CREDIT TRANSACTIONS
Whether or not BSP has the authority to foreclosed the subject
Case Assignment No. 4
Provisions Common to Pledge and Mortgage
1. Guillermo Adriano vs. Romulo Pangilinan
G.R. No. 137471, January 16, 2002
Facts: Guillermo Adriano is the registered owner of a parcel of land, he
entrusted the TCT of his land to Angelina Salvador, a distant relative
for purpose of securing a mortgage. Without the knowledge and
consent of Adriano, Angelina Salvador mortgaged the property to
Romulo Pangilinan, a businessman involves in buy and sell as in the
mortgage of real estate properties. Upon verification of Adriano to
Registry of Deeds, he was surprised that the REM was annotated in
the TCT in favor of Pangilinan. Adriano denied that he executed such
deed of mortgage and denounced his signature as forgery. He repeats
the demand from Pangilinan the return or conveyance of the said land
but ignored. Thus, this petition.
Issue: Whether or not there was a valid Mortgage?
Held:
No. The mortgage was void and produces no force and effect.
The following requisites are essential to the contracts of pledge
and mortgage: (1) That they be constituted to secure the fulfillment of a
principal obligation; (2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged; (3) That the persons
constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for
that purpose.
In the case at bar, not only was it proven in the trial court that the
signature of the mortgagor had been forged, but also that somebody
else -- an impostor --had pretended to be the owner when the
mortgagee made an ocular inspection of the subject property. The
respondent is not innocent mortgagee for value. Because he failed to
observe due diligence in the grant of the loan and in the execution of
the real estate mortgage. Not having executed a Special power of
attorney in favor of Angela Salvador, Adriano clearly did not authorize
her to be his agent in procuring the mortgage.
2. BANKO SENTRAL NG PILIPINAS Vs. AGUSTIN LIBO-ON
FACTS: Spouses Libo-on secured loans from the Rural Bank of
Hinirigan, Inc. In the amount of P100,000 and P300,000, respectively.
They executed PN payable to the order of Rural Bank for a period of
360 days and executed a deed of Real Estate Mortgage. Rural bank in
turn secured a loan from petitioner BSP in the amount of P800,000 and
640,000, respectively. As security for the loan the bank pledged and
deposited to BSP PN's with supporting TCT's including the PN and
TCT of spouses Libo-on mortgage to the former.
BSP now demanded from the Spouses Libo-on the payment of their
outstanding loan with Rural Bank of Hinirigan but they failed to settle
their obligation. BSP filed an application for extrajudicial foreclosure of
the property. Spouses Libo-on contested extrajudicial foreclosure and
filed application for preliminary injunction which was granted by the trial
court. BSP Appealed with CA but it was denied.
ISSUES: 1. Whether or not Rural Bank has the right to pledge the
property.
2.
mortgage
RULING: 1.No, Rural Bank has no authority to pledge the security
documents to BSP during the term of the real estate mortgage contract
between Rural bank and the spouses Libo-on because if it is within the
term of the contract, the mortgage property remains to be property of
the Spouses Libo-on. For a contract of pledge to be valid, it is
necessary that: 1. the pledge is constituted to secure the fulfillment of
the principal obligation; 2. the pledgor be the absolute owner of the
thing pledged; 3. the person constituting the pledge has the free
disposal of his property, and in the absence thereof, that he be legally
authorized for the purpose.
The Rural Bank of Hinirigan was neither the absolute owner of the
subject property nor the security documents it had pledge to BSP.
2.No, BSP has no authority to foreclosed the subject mortgage. The
mere pledge and deposit of the mortgage contract, transfer certificate
of title and PN executed by the Rural Bank of Hinirigan in favor of BSP
does not produce the effect of giving BSP the authority to intervene
with the transaction between the spouses Libo-on and the Rural Bank
much more to foreclosed the mortgage property.
3. A. Francisco Realty and Development Corporation
v. Court of Appeals and Spouses Javillonar (JAG)
FACTS:
A. Francisco Realty and Development Corporation granted a
loan of to the spouses Romulo and Erlinda Javillonar, in
consideration executed a promissory note expressing when the
spouses fail to pay the interest on the loan, the property will be
transferred to A.Francisco and the deed of sale will be
registered. A.Francisco claimed that Javillonar failed to pay the
interest and thus registered the land in its favor. Spouses
loaned an additional from A.Francisco in exchange for another
promissory note with a provision that upon failure to pay their
loans, they would immediately vacate the premises. A.Francisco
now demanded possession of the property. The spouses
refused. A.Francisco then filed an action for possession and
payment of the interest from the loan with the RTC. Spouses
counterclaimed for the cancellation of the TCT of A.Francisco.
RTC ruled in favor of A.Francisco. CA reversed the decision of
the RTC. The deed of sale was void because it was in fact a
pactum commissorium prohibited by Art.2088 of the NCC.
ISSUES:
W/N the contractual documents are constitutive of pactum
commissorium?
HELD: YES it was a pactum commissorium and thus the
registration of A.Francisco is void. The prohibition on pactum
commissorium stipulations is provided for by Article 2088 of the
Civil Code: Art. 2088. The creditor cannot appropriate the things
given by way of pledge or mortgagee, or dispose of the same.
Any stipulation to the contrary is null and void. The aforequoted
provision furnishes the two elements for pactum commissorium
to exist: (1) that there should be a pledge or mortgage wherein
a property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (2) that there should be
a stipulation for an automatic appropriation by the creditor of the
thing pledged or mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
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PLEDGE:
1. Ong vs. IAC
G.R. No. 74073, September 13, 1991
Madrigal Shipping Co., Inc., owner of a Barge, pledged said
vessel and tugboat to secure the Shipping Company's obligation
to private respondent Solidbank. Both parties executed a
document denominated as "Pledge Agreement".
Madrigal failed to pay its obligation to the Solidbank.  When the
latter was about to sell the pledge property, the same was no
where to be found from its bodega.  Meanwhile, petitioner
Honesto Ong bought one barge, the same barge which was the
subject of the pledge. Solidbank filed a complaint against
Honesto Ong, et al.  Petitioner contends that they are purchaser
in good faith, and the contract of pledge by and between
Solidbank and Madrigal Shipping Co., Inc. was not recorded
under Section 804 and 809 of the Tariff and Custom Code,
hence, not binding on third person like the petitioners. Private
respondent argued that petitioner acted in bad faith, and that it
complied with all the requirements necessary to bind third
persons.
ISSUE: WON the contract of pledge entered into by and
between Solidbank and Madrigal Shipping Co., Inc. is binding to
petitioner Ong?
HELD:
YES, it is binding on said petitioners.  Article 2096 of the Civil
Code requires that a pledge to take effect against third persons,
it should be in a “Public Instrument” which must contain the
description of the  thing pledged and the date of the pledges.  In
the case at bar, all three requirements have been complied.
2. MANILA SURETY v VELAYO
Facts: Manila Surety & Fidelity Co., upon request of Rodolfo
Velayo, executed a bond for P2,800.00 for the dissolution of a
writ of attachment obtained by one Jovita Granados in a suit
against Rodolfo Velayo in the Court of First Instance of Manila.
Velayo undertook to pay the surety company an annual premium
of P112.00 and provided collateral jewelry with the authority to
sell in case Manila Surety will be obliged to pay. Judgment
having been rendered in favor of Jovita Granados and against
Rodolfo Velayo, and execution having been returned unsatisfied,
the surety company was forced to pay P2,800.00 that it later
sought to recoup from Velayo; and upon the latter's failure to do
so, the surety caused the pledged jewelry to be sold, realizing
therefrom a net product of P235.00 only The surety files a claim
against Velayo because the security is insufficient. Velayo
claims the sale of the jewelry even if insufficient, extinguishes
the principal obligation.
Issue: Won Velayo’s contention is correct?
Ruling: Yes.The sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of the sale are
equal to the amount of the principal obligation, interest and
expenses in a proper case.
Real Estate Mortgage
1. Prudential Bank Vs. Hon. Panis, Fernando Magcale &
Teodula Maluyut-Magcale
Facts:
Spouses Magcale secured a loan from Prudential Bank. As
security, respondent’s spouses executed a real estate mortgage,
their residential building as security. Since the respondents was
not able to fulfil their obligation, the security was extrajudicial
foreclosed and was eventually sold in a public auction. Hence
this case, to assail the validity of the mortgage and to recover
the foreclosed land.
Issue:
Whether or not a real estate mortgage can be instituted on the
building of a land belonging to another?
Held:
While it is true that a mortgage of land necessarily includes in
the absence of stipulation of the improvements thereon,
buildings,  still  a  building  in itself may be mortgaged by itself
apart from the land on which it is built.  Such a mortgage would
still be considered as a REM for the building would still be
considered as immovable property even if dealt with separately
and apart from the land. 
The original mortgage on the building and right to occupancy of
the land was executed before the issuance of the sales patent  
and  before  thegovernment  was  divested  of  title  to  the 
land.    Under the foregoing,  it  is evident  that  the  mortgage 
executed  by  private  respondent  on  his  own building was a
valid mortgage.
2. DIONISIO MOJIA vs. CA, Rural Bank of Kawit, Inc.
Facts:
Deceased Spouses Mojica obtained a loan with Rural bank of
Kawit, Inc. and secured by a real estate mortgage. Spouses
failed to pay their obligation after its maturity. Rural bank extra
judicially foreclosed the real estate mortgage on the justification
that it was adopted as a mortgage for the new loan. There was
auction sale, defendant rural bank was the highest bidder. The
proceeds from the sale of the piece of land of plaintiffs spouses
were applied to their outstanding obligation with defendant bank.
It was recorded in the Office of the Register of Deeds of Cavite.
The one-year period for redemption elapses without plaintiff’s
spouses having redeemed the foreclosure property.
Now, Dionisio Mojica, the son of petitioners-spouses, attempt to
pay the debt. Dionisio Mojica and one Teodorico Rufido, brother-
in-law of plaintiff Leonardo Mojica, were notified of such auction
sale However, no sale was consummated during that scheduled
sale and the property concerned up to now still remains in the
possession of respondent bank. The refusal of the same bank to
allow Dionisio Mojica to pay the unpaid balance of the loan as
per the "Computation Slip" amounting to P21,272.50, resulted in
the filing of a complaint. TC dismissed complaint. CA affirmed.
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ISSUE: WON the foreclosure sale had for its basis, a valid and
subsisting mortgage contract.
RULING:
It has long been settled by a long line of decisions that
mortgages given to secure future advancements are valid and
legal contracts; that the amounts named as consideration in said
contract do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered.
A mortgage given to secure advancements is a
continuing security and is not discharged by repayment of the
amount named in the mortgage, until the full amount of the
advancements are paid fact, it has also been held that where the
annotation on the back of a certificate of title about a first
mortgage states "that the mortgage secured the payment of a
certain amount of money plus interest plus other obligations.
There was no necessity for any notation of the later
loans on the mortgagors' title. It was incumbent upon any
subsequent mortgagee or encumbrances of the property in
question to entry in the books and records of the bank, as first
mortgagee, regarding the credit standing of the debtors.
ISSUE: WON the RB is correct for not allowing the sales as per
computation slip.
RULING:
Yes. The property covered by the REM became the
acquired asset of the bank. The petitioners have lost its right of
legal redemption after the lapse of one year the date of
certificate of sale was registered in the ROD. Conventional
redemption was subject to be exercised up to March 3, 1982 and
was extended up to April 19, 1982 for a fixed amount of
P85,000.00. The respondent bank even favored the petitioner by
giving them the first preference to repurchase the property but
they failed to avail of this opportunity, although the bank "is
certainly disposed to release at anytime" the deposits.
Further, the evidence on record also shows that the mortgage
property was auctioned on June 27, 1979. The only bidder was
the respondent bank which bid for P26,387.04. As the highest
bidder, the respondent bank can rightfully consolidate its title
over the property.
The petition is DISMISSED.
3. CLAUDIO(s) VS. Spouses Federico and Norma Saraza
Facts:
This case is for annullment of sale, power of attorney and
mortgage with prayer of damages by petitioners Claudios
against Florentino Cladio and Spouses Federico and Norma
Saraza. It was alleged on this case, Florentino excuted a deed of
real estate mortage over the property of their deceased parents.
The siblings averred that the signatures where forged. That such
property was sold by their parents to Florentino was void.
RTC and CA favored respondents Spouses Saraza as
Mortgagee in good faith. Thus this petition.
Whether or not the respondent spouses was a mortgagee in
good faith?
No. They are morgagee in bad faith. The Real estate mortage
was executed on June 22, 2004, in the name of FLorentino, was
issued by the Register of deeds only 6 (six) days later or on
June 28, 2004. Evidently, the property, offered as collateral to
the Loan of P1M, was not in Florentino's name yet when he
entered into a mortgage agreement with spouses Saraza.
The doctrine of mortgagee in good faith only applies when the
mortgagor has already obtained a certificate of title in his or her
name at the time of the mortgage. Accordingly, an innocent
mortgagee for value is one who entered into a mortgage contract
with a mortgagor bearing a certificate of title in his name over the
mortgaged property. Such was not the situation of Spouses
Saraza. They cannot claim the protection accorded by law to
innocent mortgagees for value considering that there was no
certificate of title yet in the name of Florentino to rely on when
the mortgaged contract was executed.
Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Spouses Saraza could
not be deemed to have acted in good faith because they knew
that they were not dealing with the registered owner of the
property when it was mortgaged and that the subject land had
yet to be titled in the name of mortgagor Florentino.
4. Maybank Philippines, Inc. (Formerly PNB-Republic Bank),
Petitioner vs. Spouses Oscar and Nenita Tarrosa, Respondents.
Facts:
On December 15, 1980, respondent Spouses Tarrosa
obtained a loan from PNB-Republic Bank, now Maybank
Philippines, secured by a real estate mortgage. After payment of
said loan, the respondents again obtained another loan from
Maybank on March 11, 1984. Respondents failed to pay upon
maturity. Sometime in April 1998, a Final Demand Letter was
sent by petitioner bank to respondents requiring the latter to
settle their loan obligation inclusive of principal, interest, and
penalty charges. The spouses offered to settle it in a lesser
amount to which the bank refused. On June 25, 1998, Maybank
instituted an extrajudicial foreclosure proceeding and the subject
property was eventually sold in a public auction to Philmay
Property Inc. (PPI). The spouses then filed a complaint for
declaration of nullity and invalidity of the foreclosure sale
averring among others that the second loan is an unsecured
loan and that, Maybank’s right to foreclose had already
prescribed.
Issue: Whether or not the foreclosure is valid?
Ruling: Yes. An action to enforce a right arising from a mortgage
should be enforced within ten (10) years from the time the right
of action accrues, i.e., when the mortgagor defaults in the
payment of his obligation to the mortgagee; otherwise, it will be
barred by prescription and the mortgagee will lose his rights
under the mortgage. However, mere delinquency in payment
does not necessarily mean delay in the legal concept.
In order that the debtor may be in default, it is necessary that: (a)
the obligation be demandable and already liquidated; (b) the
debtor delays performance; and (c) the creditor requires the
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performance judicially or extrajudicially, unless demand is not
necessary. – i.e., when there is an express stipulation to that
effect; where the law so provides; when the period is the
controlling motive or the principal inducement for the creation of
the obligation; and where demand would be useless. Moreover,
it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period
lapses, default will commence. Thus, it is only when demand to
pay is unnecessary in case of the aforementioned
circumstances, or when required, such demand is made and
subsequently refused that the mortgagor can be considered in
default and the mortgagee obtains the right to file an action to
collect the debt or foreclose the mortgage.
In this case, the provision in the Real Estate Mortgage between
the parties merely articulated Maybank's right to elect
foreclosure upon Sps. Tarrosa's failure or refusal to comply with
the obligation secured, which is one of the rights duly accorded
to mortgagees in a similar situation. In no way did it affect the
general parameters of default, particularly the need of prior
demand under Article 116941 of the Civil Code, considering that
it did not expressly declare: (a) that demand shall not be
necessary in order that the mortgagor may be in default; or (b)
that default shall commence upon mere failure to pay on the
maturity date of the loan. Therefore, Maybank's right to
foreclose the real estate mortgage accrued only after the lapse
of the period indicated in its final demand letter for Sps. Tarrosa
to pay, i.e., after the lapse of five (5) days from receipt of the
final demand letter dated March 4, 1998.
5. Serfino vs. CA
A land was patented in the name of Casamayor. Later it was
sold to Baltazar. During the war the OCT was lost and
reconstitution thereof was made in the name of Casamayor. In
1946 Baltazar was issued TCT. Later the land was sold to Lopez
Sugar but the latter did not register until Dec. 1964. The office
refused registration upon its discovery that the same property
was covered by another certificate of title, int he name of
Serfino. An inquiry into this discrpancy reveals that the Provincial
Treasurer had conducted an auction sale of this land for tax
delinquency starting 1950. Notice was send only to Casamayor.
Serfino was issed a Certificate of Repurchase of REal
Properpety after payment on May 14, 1964.
In May 28, 1964 Serfino filed a petition of Reonstitution of OCT
in the name of Casamayor. In Oct. 1964 the ourt granted the
petition of Serfino for confirmation of his titled of the land as
purchases in auction sale. TCT was issued to Serfino in NOv. 2,
1964. TO secure a loan Serfino mortgaged the land to PNB.
Hence, this was the situation of the land when the office of the
Register of Deeds refused registration of tha praty in question by
Lopez.
Issue: Whether the PNB is a mortgagee in good faith?
Yes. PNB relied on the TCT of Serfino, the genuiness of which is
not issue as it was really issued by the Register of Deeds. PNB
had every right to rely on TCT as it was sufficient evidence of
ownership of the mortgagor. The PNB at the time had no way of
knowing of the existence of another genuine title covering the
same land in question.
The fact that the public auction sale of the disputed property was
not valid (for lack of notice of the auction of sale tot he actual
owner) cannot in any way be attributed to the mortgagee's
(PNB's) fault. The fact remains that inspite of the lack of notice to
the actual registered owner at that time (who was Nemisia
Baltazar) the Registered of Deeds issued a TCT in the name of
Serfenio which title was relied by PNB. Be it noted that the
inabilit of the Registry of Deeds to notify the actual owner or
Lopez Sugar Central to declare the land in its name for a
number of years and to pay the complete taxes thereon. PNB is
therefore entitled to the payment of the mortgage loan as ruled
by the trial court and exempt
6. GE MONEY BANK, INC. (FORMERLY KEPPEL BANK
PHILIPPINES, INC.), v. SPOUSES VICTORINO M. DIZON AND
ROSALINA L. DIZON, 
Facts: Spouses Dizon obtained a loan from Monte de Pieda
and Savings Banks, the predecessor in interest of Keppel Monte
Bank, Inc. now GE Money Bank. By way of security for the loan,
they executed a real estate mortgage over their two (2) lots
covered by TCT. They defaulted and the mortgaged properties
were extra-judicially foreclosed. The Bank was the highest
bidder and he Certificate of Sale was registered with the
Register of Deeds for Manila on October 18, 1993. Hence, the
Spouses Dizon had one (1) year therefrom, or until October 18,
1994, within which to redeem the subject properties. Within the
redemption period, the Spouses Dizon were not able to redeem
it. However, Spouses Dizon manifested their desire to re-acquire
the subject property, but the Bank declined to entertain the same
as they still failed to tender the full amount of the redemption
price.
Issue: Whether or not spouses Dizon may still redeem the
property
Ruling: No. To be valid and effective, the offer to redeem must
be accompanied by an actual tender of the redemption price.
Redemption price should either be fully offered in legal tender or
validly consigned in court. Only by such means can the auction
winner be assured that the offer to redeem is being made in
good faith.
The right to redeem becomes functus officio on the date
of its expiry, and its exercise after the period is not really one of
redemption but a repurchase. Distinction must be made because
redemption is by force of law; the purchaser at public auction is
bound to accept redemption. Repurchase, however, of
foreclosed property, after redemption period, imposes no such
obligation. After expiry, the purchaser may or may not re-sell the
property but no law will compel him to do so. And, he is not
bound by the bid price; it is entirely within his discretion to set a
higher price, for after all, the property already belongs to him as
owner.
All told, the Spouses Dizon cannot, therefore, argue
that equity should prevail. “Equity has been defined as justice
outside law, being ethical rather than jural and belonging to the
sphere of morals than of law. It is grounded on the precepts of
conscience and not on any sanction of positive law.” Yet equity
applies only in the absence of, and never against, statutory law
or judicial rules of procedure.
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7. Dimasacat vs. CA, PNB
Facts: Lagdameo mortgaged four (4) continous parcels of land
covered by TCT to PNB, which mortgaged was duly annotated
on the title. More than a year later, Lagdameo sold to Dimasacat
a portion of the same land. The sale was not registered. Another
TCT was issued to PNB in view of the failure of Lagdameo to
redeem the property within one (1) year after foreclosure. Prior
to expiration of the said period, Dimasacat offered to purchase
the property from PNB who rejected the offer. Dimasacat
maintains that as successor in interest of the mortgage debtor, in
part of the property and therefore qualified to repurchase the
entirety of the said property.
Issue: Whether Dimasacat has the right to redeem all the
parcels of land?
Ruling: No. Dimasacat has at best, a personal right to demand
from Lagdameo (who had repurchased the land from PNB while
the case is pending) a status of co-ownership over said property
because the deed of sale in his favor had not been registered
and the portion covered by said deed of sale had not been
surveyed so that the precise boundaries thereof had not been
delimited by metes and bounds much less segregated from the
mass of Lagdameo's property covered by the TCT's
aforementioned. In as much as, even if Dimasacat had managed
to redeem the whole property, so much thereof as exceeded the
portion sold to him by Lagdameo could have been repurchased
by Lagdameo and the title to said property has meanwhile
reverted fully to the latter, it follows that Dimasacat is entitled to
more than the consummation of the sale made in his favor.
Dimasacat is declared co-owner of the land in question to the
extent of the interest conveyed to him, subject to his right to
partition said property.
8. Bank of the Philippine Islands Vs. Sps. Johnson & Evelyn Co
& Jupiter Real Estate Ventures, Inc./Sps. Johnson & Evelyn Co
Vs. Bank of the Philippine Islands
FACTS:
Jupiter Real Estate Ventures, Inc. (“Jupiter”) and
Spouses Co obtained a loan from Far East Bank and Trust
Company (“FEBTC”). Jupiter and Spouses Co mortgaged in
favor of FEBTC parcels of land including their improvements
covered by Transfer Certificates of Title. Meanwhile, BPI and
FEBTC merged, with BPI as the surviving corporation. Jupiter
and Spouses Co defaulted on the payment of the loan. BPI, as
successor-in-interest of FEBTC, foreclosed the real estate
mortgage pursuant to Act No. 3135, as amended. An auction
sale was held where the mortgaged properties were sold to BPI
as the highest bidder. The Certificate of Sale was registered and
annotated at the back of the certificates of title on. After the
expiration of the period of redemption, BPI consolidated its
ownership over the real properties, and new titles were issued in
its name. Spouses Co and Jupiter filed a complaint for the
nullification of foreclosure proceedings and damages and BPI
also filed a petition for the issuance of a writ of possession.
Jupiter filed a petition for corporate rehabilitation and moved for
the suspension of the proceedings since among the properties
covered were those subject of the real estate mortgage. BPI
opposed alleging that as registered owner of the properties
subject of the foreclosure, it has the right to the immediate
possession of the property and its right to immediate possession
is impaired by the grant of the appeal.
ISSUE:
Whether or not a purchaser in a foreclosure sale may
apply for a writ of possession even during the redemption period.
RULING:
In the affirmative.
Under Section 752 of Act No. 3135, as amended by Act
No. 4118, the purchaser in a foreclosure sale may apply for a
writ of possession during the redemption period. and well settled
is the rule that a writ of possession will issue as a matter of
course, even without the filing and approval of a bond, after
consolidation of ownership and the issuance of a new TCT in the
name of the purchaser. Upon expiration of the redemption
period, the right of the purchaser to the possession of the
foreclosed property becomes absolute. This right to possession
is based on the purchaser’s ownership of the property. In like
manner, the mere filing of an ex parte motion for the issuance of
the writ of possession would suffice and the filing of a bond is no
longer necessary. This is because possession has become the
absolute right of the purchaser as the confirmed owner.
Thus, as the new registered owner, BPI is even more
entitled to the possession of the properties and has the
unmistakable right to file an ex parte motion for the issuance of a
writ of possession.
CHATTEL MORTGAGE
1. Marquez vs Elisan Credit Corporation
Facts:
Marquez obtained from Elisan Credit Corporation a loan payable
in weekly installments and subject to annual
interest with monthly penalties and attorney’s in case of
nonpayment.  A chattel mortgage was also executed stipulating
that “the motor vehicle shall stand as a security for all other
obligations of every kind already incurred or which hereafter may
be incurred”.  The payment of that loan was acknowledged by
both parties. Subsequently, Marquez obtained another loan
evidenced by a promissory note with the same terms and
conditions as the first loan.  When the second loan matured,
there still remained an unpaid balance. Marquez requested the
creditor to pay the unpaid balance by daily installments until the
loan is paid; the creditor agreed.  Thus, several months after the
maturity of the loan, Marquez had already paid a total amount
which is greater than the amount of the principal.
Despite such, the creditor filed a complaint for foreclosure of the
CM on the ground that Marquez allegedly failed to pay the
principal of the second loan despite demand. It was also prayed
that the unpaid balance plus accrued penalties and interests be
paid because, allegedly, Marquez’ failure to pay upon maturity
triggered the imposition of monthly penalties and attorney’s fees.
Marquez, citing Art 1176 and 1235 of the Civil Code, insists that
his daily payments should be deemed to have been credited
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against the principal, as the official receipts issued by the Article 1253, Civil Code:
creditor were silent with respect to the payment of interest and If the debt produces interest, payment of the principal shall not
penalties. be deemed to have been made until the interests have been
covered.
Issue  W/N an order for foreclosure is proper
No.  Foreclosure in this case is without legal and factual basis 2. Northern Motors vs. Coquia
because the chattel mortgage was already extinguished when
the obligation under the first loan was duly paid. Facts:
A CM can only cover obligations existing at the time the
mortgage is constituted. For a CM  to cover debts yet to be Taxicabs have been levied upon and sold at public auction to
contracted, a fresh chattel mortgage may be executed or the old satisfy the judgement credit. it was held that the lien of a chattel
contract be amended conformably to the form prescribed by the mortgage over certain claims over certain taxicabs is superior to
CM Law. Here, since there was no showing that a new the levy made on the said cabs by the assignee of the
agreement was executed, the security can no longer apply to the unsecured judgement creditor of the chattel mortgagor. So this
second loan. The chattel mortgage was already extinguished motion of reconsideration is filed.
because being merely an accessory in nature, it cannot exist
independently of the principal obligation. Issue: Whether the assignee, Ong of the unsecured judgement
Although a promise expressed in a chattel mortgage to include creditor has the right to levy upon the mortgage taxicab.
debts that are yet to be contracted can be a binding commitment Whether the lien of a chattel mortgagee is superior to the levy
that can be compelled upon, the security itself, however, does made by the same by assignee of the unjudgement creditor of
not come into existence or arise until after a chattel mortgage the chattel mortgage?
agreement covering the newly contracted debt is executed either
by concluding a fresh chattel mortgage or by amending the old Ruling:
contract conformably with the form prescribed by the Chattel
Mortgage Law.
Refusal on the part of the borrower to execute the agreement so No. Chattel mortgage should answer for the mortgage credit and
as to cover the after-incurred obligation can constitute an act of not for the judgement credit of the mortgagor's unsecured
default on the part of the borrower of the financing agreement creditor.
whereon the promise is written, but the remedy of foreclosure
can only cover the debts extant at the time of constitution and Yes. The lien of a chattel mortgage over the mortgaged property
during the life of the chattel mortgage sought to be foreclosed. is superior to the levy made on the same by the assignee of the
The Chattel Mortgage Law requires the parties to the contract to unsecured judgement creditor of the chattel mortgagor. The
attach an affidavit of good faith and execute an oath that – theory that the breach by the mortgagor of the chattel mortgage
“… the mortgage is made for the purpose of securing the should not affect the assignee because he is not a privy to such
obligation specified in the conditions thereof, and for no other contract is untenable. A judgement creditor can only attach the
purposes, and that the same is a just and valid obligation, and equity or right of redemption of the mortgagor. The mortgagee is
one not entered into for the purposes of fraud.” not obliged to file an independent action for the enforcement of
It is obvious therefore that the debt referred in the law is a his credit chattel mortgage's purpose is to give mortgagee the
current, not an obligation that is yet merely contemplated. preference over the mortgage chattels for satisfaction of his
The only obligation specified in the chattel mortgage contract credit. The mortgage creates a real right or lien which being
was the first loan which the petitioner later fully paid.  By virtue of recorded, follows the chattel wherever it goes.
Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage
terminated; the chattel mortgage had ceased to exist upon full
payment of the first loan.  Being merely an accessory in nature,
it cannot exist independently of the principal obligation.
The parties did not execute a fresh chattel mortgage nor did they
amend the chattel mortgage to comply with the Chattel Mortgage
Law which requires that the obligation must be specified in the
affidavit of good faith.  Simply put, there no longer was any
chattel mortgage that could cover the second loan upon full
payment of the first loan.  The order to foreclose the motor
vehicle therefore had no legal basis.
Relevant Laws
Article 1176, Civil Code:
The receipt of the principal by the creditor, without reservation
with respect to the interest, shall give rise to the presumption
that said interest has been paid.
Article 1235, Civil Code:
When the obligee accepts the performance of an obligation,
knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed
fully complied with.
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