows: (i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto agree that the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of Manila, as the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and fees allowed by law and of other expenses incurred in connection with the said foreclosure. [Emphasis supplied] Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the decision appealed from in the following rationale: While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila, nevertheless, the effect thereof was merely to provide another place where the mortgage chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should be held, hence, in the case under consideration, the PNB had three places from which to select, namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels were situated; and (3) the place stipulated in the contract. The PNB selected the second and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and valid. To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell the mortgaged property at a public place in the municipality where the mortgagor resides or where the property is situated, 8 this Court has held that the sale of a mortgaged chattel may be made in a place other than that where it is found, provided that the owner thereof consents thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale

LOZADA, STEFANIE

LOZADA, STEFANIE

of the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to select from among the places provided for in the law and the place designated in their agreement over the objection of the mortgagor. In providing that the mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated, at the option of the mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They may validly be waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be, they waived their corresponding rights under the law. The correlative obligation arising from that agreement have the force of law between them and should be complied with in good faith. 10 By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it, was merely a personal privilege they waived, which is not contrary, to public policy or to the prejudice of third persons. It is a general principle that a person may renounce any right which the law gives unless such renunciation is expressly prohibited or the right conferred is of such nature that its renunciation would be against public policy. 11 On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to such sale. 12 Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his doings which shall particularly describe the articles sold and the amount received from each article. From this, it is clear that the law requires that sale be made article by article, otherwise, it would be impossible for him to state the amount received for each item. This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that the mortgagor had agreed or consented to such sale in gross, the same should be set aside. It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the requirement of the law to sell the same article by article. The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by force, as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the premises in jail to deprive herein appellant of its possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to believe that it was the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still the PNB cannot escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would its claim that it afterwards gave a chance to herein appellant to repurchase or redeem

the chattels, improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess the chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time they were illegally sold by them. To this effect was the holding of this Court in a similar situation. 16 The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the burden is on the defendant to prove the damage to which he was thus subjected. . . . This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The trial court did not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of the appellant to recover the same. We find enough evidence of record, however, which may be used as a guide to ascertain their value. The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in question were mortgaged as part of the security therefore, herein appellant submitted a list of the chattels together with its application for the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the same year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the report of which he gave all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and re-inspections testified in court that in giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is to be expected of an official of the appellee bank. And it appears that the values were considerably reduced in all the re-inspection reports for the reason that when he went to herein appellant's premises at the time, he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they were no longer in use at the time, they were kept in a proper place and not exposed to the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and bearing in mind the current cost of equipments these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation, although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels; and that the real value thereof, although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-

LOZADA, STEFANIE

LOZADA, STEFANIE

set by the marked increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the sale should be fixed at the original appraised value of P42,850.00. Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract. But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant. WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.

MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-Appellants, vs. MACARIO M. OFILADA, Sheriff of the City of Manila and ERNESTO ESTEBAN, Respondents-Appellees.

DECISION LABRADOR, J.: On September 8, 1951, Petitioner Lucia D. Manarang obtained a loan of P200 from Ernesto Esteban, and to secure its payment she executed a chattel mortgage over a house of mixed materials erected on a lot on Alvarado Street, Manila. As Manarang did not pay the loan as agreed upon, Esteban brought an action against her in the municipal court of Manila for its recovery, alleging that the loan was secured by a chattel mortgage on her property. Judgment having been entered in Plaintiffs favor, execution was issued against the same property mortgaged. Before the property could be sold Manarang offered to pay the sum of P277, which represented the amount of the judgment of P250, the interest thereon, the costs, and the sheriffs fees, but the sheriff refused the tender unless the additional amount of P260 representing the publication of the notice of sale in two newspapers be paid also. So Defendants therein brought this suit to compel the sheriff to accept the amount of P277 as full payment of the judgment and to annul the published notice of sale. It is to be noted that in the complaint filed in the municipal court, a copy of the chattel mortgage is attached and mention made of its registration, and in the prayer request is made that the house mortgaged be sold at public auction to satisfy the debt. It is also important to note that the house mortgaged was levied upon at Plaintiffs request (Exhibit E). On the basis of the above facts counsel for Manarang contended in the court below that the house in question should be considered as personal property and the publication of the notice of its sale at public auction in execution considered unnecessary. The Court of First Instance held that although real property may sometimes be considered as personal property, the sheriff was in duty bound to cause the publication of the notice of its sale in order to make the sale valid or to prevent its being declared void or voidable, and he did not, therefore, err in causing such publication of the notice. So it denied the petition. There cannot be any question that a building of mixed materials may be the subject of a chattel mortgage, in which case it is considered as between the parties as personal property. We held so expressly in the cases of Luna vs. Encarnacion, et al., * 48 Off. Gaz., No. 7, p. 2664; chan roblesvirtualawlibraryStandard Oil Co. of New York vs. Jaranillo, 44 Phil., 630; chan roblesvirtualawlibraryand De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464. The matter depends on the circumstances and the intention of the parties. cralaw The general principle of law is that a building permanently fixed to the freehold becomes a part of it, that prima facie a house is real estate, belonging to the owner of the land on which it stands, even though it was erected against the will of the landowner, or without his consent cralaw . The general rule is otherwise, however, where the improvement is made with the consent of the landowner, and pursuant to an understanding either expressed or implied that it shall remain personal property. Nor does the general rule apply to a building which is wrongfully removed from the land and placed on the land of the person removing it. (42 Am. Jur. 199-200.) cralaw Among the principal criteria for determining whether property remains personally or becomes realty are annexation to the soil, either actual or construction, and the intention of the parties cralaw Personal property may retain its character as such where it is so agreed by the parties interested even though annexed to the realty, or where it is affixed in the soil to be used for a particular purpose for a short period and then removed as soon as it has served its purpose cralaw . (Ibid., 209-210.) The question now before us, however, is:chanroblesvirtuallawlibrary Does the fact that the parties entering into a contract regarding a house gave said property the consideration of personal property in their contract, bind the

LOZADA, STEFANIE

LOZADA, STEFANIE

sheriff in advertising the propertys sale at public auction as personal property? It is to be remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is also to be remembered that in practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy upon in execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house and conveyed it by way of chattel mortgage and, therefore, knew its consideration as personal property. These considerations notwithstanding, we hold that the rules on execution do not allow, and we should not interpret them in such a way as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for example, as personal property, when they are not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales on execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to the character which the parties have given to it or desire to give it. When the rules speak of personal property, property which is ordinarily so considered is meant; chan roblesvirtualawlibraryand when real property is spoken of, it means property which is generally known as real property. The regulations were never intended to suit the consideration that parties, may have privately given to the property levied upon. Enforcement of regulations would be difficult were the convenience or agreement of private parties to determine or govern the nature of the proceedings. We, therefore, hold that the mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale at public auction. This ruling is demanded by the need for a definite, orderly and well- defined regulation for official and public guidance and which would prevent confusion and misunderstanding. We, therefore, declare that the house of mixed materials levied upon on execution, although subject of a contract of chattel mortgage between the owner and a third person, is real property within the purview of Rule 39, section 16, of the Rules of Court as it has become a permanent fixture on the land, which is real property. (42 Am. Jur. 199-200; chan roblesvirtualawlibraryLeung Yee vs. Strong Machinery Co., 37 Phil., 644; chan roblesvirtualawlibraryRepublic vs. Ceniza, et al., 90 Phil., 544; chan roblesvirtualawlibraryLadera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz., 5374.). The judgment appealed from is hereby affirmed, with costs. SO ORDERED.