ANTICHRESIS

(art. 2132-2139)

(1) Dizon v Gaborro [REPORTED]

88 SCRA 688
June 22, 1978

FACTS:
After the foreclosure by the Development Bank of the Philippines (DBP) of the mortgage
on the property of respondent Dizon, the latter entered into a contract with petitioner
Gaborro entitled Deed of Sale with Assumption of Mortgage.

Under the contract, Gaborro would assume and pay the indebtedness of Dizon to DBP
and in consideration therefor, Gaborro was given the possession, the enjoyment and the use
of the land mortgaged until Dizon can reimburse fully the amount paid.

ISSUE:
What is the nature of the contract entered into between Gaborro and Dizon?

HELD:
The agreement between Gaborro and Dizon is one of those innominate contracts under
Article 1307 of the New Civil Code whereby Gaborro and Dizon agreed to give and to do
certain rights and obligations respecting the lands and the mortgage debts of the former
which would be acceptable to the bank.

However, said contract partakes the nature of an antichresis insofar as the principal
parties, Dizon and Gaborro, are concerned. The Supreme Court based based its ruling on the
intention of the parties because there was neither transfer of full title/ownership to Gaborro
nor was there any consideration for the sale.

(2) Bangis v Adolfo [REPORTED]

G.R. No. 190875
June 13, 2012
FACTS:
Serafin Adolfo, Sr. allegedly mortgaged a land he owned for the sum of Php
12,500.00 to herein Private Respondent Ancieto Bangis, who immediately took possession
of the land. The said transaction was, however, not reduced into writing.

When Serafin, Sr. died, his heirs executed a Deed of Extrajudicial Partition
covering the same subject property and a Torrens Certificate of Title was issued to them.

In June 1998, the Heirs of Adolfo expressed their intention to redeem the
mortgaged property from Bangis but the latter refused, claiming that the transaction
between him and Adolfo was one of SALE.

During the conciliation meetings in the barangay, Bangis showed them a copy of
a deed of sale and a certificate of title of the disputed lot.
 The Heirs of Adolfo filed a complaint before the Regional Trial Court for
annulment of the deed of sale and declaration of the purported contract of sale as
antichresis.

The Trial Court declared the contract between the petitioners and respondents
as a mere mortgage or antichresis and since the respondents have been in the possession
of the property in 1975 up to the present time enjoying all its fruits or income, the
mortgaged loan of Php 12,500.00 is deemed fully paid. Aggrieved, the Heirs of Bangis
appealed the decision.

The Court of Appeals, affirmed the RTC in ruling that the contract between the
parties was a mortgage, not a sale. It noted that while Bangis was given the possession of
the subject property, the certificate of title remained in the custody of Adolfo and was
never cancelled.

ISSUE:
WON the transaction between Bangis and Adolfo was one of antichresis?

HELD:
The transaction was one of Mortgage, not Antichresis. For the contract of
antichresis to be valid, Article 2134 of the Civil Code requires that:

Article 2134. The amount of the principal and of the interest shall
be specified in writing; otherwise, the contract of antichresis shall
be void.

(3) Diego v Fernando [REPORTED]

G.R. No. L-15128
August 25, 1960

FACTS:

On May 26, 1950, defendant Segundo Fernando executed a deed of mortgage in

favor of plaintiff Cecilio Diego over two parcels of land registered in his name, to secure a
loan P2,000, without interest, payable within four years from the date of the mortgage.
After the execution of the deed, possession of the mortgaged properties were turned
over to the mortagagee.

Debtor failed to pay the loan after four years, the mortagagee Diego made
several demands upon him for payment but to no avail. Diego filed this action for
foreclosure of mortgage.

Defendant Fernando's defense was that transaction between him and plaintiff
was one of antichresis and not of mortgage; and that as plaintiff had allegedly received a
total of 120 cavans of palay from the properties given as security, which, at the rate of P10
a cavan, represented a value of P5,200, his debt had already been paid, with plaintiff still
owing him a refund of some P2,720.00.

The Court found that there was nothing in the deed of mortgage to show that it
was not a true contract of mortgage, and that the fact that possession of the mortgaged
properties were turned over to the mortgagee did not alter the transaction; that the
parties must have intended that the mortgagee would collect the fruits of the mortgaged
properties as interest on his loan, which agreement is not uncommon; and that the
evidence showed that plaintiff had already received 55 cavans of palay from the
properties during the period of his possession.

Judgment was rendered for plaintiff in the amount of P2,000, the loan he gave
the defendant, with legal interest from the filing of the action until full payment, plus
P500 as attorney's fees and the costs; and in case of default in payment, for the
foreclosure of the mortgage. Hence, this appeal.

ISSUE:
WON the contract between the parties is one of mortgage or antichresis?

HELD:
To be antichresis, it must be expressly agreed between creditor and debtor that
the former, having been given possession of the properties given as security, is to apply
their fruits to the payment of the interest, and thereafter to the principal of his credit; so
that if a contract of loan with security does not stipulate the payment of interest but
provides for the delivery to the creditor by the debtor of the property given as security, in
order that the latter may gather its fruits, without stating that said fruits are to be applied
to the payment of interest, if any, and afterwards that of the principal, the contract is a
mortgage and not antichresis.

In the present case, the parties having agreed that the loan was to be without
interest, and the appellant not having expressly waived his right to the fruits of the
properties mortgaged during the time they were in appellee's possession, the latter, like
an antichretic creditor, must account for the value of the fruits received by him, and

(4) Tavera vs El Hogar Filipino, Inc. [REPORTED]

68 Phil 712 (1939)
Facts:
Tavera-Luna Inc., wanted to construct the Crystal Arcade building on one of its
properties located at Escolta, Manila. To fund the project, the corporation secured a loan
and executed a first mortgage on said property and on the building proposed to be
erected thereon. Tavera-Luna, Inc., secured from El Hogar Filipino an additional loan of
P300,000 with the same security executed for the original loan.

Due to Tavera-Lunas failure to pay the monthly on the loan, El Hogar Filipino
foreclosed the mortgage and proceeded with the extra-judicial sale of the Crystal Arcade
building, at which it was the highest bidder for P1,363,555.36Carlos Pardo de Tavera and
Carmen Pardo de Tavera Manzano, in their capacity as stockholders of the Tavera-Luna,
Inc., filed a petition against El Hogar Filipino, Inc. and prayed for the annulment the two
secured loans as well as extra-judicial sale made in favor of the latter. They contend that
the said loans are void because it involves a public building as security, which is allegedly
prohibited under the Corporation Code.

Issue:
WON the contracts in the given case are contracts of mortgage or contracts of
antichresis

Held:
ANTICHRESIS. The SC ruled that the contracts in question are of antichresis. This,
however, is immaterial because the extra-judicial foreclosure of the security are also valid
even if the contracts are of antichresis. Stipulations in a contract of antichresis for the
extra-judicial foreclosure of the security may be allowed in the same manner as they are
allowed in contracts of mortgage and of pledge.

(5) Pando vs Gimenez [REPORTED]

G.R. No. 31816, Feb. 15, 1930
Facts:

This case was instituted by Pando to foreclose a mortgage executed by Gimenez.

Gimenez was indebted to the plaintiff in the sum of P8,000. To secure the payment of the
said amount, Gimenez executed and delivered a real estate mortgage in favor of Pando.
Gimenez gave to the Pando the full control and complete and absolute administration of
his building and the parcel of land on which said building was erected. The said properties
were situated in Santa Mesa, District of Santa Mesa. Both parties agreed to the condition
that Pando would attend to the administration, care and preservation of the said building
and the property leased from the Hacienda Tuason on which said building was erected,
the payment of the premium on the insurance of this building, the payment of the taxes
might become due on the said building, the payment to the lessor Hacienda Tuason of the
rents of the leased property, and to collect the rents from the tenants of the said building.
Pando was also obligated to apply the rents that would be collected from the said
building to the payment of all the expenses necessary for the preservation and
maintenance of the said building.

In the course of the administration by Pando of the said properties, he failed and
neglected to pay to the government of the City of Manila taxes due for several years on
the said building and has also failed and neglected to pay to the lessor HaciendaTuason
the rents due for several years on the land leased and on which said building was erected.
As a result, the City of Manila sold the building in question at public auction. Pandos
failure to pay the rents due for the lease for Hacienda Tuason the rent for the leased
property on which the building in question was erected, the lessor cancelled the contract
of lease of Gimenez and sued Gimenez for desahucio in the municipal court of the City of
Manila.

Issue:
WON Pando was duty-bound to pay the taxes and rent for the properties in
question.

Held:
YES. The contract entered into by Pando and Gimenez is antichretic in character.
Pando assumed the administration of the properties in question; thus, the Civil Code
provisions on the obligations of the antichretic creditor are applicable in the case at bar.
Failure to fulfill Pandos obligation to pay the tax and the rent of the lot, the law requires
him to pay for indemnity of damages.

The right which the creditor acquires by virtue of antichresis to enjoy the fruits of
the property delivered to him, carries two obligations which are a necessary consequence
of the contract, because they arise from its very nature.

(6) Rosales vs Tansenco [REPORTED]

G.R. No. L-4135, Nov. 29, 1951
Facts:
Congzon, thru fraud and without consideration, was covined by Tansenco to
execute a mortgage in favor of Tan Sun on a piece of land owned by him (Congzon). Tan
Sun then transferred all his rights to Tan Tay Sun, who, in turn, assigned such to Tansenco.
Congzon never enjoyed the possession and fruits of the land. He also paid for the taxes,
the amount of which is much more than that of the credit of Tan Sun secured by the
mortgage.

Issue:
WON there was in fact a contract of antichresis.

Held:
YES. In a contract of antichresis the creditor is obliged to pay the taxes on the
property, unless the contract says otherwise. The contract between Congzon and Tan Sun
said nothing about taxes. Hence it was the obligation of the creditor or creditors to pay
the taxes on the property at issue herein.

Bearing in mind that the credit was only P26,000 it is plain to see that Congzon et
al affirmed in effect that they had already discharged their debt (by advancing the taxes
which the creditor should have paid) and are entitled to the return of their property free
from all encumbrance.

Chattel mortgage
(art. 2140-2141)

(7) People vs Chupeco [REPORTED]

10 SCRA 640 [1964]
Doctrine: Essential elements:
-the property removed or repledged should be the same or identical property that was
mortgaged or pledged before such removal or pledging.

Facts:
The said accused, Jose L. Chupeco, being the owner, executed a Chattel
Mortgage on the following properties: An open shed under construction to be used
sawmill building, containing an area of 350 sq. m. more or less, located at SitioSaguing,
Dinalupihan, Bataan, in favor of the Agricultural and Industrial Bank transferred to the
herein complainant Rehabilitation Finance Corporation.
The accused knowingly transfer and remove, or cause to be transferred and removed the
said properties to the municipality of Subic, Zambales, also without the written consent of
the mortgagee bank, to the damage and prejudice of the said Rehabilitation Finance
Corporation in the sum of P15,935.80, Philippine currency, representing the unpaid
balance of the aforesaid mortgage.

Issue:
Is the crime of repledging present in this case making the accused liable for such
offense?

Held:
No. Evidence fails to show that the properties mortgaged to the bank are the
same one encumbered afterwards to Mateo Pinili. In fact, the Office of the Solicitor
General recommends the acquittal of the accused on this very ground and that the
descriptions in Exhibit D and Exhibit E are materially different. An essential element
common to the two acts punished under Article 319 of the Revised Penal Code is that the
property removed or repledged, as the case may be should be the same or identical
property that was mortgaged or pledged before such removal or repledging. Therefore,
the accused cannot be found guilty on the evidence on record of the crime for which he
stands indicted.

(8) People vsAlvares [REPORTED]

45 Phil 472 [1923]
Doctrine: The mortgagor-seller is not relieved of criminal liability even if he informed the
purchaser that the thing sold had been mortgaged

Facts:
Pedro Alvarez was the owner of a two-passenger automobile of "Dodge Bros."
manufacture. He mortgaged it to the Philippine Automobile Exchange, Inc. This mortgage
being in force, the accused sold the automobile to Mr.AnselmoSingian for the sum of
P2,500, P700 having been paid in cash, the balance to be paid in thirteen monthly
installments of P125 each, the last installment being of P175, with interest at 12% per
annum. To this end, Mr.AnselmoSingian delivered to the accused a promissory note for
the balance of the price payable in the manner above stated. Upon this note
Mr.AnselmoSingian has paid the sum of P390 which together with the P700 makes a total
of P1,090.

Subsequently, the Philippine Automobile Exchange, Inc., making use of the right granted
it by the mortgage of the automobile, took the same from Mr.Singian, who thus lost both
the automobile and the sum of P1,090 that he had paid to the accused on account of the
price. Mr.AnselmoSingian bought this automobile in the belief that it was free from all
liens and encumbrances, and the accused, on the other hand, did not tell Mr.Singian that
the automobile was mortgaged.

Issue:
Whether or not Alvarez is liable?

Held:
YES. Under Sec 10 of Act 1508, the act of selling as free a thing that is mortgaged
would not now be a crime if the vendor obtains the consent of the mortgagee in writing
to the sale. Hence, in order to constitute a violation of Act No. 1508, that the sale be
made by the vendor without obtaining the consent in writing of the mortgagee, even if he
should inform the purchaser that the thing sold is mortgaged.
As the accused did not inform Mr.Singian, when he sold the automobile, that it
was mortgaged, this omission constitutes a deliberate concealment of this fact, which led
Mr.Singian to believe, as he did in fact believe, that the automobile was not mortgaged,
for under the circumstances of this case and in the ordinary course of business, it is
evident that had Mr.Singian known that the automobile was mortgaged, he would not
have bought it for the price he agreed to pay.
 (9) Servicewide Specialists, Incvs IAC [REPORTED]
174 SCRA 80
Doctrine: The sale is valid although no written consent was obtained from the mortgagee
but the mortgagor lays himself open to criminal prosecution.

Facts:
Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle and paid a
downpayment. The remaining balance includes interests and premiums for motor vehicle
insurance policies. Siton executed a promissory note in favor of Car Traders Philippines,
Inc.
As further security, Siton executed a Chattel Mortgage over the subject motor
vehicle in favor of Car Traders Philippines, Inc. The credit covered by the promissory note
and chattel mortgage executed by respondent GalicanoSiton was first assigned by Car
Traders Philippines, Inc. in favor of Filinvest Credit Corporation. Subsequently, Filinvest
Credit Corporation likewise reassigned said credit in favor of petitioner Servicewide
Specialists, Inc. and respondent Siton was advised of this second assignment.

Siton failed to pay,Servicewide Specialist filed this action against GalicanoSiton.

Issue:
Whether or not the mortgagee is bound by the deed of sale by the mortgagor in
favour of a third person, as neither the mortgagee nor its predecessors has given written
or verbal consent thereto pursuant to the deed of Chattel Mortgage

Held:
The rule is settled that the chattel mortgagor continues to be the owner of the
property, and therefore, has the power to alienate the same; however, he is obliged
under pain of penal liability, to secure the written consent of the mortgagee. Thus, the
instruments of mortgage are binding, while they subsist, not only upon the parties
executing them but also upon those who later, by purchase or otherwise, acquire the
properties referred to therein.

The absence of the written consent of the mortgagee to the sale of the
mortgaged property in favor of a third person, therefore, affects not the validity of the
sale but only the penal liability of the mortgagor under the Revised Penal Code and the
binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.

(10) Cebu International Finance Corp vs CA

GR No. 107554, Feb 13, 1997
FACTS:
Jacinto Dy executed a Special Power of Attorney in favor of private respondent
AngTay, authorizing the latter to sell the cargo vessel owned by Dy and christened LCT
"Asiatic.". Through a Deed of Absolute Sale, AngTay sold the subject vessel to Robert
Ong. Ong paid the purchase price by issuing three (3) checks However, since the payment
was not made in cash, it was specifically stipulated in the deed of sale that the "LCT
Asiatic shall not be registered or transferred to Robert Ong until complete payment."

Ong acquired a loan from Cebu International Finance Corporation to be paid in

installments as evidenced by a promissory note of even date. As security for the loan, Ong
executed a chattel mortgage over the subject vessel, which mortgage was registered with
the Philippine Coast Guard and annotated on the Certificate of Ownership Ong defaulted
in the payment of the monthly installments. Consequently, Cebu International Finance
Corporation sent him a letter demanding delivery of the mortgaged vessel for foreclosure
or in the alternative to pay the balance pursuant to paragraph 11 of the deed of chattel
mortgage.

Meanwhile, the two checks paid by Ong to AngTay for the Purchase of the
subject vessel bounced. AngTay's search for the elusive Ong and all attempts to confer
with him proved to be futile. A subsequent investigation and inquiry with the Office of the
Coast Guard revealed that the subject vessel was already in the name of Ong, in violation
of the express undertaking contained in the original deed of sale.

As a result thereof, AngTay and Jacinto Dy filed a civil case for rescission and
replevin with damages against Ong and his wife.

ISSUE:
Whether or not Cebu International Finance Corporation is a mortgagee in good
faith whose lien over the mortgaged vessel should be respected

HELD:
YES. The contention of the respondent that Petitioner's bad faith is its failure to
comply with the requirements of P.D. No. 1521 or the Ship Mortgage Decree of 1978, that
the special affidavit of good faith required in Sec. 4 of P.D. No. 1521 was lacking. However
the Supreme Court held that the special affidavit of good faith, on the other hand, is
required only for the purpose of transforming an already valid mortgage into a "preferred
mortgage." Thus, the above mentioned affidavit is not necessary for the validity of the
chattel mortgage itself but only to give it a preferred status.

The chattel mortgage constituted on a vessel by the buyer who was able to
register the vessel in his name despite the agreement with the seller that the vessel would
not be so registered until after full payment of the price which do not appear in the
buyers copy of the deed of sale is VALID, for the mortgagee has the right to rely in good
faith on the certificate of registration.

The prevailing jurisprudence is that a mortgagee has a right to rely in good faith
on the certificate of title of the mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful owner of or does not have a
valid title to the mortgaged property, the mortgagee or transferee in good faith is
nonetheless entitled to protection. Although this rule generally pertains to real property,
particularly registered land, it may also be applied by analogy to personal property, in this
case specifically, since ship owners are, likewise, required by law to register their vessels
with the Philippine Coast Guard.

(11) TOLENTINO VS BALTAZAR

GR.L-14597 March 27,1961
DOCTRINE: a mortgage constituted on said improvements must be susceptible
registration as a real estate mortgage and of annotate on the certificate of title to
the land of which they for part, although the land itself may not be subject to said
encumbrance,
FACTS:
Angel Baltazar, owner of a parcel of land which he received through homestead
application and was subsequently approved by the Director of Lands located in Nueva
Ecija, mortgaged the present and future improvements on said land to Petitioner Pastor
Tolentino for P1,500. After Baltazar's death, the family conveyed their rights and interest
to BasilioBaltazar who filed a petition praying for the transferring of the homestead
application of his dad in his own name. Basilio now contends that Tolentino has no cause
of action as the property was already transferred to his own name and that the mortgage
which the deceased, Angel Baltazar, executed is void because the land was only acquired
on August 1940 and mortgaged on April 1941 which according to the law is not subject
encumbrances for a period of 5yrs.

ISSUE:
WON the the improvements and crops on the land may be mortgage.
HELD:
YES.The SC held that, under CA.141 Sec 118, it provides that lands acquired
through free or homestead patents shall not be subject to encumbrances or alienation for
a period of 5yrs after the issuance of the patent. However, the law explicitly permits the
encumbrance, by mortgage or pledge of the improvements and crops on the land,
without limitation in point of time.
Subject Matter to be Described:
Under Sec.7 of RA.1508, the law does NOT demand minute and specific description of
every chattel mortgaged in a deed of mortgage, but ONLY requires that the description of
the mortgaged property be such as to enable the parties to the mortgage or any other
person TO IDENTIFY THE SAME AFTER A REASONABLE INVESTIGATION AND INQUIRY.
otherwise, the mortgage is INVALID.

(12) SALDANA VS PHIL GUARANTY

GR.L-13194 January 29, 1960
DOCTRINE The law does not demand a minute and specific description of every chattel
mortgaged in the deed of mortgage but only requires that the description of the
properties be such "as to enable the parties in the mortgage, or any other person, after
reasonable inquiry and investigation to identify the same."

FACTS:
Josefina de Eleazar executed in favor of Petitioner Saldana a chattel mortgage
covering properties described and stated to include all other furnitures, fixtures or
equipment found in the said premises for her indebtedness amounting to P15,000.
Subsequent to the mortgage, Hospital de San Juan de Dios Inc.(SJDDI) obtained a
judgment against Josefina thereby a writ of execution was duly issued upon the same
things in that of the chattel mortgage. Petitioner Saldana filed a third party claim
asserting that such described properties are subject to his chattel mortgage of May 1953.
Accordingly, the other properties which was not specifically described therein was sold to
SJDDI as the highest bidder.

ISSUE:
WON the other thins which were not described therein falls under the phrase
"include all other furnitures, fixtures or equipment found in the said premises".
HELD:

YES. The SC held that it passed the "reasonable description rule". We may notice
in the agreement, moreover, that the phrase in question is found after an enumeration of
other specific articles. It can thus be reasonably inferred therefrom that the "furnitures,
fixtures and equipment" referred to are properties of like nature, similarly situated or
similarly used in the restaurant of the mortgagor located in front of the San Juan de Dios
Hospital at Dewey Boulevard, Pasay City, which articles can be definitely pointed out or
ascertained by simple inquiry at or about the premises.

(13) STROCHECKER VS RAMIREZ

GR.18700 September 26, 1922
Facts:
There was a mortgaged issued to Fidelity & Surety Co. which was executed on
March 1919 and registered in due time and another on September 1919 issued to Ramirez.
Both are asking for the court to be given preference over the other. The appellant
contention that the mortgage executed in favor on Fidelity & Surety Co is invalid as such
was not capable of being mortgaged and the description is not sufficient.

Issue:
WON the mortgage complied with the reasonable description rule.

Held:
YES. The SC held that what was mortgaged was the half interest in the drug
business known as Antigua Botica Ramirez which is a personal property capable of
appropriation. Thus if the drug business known as Antigua Botica Ramirez (owned by a
certain person therein named and the mortgagor)located at Nos. 123 and 125, Calle Real,
District of Intramuros, Manila, P.I., thedescription meets the requirements of the law.

(14) TORRES VS LIMJAP

GR.34385-86 September 21,1931
Doctrine: A stipulation in the chattel 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. However it does not apply to drug stores,
bazaars and all other stores in the nature of a revolving and floating business

Facts:
2 chattel mortgages were executed by deceased Henson in favor of Alejandra
Torres and the other was of Don Florentino Torres for a loan of P7,000 and P26,000
respectively on his drug storess. In both cases, the mortgagor violated the terms and
conditions of the mortgage thus they were entitled to foreclose and possession of the
chattels. The defendant contends that the properties which the plaintiffs sought to
recover were not the same properties described in the mortgage.
Issue:
WON a stipulation extending its scope and effect to after acquired property is
valid.

Held:
YES. The SC held that a stipulation 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. In the case at bar, while stipulation for after
acquired properties are valid and binding provided upon conditions that it 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. The same does not apply to drug stores.

(15) STANDARD OIL CO OF NY VS JARAMILLO

GR.202329 March 16,1923
Doctrine: The efficacy of the act of recording a chattel mortgage consists in the fact that
registration operates as a constructive notice of the existence of the contract.

Facts:
Gervasia de la Rosa was the lessee of a parcel of land situated in the City of
Manila na downer of the house of strong materials built thereon, upon which date she
executed a document in the form of a chattel mortgage, purporting to convey to the
petitioner by way of mortgage both the leasehold interest and the building which stands
thereon. But when de la Rosa caused the document to be registered, Joaquin Jaramillo, as
register in the book of record of chattel mortgage denied the same on the ground that
the interesst indicated therein do not appear to be a personal property.

Issue:
WON Jaramilla was correct in denying the registration of the document.

Held:
NO. The SC held that the duties of a register of deeds in respect to the
registration of chattel mortgages are purely of a ministerial character, and he is clothed
with no judicial or quasi-judicial power to determine the nature of the property, whether
real or personal, which is the subject of the mortgage.

(16) PCI LEASING & FINANCE vs. TROJAN METAL

INDUSTRIES et. al. [REPORTED]
FACTS:
TMI came to PCI to seek a loan. Instead of extending a loan, PCI offered to buy
various equipment TMI owned, in exchange for P2.8M. Deeds of sale were executed.
PCI and TMI then entered into a lease agreement which includes the leasing of
the equipment it previously owned, postdating of checks for 24 monthly installments and
guaranty deposit of P1.03M (security for timely performance of TMI's obligations under
the lease agreement, to be automatically forfeited should TMI return the leased
equipment before expiration of the lease agreement)
 Sps. Dizon (President and Vice-President of TMI) also executed in favor of PCI a
Continuing Guaranty of Lease Obligations (agreed to immediately pay obligations in case
TMI failed, under the lease agreement)

However, to obtain additional loan from another financing company, TMI used
the leased equipment as temporary collateral.

PCI considered the 2nd mortgage a violation of the lease agreement. PCI sent
TMI a demand letter for payment of the latter's outstanding obligation, which was
unheeded.

PCI filed in the RTC a complaint against TMI and sps. Dizon for recovery of sum of
money and personal property, with prayer for the issuance of a writ of replevin.

RTC issued the writ of replevin. PCI sold the leased equipment to a third party
and collected the proceeds amounting to P1.025M. Respondent claimed that the sale with
lease agreement was a mere scheme to facilitate the financial lease between PCI and TMI,
and that the true agreement between them was a loan secured by a chattel mortgage.

RTC: Lease agreement is valid; judgment in favor of PCI

CA: Set aside the decision of the RTC; sale with lease was a loan secured by chattel
mortgage. Directed PCI to refund P1.1M to TMI

ISSUE/HELD:
Whether the sale with lease agreement the parties entered into was a financial
lease or a loan secured y the chattel mortgage.

Petitioner (PCI): transaction between the parties was a sale and leaseback
financing arrangement, which is not contrary to law, morals, good customs, public order
or public policy; guaranty deposit should be forfeited in its favor, as provided in the lease
agreement

Respondents (TMI): transfer of ownership to PCI was never the intention of the
parties; guaranty deposit will only be forfeited if TMI returned the leased equipment to
PCI before expiration of the lease agreement. Since TMI never returned the lease
property voluntarily, but through writ of replevin, the guaranty deposit should not be
forfeited.

SC: In a true financial leasing, a finance company purchases on behalf of a cash-

strapped lessee the equipment the latter wants to buy, but, due to financial limitations, is
incapable of doing so. The finance company then leases the equipment to the lessee in
exchange for the latter's periodic payment of a fixed amount of rental.
HERE, TMI already owned the subject equipment before it transacted with PCI. Therefore
the transaction between the parties cannot be deemed to be in the nature of a financial
leasing as defined in law.

"Where the client already owned the equipment, but needed additional working
capital and the finance company purchased such equipment with the intention of leasing
it back to him, the lease agreement was simulated to disguise the true transaction that
was a loan with security."

"The intention of the parties was not to enable the client to acquire and use the
equipment, but to extend to him a loan."
Financial leasing contemplates the extension of credit to assist a buyer in acquiring
movable property which he can use and eventually own.
 The transaction between the parties was simply a loan secured by chattel
mortgage. Thus upon TMI's default, PCI was entitled to seize the mortgaged equipment,
not as owner but as creditor-mortgagee for the purpose of foreclosing the chattel
mortgage.PCI's sale to a third party of the mortgaged equipment and collection of the
proceeds of the sale can be deemed in the exercise of its right to foreclose the chattel
mortgage as creditor-mortagee.

(17) Cerna v. Court of Appeals, 220 SCRA 517 (1993) [REPORTED]

FACTS:
Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan
agreement which was evidenced by a promissory note. worded as follows:

On the same date, Delgado executed a chattel mortgage over a Willy's jeep
owned by him. And acting as the attorney-in-fact, Manolo P. Cerna, he also
mortgage a "Taunus' car owned by the latter.
The period lapsed without Delgado paying the loan. This prompted Leviste to a
file a collection suit against Delgado and Cerna as solidary debtors.

Cerna filed a Motion to Dismiss on the ground of lack of cause of action against Cerna and
the death of Delgado. Anent the latter, Cerna claimed that the claim should be filed in the
proceedings for the settlement of Delgado's estate as the action did not survive
Delgado's death.

Moreover, he also stated that since Leviste already opted to collect on the note,
he could no longer foreclose the mortgage.

CA and TC: Denied the Motion to Dismiss.

ISSUES:
(1) Whether or not a third party, who is not a debtor under the note but
mortgaged his property to secure the payment of the loan of another is solidarily liable
with the principal debtor.

(2) Whether or not a mortgagee who opted to collect may still foreclose the
mortgage.

HELD:
There is also no legal provision nor jurisprudence in our jurisdiction which makes
a third person who secures the fulfillment of another's obligation by mortgaging his own
property to be solidarily bound with the principal obligor. A chattel mortgage may be "an
accessory contract" to a contract of loan, but that fact alone does not make a third-party
mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation
that is, to pay the loan. The signatory to the principal contract loan remains to be
primarily bound. It is only upon the default of the latter that the creditor may have been
recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action
for the recovery of the amount of the loan. And the liability of the third-party mortgagors
extends only to the property mortgaged. Should there be any deficiency, the creditors
has recourse on the principal debtor.The Special Power of Attorney did not make
petitioner a mortgagor. All it did was to authorized Delgado to mortgage certain
properties belonging to petitionerHence, Leviste, having chosen to file the collection suit,
could not now run after petitioner for the satisfaction of the debt. This is even more true
in this case because of the death of the principal debtor, Delgado. Leviste was pursuing a
money claim against a deceased person.
 (18) RCBC v. Royal Cargo Corp (2009) [REPORTED]
Facts:
Terrymanila was undergoing insolvency proceedings. RCBC, a creditor, was a mortgagee of
chattel mortgage of Terrymanila. Royal Cargo, another creditor, was in the middle of a collection case
against Terrymanila. Terrymanila was declared insolvent. RCBC sought permission from the RTC to
extrajudicially foreclose the chattel. Granated. Royal Cargo filed an MR but this was denied. A public
auction ensued and RCBC was the sole bidder. Royal Cargo assails this stating the failure of RCBC to
notify it of the sale at least 10 days prior to the sale.

Feb 1991: Terrymanila filed a petition for voluntary insolvency. One of its creditors was RCBC (Feb
1989, for P3 mil, secured by a chattel mortage, duly recorded in the notarial register of Castano, a
notary public in Bataan).

Royal Cargo, another creditor, filed an action in the RTC-Manila for collection of sum of
money and preliminarily attached "some" of Terrymanilas personal properties on March
1991.

April 1991: RTC-Bataan declared Terrymanila insolvent.

June 1991: RTC-Manila declared judgment in favor of Royal Cargo.

\
In the meantime, RCBC sought in the insolvency proceedings permission to
extrajudicially foreclose the chattel mortgage. This was granted by Feb 1992.

Royal Cargo filed an MR but it was denied on March 1992.

Sheriff of Bataan scheduled the public auction sale of the mortgaged personal properties
for June 1992. RCBC was the sole bidder, purchased for P1.5 mil. RCBC then sold these to
Bondoc and See.

July 1992: Royal Cargo filed in RTC-Manila a petition against the Bataan Sheriff and RCBC
for annulment of the auction sale, questioning the failure to duly notify it of the sale at
least 10 days before the sale, citing Sec 14 of the Chattel Mortgage Law. Royal claims to
have received notice by its counsel only on the day of the sale.

RTC-Manila decides in favor of Royal, but dismissed the petition as to the Sheriff.
CA says that Royal had a right to be timely informed of the foreclosure sale. Held that
the Chattel Mortgage Law requires that the mortgagee (RCBC) should notify in writing
the mortgagor or person holding under him the time and place of the sale by personal
delivery of the notice

Issue/Held:
Whether Royal should have been given a 10 day prior notice of the foreclosure
sale --- YES
Whether the sale should be annulled and Royal be allowed to exercise equity of
redemption --- NO

RCBC argument:Chattel Mortgage Law enumerates who are entitled to be

notified under Sec 14. Had the law intended to include an attaching creditor or a judgment
creditor [like Royal], it could have so specifically stated, since in the preceding section, Sec
13, it already mentioned that a subsequent attaching creditor may redeem.
Sec 13 permits a subsequent attaching creditor to "redeem" the mortgage only BEFORE
the holding of the auction sale, and cites Paray v. Rodriguez which says that no right of
redemption exists over personal property

Ratio:Sec 13 of the Chattel Mortgage Law allows the would-be redemptioner to redeem
the mortgaged property only BEFORE its sale.

Paray v. Rodriguez:
There is no law in our statute books which vests the right of redemption over
personal property. The Chattel Mortgage Law, could have served as the vehicle
for any legislative intent to bestow a right of redemption over personal property,
since that law governs the extrajudicial sale of mortgaged personal property, but
the statute is silent on the point.

Sec 39 of the 1997 Rules of Civil Procedure says that the right of redemption applies to
real properties, not personal properties, sold on execution.

The redemption cited in Sec 13 partakes of an equity of redemption.

Equity of redemption is the right of the mortgagor (debtor) to redeem the property
AFTER his default but BEFORE the sale of the property to clear it from the encumbrance
of the mortgage.

It is NOT the same as right of redemption which is the right of the mortgagor (debtor) to
redeem the mortgaged property AFTER registration of the foreclosure sale, and even
after confirmation of the sale.

While Royal had attached some of Terrymanilas assets to secure the satisfaction of a
P296,662 judgment rendered in another case, what it attached was Terrymanilas equity of
redemption.

That Royals claim is much lower than the P1.5 mil actual bid of RCBC at the auction sale
does not defeat Royals equity of redemption.

(19) Top Rate International Services Inc v. IAC:

It is error on the part of the petitioner to say that since respondents lien is only a
total of P343,227, they cannot be entitled to the equity of redemption because the
exercise of such right would require the payment of an amount which cannot be less than
P40,000,000

When respondents prayed for the attachment of the properties to secure their
claims against Consolidated Mines, the properties had already been mortgaged to the
consortium of 12 banks to secure an obligation of $62,062,720. Thus, like subsequent
mortgagees, the respondents liens on such properties became inferior to that of banks,
which claims in the event of foreclosure proceedings, must first be satisfied.
IAC was correct in holding that in reality, what was attached by the respondents was
merely ConsolidatedMines equity of redemption, an incorporeal and intangible right, the
value of which can neither be quantifiednor equated with the actual value of the
properties upon which it may be exercised

Having attached Terrymanilas equity of redemption, Royal had to be informed of

the date of sale of the mortgaged assets for it to exercise such equity of redemption over
some of those foreclosed properties.
However, Royal filed a MR the Feb 1992 Order of the RTC-Bataan which granted RCBCs
request to foreclose the chattel mortgage.

Even prior to receiving, through counsel, a mailed notice of the auction sale, Royal
was already put on notice of the impending foreclosure sale. It could have expediently
exercised its equity of redemption, at the earliest when it received the Order of March
1992 denying its MR of the February 1992 Order

Despite its window to exercise its equity of redemption, Royal chose to be

technically shrewd about its chances, preferring instead to seek annulment of the auction
sale. Its negligence to exercise its equity of redemption within a reasonable time, or even
on the day of the auction sale, warrants a presumption that it had either abandoned it or
opted not to assert it.

Equitable considerations sway against it.

As early as April 1991, Terrymanila had been judicially declared insolvent. Royals recourse
was to demand the satisfaction of its judgment award before the insolvency court as its
judgment award is a preferred credit under NCC 2244.

To now allow Royal to have its way in annulling the auction sale and at the same time let
it proceed with its claims before the insolvency court would neither rhyme with reason nor
with justice.

Royal has not shown that it was prejudiced by the auction sale since the insolvency
court already determined that even if the mortgaged properties were foreclosed, there were
still sufficient, unencumbered assets of Terrymanila to cover the obligations owing to other
creditors.

Even if Royal would have participated in the auction sale and matched RCBCs bid,
the superiority of RCBCs lien over the assets would preclude Royal from recovering the
chattels.

The right of those who acquire said properties should not and cannot be superior to
that of the creditor who has in his favor an instrument of mortgage executed with the
formalities of the law, in good faith, and without the least indication of fraud.

In purchasing it, with full knowledge that such circumstances existed, it should be
presumed that he did so, very much willing to respect the lien existing, since he should
not have expected that with the purchase, he would acquire a better right than that
which the vendor then had.

The chattel mortgage in favor of RCBC was registered more than 2 years before the
issuance of a writ of attachment over some of Terrymanilas chattels in favor of Royal.

This is significant in determining who should be given preference over the

properties. Since the registration of a chattel mortgage is an effective and binding notice
to other creditors of its existence and creates a real right or lien that follows the property
wherever it may be, the right of Royal, as an attaching creditor or as purchaser, had it
purchased the mortgaged chattel at the auction sale, is subordinate to the lien of the
mortgagee who has in his f avor a valid chattel mortgage.

RCBC is not liable for constructive fraud for proceeding with the auction sale nor
for subsequently selling the chattel.

Foreclosure suits may be initiated even during insolvency proceedings, as long as

leave must first be obtained from the insolvency court as what RCBC did.
Award of exemplary damages and attorneys fees for Royal, given petitioners good faith,
is thus not warranted.
Petition granted.

(20) Cabral vs Evangelista

Facts:
Defendant George L. Tunaya had executed in favor of plaintiffs-appellees a
chattel mortgage covering a "MORRISON" English piano, as security for a loan for 1,000
which was duly inscribed in the Chattel Mortgage Register of Rizal. The promissory note
was not paid within the two-month maturity period therein provided.Meanwhile, the
Evangelista spouses, obtained a final money judgment against defendant Tunaya in Civil
Case. They caused the levy in execution on personal properties of said defendant Tunaya,
including the piano and stove mortgaged to plaintiffs. The said mortgaged chattels, were
sold at public auction to the defendants-appellants as the highest bidders. Plaintiffs filed
their complaint in the City Court of Manila against Tunaya and the Evangelista spouses for
the payment of Tunayas loan which rendered judgment in their favor but granted the
motion to dismiss of the defendants for failure to state a cause of action.On appeal from
the City Court's adverse decision, the court a quo upheld the superior rights of plaintiffs-
appellees as mortgage creditors to the personal properties in question, holding that
defendants-appellants, "being subsequent judgment creditors in another case, have only
the right of redemption."

Issue: WON defendants Evangelista and Tunaya are jointly and solidarily liable?

Held:
Yes.Evangelistas and Tunaya are solidarily liable.

Evangelistas purchase of the mortgaged chattels at the public sheriff's sale and
the delivery of the chattels to them with a certificate of sale did not give them a superior
right to the chattels as against plaintiffs-mortgagees.

Rule 39, of the Rules of Court cited by appellants precisely provides that "the sale
conveys to the purchaser all the right which the debtor had in such property on the day
the execution or attachment was levied." It has long been settled by this Court that "The
right of those who so acquire said properties should not and cannot be superior to that of
the creditor who has in his favor an instrument of mortgage executed with the formalities
of the law, in good faith, and without the least indication of fraud.

This is all the more true in the present case, because, when the plaintiff
purchased the automobile in question on August 22, 1933, he knew, or at least, it is
presumed that he knew, by the mere fact that the instrument of mortgage, Exhibit 2, was
registered in the office of the register of deeds of Manila, that said automobile was
subject to a mortgage lien. In purchasing it, with full knowledge that such circumstances
existed, it should be presumed that he did so, very much willing to respect the lien
existing thereon, since he should not have expected that with the purchase, he would
acquire a better right than that which the vendor then had.

As between the first and second mortgagees, therefore, the second mortgagee
has at most only he right to redeem, and even when the second mortgagee goes through
the formality of an extrajudicial foreclosure, the purchaser acquires no more than the
right of redemption from the first mortgagee.

The superiority of the mortgagee's lien over that of a subsequent judgment

creditor is now expressly provided in Rule 39, section 16 of the Revised Rules of Court,
Appellants' contention of prescription is based on a patent reading of the provisions of
section 14 of the Chattel Mortgage Law (Act No. 1508) that "the mortgagee ... may after
thirty days from the time of condition broken, cause the mortgaged property, or any part
thereof, to be sold at public auction." It does not follow from this provision that failure on
the part of plaintiff to immediately foreclose their chattel mortgage within the 30-day
period from February 12, 1960 (when the promisory note matured) to March 12, 1960,
resulted in the prescription of plaintiff's mortgage right and action. This thirty-day period
is the minimum period after violation of the mortgage condition for the mortgage
creditor to cause the sale at public auction of the mortgaged chattels, with at least ten
days notice to the mortgagor and posting of public notice of the time, place and purpose
of such sale, and is a period of grace for the mortgagor, who has no right of redemption
after the sale is held, to discharge the mortgage obligation.

Also, Article 559 of the Civil Code provides that "If the possessor of a movable
lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a
public sale, the owner cannot obtain its return without reimbursing the price paid
therefor..." cited by appellants has no application in the present case,bec. they acquired
the chattels subject to the existing mortgage lien of plaintiffs thereon. As pointed out by
appellees, the record shows that defendants-appellants had disposed of the mortgaged
chattels "to other persons at a discounted rate" 11 and had, therefore, appropriated the
same as if the chattels were of their absolute ownership, in complete derogation of
plaintiffs' superior mortgage lien and in disregard of plaintiffs' demands to them prior to
the filing of their complaint on October 11, 1960, to pay or exercise their right of
redemption.

(21) Industrial Finance Corp vs Ramirez

[REPORTED]
Facts:
ArnaldoDizon sold to Consuelo Alcoba his car which was secured by a chattel
mortgage on the car. Dizon assigned to Industrial Finance Corporation all his rights and
interest in the chattel mortgage. Consuelo Alcoba defaulted in the payment and by virtue
of the acceleration clause, the whole obligation became due and demandable.

Consuelo Alcoba owed Industrial Finance Corporation the sum of P7,678.05. The
corporation sued her in the Court of First Instance of Manila. The complaint is
denominated "replevin with damages". It is necessary to scrutinize the allegations of the
complaint because of the controversy between the parties whether Industrial Finance
Corporation sought to foreclose the chattel mortgage as contemplated in article 1484 of
the Civil Code, formerly Act No. 4122, otherwise known as the Recto Installment Sale Law.
In its complaint Industrial Finance Corporation prayed the recovery of the mortgaged car
by means of a writ of replevin. Undoubtedly, the mortgagee-assignee wanted to
foreclose extrajudicially the chattel mortgage. Petitioner prayed that, if the car could not
be recovered by means of replevin, then Alcoba should pay the corporation the sum of
P11,083.38. There was no prayer for the foreclosure of the mortgage.

Alcoba claims that petitioner "waived the recovery" of the car by accepting
P4,228.67. She did not state what that amount represented. The corporation applied that
amount to the partial payment of Consuelo Alcoba's obligation.

The lower court issued the writ of replevin. But the sheriff was not able to seize
the mortgaged car. Consequently, there was no extrajudicial foreclosure of the mortgage
since, possession of the car by the sheriff is necessary
 Consuelo Alcoba did not appear in the pre-trial and was declared in default. The
trial court rendered judgment, ordering her to pay the corporation the sum of P7,678.05,
which became final and executory because Consuelo did not appeal.

On September 27, 1973, or long after the judgment had become final, she paid
Industrial Finance Corporation the sum of P2,000. By virtue of writ of execution, the
sheriff was able to levy upon the mortgaged car which was then in the possession of the
Aco Motor Service of Dagupan City. At the execution sale, petitioner bought the
mortgaged car for P4,000. However, the corporation had to pay P4,250 to the Aco Motor
Service to satisfy its lien for the repair and storage of the car.

The corporation contended that, because of that payment, it sustained a loss of

P250 in the execution sale. It asked for a third alias writ of execution in order to satisfy the
P11,300.92 balance of Consuelo Alcoba.

The lower court denied the motion for a third alias writ of execution. It treated
the execution sale as a "virtual foreclosure of the chattel mortgage" which, although not
beneficial to the mortgagee, Industrial Finance Corporation, barred it from recovering the
deficiency under article 1484.

That order of denial is assailed by the corporation in the instant certiorari case.

Issue:
WON petitioners can still recover the deficiency?

Held:
Yes.There was no extrajudicial foreclosure of the mortgage. Alcoba, the
mortgagee, did not surrend the mortgaged car that caused the failure to extrajudicial
foreclose the car. If she surrendered the same, she would not be liable for any deficiency.
But she violated the mortgage by removing the car from her residence and failure to
deliver the car, upon demand, the mortgagee.

The corporation's action was for specific performance or fulfillment of the

obligation and not for judicial foreclosure Consuelo Alcoba's payment of P2,000 on
account of the money judgment against her signified that she acquiesced in the action for
specific performance. She cannot now be heard to say that the judgment resulting from
that action could not be enforced because the mortgagees had opted for foreclosure of
the mortgage. The Civil Code provides.

ART. 1484. In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies: (1) Exact
fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the
vendee's failure to pay cover two or more installments; (3) Foreclose the chattel
mortgage on the thing sold, if one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall have no further action against
the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void.

According to article 1484, it is only when there has been a foreclosure that the
mortgagor is not liable for any deficiency.

In this case, there was no foreclosure. The mortgagee evidently chose the
remedy of specific performance. It is entitled to an alias writ of execution for the portion
of the judgment that has not been satisfied.
 The rule is that in installment sales, if the action instituted is for specific
performance and the mortgaged property is subsequently attached and sold, the sale
thereof does not amount to a foreclosure of the mortgage.

(22) Rizal Commercial Bank Corporation v. Royal Cargo

Corporation
GR. No. 179756, 2 October 2009
DOCTRINE: Equity of redemption is the right of the mortgagor to redeem the mortgaged
property after his default in the performance of conditions of the mortgage but before
the sale of the property. It is not the same as right of redemption, which is the right of
the mortgagor to redeem mortgaged property after registration of the foreclosure sale
and even the confirmation of the sale.

FACTS:
Terrymanila, Inc. filed a petition for voluntary insolvency with RTC of Bataan. One
of its creditors was RCBC, which was secured by P3 million chattel mortgage. Another
creditor was Royal Cargo Corporation, it filed an action before RTC of Manila for collection
of sum of money and preliminary attach some of Terrymanilas personal properties to
secure the satisfaction of judgment. RTC of Bataan declared Terrymanila insolvent. RTC of
Manilas judgment in favor of Royal Cargo. Subsequently, permission to extrajudicially
foreclose the chattel mortgage of Terrymanila by RCBC was granted. Public Auction was
held, RCBC was the sole bidder of personal properties of Terrymanila. As a result, Royal
Cargo sought for the annulment of auction sale due to failure to duly notify Royal Cargo
of the sale, such was granted by the court.

ISSUE:
Whether Royal Cargo have been notified of the foreclosure sale.

HELD:
YES. Section 13 of Chattel Mortgage Law allows the would-be redemptioner to
redeem the mortgaged property only before its sale or before the holding of the action.
Section 13 redemption partakes of an equity of redemption, which is the right of the
mortgagor to redeem the mortgaged property after his default in the performance of
conditions of the mortgage, but before the sale of property. Royal Cargo had to be
informed of the date of sale of mortgaged assets, in this case it was aware of the action
sale. Its negligence or omission to exercise its equity of redemption within reasonable
time, or even on the day of auction sale, warrants presumption that it had earlier
abandoned it or opted not to assert it. RCBC had a superior lien over the mortgaged
assets. Right of Royal Cargo was subordinate to the lien of the mortgagee.

(23) AGUSTIN v.CA and FILINVEST FINANCCE CORP.

GR. No 107846, 8 April 1997 [REPORTED]

DOCTRINE: In the case mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more instalments or if he conceals the chattel
place beyond the reach of mortgagee, necessary expenses incurred in the prosecution by
the mortgagee of the action for replevin should be borne by the mortgagor.

FACTS:
Agustin, the petitioner, executed promissory note in favour of ERM Commercial.
It was payable in monthly instalments and secured by the chattel mortgage over Isuzu
diesel truck assigned to Filinvest Finance Corporation. However, Agustin defaulted.
Filinvest demanded payment or possession of mortgaged property. However, no
payment nor surrender was made. Writ of replevin was filed with RTC. Filinvest acquired
possession but was not in running condition. It was foreclosed and sold at public auction.
A supplemental complaint was filed claiming additional reimbursement for the value of
replacement of parts that were missing and the transportation expenses.

ISSUE:
Whether the repossession expenses must be shouldered by petitioner.

HELD:
Yes. Repossession expenses must be reimbursed by the mortgagor. In the case
mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure
to pay two or more instalments or if he conceals the chattel place beyond the reach of
mortgagee, necessary expenses incurred in the prosecution by the mortgagee of the
action for replevin should be borne by the mortgagor.

(24) DY v. CA and GELAC TRADING INC.

GR. No. 92989, 8 July 1991

DOCTRINE:Sale is valid although no written consent was obtained from the mortgagee,
but the mortgagor lays himself open to criminal prosecution. Upon the mortgage of the
property, the ownership of the thing remains with the mortgagor, and he is entitled to
the disposal or alienation of the property, subject to the consent of the mortgagee. But
the effect of the absence of mortgagee's consent is not on the validity of the sale but on
the liability of the mortgagor.

FACTS:
Perfecto Dy (petitioner) and William Dy were brothers. William Dy purchased a
truck and a farm tractor through financing extended by Libra Finance. Both the truck and
the tractor were mortgaged to Libra as security for the loan. Perfecto Dy wanted to buy
the tractor from his brother so he wrote a letter to Libra stating his willingness to assume
the mortgage. Libra's manager approved the request. William Dy executed a deed of
absolute sale, but at this time the tractor was in the possession of Libra due to William's
failure to pay the amortization. Perfecto offered to pay, but Libra would not release the
tractor, instead Libra insisted Perfecto to pay the loans for both the tractor and the truck
first. Then, their sister Carol came in to the rescue and paid for the full amount so that the
tractor and the truck would be released. But Libra still would not release the tractor until
the clearing of the out-of-town check. In the meanwhile, in connection to another
pending collection case against William Dy, the sheriff was able to seize and levy the
tractor while still in the possession of Libra. The tractor was sold in public auction where
Gelac Trading appeared to be the only bidder. Later, Gelac sold the tractor to Antonio
(respondents),

ISSUE:Whether the ownership of the tractor had already passed to Perfecto Dy

at the time it was seized and levied by the sheriff.

HELD:
YES. The mortgagor did not part with the ownership of the thing when he gave
the property as a security. Mortgagor continues to be the owner and still has the power
to alienate the property mortgaged, but it is subject to mortgagee's consent. Absent the
consent, the sale is not affected but the mortgagor shall be liable. Libra's consent was
sought when Perfecto wrote Libra of his intention to purchase William's truck, and the
manager replied positively. Therefore, the sale was valid as between the brothers, as well
as with the mortgagee Libra. The ownership of the thing is passed on the vendor upon
delivery. And when the sale is made through public instrument, there is delivery upon the
execution thereof. (art. 1498) The ownership is also passed on upon by mere consent or
agreement when the thing cannot be passed on physically as when it is in the possession
of others at the time of sale. (art. 1499) In the instant case, actual delivery cannot be
made but there was a constructive delivery upon the execution of the public instrument
or upon agreement of the parties when the thing cannot be immediately transferred at
the time of sale. The contention of the respondent that the vendor must first have the
control of the thing before he can deliver the same is to no avail.

Where a third person purchased the mortgaged property, he automatically steps

into the shoes of the mortgagor. His right of ownership shall be subject to the mortgage.
In the case at bar, Perfecto expressly volunteered to assume the loan obligation.