ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
DECISION VITUG, J.: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari . Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this effect "(c) If the MORTGAGOR, his heirs, exe cutors or administrators shall well and truly perform the full obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x. "In case the MORTGAGOR executes subsequent promissory note or notes either as a re newal of the former note, as an ex tension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage mortg age shall also stand as security for the payment of t he said promissory note or notes and/or accommodations without the necessity of e xecuting a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date there of. This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracte d before, during or after the constitution of [1] this mortgage." mortgage." In due time, the loan of P3,000,000.00 was paid by petitioner petitioner corporation. Subsequently, in 1981, it [2] obtained from respondent bank additional financial accommodations totalling P2,700,000.00. P2,700,000.00 . These borrowings were on due date also fully paid. On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 P250,000.00 each. Due to financial [3] constraints, the loan was not settled at maturity. maturity. Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C12081). Ultimately, the court dismissed dismissed the complaint and and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations, stipulations, aforequoted, of the chattel mortgage.
[4]
Petitioner corporation appealed to the Court of Appeals Appeals which, on 14 August 1991, affirmed, "in all respects," the decision of the court a quo. The motion for reconsideration reconsideration was denied on 24 24 January 1992. The instant petition interposed by petitioner corporation was initially denied on 04 March 1992 by this Court for having been insufficient in form and substance. substance. Private respondent filed a motion to dismiss the petition while petitioner corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's first motion for reconsideration but but granted a second motion for reconsideration, thereby reinstating the petition and requiring private re spondent to comment thereon. thereon.[5] [6]
Except in criminal cases where the penalty of reclusion perpetua or death is imposed which the Court so reviews as a matter of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. discretion. The circulars of the Court prescribing technical and other procedural requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. These technical and procedural rules, however, are intended to help secure, not suppress, substantial substantial justice. A deviation from the rigid enforcement of the rules may thus be allowed to attain the prime objective for, after all, the dispensation of justice is the core reason for the existence of courts. In this instance, once again, again, the Court is constrained to relax the rules in order to give way w ay to and uphold the paramount and overriding interest of justice. Contracts of security are either personal or real. In contracts of personal security, security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal commitment commitment of another (the guarantor 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, mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered t hereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit - upon the essential condition that if t he principal obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment [7] of the obligation, obligation, but that should the obligation be duly paid, then the contract is automatically [8] extinguished proceeding from the accessory character 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. void.[9] While a pledge, real estate mortgage, or antichresis may exceptionally exce ptionally secure after-incurred obligations [10] so long as these future debts are accurately described, described, a chattel mortgage, however, can only cover obligations existing at the the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel [11] Mortgage Law. Law. Refusal on the part of the borrower to execute the agreement so as to cover the afterincurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the
debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid between t he parties (not against third persons acting in good [12] faith ), the fact, however, that the statute has provided that the parties to the contract must execute an oath that "x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered [13] into for the purpose of fraud." makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et [14] al. , the Court said "x x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect [15] only from the date the same are made and not from the date of the mortgage." The significance of the ruling to the instant problem would be that since the 1978 c hattel mortgage had [16] ceased to exist coincidentally with the full payment of the P3,000,000.00 loan, there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter. We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on the amount of damages it has sustained "as a result o f the unlawful action [17] taken by respondent bank against it." This prayer is not reflected in its complaint which has merely [18] asked for the amount of P3,000,000.00 by way of moral damages. In LBC Express, Inc. vs. Court of [19] Appeals, we have said: "Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, [20] and griefs of life - all of which cannot be suffered by respondent bank as an artificial person." While Chua Pac is included in the c ase, the complaint, however, clearly states t hat he has merely been so named as a party in representation of petitioner corporation. Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the pet ition his so-called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the t rial court, respondent Court of Appeals should be required to justify its decision which completely disregarded the basic laws on obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law and well-settle d jurisprudence of this Honorable Court; that in the event that its explanation is wholly unacceptable, this Honorable Court should impose appropriate sanctions on the erring justices. This is one positive step in ridding our courts of law of incompetent and dishonest magistrates especially members of a superior court of appellate [21] jurisdiction." (Italics supplied.) The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. [22] Villamor ; thus: "(L)awyers x x x should bear in m ind their basic duty `to observe and maintain the respect due to the courts of justice and judicial officers and x x x (to) insist on similar conduct by others.' This r espectful attitude towards the court is to be observed, `not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is `through a scrupulous preference for respectful language that a lawyer best demonstrates his observance of the respect due to the courts and judicial officers x x x.'"[23] The virtues of humility and of respect and concern for others must still live on even in an age of materialism. WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs. Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts. SO ORDERED. Kapunan and Hermosisima, Jr., JJ., concur. Padilla, J., took no part in view of lessor-lessee relationship with respondent bank. Bellosillo, J., on leave.
G.R. No. L-38185 September 24, 1986 HILARIO RAMIREZ and VALENTINA BONIFACIO, petitioners, vs. HONORABLE COURT OF APPEALS, FRANCISCA MEDINA, MATILDE MARTIN, EMILIO MARTIN, DELFI N GUINTO, TEOFILO GUINTO, PRUDENCIO GUINTO and MARGARITA GUINTO, respondents. Castro, Makalintal, Mendoza & Associates for petitioner. Flores, Ocampo, Dizon & Domingo Law Office for respondents.
GUTIERREZ, JR., J.: This is an appeal from the decision of the Court of Appeals which affirmed in toto the de cision of the then Court of First instance of Rizal rendered in the petition for review of the decree of registration issued in Land Registration Case No. N-2597, L.R.C. Recor d No. N-17939. On September 15,1959, petitioners-spouses Hilario Ramirez and Valentina Bonifacio filed an application for registration of a parcel of riceland in Pamplona, Las Pinas Rizal. After notice and publication nobody appeared to oppose the application. An order of general default was issued and the court allowed the petitioners to present evidence in support of their claim. Thereafter, the petitioners presented parol evidence that they acquired the land in question by purchase from Gregorio Pascual during the early part of the American regime but the corresponding contract of sale was lost and no copy or record of the same was available. On January 30, 1960, the court ordered the issuance of the decree of registration and consequently: Original Certificate of Title No. 2273 of the Registry of Deeds of Rizal was issued in the petitioners names. On March 30, 1960, the private respondents Francisca Medina, Basilio Martin, Matilde Martin, Delfin Guinto, Teofilo Guinto, Prudencio Guinto and Margarita Guinto, petitioners' nephews and nieces, filed a petition to review the decree of registration on the ground of fraud. The private respondents based their claim to the land on the following allegations: that they are the legal heirs of t he deceased Agapita Bonifacio who died intestate on March 11, 1936; that Valentina Bonifacio is a sister of the deceased Agapita Bonifacio, they being the children of one Gregoria Pascual; that Gregoria Pascual previously owned the land in question as evidenced by Tax D eclaration No. 6611 of Las Pinas Rizal issued on December 8, 1920; that Agapita Bonifacio acquired the property in question by purchase from Gregoria Pascual for which reason Tax Declaration No. 8777 was issued in her name on May 21, 1928; that Gregoria Pascual during her lifetime, from 1916 , possessed the said property in the concept of owner, publicly and uninterruptedly, which possession was continued by Agapita Bonifacio in 1928; that in 1938 respondents obtained a loan of P400.00 from the petitioners which they secured with a mortgage on the land in question by way of antichresis; that for this reason, Tax Declaration No. 8777 w as cancelled and substituted by Tax Declaration Nos. 9522 and 2385 issued in the names of the petitioners; that, thereafter, the petitioners began paying taxes on the land; that after several attempts to redeem the land were refused by the petitioners, the respondents filed a complaint in the Court of First Instance of Pasay City docketed as Civil Case No. 272-R for the recovery o f the possession and ownership of the said property; that when they learned of the issuance of the certificate of title to the land in the petitioners' names, they also filed the instant petition for review. The previous complaint, Civil Case No. 272-R, was subsequently dismissed on a joint petition filed by the parties after t hey agreed to have the determination of the question of ownership resolved in the registration proceedings. In their answer, the spouses Ramirez denied the material allegations of the petition, they based their claim to the land on two deeds of sale allegedly executed on April 15, 1937 and April 23, 1937 which they allegedly found accidentally in March 1960.
After trial, the court found that deeds of sale spurious. It further found that the respondents took possession of the land as owners after the death of Agapita Bonifacio and in 1938, mortgaged it to the spouses Ramirez to secure the payment of a loan in the amount of P400.00. I t was agreed that the respondents could not redeem the property within a period of five years and that the petitioners would take possession of the land, enjoy its fruits, and pay the land taxes thereon. The writte n agreement was kept by the petitioners as creditors. The trial court appreciated the fact of the petitioners' failure, despite formal request, to produce the document in court in favor of the respondents. Finding the claims of the herein respondents sustained by the evidence, it ordered the reconveyance of the property in the following manner: WHEREFORE, judgment is hereby rendered in favor of petitioners and against applicants as follows: 1) Setting aside its decision dated De cember 28, 1959 insofar as it found and declared applicants to be the owners of the parcel of land described in Exhibits A, B and C and insofar as it ordered the registration thereof in their names; 2) Declaring the petitioners, all Filipinos, all of legal age, and all residents of Ligas Bacoor, Cavite, to be the true and absolute owners pro indiviso of the said parcel of land described in Exhibits A, B and C in the following proportions: a. Francisca Medina, married to Tomas de L eon, one-third (1/3) thereof; b. Emilio Martin, married to Dolores Antonio, and Matilde Martin, married to Federico Torres, one-third (1/3) thereof-, c. Teofilo Guinto, married to Rocila de la Cruz, Delfin Guinto, married to Gregoria P amaran, Prudencio Guinto, married to Ana Guinto, and Margarita Guinto, marr ied to Felix Calacala one- third (1/3) thereof; 3) Ordering the registration of the said parcel of land described in Exhibits A, B and C in the names of petitioners; 4) Setting aside its order for the issuance of the decree of registration in favor of applicants dated January 30, 1959, and ordering the issuance of the decree of registration in the names of petitioners; 5) Cancelling Original Certificate of Title No. 2273 o f the Register of Deeds of Rizal in the names of applicants and the issuance in lieu thereof of another or iginal certificate of title in the names of petitioners in the proportion of their ownership of the proper ty as stated in paragraph 2 above; 6) Ordering applicants to pay P3,000.00 to petitioners as and for attorney's fees; 7) Ordering applicants to pay the costs o f this suit. The decision was affirmed by the Court o f Appeals. On a motion for reconsideration filed by the petitioners, the same appellate court, but with a new member, promulgated a resolution setting aside the original decision. On a motion for reconsideration filed by the private respondents, this resolution was set aside and the original decision was reinstated. The petitioners went to this Court in a petition for review on cert iorari with the following questions: ONE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION COURT, THE JURISDICTION TO GIVE DUE COURSE TO A PETITION FOR REVIEW OF DECREE UNDER SEC. 38 OF ACT 496 AND TO RE-
OPEN THE ORIGINAL PROCEEDINGS WHEN THE PETITION IS ACTUALLY ONE OF RECONVEYANCE AND NOT BASED ON ACTUAL OR EXTRINSIC FRAUD? TWO-DOES SEC. 38 OF ACT NO. 496 APPLY ON ALL FORES (SIC) TO ORIGINAL L AND REGISTRATION PROCEEDINGS HAD UNDER PARAGRAPH B, SECTION 48 OF COM. ACT NO. 141 AS AMENDED BY REP. ACT NO. 1942 WHEREIN THE LAND INVOLVED IS PUBLIC AGRICULTURAL LAND? THREE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION COURT, THE POWER AND AUTHORITY TO VEST TITLE ON THE LAND INVOLVED TO HEREIN PRIVATE RESPONDENTS AND ORDER EVEN ITS PARTITION AMONGST THEM IN THE FACE OF THE ADMITTED FACT THAT THE LAND IS IN ACTUAL POSSESSION OF PETITIONERS WHILE P RIVATE RESPONDENTS HAD NOT POSSESSED THE SAME AT ALL? FOUR-DO THE PRIVATE RESPONDENTS HAVE THE LEGAL CAPACITY AND QUALIFICATION TO ACQUIRE AND BE VESTED BY THE COURT WITH TITLE TO THE L AND IN QUESTION? We find the petition without merit. The first question does not warrant favorable consideration. The issue was submitted to t he appellate court and in our opinion, correctly resolved therein. The Court of Appeals stated: ... The petition alleged that 'the applicants Hilario Ramirez and Valentina Bonifacio willfully and fraudulently suppressed the facts that the petitioners are the legal and rightful owners of the ricefield in question and that they possess the said ricefield me rely as antichretic creditors as security for the loan of P400.00; that the applicants are guilty of fraudulent misrepresentation and concealment when they declared in their application, in the case at bar, that no other person had any claim or interest in the said land.' These we believe are sufficient allegations of extrinsic fraud. In the applicant's application for registration, which followed the form required by the Land Registration Act, the applicants alleged that 'to the best of our knowledge and belief, there is no mortgage or incumbrance of any kind whatsoever affecting said land, nor any other person having any estate or interest therein, legal or equitable, in possession, remainder, reversion or expectancy.' This allegation is false and made in bad faith, for, as We have found, the applicants are not the owners of the land sought to be registered and they are in possession thereof only as antichretic cre ditors. The averments in the petition for review of the decree of registration constitute specific and not mere general allegations of actual and extrinsic fraud. Competent proof to support these allegations was adduced. We find no compelling reason to disturb the findings of t he two courts below. The petitioners in this case did not mere ly omit a statement of the respondents' interest in the land. They positively attested to the absence of any adverse claim therein. This is clear misrepresentation. The omission and concealment, knowingly and intentionally made, of an act or of a fact which the law requires to be performed or recorded is fraud, when such omission or concealment secures a benefit to the prejudice of a third person (Estiva v. Alvero, 37 Phil. 497). In the case of Libundan v. Palma Gil (45 SCRA 17), this Court held: The purpose of the law in giving aggrie ved parties, deprived of land or any interest the rein, through fraud in the registration proceedings, the o pportunity to review the decree is to insure fair and honest
dealing in the registration of land. But the action to annul a judgment, upon the ground of fraud, would be unavailing unless the fraud be extrinsic or collateral and the facts upon which it is based have not been controverted or resolved in the case where the judgment sought to be annulled was rendered. Extrinsic or collateral fraud, as distinguished from intrinsic fraud, connotes any fraudulent scheme executed by a prevailing litigant 'outside the trial o f a case against the defeated party, or his agents, attorneys or witnesses, whereby said defeated party is prevented from presenting fully and fairly his side of the case.' But intrinsic fraud takes the form of 'acts of a party in a litigation during the trial, such as the use of forged instruments or perjured testimony, which did not affect the presentation of the case, but did prevent a fair and just determination of the case. Thus, relief is granted to a party deprived of his interest in land where the fraud consists in a deliberate misrepresentation that the lots are not c ontested when in fact they are, or in applying for and obtaining adjudication and registration in the name of a c o-owner of land which he knows had not been alloted to him in the partition, or in intentionally concealing facts, and conniving with the land inspector to include in the survey plan the bed of a navigable stream, or in willfully misrepresenting that there are no other claims, or in deliberately failing to notify the party entitled to notice, or in inducing him not to o ppose an application, or in misrepresenting about the indentity of the lot to the true owner by the applicant causing the former to withdraw his opposition. In all these examples the overriding consideration is that the fraudulent scheme of the pre vailing litigant prevented a party from having his day in court or from presenting his case, The fraud, there fore, is one that affects and goe s into the jurisdiction of the court. The second question assigned as an error m ust also be resolved against the petitioners. Section 122 of Act No. 496 otherwise known as the Land Registr ation Act provides: SEC. 122. Whenever public lands in the Philippine Islands belonging to the Government of the United States or to the Government of the Philippine Islands are alienated, granted, or conveyed to persons or the public or private corporations, the same shall be brought forthwith under the operation of this Act and shall become registered lands. It shall be the duty of the official issuing the instrument of alienation, grant, or conveyance in behalf of t he Government to cause such instrument be fore its delivery to the grantee, to be filed with the register of deeds for the province where the land lies and to be there registered like other deeds and conveyances, whereupon a certificate shall be entered as in other cases of registered land, and an owner's duplicate certificate issued to the grantee. The deed, grant, or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land, but shall operate only as contract between the Government and the grantee and as evidence of authority to the clerk or register of deeds to make registration. The act of registration shall be the operative act to convey and affect the land, and in all c ases under this Act, registration shall be made in the office of the register of deeds for the province where the land lies. The fees for registration shall be paid by the grantee. After due registration and issue of the certificate and owner 's duplicate, such land shall be registered land for all purposes under this Act. The law is clear. We can apply it to the facts without need for judicial interpretation. Once the deed, grant, or instrument of conveyance of public land is registered with the Register of Deeds and the corresponding certificate and owner's duplicate title is issued, such land is deemed registered land. It is brought within the scope and operation of the L and Registration Law. This is the doctrine laid down by this Court in a long line of cases. (See Heirs of Deogracias Ramos v. Court of Appeals, 139 SCRA 293; Lahora v. Dayanghirang 37 SCRA 346; R amirez v. Court of Appeals, 30 SCR A 297; Director of Lands v.
Jugado 2 SCRA 32; Nelayan v. Nelayan, 109 P hil. 183; Republic v. Heirs of Carle 105 P hil. 1227; El Hogar Filipino v. Olviga, 60 Phil. 17; Manolo v. Lukban, 48 Phil. 973). The land in this case having been registered and covered by an or iginal certificate of title issued by the Re gister of Deeds of Rizal, it is within the provisions of the Land Registration Act. Thus, the decree of registration granted by t he lower court in favor of the petitioners may be reviewed on the ground of actual and extrinsic fraud pursuant to Section 38 of the same Act. There is likewise no merit in the third assigned error. While there was an admission that the petitioners have been in actual possession of the disputed land since 1938, it was made to show and prove the fact that the petitioners are only antichretic creditors. The respondents never admitted that they have not possessed the land at all. On the contrary, they alleged that they and their predecessors-in-interest namely Gregoria Pascual and Agapita Bonifacio have been in possession of the land since time immemorial and that the petitioners were place d in possession of the land pursuant to a contract of antichresis. The court below found that the petitioners are merely antichretic creditors. This finding and its factual bases were affirmed by the Court of Appeals. On the basis of the evidence supporting this conclusion, this finding is binding on us as it is not our duty to weigh evidence on this point all over again. This court has on several occasions held that the antichretic creditor cannot ordinarily acquire by prescription the land surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v. Acala, 4 2 Phil. 177; Barreto v. Barreto, 3 Phil. 234). The petitioners are not possessors in the concept of owner but mere holders placed in possession of the land by its owners. Thus, their possession cannot serve as a title for acquiring dominion (See Art. 540, Civil Code). The fourth issue raised by the petitioners is answered by a referral to the detailed factual findings and conclusions of the trial court. Ten pages of t he record on appeal (Record on Appeal, C A-G.R. No. 40425R, pp. 56-66) state in convincing detail the portion of the trial court's decision which support its conclusion that Hilario Ramirez and Valentina Bonifacio are not the owners of the disputed land and have no registrable right over it and that the respondents herein have established their ownership by a strong preponderance of evidence. The respondents were declared the true and real owners and entitled to registration in their names. The final resolution of the Court of Appeals affirmed the trial court's decision in toto. We see no reversible error in this finding. The argument of laches is explained and countered by the close relationship of the parties and the nature of a contract of antichresis. The private respondents are nephews and nieces, with t heir spouses, of the petitioners. Moreover, there is evidence to show that long before the filing of the cases, there had been attempts to recover the property. In view of the foregoing, we are constrained to affirm the appellate court's decision. We note, however, that in spite of the finding of an e xisting contract of antichresis between the parties, the two courts below did not order the payment o f the principal amount of mortgage. Under Article 2136 of the Civil Code, the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. WHEREFORE, the decision appealed from is hereby AFFIRMED w ith a modification that the respondents are ordered to pay the petitioners the amount of P 400.00 as principal for the contract of antichresis, the fruits obtained from the possession of the land having been applied to the interests on the loan.
SO ORDERED. Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.
[G.R. No. L-48359. March 30, 1993.] MANOLO P. CERNA, Petitioner , v. THE HONORABLE COURT OF APPEALS and CONRAD C. LEVISTE, Respondents. Zosa & Quijano Law Offices for Petitioner . Benjamin H. Aquino for Private Respondent .
SYLLABUS
1. CIVIL LAW; OBLIGATIONS & CONTRACTS; SOLIDARY LIABILITY, NOT PRESUMED. — Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of loan. Nowhere did it appear in the promissory note that petitioner was a co-debtor. The law is clear that" (c)ontracts take effect only between the parties . . ." But by some stretch of the imagination, petitioner was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado. This ignores the basic precept that" (t)here is solidarily liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The contract of loan, as evidenced by the promissory note, w as signed by Delgado only. Petitioner had no part in the said contract. Thus, nowhere could it be see n from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan. 2. ID.; ID.; SIGNATORY TO THE PRINCIPAL CONTRACT OF LOAN, PRIMARILY LIABLE; THIRD-PARTY MORTGAGOR NOT SOLIDARILY BOUND WITH THE PRINCIPAL DEBTOR. — There is 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. 3. ID.; ID.; ID.; A SPECIAL POWER OF ATTORNEY AUTHORIZING THE MORTGAGE OF CERTAIN PROPERTIES
DID NOT MAKE THE ATTORNEY-IN-FACT A MORTGAGOR. — The mortgage contract was also signed only by Delgado as mortgagor. The Special Powe r of Attorney did not make petitioner a mor tgagor. All it did was to authorized Delgado to mortgage c ertain properties belonging to petitioner. And this is in compliance with the requirement in Article 2 085 of the Civil Code which states that: "Art. 2085. The following requisites are essential to the contracts o f pledge and mortgage: (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 the purpose." In effect, petitioner lent his car to Delgado so that the latter may mortgage the same to secure his debt. Thus, from the contract itself, it was clear that only Delgado was the mortgagor regardless o f the fact the he used properties belonging to a third person to secure his debt. 4. REMEDIAL LAW; CIVIL ACTIONS; FILING OF COLLECTION SUIT BARRED THE FORECLOSURE OF MORTGAGE. — We agree with petitioner that the filing of collection suit barred the foreclosure of the mortgage. Thus: "A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to re cover in the said collection suit." The reason for this rule is that: ". . . when, however, the mortgage elects to file a suit for collection, not foreclosure, thereby abandoning the chattel as basis for relief, he clearly manifest his lack of desire and interest to go after the mortgaged property as security for the promissory note . . ."cralaw virtua1aw library 5. ID.; MORTGAGE DEBT DUE FROM ESTATE; OPTIONS GIVEN TO CREDITORS UNDER S EC. 7, RULE 86, NEW RULES OF COURT. — 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. Section 7, Rule 86 of the Rules of Court provides: "Sec. 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by mortgaged or other collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in the foreclosure or the other proceeding to realize upon security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may upon his mortgage o r other security alone, and foreclosure the same at any time within the period of the statue o f limitations, and in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of the e state; . . ."
DECISION
CAMPOS, JR., J.:
Before us is a Petition for Review on Certiorari of the decision ** of the Court of Appeals in CA G.R. No. SP-07237, dated March 31, 1978. The facts of this case are as follows:chanrob1es virtual 1aw library On or about October 16, 1972, Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note worded as follows: jgc:chanrobles.com.ph "FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal address at 98 K-11 St., Kamias Rd., Quezon City, promise to pay to the order of CONRAD C. LEVISTE, NINETY (90) DAYS after date, at his office at 215 Buendia Ave., Makati Rizal, then total sum of SEVENTEEN THOUSAND FIVE HUNDRED (P17,500.00) PESOS, Philippine Currency without necessity of demand, with interest at the rate of TWELVE (12%) PERCENT per annum;" 1 On the same date, Delgado executed a chattel mortgage 2 over a Willy’s jeep owned by him. And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna (petitioner), 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 docketed as Civil Case No. 17507 3 with the Court of First Instance of Rizal, Branch XXII against Delgado and petitioner as solidary debtors. Herein petitioner filed his first Motion to Dismiss 4 on April 4, 1973. The grounds cited in the Motion were lank of cause of action against petitioner and the death of Delgado. Anent the latter, petitioner claimed that the claim should be filed in the proceedings for the settlement of Delgado’s estate as t he 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. This Motion to Dismiss was denied on August 15, 1973 by Judge Nicanor S. Sison. Thereafter, petitioner filed with the Court of Appeals a special civil action for certiorari , mandamus, and prohibition with preliminary injunction docketed as CA G.R. No. 03088 on t he ground that the respondent judge committed grave abuse of discretion in re fusing to dismiss the complaint. On June 28, 1976, the Co urt of Appeals 5 denied the petition because he rein petitioner failed to prove the death of D elgado and the consequent settlement proceedings regarding the latter’s estate. Neither did petitioner adequately prove his claim that the special power o f attorney in favor of Delgado was forged. On February 18, 1977, petitioner filed his second Motion to Dismiss on the ground that the tr ial court, now presided by Judge Nelly L. Romero Valdellon, acquired no jurisdiction over dece ased defendant, that the claim did not survive, and that there was no cause of ac tion against him. On May 13, 1977, the said judge dismissed the motion in an order hereunder quoted, to wit: jgc:chanrobles.com.ph "Considering the second motion to dismiss filed by respondent Manolo Cerna on March 4, 1977 , as well as plaintiff’s oppositio n thereto reiteration of the same grounds raised in the first motion to dismiss dated April 4, 1973, this Court hereby reiterates its resolution found in its or der dated August 15, 1973." 6 Petitioner filed a motion to reconsider t he said order but this was denied. Then, on October 17, 1977, he
filed another petition for certiorari and prohibition docketed as CA G.R. No. SP-07237 with t he Court of Appeals. This petition was dismissed by the said court in a dec ision which stated, thus: jgc:chanrobles.com.ph "WHEREFORE, the herein petition insofar as it alleges lack of cause of action on the part of the herein petitioner is concerned, is hereby dismissed and/or denied and the writ of preliminary injunction previously issued by this Court is hereby lifted and/or set aside; insofar, however, as the case against the deceased Celerino Delgado is concerned, the petition is granted, that is, the complaint in the lower court against Celerino Delgado should be dismissed. No costs." 7 Thereafter, the instant petition for review was filed. Petitioner raised the following legal issue: jgc:chanrobles.com.ph ". . . NOW, INASMUCH AS THE COMPLAINT IS ONLY FOR COLLECTION OF A SUM OF MONEY BASED ON THE PROMISSORY NOTE, SHOULD NOT THE COMPLAINANT BE DISMISSED FOR LACK OF CAUSE OF ACTION AS AGAINST MANOLO P. CERNA WHO IS NOT A DEBTOR UNDER THE PROMISSORY NOTE — CONSIDERING THAT ACCORDING TO SETTLED JURISPRUDENCE THE FILING OF A COL LECTION SUIT IS DEEMED AN ABANDONMENT OF THE SECURITY OF THE CHATTEL MORTGAGE?" 8 In holding petitioner liable, the Court of Appeals held that petitioner and Delgado were solidary debtors. Thus, it held: jgc:chanrobles.com.ph "But the herein petitioner pleads that the complaint states no cause of actions against the defendants Manolo P. Cerna on the following grounds: 1) that the petitioner did not sign as joint obligator in the promissory note signed by the deceased Ce lerino Delgado hence, even if the allegations of the complaint are hypothetically admitted there is no cause of act ion against the herein petitioner because having proceeded against the promissory note he is deemed to have abandoned the foreclosure of the chattel mortgage contract. This contention deserves scant consideration. The chattel mortgage contract, prima facie shows that it created the joint and solidary obligation of petitioner and Celerino Delgado against private Respondent ." 9 (Emphasis ours) We do not agree. Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of loan. Nowhere did it appear in the promissory note that petitioner was a co-debtor. The law is clear that" (c)ontracts take effect only between the parties . . ." 10 But by some stretch of the imagination, petitioner was held solidarily liable for the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado. This ignores the basic pre cept that" (t)here is solidarily liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." 11 We have already stated that the contract of loan, as evidenced by t he promissory note, was signed by Delgado only. Petitioner had no part in the said contract. Thus, nowhere could it be seen from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan.
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" 12 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 t he 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 t he property mortgaged. Should there be any deficiency, the creditors has recourse on the principal debtor. In this case, however, the mortgage contract was also signed only by Delgado as mortgagor. It is true that the contract stated the following: jgc:chanrobles.com.ph "That this CHATTEL MORTGAGE, made and entered into this 16th day of Octo ber, 1972 at Makati, Rizal, by and between:chanrob1es virtual 1aw library CELERINO DELGADO, . . . as Attorney-in -Fact of Manolo P. Cerna . . . by virtue of a Special Power of Attorney executed by said Manolo P. Cer na in my favor under the date of Octo ber 10, 1972 and acknowledged before Orlando J. Coruna . . . he rein referred to as the MORTGAGOR; - and CONRAD C. LEVISTE, . . . hereinafter referred to as the MORTGAGEE." 13 But this alone does not make petitioner a co-mortgagor especially so since only Delgado singed the chattel mortgage as mortgagor. The S pecial Power of Attorney did not make petitioner a mortgagor. All it did was to authorized Delgado to mortgage certain properties belonging to petitioner. And this is in compliance with the requirement in Article 2 085 of the Civil Code which states that:chanrobles virtual lawlibrary "Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:chanrob1es virtual 1aw library x
x
x
(3) That the persons constituting the pledge o r mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose." (Emphasis ours.) In effect, petitioner lent his car to Delgado so that the latter may mortgage the same to secure his debt. Thus, from the contract itself, it was clear that only Delgado was the mortgagor regardless of the fact the he used properties belonging to a third person to secure his debt. Granting, however, that petitioner was obligated under the mortgage contract to answer for Delgado’s indebtedness, under the circumstances, petitioner could not be held liable because the complaint was
for recovery of a sum of money, and not for the foreclosure of the security. We agree with petitioner
that the filing of collection suit barred t he foreclosure of the mortgage. Thus: jgc:chanrobles.com.ph "A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as sec urity for the debt or value of t he promissory note which he seeks to recover in the said collection suit." 14 The reason for this rule is that: jgc:chanrobles.com.ph ". . . when, however, the mortgage elects to file a suit for collection, not foreclosure, thereby abandoning the chattel as basis for relief, he clearly manifest his lack of desire and interest to go after the mortgaged property as security for the promissory note . . ." 15 Hence, Leviste, having chosen to file the collection suit, could not now run after pe titioner 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. Section 7, Rule 86 of the Rules of Court Provides: jgc:chanrobles.com.ph "Sec. 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by mortgaged or other collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making the ex ecutor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in the foreclosure or the other proceeding to realize upon security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may upon his mortgage or other security alone, and foreclosure the same at any time within the period of the statue of limitations, and in that e vent he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of the estate; . . ."cralaw virtua1aw library The above-quoted provision is substantially similar to Section 708 of the Code o f Civil Procedure which states: jgc:chanrobles.com.ph "Sec. 708. A creditor holding against the deceased, secured by mortgage or other collateral security, may abandon the security and prosecute his claim before the committee, and share in the mortgage or realize upon his security, by ordinary action in court, making the executor or administrator a part y defendant; . . ."cralaw virtua1aw library The Supreme Court, in the case of Osorio v. San Agustin, 16 has made the following interpretation of the said provision,, to wit: jgc:chanrobles.com.ph "It is clear by the provisions quoted section that a person holding a mortgage against the estate of a deceased person may abandon such security and prosecute his claim before the committee, and share in the distribution of the general assets of the estate. It provides also that he may, at his own election, foreclose the mortgage and realize upon his security. But the law does not provide that he may have both remedies. If he elects one he must abandon the other. I f he fails in one he fails utterly."cralaw
virtua1aw library But while there is a merit in the substantial allegations of this petition, We are constrained to deny the petition on procedural grounds. The facts of this case r eveal that the decision under review in the decision in the second certiorari and prohibition case lodged petitioner against the judge trying the civil case. It appeared that after the denial of the first motion to dismiss, petitioner filed CA-G.R. No. 03088 wherein petitioner alleged grave abuse of discretion on the part of Judge Sison. The first petition was denied by the Court of Appeals. The decision became final. The second motion to dismiss, based on the same grounds, was thereafter filed. It was likewise denied and another petition for certiorari and prohibition was again instituted. The decision in the latter case is now under review.chanrobles.com : virtual law library We agree with the contention of private respondent, that the action has been barred by the principle of res judicata. It appears in this case that the second motion was filed to circumvent the effects of the finality of the decision of the Court of Appeals in C a-G.R. No. 03088. Petitioner intended the second motion and the subsequent proceedings as remedies for his lapsed appeal. We cannot such behavior. It delayed the proceedings in this case and unduly burdened the courts. Pet itioner should have allowed the trial of the case to go on where his defenses could still be presented and heard. WHEREFORE, in view of the forgoing,, the Petition is hereby DISMISSED. With costs. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.
[G.R. No. 107554. February 13, 1997] CEBU INTERNATIONAL FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ROBERT ONG and ANG TAY, respondents. DECISION KAPUNAN, J.: In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to set aside the decision of the Court of Appeals in CA-G.R. C.V. No. 26257 dated 2 July 1992 which affirmed the decision of the Regional Trial Court in Civil Case No. CEB-6919, declaring the c hattel mortgage void and ordering petitioner and private re spondent Robert Ong to pay damages to private respondent Ang Tay. The Court of Appeals' resolution dated 30 September 1992 is similarly impugned for denying petitioner's motion for reconsideration. Gleaned from the records are the following facts:
[1]
On 4 March 1987, Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay, authorizing the latter to se ll the cargo vessel owned by Dy and christened LCT "Asiatic." [2]
On 28 April 1987, through a Deed of Absolute Sale, Ang Tay sold the subject vessel to private respondent Robert Ong (Ong) for P900,000.00. Ong paid the purchase price by issuing three (3) c hecks in the following amounts: P150,000.00, P600,000.00 and P150,000 .00. 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 [3] registered or transferred to Robert Ong until complete payment." Thereafter, Ong obtained possession of the subject vessel so he could beg in deriving economic benefits therefrom. He, likewise, obtained copies of the unnotarized deed of sale allegedly to be shown to the banks to enable him to acquire a loan to replenish his (Ong's) capital. The aforequoted condition, however, which was handwritten on the original deed of sale does not appear on Ong's copies. Contrary to the aforementioned agreements and without the knowledge of Ang Tay, Ong had his copies of the deed of sale (on which the aforementioned prohibition does not appear) notarized on 18 May [4] 1987. Ong presented the notarized deed to the Philippine Coast Guard which subsequently issued him a Certificate of Ownership[5] and a Certificate of Philippine Register[6] over the subject vessel on 27 May 1987. Ong also succeeded in having the name of the vessel changed to LCT "Orient Hope." Scslx On 29 October 1987, Ong acquired a loan from petitioner in the amount of P496,008.00 to be paid in [7] installments as evidenced by a promissory note of even date. [8]
As security for the loan, Ong executed a chattel mortgage over the subject vessel, which mortgage was [9] registered with the Philippine Coast Guard and annotated on the Certificate of Ownership. In paragraph 3 of the Deed of Chattel Mortgage, it was stated that: 3. The said sum of FOUR HUNDRED NINETY SIX THOUSAND EIGHT ONLY Pesos (P496 008.00) represents the balance due on the purchase price of the above-described property purchased by t he MORTGAGOR(S) from the MORTGAGEE and is payable in the office of the MORTGAGEE at Cebu City or in the office of the latter's assignee, in case the rights and interests of the MORTGAGEE in the foregoing mortgage are assigned to a third person, under the terms of said promissory note, as follows: (a) TWENTY THOUSAND SIX HUNDRED SIXTY SEVEN ONLY** Pesos (P20,667.00) on or before . . . and (b) the balance in Twenty Four (24) equal successive monthly installments on the . . . day of each and every succeeding month thereafter until the amount is fully paid. The interest on the foregoing installments shall be paid on the same date t hat the installments become payable and additional interest at the r ate of fourteen (14%) per cent per annum will be charged on all amounts, principal and interest, not paid on [10] due date. (Underscoring ours.) Ong defaulted in the payment of the monthly installments. Consequently, on 11 May 1988, petitioner [11] sent him a letter demanding delivery of the mortgaged vessel for foreclosure or in the alternative to pay the balance of P437,802.00 pursuant to paragraph 11 of the deed of chattel mortgage.[12] Meanwhile, the two checks (worth P600 ,000.00 and P150,000.00) paid by Ong to Ang Tay for the Purchase of the subject vessel bounced. Ang Tay'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, on 13 January 1988, Ang Tay and Jacinto Dy filed a civil case for rescission and replevin with damages against Ong and his wife (docketed as Civil Case No. CEB-6565) with the Reg ional Trial Court of Cebu City, Branch 10. The trial court issued a writ o f replevin and the subject vessel was seized and subsequently delivered to Ang Tay. On 9 March 1988, petitioner filed a motion for intervention but withdrew the same o n 29 April 1988. Instead, on 26 May 1988, petitioner filed a separate case for r eplevin and damages against Ong and "John Doe" (Ang Tay) with the same trial court, docketed as Civil Case No. CEB-6919. The trial court granted petitioner's prayer for replevin. The vessel was seized and placed in the custody of the trial court. However, Ang Tay posted a counterbond and the vessel was returned to his possession. On 3 October 1990 in CEB-6565, the trial court rendered a decision in favor of Ang Tay and Jacinto Dy. The sale of the subject vessel was rescinded, the registration of the vessel with the Office of the Coast Guard and other government agencies in Ong's name nullified and the vessel's registration in Dy's name revived. Ong was, likewise, ordered to pay Jacinto Dy and Ang Tay actual damages for lost income, moral [13] damages, attorney's fees and litigation expenses. The Court of Appeals affirmed the tr ial court's decision and Ong's petition for review before this Court was dismissed for lack of merit in a resolution dated 15 March 1993. On the other hand, in CEB-6919, the subject of the present appeal, the trial court in a decision dated 14 February 1990, declared the chattel mortgage on the subject vessel null and void and ordered petitioner and Ong to pay Ang Tay damages. The dispositive portion states, thus: WHEREFORE, in view of all the foregoing, the chattel mortgage on the vessel LCT ORIENT HOPE is declared null and void, rendering its annotation and registration at the back of the Certificate of Ownership and Certificate of Philippine Registry respectively, to be of no force and effect. Plaintiff CIFC and defendant Robert Ong are hereby ordered to pay jointly and severally to defendant Ang Tay the following amounts: P50,000.00 as unrealized income during the five-day period when the vessel was taken from Ang Tay's possession; P100,000.00, repr esenting the premiums Ang Tay paid for the redelivery of the vessel to him and other expenses; P10,000.00 as actual expenses for the recovery of the vessel; P100,000.00 as mor al damages; P50,000.00 as exemplary damages; P40,000.00 as actual expenses in attending trials and litigation expenses; and P30,000.00 as attorney's fees. [14]
SO ORDERED.
[15]
On 2 July 1992, the Court of Appeals affirmed in toto the abovementioned decision. present petition for review on certiorari .
Hence, the
Petitioner enumerates the alleged errors of the Court of Appeals as follows: I THE COURT OF APPEALS ERRED IN B ASING ITS DECISION ON SPECULATION, CONJECTURE, AND SURMISE, WHEN IT DECLARED THAT THE CONTRACT BETWEEN CIFC AND ROBERT ONG WAS ONE OF SALE, AND NOT LOAN (MUTUUM) WITH MORTGAGE.
II THE RULING OF THE COURT OF APPEALS IS CONTRARY TO EXISTING AND WELL-SETTLED JURISPRUDENCE THAT A MORTGAGEE HAS THE RIGHT TO RELY ON WHAT APPEARS I N THE CERTIFICATE OF OWNERSHIP (TITLE). III THE DECISION OF THE COURT OF APPEALS IS REPUGNANT TO THE CLEAR RULING OF THE HONORABLE COURT THAT BETWEEN TWO INNOCENT PERSONS, THE ONE WHO MADE THE DAMAGE POSSIBLE BY HIS [16] ACT OF CONFIDENCE MUST BEAR THE LOSS. We grant the petition. In upholding the nullity of the chattel mortgage on the subject vessel, the Court of Appeals declared thus: In Par. 3 of the Chattel Mortgage Contract executed between appellants CIFC and Robert Ong, it was made to appear that the subject vessel was sold by the plaintiff Cebu International Finance Corporation to Robert Ong on installment. However, there is no showing that appellant CIFC acquired the vessel in question from either Jacinto Dy or Ang Tay, the owner of such vessel. Since, CIFC appears to have sold the vessel in question to Ong on installment basis, the said co ntract is null and void, because CIFC was never the owner of the vessel. Moreover, Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel because of an express stipulation in the Deed of Sale that the vessel "shall not be registered or transferred to Robert Ong until complete payment." (Exh. "7-C-1".) Since Ong clearly was not the owner of the vessel at the time of the execution of the mortgage, the said mortgage is null and void on that ground. Furthermore, the evidence on record shows the chattel mortgage in question did not comply with the requirements of P.D. 1521, The Ship Mortgage Decree of 1978 . . . [17] The Court of Appeals nullified the chattel mortg age contract between petitioner and Ong because paragraph 3 of the said contract (where it appeared that petitioner sold the subject vessel to Ong on installment basis and that the amount supposedly loaned to Ong represented the balance due on the purchase price) seemed to indicate t hat the owner of the vessel mortgaged was petitioner although it [18] had been duly established that another party (Jacinto Dy) was the true owner thereof . We disagree with the aforequoted ruling of the Court of Appeals. The chattel mortgage contract should not be viewed in such a myopic context. The key lies in the cer tificate of ownership issued in Ong's name (which, along with the deed of sale, he submitted to petitioner as proof that he is the owner of the ship he gave as security for his loan). It was plainly stated therein that the ship LCT "Orient Hope" ex "Asiatic," by means of a Deed of Absolute Sale dated 28 April 1987, was "sold and tr ansferred by Jacinto Dy to Robert Ong."[19] There can be no dispute then that it was Dy who was t he seller and Ong the buyer of the subject vessel. Coupled with the fact that there is no evidence of any transaction between Jacinto Dy or Ang Tay and petitioner, it follows, therefore, that petitioner's role in the picture is properly and logically that of a creditor-mortgagee and not owner-seller. It is paragraph 2 o f the mortgage contract[20] which accurately expresses the true nature of the transaction between petitioner and Ong -that it is a simple loan with chatte l mortgage. The amount petitioner loaned to Ong does not represent
the balance of any purchase price since, as we have previously discussed, the aforementioned documents state that Ong is already the absolute owner of the subject vessel. Obviously, therefore, paragraph 3 of the said contract w as filled up by mistake. Considering that petitioner used a form contract, it is not improbable that such an oversight may have been committed -- neg ligently but unintentionally and without malice. As testified to by Mr. Benjamin C. Alfaro, petitioner's Senior Vice President for Operations they only use one form for several kinds of transaction: ATTY. UY: (TO WITNESS) Q: Mr. Alfaro, as a financing institution, Cebu International Finance Corporation, how many kinds of lending transaction do you have in a firm? Do you have financing, leasing, discounting or whatever? Can you explain briefly to the Honorable Court? WITNESS: A: We have direct loan transaction. We have financing transaction and we have leasing transaction. Now, in the leasing transaction, the document will show that we are the owner of the equipment and we leased it out. In the financing transaction, where we used the same Chattel Mortgage instrument, there are three parties involved, the seller of the equipment. And then, the se ller of the equipment would sell or assign the contract with the financing company. That is the financing transaction. And in the simple loan transaction, there appears only two parties involved, the borrower and the lender. ATTY. UY: (TO WITNESS) Q: Now, Mr. Alfaro, the same document, Chattel Mortgage will apply also to financing transaction, leasing transaction and simple loan transaction? WITNESS: A: Simple loan and financing transactions. ATTY. UY: (TO WITNESS) Q: Now, Mr. Alfaro, this paragraph 2 of Chattel Mortgage, can this apply to a financing transaction? WITNESS: A: No, the paragraph 3 will be the one that is applicable to a financing transaction. (Witness reading the document and after reading continued) Paragraph 2 applies to both financing and simple loan transaction.Scslx ATTY. UY: Q: And paragraph 3? WITNESS: A: Paragraph 3 applies to both financing and lending transactions but paragraph 3 does not apply to simple lending transaction. xxx
[21]
ATTY. LOGRONIO: (TO WITNESS) Q: You do not affirm the assertion made by your counsel that paragraph 3 arise only in case that your rights to a mortgage were assigned by you to a third person, do you agree that also? WITNESS: A: This form of chattel mortgage, in fact, you will notice that the portion for mortgagor and mortgagee are all blank because this is the same form which is used by the company, used for the parties when there is a dealer involved, when there is installment buyer involved and when we come in as third party purchaser of the document because as practiced by the different dealer, t his is the same form used between the buyer and the dealer of the motor vehicle. After this is being consummated already, it is assigned to a finance company and these are the same documents used. Now, in this particular case, this becomes already . . . this is a direct transaction between the finance company and the borrower. We, the finance company becomes the direct lender and Mr. Ong became the direct borrower. As I explained earlier, this document is also the form used between a dealer of a motor vehicle and an installment buyer wherein after paying the down payment, t he unpaid balance which is secured by the chattel mortgage, the promissory note, and the disclosure statement and this document is sold to a third party and that is the finance company by the dealer.Scslx ATTY. LOGRONIO: Q: Up to this point, when you had the transaction with Mr. Ong, this form that you executed, the Chattel Mortgage was in what kind of form that was already used by the company? WITNESS: A: These are forms available to us. ATTY. LOGRONIO: Q: This is a form used when there is a buyer and a . . . WITNESS: A: Third party or direct borrowing lender. ATTY. LOGRONIO: Q: And this refers to a direct borrower or lending transaction? WITNESS: A: Yes. ATTY. LOGRONIO: Q: No third party assignment has been involved so far? WITNESS: A: No.
xxx
[22]
Accordingly, the chattel mortgage c ontract between petitioner and Ong is valid and subsisting. The next issue for our determination is whether or not petitioner is a mortgagee in good faith whose lien over the mortgaged vessel should be respected. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of t itle 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 [23] 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 shipowners are, likewise, required by law to register their vessels with the Philippine Coast Guard. Private respondent Ang Tay, however, contends t hat the aforementioned rule does not apply in the case at bar in the face of the numerous "badges of bad faith" on the part of petitioner. Capitalizing on paragraph 3 of the chattel mortgage contract, Ang Tay argues as follows: . . . The fraud and conspiracy by Robert Ong and some responsible employees of CIFC against Jacinto Dy and Ang Tay are thus brought to t he open by this stipulation. Since CIFC appears in the registered chattel mortgage to have sold the vessel in question to Robert Ong, the said contract is null and void because CIFC never for a second or a moment became the owner of the vessel. CIFC was the one who prepared the chattel mortgage and the one who registered the same without contemporaneous or subsequent correction or modification; it cannot, after it notified the public by means of registration that it acquired the vessel and became its owner, now shy away from a stipulation which is the heart and nerve-center of the contract and which it made and registered. This is both the essence and consequence of estoppel. Applicable is Article 1459 of the Civil Code which provides inter alia: ". . . the vendor must have a right to transfer the ownership thereof (the thing sold) at the time it is delivered." 2. Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel because of an express stipulation which he signed that the vessel "shall not be r egistered or transferred to Robert Ong until complete payment." (Exh. "7-C-1".) This stipulation is expressly covered by Article 1478 of the Civil Code: "The parties may stipulate that ownership in the t hing shall not pass to the purchaser until he has fully paid the price." Since Ong clearly was not the owner of the vessel at the time of the execution of the mortgage, the said mortgage is null and void on that ground.[24] Scslx Ang Tay's contentions are unmeritorious. As previously discussed, paragraph 3 of the chattel mortgage contract was erroneously but unintentionally filled up. The failure of petitioner to e xercise due care in filling up the necessary provisions in the chattel mortgage contract does not, however, amount to bad faith. It was a mere oversight and not a deliberate and malicious act. Petitioner's bad faith is further demonstrated, Ang Tay ave rs, by its failure to comply with the following requirements of P.D. No. 1521 or the Ship Mortgage Decree of 1978:
1) The loan secured by the mortgaged vessel was not for any of purposes specified in Sec. 2 of P.D. No. 1521, i.e., "financing the construction, acquisition, purchase of vessels or initial operation of [25] [26] vessels" and that petitioner failed to furnish the Central B ank a copy of the mortgage; 2) The special affidavit of good faith required in Sec. 4 of P.D. No. 1521 was lacking; and 3) Ong failed to disclose his creditors and lienors as provided in Sec. 6 of P.D. No. 1521. There is no merit in private respondent's allegations. In the 9 November 1989 hearing, Ang Tay confirmed his statement in his affidavit, executed in Civil Case No. CEB-6565, that Ong wanted to o btain a loan to replenish his capital because he had used up his money in the purchase of t he subject [27] vessel and that the ship was delivered to Ong so that he could begin deriving economic benefits [28] therefrom. Mr. Randolph Veloso, petitioner's collector, processing clerk, credit investigator and appraiser, further testified as follows: xxx Q: Do you know the purpose for that loan A: Yes. Q: What was his purpose? A: He was going to mortgage the vessel to us. Q: What was the purpose of the loan? A: We don't usually ask our client what they will do with it. Q: You don't ask the purpose? A: It is understood that whenever a client approach the institution he usually has a purpose for the money. Q: Did not the corporation was what need has he for the money? A: He is going to use it for his business in the boat. Q: And that is his only statement? What was his specific statement? ATTY. UY: Already answered. He will use it in the business of his boat. ATTY. LOGRONIO: What was the purpose. ATTY. UY: Already answered Your Honor and besides it is immaterial. ATTY. LOGRONIO:
Very material and it is important Your Honor as there is a violation of the law. I am entitled to insist for the answer. COURT: Witness may answer, if he knows. (TO WITNESS) Q: Did he tell you what was the purpose? A: For the business of the boat. ATTY. LOGRONIO: (TO WITNESS) Q: That's all, that he is going to use the money for the business of the boat? A: Yes. xxx
[29]
From the foregoing, therefore, it can be readily deduced that the loan was for the initial operation of the subject vessel and thus falls under the purposes laid down in the Ship Mortgage Decree. The special affidavit of good faith, on the other hand, is required only for the purpose of transforming an [30] already valid mortgage into a "preferred mortgage." Thus, the abovementioned affidavit is not necessary for the validity of the chattel mortgage itself but only to give it a preferred status. [31]
As to the disclosure requirement in Sec. 6 of the Ship Mortgage Decree, it was intentional on Ong's part not to inform petitioner that he had yet to pay in full the purchase price of the subject vessel. Ong presented himself to petitioner as the absolute owner of the LCT "Orient Hope" ex "Asiatic." The Certificate of Ownership in Ong's name showed t hat the ship was conveyed to him by means of a Deed of Absolute Sale which gave the idea that the purchase price had been fully paid and the sale completed. Petitioner had every right to rely on the Certificate of Ownership and Certificate of Philippine Register duly issued by the Philippine Coast Guard in Ong's name. Petitioner had no re ason to doubt Ong's ownership over the subject vessel. The documents presented by Ong, upon petitioner's insistence before accepting the said vessel as loan security, were all in order and properly issued by the duly constituted authorities. There was no circumstance that might have aroused petitioner's suspicion or alerted it to any infirmity committed by Ong. It had no participation in and was not privy to the sale transaction between Jacinto Dy (through Ang Tay) and Ong. Petitioner, t hus, had no obligation to undertake further investigation since it had the necessary documents to prove Ong's ownership. In addition, petitioner even took pains to inspect the subject vessel which was in Ong's possession. Mr. Benjamin C. Alfaro testified thus: xxx ATTY. LOGRONIO: Q: In your credit investigation of Mr. Robert Ong, did you have a chance yourself or any of your employees to verify the condition and the location of the vessel at the very time?
WITNESS: A: Yes. ATTY. LOGRONIO: Q: Will you tell the Court where was the vessel at the time that he applied for a loan with your bank? WITNESS: A: It was under finishing touches in the drydock in . . . I think in Lapulapu or Mandaue. ATTY. LOGRONIO: Q: So, more or less, you are sure that at the time that he applied for a loan and you approved the same, this vessel was still at the drydock? WITNESS: A: Yes, finishing touches. In fact, it had pictures to support the application. I don't know if we have it now. ATTY. UY: We have. (Counsel producing a picture of a vessel and handing it to the witness). WITNESS: (Cont.) This is the picture of the vessel because we required him to submit. ATTY. LOGRONIO Q: You are referring to the picture which you asked the Court to mark as Exhibit . . . ATTY. UY: No, we are requesting now Your Honor. This has not been marked yet. We asked that the picture showing the back portion of the vessel, Orient Hope be marked as Exhibit 'I' and the picture showing the front portion of the vessel as Exhibit 'I -1" COURT: (TO INTERPRETER) Mark it. ATTY. LOGRONIO: (TO WITNESS) Q: So, at the time that the vessel was submitted to you as collateral for the loan, the condition of the vessel was as it is reflected in this exhibit? (Cross-examiner referring to the picture). WITNESS: A: Yes. xxx
[32]
Anent the last issue, although Ang Tay may also be an innocent person, a similar victim of Ong's fraudulent machinations, it was his act of confidence which led to the present fiasco. Ang Tay readily agreed to execute a deed of absolute sale in Ong's favor even t hough Ong had yet to make a complete payment of the purchase price. It is true that in the copy of the said deed submitted in evidence by Ang [33] Tay there was an undertaking that owner ship will not vest in Ong until full payment. However, Ong [34] was able to obtain several copies of the deed with Ang Tay's signature and had these notarized without the aforementioned undertaking, as evidenced by t he copy of the deed of sale [35] presented by petitioner. The Deed of Absolute Sale consisted o f two (2) pages. The signatures of Ang Tay and Ong appeared only on the first page of the deed. The second page contained the continuation of the acknowledgment and the undertaking. Ong could have e asily reproduced the second page without the undertaking since this page was not signed by the contracting parties. To complete the deception, Ang Tay unwittingly allowed Ong to have possession of the ship. Hence, in consonance with our ruling that: . . . as between two innocent persons, the mortgagee and the owner of the mortgaged property, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of [36] confidence must bear the loss. it is Ang Tay and his principal Jacinto Dy, who must, unfortunately, suffer the consequences thereof. They are considered bound by the chattel mortg age on the subject vessel. WHEREFORE, this Court GRANTS the Petition for Review and REVERSES the questioned decision and resolution of the Court of Appeals. The validity of the chatte l mortgage on the vessel LCT ORIENT HOPE is hereby upheld without prejudice to whatever legal remedies private respondent Ang Tay may have against private respondent Robert Ong in the premises. SO ORDERED. Padilla (Chairman), Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.
