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053. Belgian Catholic Missionaries v.

Magallanes Press
November 24, 1926
Villa-Real, J.
Topic: Certain Financial Transactions and Documents; Security Devices and Other Credit
Supports/Enhancements; Certain Issues: Validity of after-acquired property and after-incurredobligation clauses in a chattel mortgage
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SV: Magallanes Press obtained two loans: the 1 from J.P. Heilbronn & Co. Inc and the 2 from Belgian
Catholic Missionaries (BCM). Both were secured by chattel mortgage over the same printing machinery
and accessories of Magallanes Press. Subsequently, J.P. Heilbronn & Co. transferred its mortgage
credit and all its rights to the chattel mortgage to Jose Maria Mimeji. Mimeji then extended another loan to
Magallanes Press. Magallanes Press executed a document in which the chattel mortgage originally
executed ifo JP Heilbronn was made to cover and secure the additional loan from Mimeji. Magallanes
Press office building caught fire. Mimeji sought to claim from the insurer and also sought to foreclose the
remaining properties of Magallanes Press. BCM filed an action to restrain Mimeji from foreclosing and
assail the validity of the chattel mortgage executed over the extended loan. HELD: Jp Heilbronn, at the
time of the transfer of its mortgage rights to Mimeji, has a preferential right over that of the BCM for the
remainder of the amount of his mortgage credit. BCM had a preferential right to the rest of the value of
the mortgaged property after deducting the mortgage credit of JP Heilbronn. The credit extension made
by Mimeji in favor of Magallanes Press and the extension of the mortgage thereto, are not only
subordinate to the mortgage credit of BCM, being subsequent in time and in registration, but said
increase in the security is also VOID. The increase of the mortgage security becomes a new mortgage in
itself, inasmuch as the original mortgage did not contain any stipulation in regard to the increase of the
mortgage credit, and even if it did, said increase would take effect only from the date of the increase. 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
PLAINTIFF-APPELLEE: The Belgian Catholic Missionaries, Inc.
DEFENDANT: Magallanes Press, Inc, et al.
APPELLANT: Jose Maria Memije
FACTS:
Magallanes Press obtained 2 loans:
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1 loan: P14k from J.P. Heilbronn & Co., Inc., evidenced by Promissory Notes and secured by a chattel
mortgage on all printing machinery and its accessories of Magallanes Press.
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2 loan: P30,500 from Belgian Catholic Missionaries Co., Inc. (BCM), secured by a chattel mortgage on
the same printing machinery and its accessories of Magallanes Press it had previously mortgaged to JP
Heilbronn.
All the PNs executed by Magallanes Press in favor of JP Heilbronn having been overdue for non-payment
of installments, JP Heilbronn transferred all its mortgage credit against the Magallanes Press to Memije
for P8,280, the balance of mortgage credit.
Magallanes Press obtained an additional loan of P5,900 from Mimeji, and executed a deed in favor of
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Mimeji, by virtue of which, the original chattel mortgage covering the 1 loan was made to cover for the
additional loan as well.
Magallanes Press building caught fire. Some of the printing machinery, its accessories and other
personal property of Magallanes Press were destroyed. Since the property was insured (JP Heilbronn
indorsed the insurance policy to Mimeji during the transfer or mortgage credit), Mimeji sought to claim
from the insurance company. Mimeji also sought to foreclose the properies sibject of the mortgage.
However, BCM filed a petition for a writ of injunction to stop award of the proceeds of the insurance to
Memije, with an action to nullify the transfer of mortgage credit to Mimeji and the extension of mortgage
for the additional loan.

CFI: Transfer of mortgage credit to Mimeji and the extension of mortgage for the additional loan is null
and void in so far as they prejudice rights of BCM. Preliminary injunction against Mimeji made final and
absolute.
ISSUES
1. WON the Mortgage Extension made by Mimeji in favor of Magallanes Press, to the extent that it
is covered and secured by the original chattel mortgage, is void? YES.
SC: The increase made by Mimeji in the mortgage credit acquired by him from JP Heilbronn, and the
extension made by the Magallanes Press of the mortgage to the additional loan without knowledge or
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consent of the BCM, as 2 mortgagee, prejudices credit of BCMs, inasmuch as the security for the
payment of said credit was reduced. It constitutes fraud that vitiates the contract of extension of the
mortgage. Void Mortgage Extension!
2. What is the preference of right between BCM and Mimeji over the mortgaged property and the
amount of insurance policies covering a part thereof which was destroyed by fire?
Jp Heilbronn, at the time of the transfer of its mortgage rights to Mimeji, has a preferential right over that
of the BCM for the remainder of the amount of his mortgage credit (P8,200). BCM had a preferential right
to the rest of the value of the mortgaged property after deducting the mortgage credit of JP Heilbronn.
The increase of P5,900 made by Mimeji in favor of Magallanes Press and the extension of the mortgage
thereto, are not only subordinate to the mortgage credit of BCM, being subsequent in time and in
registration, but said increase in the security is also VOID.
The increase of the mortgage security becomes a new mortgage in itself, inasmuch as the original
mortgage did not contain any stipulation in regard to the increase of the mortgage credit, and even if it
did, said increase would take effect only from the date of the increase. 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 (citing American Jurisprudence).
In accordance with the provisions of section 5 of Act No. 1508 (Chattel Mortgage Law), the parties to the
original deeds swore that the same was mortgaged "to secure the obligations specified therein and for no
other purpose." Neither the increase in question, nor the extension of the mortgage to secure the
payment of the same is specified in the deed, consequently said extension is void.
"Where the statute provides that the parties to a chattel mortgage must make oath that the debt is a just
debt, honestly due and owing from the mortgagor to the mortgagee, it is obvious that a valid mortgage
cannot be made to secure a debt to be thereafter contacted." (Citing American Jurisprudence)
DISPOSITIVE: (a) Jose Ma. Memije has a preferential right to the value of the chattels mortgage and the
amount of the insurance policies up to the sum of P8,280.90;
(b) That BCM has a right to the remainder of the value of said chattels and the insurance policies up to
the amount of P30,500, after deducting the preferential credit of Jose Ma. Memije;
(c) That as to the increase of P5,895.59, the right of the defendant Jose Ma. Memije is that of an ordinary
creditor.

Digest by: Agee Romero