Credit Transactions (Chattel Mortgage & Antichresis)

7/27/2019 Credit Transactions (Chattel Mortgage & Antichresis)

1/21

Makati Leasing and Finance Corporation v. Wearever Textile Mills

May 16, 1983

L-58469

Facts:

Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a

Receivable Purchase Agreement in favor of Makati Leasing and Finance Corporation in order to obtain

financial accommodations. To secure the collection of the receivables assigned, Wearever executed a

Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero

Dryer Stentering Range. Upon Wearevers default, Makati Leasing filed a petition for extrajudicial

foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the

foreclosure failed to gain entry into premises of Wearever and was not able to effect the seizure of the

aforedescribed machinery. Makati Leasing thereafter filed a complaint for judicial foreclosure. Acting on

Makati Leasing's application for replevin, the lower court issued a writ of seizure, the enforcement of

which was however subsequently restrained upon Wearevers filing of a motion for reconsideration. Afterseveral incidents, the lower court finally issued an order lifting the restraining order for the enforcement

of the writ of seizure and an order to break open the premises of Wearevers to enforce said writ. The

lower court reaffirmed its stand upon wearevers filing of a further moti on for reconsideration. The

sheriff enforcing the seizure order, repaired to the premises Wearevers and removed the main drive

motor of the subject machinery. The Court of appeals set aside orders of the Lower Court and ordered

the return of the main drive motor of the machinery. It held that the subject machinery cannot be subject

of replevin because it is a real property pursuant to Article 415 of the Civil Code. Therefore Chattel

Mortgage constituted upon it is null and void.

Issue:

Whether or not the subject machinery is a real property or a personal property to subject it to chattel

mortgage

Ruling:

Where a chattel mortgage is constituted on machinery attached to the ground the machinery is to be

considered as a personal property and the chattel mortgage constituted thereon is not null and void

regardless of who owns the land. A property attached to the ground like a house of strong materials, may

be considered as personal property for purposes of executing a chattel mortgage thereon as long as the

parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely

no reason why a machinery, which is movable in its nature and becomes immobilized only by destinationor purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped

from denying the existence of the chattel mortgage.


2/21

Torres vs Limjap

Facts: These two actions were commenced for the purpose of securing from the defendant the possession

of two drug stores located in Manila, covered by two chattel mortgages executed by the deceased Jose B.

Henson in favor of the plaintiffs. In the first case, plaintiffs alleged that Henson executed a chattel

mortgage on his drug store to secure a loan of P7000, although it was made to appear in the instrument

that the loan was P20,000. In the second case, plaintiffs claimed that Henson executed a chattel mortgage

on his drug stores to secure a loan P50,000, which was later reduced to P26,000.

In both cases the plaintiffs alleged that the defendant violated the terms of the mortgage and that, in

consequence thereof they became entitled to the possession of the chattels and to foreclose their

mortgages thereon. The court issued in each case an order directing the sheriff of the City of Manila to

take immediate possession of said drug stores. The defendants set up the following defenses: (1) That the

chattel mortgages are void for lack of sufficient particularity in the description of the property mortgaged;

and (2) That the chattels which the plaintiffs sought to recover were not the same property described in

the mortgage.

The judge arrived at the conclusion (a) that the defendant defaulted in the payment of interest on the loans

secured by the mortgages, in violation of the terms thereof; (b) that by reason of said failure said

mortgages became due, and (c) that the plaintiffs, as mortgagees, were entitled to the possession of the

drug stores. Accordingly, a judgment was rendered in favor of the plaintiffs and against the defendant,

confirming the attachment of said drug stores.

Issue: WON the chattel mortgages are null and void for lack of particularity in the description of

the chattels mortgaged

Held: No

Ratio: In his second assignment of error the appellant attacks the validity of the stipulation in said

mortgages authorizing the mortgagor to sell the goods covered thereby and to replace them with other

goods thereafter acquired. He insists that a stipulation authorizing the disposal and substitution of the

chattels mortgaged does not operate to extend the mortgage to after-acquired property, and that such

stipulation is in contravention of the express provision of the last paragraph of section 7 Act No. 1508.

In order to give a correct construction to the Chattel Mortgage Law, the spirit and intent of the law must

first be ascertained. When said Act was placed on our statute books by the United States Philippine

Commission on July 2, 1906, the primary aim of that law-making body was undoubtedly to promote

business and trade in these Islands and to give impetus to the economic development of the country.

Bearing this in mind, it could not have been the intention of the Philippine Commission to apply the

provision of section 7 above quoted to stores open to the public for retail business, where the goods are

constantly sold and substituted with new stock, such as drug stores, grocery stores, dry-goods stores, etc.

If said provision were intended to apply to this class of business, it would be practically impossible to

constitute a mortgage on such stores without closing them, contrary to the very spirit about a handicap to


3/21

trade and business, would restrain the circulation of capital, and would defeat the purpose for which the

law was enacted, to wit, the promotion of business and the economic development of the country. In the

interpretation and construction of a statute the intent of the law-maker should always be ascertained and

given effect, and courts will not follow the letter of a statute when it leads away from the true intent and

purpose of the Legislature and to conclusions inconsistent with the spirit of the Act.

A stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and

binding . . . where the after-acquired property is in renewal of, or in substitution for, goods on hand when

the mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc. Cobbey, a

well-known authority on Chattel Mortgages, recognizes the validity of stipulations relating to after-

acquired and substituted chattels. His views are based on the decisions of the supreme courts of several

states of the Union. He says: "A mortgage may, by express stipulations, be drawn to cover goods put in

stock in place of others sold out from time to time. A mortgage may be made to include future

acquisitions of goods to be added to the original stock mortgaged, but the mortgage must expressly

provide that such future acquisitions shall be held as included in the mortgage. ... Where a mortgage

covering the stock in trade, furniture, and fixtures in the mortgagor's store provides that "all goods, stock

in trade, furniture, and fixtures hereafter purchased by the mortgagor shall be included in and covered bythe mortgage," the mortgage covers all after-acquired property of the classes mentioned, and, upon

foreclosure, such property may be taken and sold by the mortgagee the same as the property in possession

of the mortgagor at the time the mortgage was executed."

In harmony with the foregoing, we are of the opinion (a) that the provision of the last paragraph of section

7 of Act No. 1508 is not applicable to drug stores, bazaars and all other stores in the nature of a revolving

and floating business; (b) that the stipulation in the chattel mortgages in question, extending their effect to

after-acquired property, is valid and binding; and (c) that the lower court committed no error in not

permitting the defendant-appellant to introduce evidence tending to show that the goods seized by the

sheriff were in the nature of after-acquired property.


4/21

TUMALAD vs. VICENCIO

FACTS:

On 1 September 1955 Vicencio and Simeon executed a chattel mortgage in favor of the Tumalads over

their house of strong materials located at Quiapo, Manila, which were being rented from Madrigal &

Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on 2 September 1955.

The mortgage was executed to guarantee a loan of P4,800.00 received from the Tumalads, payable within

one year at 12% yearly. Monthly payments are to be made starting September 1955 to July 1956, and the

lump sum of P3,150 was payable on or before August 1956. It was also agreed that default in the payment

of any of the amortizations would cause the remaining unpaid balance to become immediately due and

payable, the Chattel Mortgage enforceable, and the Sheriff of Manila authorized the to sell the property in

a public auction for payment of debt. When Vicencio and Simeon defaulted in paying, the mortgage was

extrajudicially foreclosed, and on 27 March 1956, the house was sold at public auction pursuant to the

said contract. As highest bidder, the Tumalads were issued the corresponding certificate of sale.

On 18 April 1956, the Tumalads commenced civil case in the MTC of Manila, praying that the house be

vacated and its possession surrendered to them, and for Vicencio and Simeon to pay rent of P200.00

monthly from 27 March 1956 up to the time the possession is surrendered. On 21 September 1956, the

municipal court rendered its decision in favor of the Tumalads. Vicencios appealed to the court a quo

which also rendered a decision against them. On appeal, the case was elevated to the Supreme Court by

the Court of Appeals for the reason that only questions of law are involved. Tumalads failed to file a brief

and this appeal was submitted for decision without it.

Nearly a year after the foreclosure sale the mortgaged house had been demolished on January 1957 by

virtue of a decision obtained by the lessor of the land on which the house stood.

ISSUE:

Whether or not the chattel mortgage was null and void ab initio because only personal properties can be

subject of a chattel mortgage?

HELD:

The inclusion of the building, separate and distinct from the land, in the enumeration of what may

constitute real properties (art. 415, New Civil Code) could only mean one thing that a building is by

itself an immovable property irrespective of whether or not said structure and the land on which it is

adhered to belong to the same owner. Certain deviations, however, have been allowed for various reasons;

if parties to a contract by agreement treat as personal property that which by nature would be real

property.

In the contract now before Us, the house on rented land is not only expressly designated as Chattel

Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS

by way of Chattel Mortgage the property together with its leasehold rights over the lot on which it is

constructed and participation ..."


5/21


6/21

Acme Shoe, Rubber & Plastic Corporation v. Court of Appeals

August 22, 1996

G.R. No. 103576

Facts:

Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic Corporation, executed a

chattel mortgage in favor of Producers Bank of the Philippines, as a security for a corporate loan in the

amount of P3M. The chattel mortgage contained a clause that provided for the mortgage to stand as

security for all other obligations contracted before, during and after the constitution of the mortgage. The

P3M was paid. Subsequently, the corporation obtained additional financial accommodations totaling

P2.7M. This was also paid on the due date. Again, the bank extended another loan to the corporation in

the amount of P1M, covered by four promissory notes. However, the corporation was unable to pay this

at maturity. Thereupon, the bank applied for an extra-judicial foreclosure of mortgage. For its part, thecorporation filed an action for injunction with prayer for damages. The lower court ultimately dismissed

the case and ordered the extra-judicial foreclosure of mortgage. Hence, this appeal.

Issue:

Whether or not extra-judicial foreclosure of the chattel mortgage is proper

Ruling

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or

suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal

commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a

mortgage or an antichresis, that fulfillment is secured by an encumbrance of property in pledge, the

placing of movable property in the possession of the creditor; in chattel mortgage by the execution of the

corresponding and substantially in teh form prescribed by law; in real estate mortgage, by the execution

of a public instrument encumbering the real property covered thereby; and in antichresis, by a written

instrument granting to the creditor the right to receive the fruits of an immovable property with the

obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his

creditupon the essential condition that if the obligation becomes due and the debtor defaults, then theproperty encumbered can be alienated for the payment of the obligation, but that should the obligation be

duly paid, then the contract is automatically extinguished proceeding from the accessory character of the

agreement. As the law so puts it, once the obligation is complied with, then the contract of security

becomes, ipso facto, null and void.


7/21

Servicewide Specialists, Incorporated v. Intermediate Appellate Court

June 8, 1989

G.R. No. 74553

Facts:

Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle and paid a downpayment of the

price. The remaining balance includes not only the remaining principal obligation but also advance

interests and premiums for motor vehicle insurance policies. Siton executed a promissory note in favor of

Car Traders Philippines, Inc. expressly stipulating that the face value of the note shall "be payable,

without need of notice of demand, in instalments. There are additional stipulations in the Promissory Note

consisting of, among others, that if default is made in the payment of any of the installments or interest

thereon, the total principal sum then remaining unpaid, together with accrued interest thereon shall at

once become due and demandable; As further security, Siton executed a Chattel Mortgage over thesubject motor vehicle in favor of Car Traders Philippines, Inc. The credit covered by the promissory note

and chattel mortgage executed by respondent Galicano Siton 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

Galicano Siton and "John Doe." After the service of summons, Justiniano de Dumo, identifying himself

as the "John Doe" in the Complaint, inasmuch as he is in possession of the subject vehicle, filed his

Answer with Counterclaim and with Opposition to the prayer for a Writ of Replevin. Said defendant,

alleged the fact that he has bought the motor Vehicle from Galicano Siton; that de Dumo and Siton

testified that, before the projected sale, they went to a certain. Atty. Villa of Filinvest Credit Corporation

advising the latter of the intended sale and transfer. Siton and de Dumo were accordingly advised that the

verbal information given to the corporation would suffice, and that it would be tedious and impractical to

effect a change of transfer of ownership as that would require a new credit investigation as to the capacity

and worthiness of Atty. De Dumo, being the new debtor. The further suggestion given by Atty. Villa is

that the account should be maintained in the name of Galicano Siton.; that as such successor, he stepped

into the rights and obligations of the seller; that he has religiously paid the installments as stipulated upon

in the promissory note. He also manifested that the Answer he has filed in his behalf should likewise

serve as a responsive pleading for his co-defendant Galicano Siton.

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.


8/21

Ruling:

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. -There is no dispute that the Deed of Chattel Mortgage

executed between Siton and the petitioner requires the written consent of the latter as mortgagee in the

sale or transfer of the mortgaged vehicle. We cannot ignore the findings, however, that before the sale,

prompt inquiries were made by private respondents with Filinvest Credit Corporation regarding any

possible future sale of the mortgaged property; and that it was upon the advice of the company's credit

lawyer that such a verbal notice is sufficient and that it would be convenient if the account would remainin the name of the mortgagor Siton. Even the personal checks of de Dumo were accepted by petitioner as

payment of some of the installments under the promissory note. If it is true that petitioner has not

acquiesced in the sale, then, it should have inquired as to why de Dumo's checks were being used to pay

Siton's obligations.


9/21

PERFECTO DY, JR. vs. COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V.

GONZALES

G.R. No. 92989. July 8, 1991.

FACTS:

The petitioner, Perfecto Dy and Wilfredo Dy are brothers.

Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended

by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as

security for the loan.

The petitioner wanted to buy the tractor from his brother so, he wrote a letter to Libra requesting

that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the

latter.

Libra thru its manager, Cipriano Ares approved the petitioners request.

Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in

question. At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dys

failure to pay the amortizations.

Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release

could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also for a

truck and Libra insisted on full payment for both.

Petitioner was able to convince his sister to purchase the truck so that full payment can be madefor both

A PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the

indebtedness of Wilfredo Dy with the financing firm. Libra insisted that it be cleared first before releasing

the chattels

Meanwhile, Civil Case entitled Gelac Trading, Inc. v. Wilfredo Dy, a collection case to recover

the sum of P12,269.80 was pending in another court

On the strength of an alias writ of execution issued, the provincial sheriff was able to seize and

levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently

sold at public auction where Gelac Trading was the alone bidder. Later, Gelac sold the tractor to one of its

stockholders, Antonio Gonzales.

It was only when the check was that the petitioner learned about GELAC having already taken

custody of the subject tractor

petitioner filed an action to recover the subject tractor against GELAC Trading


10/21

the RTC rendered judgment in favor of the petitioner

Court of Appeals reversed the decision of the RTC (held that the tractor in question still belonged

to Wilfredo Dy when it was seized and levied by the sheriff)

ISSUE: WHETHER OR NOT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED

TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF

PURSUANT TO AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF

RESPONDENT GELAC TRADING INC.

HELD: YES

SPECIAL CONTRACTS; CHATTEL MORTGAGE; RIGHT OF MORTGAGOR TO SELL THE

PROPERTY MORTGAGED; RULE.The mortgagor who gave the property as security under a chattel

mortgage did not part with the ownership over the same. He had the right to sell it although he was under

the obligation to secure the written consent of the mortgagee or he lays himself open to criminal

prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent

was obtained from the mortgagee, the validity of the sale would still not be affected.

APPLICABLE IN CASE AT BAR. We see no reason why Wifredo Dy, as the chattel mortgagor can

not sell the subject tractor. There is no dispute that the consent of Libra Finance was obtained in the

instant case. Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his

brother. The sale between the brothers was therefore valid and binding as between them and to the

mortgagee, as well.

REMEDY OF MORTGAGEE IN CASE MORTGAGOR FAILED TO PAY THE DEBT.It was Libra

Finance which was in possession of the subject tractor due to Wilfredos failure to pay the amortization as

a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the

mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law implies

that the mortgagee is entitled to possess the mortgaged property because possession is necessary in order

to enable him to have the property sold. While it is true that Wilfredo Dy was not in actual possession and

control of the subject tractor, his right of ownership was not divested from him upon his default. Neither

could it be said that Libra was the owner of the subject tractor because the mortgagee can not become the

owner of or convert and appropriate to himself the property mortgaged (Article 2088, Civil Code). Said

property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have said

property sold at public auction and the proceeds of the sale applied to the payment of the obligation

secured by the mortgagee (See Martinez vs. PNB, 93 Phil. 765, 767 [1953]). There is no showing that

Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor.


11/21

Undeniably, Libra gave its consent to the sale of the subject tractor to the petitioner. It was aware of the

transfer of rights to the petitioner.

PURCHASER OF MORTGAGED PROPERTY STEPS INTO THE SHOES OF THE MORTGAGOR.

Where a third person purchases the mortgaged property, he automatically steps into the shoes of the

original mortgagor. His right of ownership shall be subject to the mortgage of the thing sold to him. In the

case at bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact,

when he was obtaining Libras consent to the sale, he volunteered to assume the remaining balance of the

mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

SALE; DELIVERY OF PROPERTY VESTS OWNERSHIP TO THE VENDEE. Article 1496 of the

Civil Code states that the ownership of the thing sold is acquired by the vendee from the moment it is

delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner signifying

an agreement that the possession is transferred from the vendor to the vendee. We agree with the

petitioner that Articles 1498 and 1499 are applicable in the case at bar.

RULE ON CONSTRUCTIVE DELIVERY. In the instant case, actual delivery of the subject tractor

could not be made. However, there was constructive delivery already upon the execution of the public

instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold

cannot be immediately transferred to the possession of the vendee (Article 1499).


12/21

PAMECA WOOD v CA

FACTS: On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a

loan of US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan,

petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note for

the said amount, promising to pay the loan by installment.

As security for the said loan, a chattel mortgage was also executed over PAMECA's properties in

Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole value of the loan.

On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank extrajudicially

foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed

properties for a sum of P322, 350.00.

On June 29, 1984, respondent bank filed a complaint for the collection of the balance.

Petitioners submit that Articles 1484 and 2115 of the Civil Code be applied in analogy to the instant case

to preclude the recovery of a deficiency claim.

ISSUES: Whether the foreclosure of the chattel mortgage valid

RULING:

The court did not find anything irregular or fraudulent in the circumstance that respondent bank was the

sole bidder in the sale, as all the legal procedures for the conduct of a foreclosure sale have been complied

with, thus giving rise to the presumption of regularity in the performance of public duties.

The effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under

Article 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal

obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount ofthe principal obligation, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the

balance of the proceeds, upon satisfaction of the principal obligation and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale

proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case

of a reduction in the price at public auction.

As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal

property the price of which is payable in installments. Although Article 1484, paragraph (3) expressly

bars any further action against the purchaser to recover an unpaid balance of the price, where the vendor

opts to foreclose the chattel mortgage on the thing sold, should the vendee's failure to pay cover two ormore installments, this provision is specifically applicable to a sale on installments.


13/21

Magna Financial Services Group vs Colarina

Petitioner: Magna Financial Services Group

Respondent: Elias Colarina

Facts: Elias Colarina bought on installment from Magna Financial Services Group, Inc., 1 unit of SuzukiMulticab. After making a down payment, Colarina executed a PN for the balance of P229,284. To secure

payment thereof, Colarina executed an integrated PN and deed of chattel mortgage over the motor

vehicle.

Colarina failed to pay the monthly amortization beginning January 1999, accumulating an unpaid balance

of P131,607. Despite repeated demands, he failed to make the necessary payment. Magna Financial

Services Group, Inc. filed a Complaint for Foreclosure of Chattel Mortgage with Replevin before the

MTCC. Upon filing of a bond, a writ of replevin was issued. Colarina who voluntarily surrendered

physical possession of the vehicle to the Sheriff. After declaring Colarina in default, the trial court ruled

against defendant and ordered him to pay the sum of P131,607 plus penalty charges, attorneys fees and

cost. In case of nonpayment, the multicab shall be sold at public auction. The RTC affirmed. The CArendered its decision ruling that the courts erred in ordering the defendant to pay the unpaid balance of the

purchase price irrespective of the fact that the complaint was for the foreclosure of the chattel mortgage.

Issue: What is the true nature of a foreclosure of chattel mortgage under Article 1484(3)

Ratio: Our Supreme Court in Bachrach Motor Co., Inc. v. Millan held: Undoubtedly the principal object

of the above amendment (referring to Act 4122 amending Art. 1454, Civil Code of 1889) was to remedy

the abuses committed in connection with the foreclosure of chattel mortgages. This amendment prevents

mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then

bringing the suit against the mortgagor for a deficiency judgment. The almost invariable result of this

procedure was that the mortgagor found himself minus the property and still owing practically the full

amount of his original indebtedness.

In its complaint, Magna Financial prayed for the principal sum of P131,607, attorneys fees etc. It

is further prayed that pendent lite, an Order of Replevin issue commanding the Provincial Sheriff at

Legazpi City or any of his deputies to take such multicab into his custody and, after judgment, upon

default in the payment of the amount adjudged due to the plaintiff, to sell said chattel at public auction in

accordance with the chattel mortgage law. In its Memorandum before us, petitioner resolutely declared

that it has opted for the remedy provided under Article 1484(3) CC that is, to foreclose the chattel

mortgage.

It is, however, unmistakable from the Complaint that petitioner preferred to avail itself of the first and

third remedies under Article 1484, at the same time suing for replevin. For this reason, the Court of

Appeals justifiably set aside the decision of the RTC. Perusing the Complaint, the petitioner, under its

prayer number 1, sought for the payment of the unpaid amortizations which is a remedy that is provided


14/21

under Article 1484(1) of the Civil Code, allowing an unpaid vendee to exact fulfillment of the obligation.

At the same time, petitioner prayed that Colarina be ordered to surrender possession of the vehicle so

that it may ultimately be sold at public auction, which remedy is contained under Article 1484(3). Such a

scheme is not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for

the foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may

have under the promissory note.

Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose the

chattel mortgage, he shall have no further action against the purchaser to recover any unpaid balance of

the purchase price. Any agreement to the contrary shall be void. In other words, in all proceedings for

the foreclosure of chattel mortgages executed on chattels which have been sold on the installment plan,

the mortgagee is limited to the property included in the mortgage.

Contrary to petitioners claim, a contract of chattel mortgage, which is the transaction involved in the

present case, is in the nature of a conditional sale of personal property given as a security for the payment

of a debt, or the performance of some other obligation specified therein, the condition being that the sale

shall be void upon the seller paying to the purchaser a sum of money or doing some other act named. Ifthe condition is performed according to its terms, the mortgage and sale immediately become void, and

the mortgagee is thereby divested of his title. On the other hand, in case of non payment, foreclosure is

one of the remedies available to a mortgagee by which he subjects the mortgaged property to the

satisfaction of the obligation to secure that for which the mortgage was given. Foreclosure may be

effected either judicially or extrajudicially, that is, by ordinary action or by foreclosure under power of

sale contained in the mortgage. It may be effected by the usual methods, including sale of goods at public

auction. Extrajudicial foreclosure, as chosen by the petitioner, is attained by causing the mortgaged

property to be seized by the sheriff, as agent of the mortgagee, and have it sold at public auction in the

manner prescribed by Section 14 of Act No. 1508, or the Chattel Mortgage Law. This rule governs

extrajudicial foreclosure of chattel mortgage.

In sum, since the petitioner has undeniably elected a remedy of foreclosure under Article 1484(3) of the

Civil Code, it is bound by its election and thus may not be allowed to change what it has opted for nor to

ask for more. On this point, the Court of Appeals correctly set aside the trial courts decision and instead

rendered a judgment of foreclosure as prayed for by the petitioner.

Issue: WON there has been an actual foreclosure of the vehicle

Ratio: In the case at bar, there is no dispute that the subject vehicle is already in the possession of the

petitioner, Magna Financial Services Group, Inc. However, actual foreclosure has not been pursued,

commenced or concluded by it.

Where the mortgagee elects a remedy of foreclosure, the law requires the actual foreclosure of the

mortgaged chattel. Thus, in Manila Motor Co. v. Fernandez, our Supreme Court said that it is actual sale

of the mortgaged chattel in accordance with Sec. 14 of Act No. 1508 that would bar the creditor (who

chooses to foreclose) from recovering any unpaid balance. And it is deemed that there has been


15/21

foreclosure of the mortgage when all the proceedings of the foreclosure, including the sale of the property

at public auction, have been accomplished.

Be that as it may, although no actual foreclosure as contemplated under the law has taken place in

this case, since the vehicle is already in the possession of Magna Financial Services Group, Inc. and it has

persistently and consistently avowed that it elects the remedy of foreclosure, the Court of Appeals, thus,

ruled correctly in directing the foreclosure of the said vehicle without more.


16/21


17/21

Antichresis

Pando vs Giminez et al

Facts:

Gimenez was indebted to Pando. Such indebtedness was secured by a mortgage over his house and the

leasehold right on the lot on which the house was erected. Because Gimenez was to leave Manila, he gave

Pando the full control and possession of the property including the payment of taxes and monthly rentals

and the collection of the rents from the tenants, among others. Pando failed to pay the taxes, as a result of

which, such was sold at public auction. Pando denies liability alleging that his responsibility was confined

only in the collection of rents and applying them to the payment of the interest of the mortgage.

Issue:

WON Pando was duty bound to pay for the taxes, among others.

Held:

Yes.

The administration of the property in question assumed by Pando is antichretic in character, and therefore

justice and equity demand that application be here made of the Civil Code provisions touching the

obligations of the antichretic creditor (Art. 1882, Civil Code.). Failure to fulfill his obligation to pay the

tax and the rent of the lot, the law requires him to pay for indemnity of dmages. (Art. 101, NCC).

******************************

(Art. 1882, Civil Code.)

The creditor is obliged to pay the taxes and charges which burden the estate, in the absence of an

agreement to the contrary.

He shall also be obliged to pay any expenses necessary for its preservation and repair.

Any sums he may expend for such purposes shall be chargeable against the fruits. (Art. 1882, Civil

Code.)

These obligations arise from the very nature of the covenant, and are correlated with the plaintiffs

acquired right to take charge of the property and collect the fruits for himself. Hence, the illustriousManresa, explains the basis of this article 1882 in the following terms:

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.


18/21

Guidelines for The Enforcement of A.M. No. 99-10-05-0., as amended.

These guidelines are issued pursuant to the Supreme Court En Banc Resolution of December 14, 1999 in

Administrative Matter No. 99-10-05-0, as amended by the resolutions of January 30, 2001 and August 7,

2001, directing the Office of the Court Administrator to prepare the guidelines for the enforcement of

A.M. No. 99-10-05-0 on the extra-judicial foreclosure of mortgages.

Sec. 1. All applications for extra-judicial foreclosure of mortgage, whether under the direction of the

Sheriff or a notary public pursuant to Art.No. 3135, as amended, and Act 1508, as amended, shall be

filed with the Executive Judge, through the Clerk of Court, who is also the Ex-Officio Sheriff (A.M. No.

99-10-05-0, as amended, March 1, 2001).

Sec. 2. Upon receipt of the application, the Clerk of Court shall:

a. Examine the same to ensure that the special power of attorney authorizing the extra-judicial

foreclosure of the real property is either inserted into or attached to the deed of real estate mortgage (Act

No. 3135, Sec. 1, as amended);

b. Give a file number to the application and endorse the date and time of its filing and thereafter docket

the same, keeping, in this connection, separate docket books for extra-judicial foreclosure sales conducted

by the Sheriff and those conducted by notaries public;

c. For the conduct of extra-judicial foreclosure of real estate or chattel mortgage under the direction of

the sheriff, collect the appropriate filing fees and issues the corresponding official receipt pursuant to the

following schedule:

If the amount of the indebtedness or the mortgagees claim is:

(1) Less than P50,000.00 .. P275.00

(2) P50,000.00 or more but less than

P100,000.00 ..... 400.00


P150,000.00 . 500.00


P200,000.00 . 650.00


P250,000.00 .. 1,000.00


P300,000.00 .. 1,250.00


19/21


P400,000.00 .. 1,500.00

(8) P400,000 or more but less than

P500,000.00 .. 1,750.00

(9) P500,000.00 or more but not more than

P100,000,000.00 ... 2,000.00

(10) For each P1,000.00 in excess of

P1,000,000.00.. 10.00

(Section 7 (c), Rule 141, Rules of Court, as amended by A.M. No. 00-2-01-SC, February 1, 2000).

Cooperatives, thrift banks, and rural banks are not exempt from the payment of filing fees and other fees

under these guidelines (A.M. No. 98-9-280-RTC, September 29, 1998; A.M. No. 99-3-93-RTC, April 20,

1999; and A.M. No. 92-9-408-0).

d. In case the application is for the extra-judicial foreclosure of mortgages of real estates and/or chattels in

different locations covering one indebtedness, issue, apart from the official receipt for the fees, a

certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages

sought to be foreclosed, the real estates and/or chattels mortgaged and their respective locations, for

purposes of having the application docketed with the Clerks of Court in the places where the other

properties are located and of allowing the extra-judicial foreclosure to proceed thereat. (A.M. No. 99-10-

05-0, par. 2(e)).

Sec. 3. The application for extra-judicial foreclosure shall be raffled under the supervision of the

Executive Judge, with the assistance of the Clerk of Court and Ex-Oficio Sheriff, among all Sheriffs

including those assigned to the Office of the Clerk of court and Sheriffs assigned in the branches of the

court. A Sheriff to whom the case has been raffled shall be excluded in the succeeding raffles and shall

participate again only after all other Sheriffs shall have been assigned a case by raffle (Administrative

Circular No. 3-98, Feb. 5, 1998).

Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall do

the following:

a. Prepare a Notice of Extra-judicial Sale using the following form:

NOTICE OF EXTRA-JUDICIAL SALE

Upon extra-judicial petition for sale under Act 3135 / 1508 filed __________________ against (name

and address of Mortgator/s) to satisfy the mortgage indebtedness which as of ___________ amounts to P

_________________, excluding penalties, charges, attorneys fees and expenses of foreclosure, the

undersigned or his duly authorized deputy will sell at public auction on (date of sale) _______________

at 10:00 A.M. or soon thereafter at the main entrance of the ___________ (place of sale) to the highest


20/21

bidder, for cash or managers check and in Philippine Currency, the following property with all its

improvements, to wit:

(Description of Property)

All sealed bids must be submitted to the undersigned on the above stated time and date.

In the event the public auction should not take place on the said date, it shall be held on

_______________, _______________ without further notice.

________________ (date)

SHERIFF

b. (1) In case of foreclosure of real estate mortgage, cause the publication of the notice of sale by posting

it for not less than twenty (20) days in at least three (3) public places in the municipality or city where the

property is situated and if such property is worth more than four hundred (P400.00) pesos, by having such

notice published once a week for at least three (3) consecutive weeks in a newspaper of general

circulation in the municipality or city (Sec. 3, Act No. 3135, as amended). The Executive Judge shall

designate a regular working day and definite time each week during which said notice shall be distributed

personally by him for publication to qualified newspapers or periodicals as defined in Sec. 1 of P.D. No.

1079, which distribution shall be effected by raffle (A.M. No. 01-1-07-SC, Oct. 16, 2001). Unless

otherwise stipulated by the parties to the mortgage contract, the debtor-mortgagor need not be personally

served a copy of the notice of the extra-judicial foreclosure.

For real estate mortgages covering loans not exceeding P100,000.00, exclusive of interests due and

unpaid, granted by rural banks (RA No. 7353, Sec. 6) or thrift banks (RA No. 7906, Sec. 18),publication

in a newspaper shall be dispensed with, it being sufficient that the notices of foreclosure are posted for a

period of sixty (60) days immediately preceding the public auction in the most conspicuous areas of themunicipal building, the municipal public market, the rural bank, the barangay hall, and

the barangay public market, if any, where the land mortgaged is situated. Proof of publication shall be

accomplished by an affidavit of the Sheriff and shall be attached to the records of the case.

(2) In case of foreclosure of a chattel mortgage, post the notice for at least ten (10) days in two (2) or

more public places in the municipality where the mortgagor resides or where the property is situated (Sec.

14, Act No. 1508, as amended).

Sec. 5. Conduct of the extra-judicial foreclosure sale

a. The bidding shall be made through sealed bids which must be submitted to the Sheriff who shall

conduct the sale between the hours of 9 a.m. and 4 p.m. of the date of the auction (Act 3135, Sec. 4). The

property mortgaged shall be awarded to the party submitting the highest bid and, in case of a tie, an open

bidding shall be conducted between the highest bidders. Payments of the winning bid shall be made either

in cash or in managers check, in Philippine currency, within five (5) days from notice.

b. The sale must be made in the province in which the real property is situated and, in case the place

within the said province in which the sale is to be made is the subject of stipulation, such sale shall be


21/21

made in said place in the municipal building of the municipality in which the property or part thereof is

situated (Act No. 3135, as amended, Sec. 2);

in case of a chattel mortgage, the sale shall be made at a place in the municipality where the mortgagor

resides or where the property is situated (Sec. 14, Act No. 1508, as amended).

Sec. 6. After the sale, the Clerk of Courts shall collect the appropriate fees pursuant to Sec. 9(1), Rule

141, as amended by A.M No. 00-2-01-SC, computed on the basis of the amount actually collected by

him, which fee shall not exceed P100,000.00 (A.M. No. 99-10-05-0, March 1, 2001, 2[d]). The amount

paid shall not be subject to a refund even if the foreclosed property is subsequently redeemed.

Sec. 7. In case of foreclosure under Act No. 1508, the Sheriff shall, within thirty (30) days from the sale,

prepare a return and file the same in the Office of the Registry of Deeds where the mortgage is recorded.

Sec. 8. The Sheriff or the notary public who conducted the sale shall report the name/s of the bidder/s to

the Clerk of Court.

Sec. 9. Upon presentation of the appropriate receipts, the Clerk of Court shall issue and sign theCertificate of Sale, subject to the approval of the Executive Judge or, in the latters absence, the Vice -

Executive Judge. Prior to the issuance of the certificate of Sale, the Clerk of court shall, in extra-judicial

foreclosure conducted under the direction of the sheriff, collect P300.00 as provided in Section 20(d),

Rule 141, as amended, and in extra-judicial foreclosure sales conducted under the direction of a notary

public, collect the appropriate fees pursuant to Rule 141, 20(e), which amount shall not

exceed P100,000.00 (Minute Res., A.M. No. 99-10-05-0, August 7, 2001).

Sec. 10. After the Certificate of Sale has been issued, the Clerk of Court shall keep the complete records

for a period of one (1) year from the date of registration of the certificate of sale with the Register of

Deeds, after which the records shall be archived. Notwithstanding the foregoing, juridical persons whose

property is sold pursuant to an extra-judicial foreclosure shall have the right to redeem the property until,but not later than, the registration of the certificate of foreclosure sale which in no case shall be more than

three (3) months after foreclosure, whichever is earlier (R.A. 8791, Section 47). In case the property is

redeemed, the Clerk of Court shall assess the redemptioners fee as provided in Section 7 (k), Rule 141,

as amended. If the property is not redeemed, the Clerk of Court shall, as a requisite for the issuance of the

final Deed of Sale, assess the highest bidder the amount of P300.00 as provided in Section 20(d), Rule

141, as amended.

Credit Transactions (Chattel Mortgage & Antichresis)

Documents