G.R. No.

45125
April 22, 1991
LORETA SERRANO, petitioner,
vs.
COURT OF APPEALS and LONG LIFE PAWNSHOP, INC., respondents.
Cecilio D. Ignacio for petitioner.
Hildawa & Gomez for private respondent.
RESOLUTION
FELICIANO, J.:
Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from Niceta
Ribaya. On 21 March 1968, petitioner, then in need of money, instructed her private secretary, Josefina Rocco, to pawn
the jewelry. Josefina Rocco went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for
P22,000.00 with its principal owner and General Manager, Yu An Kiong, and then absconded with said amount and the
pawn ticket. The pawnshop ticket issued to Josefina Rocco stipulated that it was redeemable "on presentation by the
bearer."
Three (3) months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issued by private
respondent was being offered for sale. They told Niceta the ticket probably covered jewelry once owned by the latter which
jewelry had been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold to petitioner,
Niceta informed the latter of this offer and suggested that petitioner go to the Long Life pawnshop to check the matter out.
Petitioner claims she went to private respondent pawnshop, verified that indeed her missing jewelry was pledged there
and told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner
claims that Yu An Kiong agreed.
On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for qualified theft
and later changed to estafa was subsequently filed against Josefina Rocco. On the same date, Detective Corporal
Oswaldo Mateo of the Manila Police also claims to have gone to the pawnshop, showed Yu An Kiong petitioner's report
and left the latter a note asking him to hold the jewelry and notify the police in case some one should redeem the same.
The next day, on 10 July 1968, Yu An Kiong permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to
redeem the jewelry.
On 4 October 1968, petitioner filed a complaint with the then Court of First Instance of Manila for damages against private
respondent Long Life for failure to hold the jewelry and for allowing its redemption without first notifying petitioner or the
police. After trial, the trial judge, Hon. Luis B. Reyes, rendered a decision in favor of petitioner, awarding her P26,500.00
as actual damages, with legal interest thereon from the date of the filing of the complaint, P2,000.00 as attorney's fees,
and the costs of the suit.
Judge L.B. Reyes' decision was reversed on appeal and the complaint dismissed by the public respondent Court of
Appeals in a Decision promulgated on 26 September 1976.
The Court of Appeals gave credence to Yu An Kiong's testimony that neither petitioner nor Detective Mateo ever apprised
him of the misappropriation of petitioner's loan, or obtained a commitment from him not to permit redemption of the
jewelry, prior to 10 July 1968. Yu An Kiong claims to have become aware of the loan's misappropriation only on 16 August
1968 when a subpoena duces tecum was served by the Manila Fiscal's Office requiring him to bring the record of the
pledge in connection with the preliminary investigation of the estafa charge against Josefina Rocco. Consequently, the
appellate court ruled, there could have been no negligence, much less a grave one amounting to bad faith, imputable to
Yu An Kiong as the basis for an award of damages.
In this Petition for Review, petitioner seeks reversal of the Public respondent's findings relating to the credibility of
witnesses and the restoration of the trial court's decision.
Deliberating on the present Petition for Review, the Court considers that the public respondent Court of Appeals committed
reversible error in rendering its questioned Decision.
It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are
entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of
witnesses while giving testimony which may indicate their candor or lack thereof. 1 While the Supreme Court ordinarily
does not rule on the issue of credibility of witnesses, that being a question of fact not properly raised in a petition under
Rule 45, the Court has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the
Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses. 2
The Court of Appeals rejected what it considered to be the incredible testimony of petitioner and Detective Mateo. It
faulted petitioner for failing to report to the police authorities the loss of her jewelry immediately on 21 March 1968 when
Josefina Rocco failed to return to her either the loan proceeds or the jewelry. But it must be noted that Josefina Rocco
simply disappeared without a trace on said date. Petitioner had no way of knowing if Josefina had misappropriated her
jewelry, or had first pledged the jewelry as instructed and then misappropriated the proceeds of the loan. In the latter case,
which was in fact what had occurred, petitioner could have had no idea as to the identity of the pawnbroker. Moreover, this
Court has several times recognized that different people may have diverse reasons for failing to report promptly to the

police their having been victimized by some criminal or fraudulent scheme and that such failure does not by itself render
their subsequent testimony unworthy of credence.3
The Court of Appeals also found it hard to believe that Detective Mateo had failed to obtain a written acknowledgment
from Yu An Kiong of the receipt of the note as corroboration for his testimony. However, absent evidence that it was an
established practice for police officers to obtain such acknowledgment in situations like the one here, it is difficult to see
why Detective Mateo's behavior should be considered unbelievable. On the other hand, as the trial court pointed out, it
would not have been sensible for Detective Mateo to leave a note reminding Yu An Kiong to hold unto the jewelry if the
latter had in fact then told the policeman that the jewelry had already been redeemed.
The public respondent apparently believed petitioner had failed to establish her ownership of the jewelry pledged by
Josefina Rocco, such failure purportedly engendering doubt that Tomasa de Leon may have redeemed jewelry different
from that owned by petitioner. This is curious and untenable because the record on appeal indicates that Yu An Kiong had
admitted in his answer and memorandum before the trial court that he received pledged jewelry from Josefina Rocco and,
in his memorandum, that such jewelry had been entrusted to Josefina by petitioner as the latter's employer. It is clear from
these judicial admissions that he considered petitioner to have been the true owner of the jewelry.
Finally, the Court of Appeals did not believe petitioner's testimony because of a claimed material inconsistency
therein.1wphi1 On direct examination, petitioner said she "immediately" went to the private respondent's establishment
upon being informed by Niceta Ribaya of the possible whereabouts of her jewelry. On cross-examination, she said she
went to the establishment "a few days later." If this is an inconsistency, it relates to an unimportant detail. What is clear is
that in any event, petitioner testified that she went to the respondent's pawnshop to meet Yu An Kiong and notify him of the
misappropriation before anyone had redeemed the jewelry.
We must also note that the Court of Appeals apparently over-looked a fact of substance which did not escape the attention
of the trial court. Petitioner's version of events was corroborated by Police Detective Mateo and by Niceta Ribaya. These
were two (2) individuals who had nothing to gain from the outcome of the case. Certainly, their disinterested testimony
should have been accorded more probative weight than the negative, uncorroborated and self-serving testimony of Yu An
Kiong, which presented a diametrically opposed version of events calculated to show that in permitting redemption of the
jewelry, he was acting in good faith.4
The testimony of Detective Mateo was moreover supported by the presumption that he had acted in the regular
performance of his official duty as a police officer, a presumption that Yu An Kiong did not try to rebut.
This being a civil case, it was enough for petitioner to show, by a preponderance of evidence, that her version of events
did in fact occur. We agree with the trial court that this burden of proof had been discharged by petitioner because her
evidence was direct and more credible and persuasive than that propounded by Yu An Kiong, 5 and corroborated by
disinterested witnesses.
Turning to the substantive legal rights and duties of the parties, we believe and so hold that, having been notified by
petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the
pledge, private respondent pawnbroker became duty bound to hold the things pledged and to give notice to petitioner and
the police of any effort to redeem them. Such a duty was imposed by Article 21 of the Civil Code. 6 The circumstance that
the pawn ticket stated that the pawn was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a
negotiable instrument under the Negotiable Instruments Law nor a negotiable document of title under Articles 1507 et seq.
of the Civil Code. If the third person Tomasa de Leon, who redeemed the things pledged a day after petitioner and the
police had notified Long Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an
interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent pawnbroker was, of course, entitled to
demand payment of the loan extended on the security of the pledge before surrendering the jewelry, upon the assumption
that it had given the loan in good faith and was not a "fence" for stolen articles and had not conspired with the faithless
Josefina Rocco or with Tomasa de Leon. Respondent pawnbroker acted in reckless disregard of that duty in the instant
case and must bear the consequences, without prejudice to its right to recover damages from Josefina Rocco.
The trial court correctly held that private respondent was liable to petitioner for actual damages which corresponded to the
difference in the value of the jewelry (P48,500.00) and the amount of the loan (P22,000.00), or the sum of P26,500.00.
Petitioner is entitled to collect the balance of the value of the jewelry, corresponding to the amount of the loan, in an
appropriate action against Josefina Rocco. Private respondent Long Life in turn is entitled to seek reimbursement from
Josefina Rocco of the amount of the damages it must pay to petitioner.
ACCORDINGLY, the Petition is GRANTED. The Decision of the Court of Appeals dated 23 September 1976 is hereby
REVERSED and SET ASIDE. The Decision of the Court of First Instance dated 22 May 1970 is hereby REINSTATED in
toto. No pronouncement as to costs.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
Footnotes
1
Vda. de Alberto v. Court of Appeals, 173 SCRA 436 (1989).
2
Robleza v. Court of Appeals, 174 SCRA 354 (1989).
3
E.g., People v. Pacabes, 137 SCRA 158 (1985); People vs. Coronado, 145 SCRA 250 (1986).
4
Vda. de Alberto v. Court of Appeals, supra.

5
6

Stronghold Insurance Co., Inc. v. Court of Appeals, 173 SCRA 619 (1989).
Article 21 of the Civil Code provides:
Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.
The problems exemplified in this case are now addressed by P.D. No. 114 entitled the "Pawnshop
Regulation Act," dated 29 January 1973. Section 13 of this statute grants the pawner an automatic grace
period of ninety (90) days from the date of maturity of the obligation, within which to redeem the pawn by
payment of the principal of the debt with interest, principal and interest being compounded at the time the
obligation matured. Under Section 15 of the same statute, the pawnbroker is expressly forbidden to sell or
otherwise dispose of things received in pawn or pledge to anyone other than the pawner, except at public
auction, under the control and direction of a licensed auctioneer, and then only after publication of notice in
at least two (2) daily newspapers during the week preceding the date of such public auction sale. Section
14 expressly requires the pawnbroker to notify the pawner of the date, hour and place of the sale.

G.R. Nos. L-10837-38

May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY. INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co., Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house of strong materials
constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan, Rizal, which they purchased on
installment basis from the Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit rice
from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the
Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed an
alleged chattel mortgage on the aforementioned house in favor of the surety company, which encumbrance was duly
registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time said
undertaking took place, the parcel of land on which the house is erected was still registered in the name of the Philippine
Realty Corporation. Having completed payment on the purchase price of the lot, the Valinos were able to secure
on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on October 24, 1952,
the Valinos, to secure payment of an indebtedness in the amount of P12,000.00, executed a real estate mortgage over the
lot and the house in favor of Isabel Iya, which was duly registered and annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company was compelled to
pay the same pursuant to the undertaking of the bond. In turn, the surety company demanded reimbursement from the
spouses Valino, and as the latter likewise failed to do so, the company foreclosed the chattel mortgage over the house. As
a result thereof, a public sale was conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the
property was awarded to the surety company for P8,000.00, the highest bid received therefor. The surety company then
caused the said house to be declared in its name for tax purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage over the lot covered by
T.C.T. No. 26884 together with the improvements thereon; thus, said surety company instituted Civil Case No. 2162 of the
Court of First Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The
complaint prayed for the exclusion of the residential house from the real estate mortgage in favor of defendant Iya and the
declaration and recognition of plaintiff's right to ownership over the same in virtue of the award given by the Provincial
Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the Court to sentence the
spouses Valino to pay said surety moral and exemplary damages, attorney's fees and costs. Defendant Isabel Iya filed her
answer to the complaint alleging among other things, that in virtue of the real estate mortgage executed by her codefendants, she acquired a real right over the lot and the house constructed thereon; that the auction sale allegedly
conducted by the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house was null
and void for non-compliance with the form required by law. She, therefore, prayed for the dismissal of the complaint and
anullment of the sale made by the Provincial Sheriff. She also demanded the amount of P5,000.00 from plaintiff as
counterclaim, the sum of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and denied the others. They,
however, prayed for the dismissal of the action for lack of cause of action, it being alleged that plaintiff was already the
owner of the house in question, and as said defendants admitted this fact, the claim of the former was already satisfied.

On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company (Civil Case No. 2504
of the Court of First Instance of Manila) stating that pursuant to the contract of mortgage executed by the spouses Valino
on October 24, 1952, the latter undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a
month, which indebtedness was payable in 4 years, extendible for only one year; that to secure payment thereof, said
defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park
Subdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party defendant
because it claimed to have an interest on the residential house also covered by said mortgage; that it was stipulated in the
aforesaid real estate mortgage that default in the payment of the interest agreed upon would entitle the mortgagee to
foreclose the same even before the lapse of the 4-year period; and as defendant spouses had allegedly failed to pay the
interest for more than 6 months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with
interest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the
total obligation as damages, and for costs. As an alternative in case such demand may not be met and satisfied plaintiff
prayed for a decree of foreclosure of the land, building and other improvements thereon to be sold at public auction and
the proceeds thereof applied to satisfy the demands of plaintiff; that the Valinos, the surety company and any other person
claiming interest on the mortgaged properties be barred and foreclosed of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged property would be insufficient to
satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the building, arguing that as the lot on
which the house was constructed did not belong to the spouses at the time the chattel mortgage was executed, the house
might be considered only as a personal property and that the encumbrance thereof and the subsequent foreclosure
proceedings made pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant therefore
prayed that said building be excluded from the real estate mortgage and its right over the same be declared superior to
that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the mortgage upon the land but
assailed the allegation that the building was included thereon, it being contended that it was already encumbered in favor
of the surety company before the real estate mortgage was executed, a fact made known to plaintiff during the preparation
of said contract and to which the latter offered no objection. As a special defense, it was asserted that the action was
premature because the contract was for a period of 4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same on a stipulation of facts, after
which the Court rendered judgment dated March 8, 1956, holding that the chattel mortgage in favor of the Associated
Insurance and Surety Co., Inc., was preferred and superior over the real estate mortgage subsequently executed in favor
of Isabel Iya. It was ruled that as the Valinos were not yet the registered owner of the land on which the building in
question was constructed at the time the first encumbrance was made, the building then was still a personality and a
chattel mortgage over the same was proper. However, as the mortgagors were already the owner of the land at the time
the contract with Isabel Iya was entered into, the building was transformed into a real property and the real estate
mortgage created thereon was likewise adjudged as proper. It is to be noted in this connection that there is no evidence on
record to sustain the allegation of the spouses Valino that at the time they mortgaged their house and lot to Isabel Iya, the
latter was told or knew that part of the mortgaged property, i.e., thehouse, had previously been mortgaged to the surety
company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel Iya, although the latter
could exercise the right of a junior encumbrance. So the spouses Valino were ordered to pay the amount demanded by
said mortgagee or in their default to have the parcel of land subject of the mortgage sold at public auction for the
satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate mortgage; however, as the building
constructed thereon has been the subject of 2 mortgages; controversy arise as to which of these encumbrances should
receive preference over the other. The decisive factor in resolving the issue presented by this appeal is the determination
of the nature of the structure litigated upon, for where it be considered a personality, the foreclosure of the chattel
mortgage and the subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Law would be
valid and the right acquired by the surety company therefrom would certainly deserve prior recognition; otherwise,
appellant's claim for preference must be granted. The lower Court, deciding in favor of the surety company, based its
ruling on the premise that as the mortgagors were not the owners of the land on which the building is erected at the time
the first encumbrance was made, said structure partook of the nature of a personal property and could properly be the
subject of a chattel mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:
. . . while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious
that 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 . . . Moreover, and in view of the absence of any specific provision to the contrary, a building is an
immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to
the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed
belongs to another. To hold it the other way, the possibility is not remote that it would result in confusion, for to cloak the
building with an uncertain status made dependent on the ownership of the land, would create a situation where a
permanent fixture changes its nature or character as the ownership of the land changes hands. In the case at bar, as
personal properties could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in
question is not one, the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it is
true that said document was correspondingly registered in the Chattel Mortgage Register of Rizal, this act produced no
effect whatsoever for where the interest conveyed is in the nature of a real property, the registration of the document in the
registry of chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of strong materials
produce no effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we
give any consideration to the contention of the surety that it has acquired ownership over the property in question by
reason of the sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a chattel
mortgage constituted in his favor, which mortgage has been declared null and void with respect to said real
properties, acquires no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the rights of the surety
company, over the building superior to that of Isabel Iya and excluding the building from the foreclosure prayed for by the
latter is reversed and appellant Isabel Iya's right to foreclose not only the land but also the building erected thereon is
hereby recognized, and the proceeds of the sale thereof at public auction (if the land has not yet been sold), shall be
applied to the unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice to any right that the
Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino on account of the
mortgage of said building they executed in favor of said surety company. Without pronouncement as to costs. It is so
ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia,
JJ., concur.

G.R. No. L-9451

March 29, 1957
OLAF N. BORLOUGH, petitioner,
vs.
FORTUNE ENTERPRISES, INC. and THE HONORABLE COURT OF APPEALS (2nd DIVISION), respondents.
Arturo M. del Rosario and Alfredo G. Fernando for petitioner.
Laurel & Salonga for respondents.
LABRADOR, J.:
Appeal by certiorari against a judgment of the Court of Appeals, Second Division. The facts of the case have been briefly
stated as follows:
On March 8, 1952, the United Car Exchange sold to the Fortune Enterprises, Inc., the following described car
Make:
Chevrolet (1947);
Plate No. 34-1465
Type :
Sedan;
Motor No. EAA-20834 (Exhibit D).
The same car was sold by the Fortune Enterprises, Inc. to one Salvador Aguinaldo, and for not having paid it in
full, the latter executed on the same date a promissory note in the amount of P2,400 payable in 20 installments
including interest thereon at 12 per cent per annum, the last of which installments fell due on January 9, 1953
(Exhibit "A").
To secure the payment of this note, Aguinaldo executed a deed of chattel mortgage over said car. The deed was
duly registered in the office of the Register of Deeds of Manila at 1:12 p.m. on March 11, 1952 (Exhibit "B"). As the
buyer-mortgagor defaulted in the payment of the installments due, counsel for Fortune Enterprises Inc. addressed
a letter on May 16, 1952 (Exhibit "C"), requesting him to make the necessary payment and to keep his account up
to date, to that no court action would be resorted to.
It further appears that the above-described car found its way again into the United Car Exchange which sold the
same in cash for P4,000 to one O. N. Borlough on April 6, 1952. Accordingly, he registered it on the following day
with the Motor Vehicles Office. (Decision, Court of Appeal.).
It also appears from the record that defendant 0. N. Borlough took possession of the vehicle from the time he purchased it,
On July 10, 1952, Fortune Enterprises, Inc. brought action against Salvador Aguinaldo to recover the balance of the
purchase price. Borlough filed a third-party complaint, claiming the vehicle. Thereupon, Fortune Enterprises, Inc. amended

its complaint, including Borlough as a defendant and alleging that he was in connivance with Salvador Aguinaldo and was
unlawfully hiding and concealing the vehicle in order to evade seizure by judicial process. Borlough answered alleging that
he was in legal possession thereof, having purchased it in good faith and for the full price of P4,000, and that he had a
certificate of registration of the vehicle issued by the Motor Vehicles Office, and he prayed for the dismissal of the
complaint, the return of the vehicle and for damages against the plaintiff.
The vehicle was seized by the sheriff of Manila on August 4, 1952 and was later sold at public auction. The Court of First
Instance rendered judgment in favor of Borlough, and against plaintiff, ordering the latter to pay Borlough the sum of
P4,000, with interest at 6 per cent per annum, from the date of the seizure of the car on August 4, 1952, and in addition
thereto, attorney's fees in the sum of P1,000.
Upon appeal to the Court of Appeals, this court rendered judgment ordering that Emil B. Fajardo pay Borlough P4,000 plus
attorney's fees and that plaintiff pay to Borlough any amount received by it in excess of its credits and judicial expenses.
The reason for the modification of the judgment is that the mortgage was superior, being prior in point of time, to whatever
rights may have been acquired by Borlough by reason of his possession and by the registration of his title in the Motor
Vehicle Office.
The question involved in the appeal in this case is one of law and may be stated thus: As between a prior mortgage
executed over a motor vehicle, registered under the Chattel Mortgage Law only, without annotation thereof in the Motor
Vehicles Office, and a subsequent registration of the vehicle in the Motor Vehicles Office accompanied by actual
possession of the motor vehicle, which should prevail. While the question can be resolved by the general principles found
in the Civil Code and expressly stated in Article 559, there is no need resorting thereto (the general principles) in view of
the express provisions of the Revised Motor Vehicles Law, which expressly and specifically regulate the registration, sale
or transfer and mortgage of motor vehicles. The following provisions of said law may help decide the legal question now
under consideration:
SEC. 5 (c) Reports of motor vehicle sales. On the first day of each month, every dealer in motor vehicles shall
furnish the Chief of the Motor Vehicles Office a true report showing the name and address of each purchase of a
motor vehicle during the previous month and the manufacturer's serial number and motor number; a brief
description of the vehicle, and such other information as the Chief of the Motor Vehicles Office may require.
SEC. 5 (e) Report of mortgages. Whenever any owner hypothecates or mortgage any motor vehicle as surety
for a debt or other obligation, the creditor or person in whose favor the mortgage is made shall, within seven days,
notify the Chief of the Motor Vehicles Office in writing to the effect, stating the registration number of the motor
vehicle, date of mortgage, names and addresses of both parties, and such other information as the Chief of the
Motor Vehicles Office may require. This notice shall be signed jointly by the parties to the mortgage.
On termination, cancellation or foreclosure of the mortgage, a similar written notice signed by both parties, shall be
forwarded to the Chief of the Motor Vehicles Office by the owner.
These notice shall be filed by the Chief of the Motor Vehicles Office in the motor records, and in the absence of
more specific information, shall be deemed evidence of the true status of ownership of the motor vehicle. (Revised
Motor Vehicles Law.)
It is to be noted that under section 4 (b) of the Revised Motor Vehicles Law the Chief of the Motor Vehicles Office is
required to enter or record, among other things, transfers of motor vehicles "with a view of making and keeping the same
and each all of them as accessible as possible to and for persons and officers properly interested in the same," and to
"issue such reasonable regulations governing the search and examination of the documents and records . . . as will be
consistent with their availability to the public and their safe and secure prevention."
Two recording laws are here being invoked, one by each contending party the Chattel Mortgage Law (Act No. 1508), by
the mortgagor and the Revised Motor Vehicles Law (Act No. 3992), by a purchaser in possession. What effect did the
passenger of the Revised Motor Vehicles Law have on the previous enactment?
The Revised Motor Vehicles Law is a special legislation enacted to "amend and compile the laws relative to motor
vehicles," whereas the Chattel Mortgage Law is a general law covering mortgages of all kinds of personal property. The
former is the latest attempt to assemble and compile the motor vehicle laws of the Philippines, all the earlier laws on the
subject having been found to be very deficient in form as well as in substance (Villar and De Vega, Revised Motor Vehicles
Law, p. 1); it had been designed primarily to control the registration and operation of motor vehicles (section 2, Act No.
3992).
Counsel for petitioner contends that the passage of the Revised Motor Vehicles Law had the effect of repealing the Chattel
Mortgage Law, as regards registration of motor vehicles and of the recording of transaction affecting the same. We do not
believe that it could have been the intention of the legislature to bring about such a repeal. In the first place, the provisions
of the Revised Motor Vehicles Law on registration are not inconsistent with does of the Chattel Mortgage Law. In the
second place, implied repeals are not favored; implied repeals are permitted only in cases of clear and positive
inconsistency. The first paragraph of section 5 indicates that the provisions of the Revised Motor Vehicles Law regarding
registration and recording of mortgage are not incompatible with a mortgage under the Chattel Mortgage Law. The section
merely requires report to the Motor Vehicles Office of a mortgage; it does not state that the registration of the mortgage

under the Chattel Mortgage Law is to be dispensed with. We have, therefore, an additional requirements in the Revised
Motor Vehicles Law, aside from the registration of a chattel mortgage, which is to report a mortgage to the Motor Vehicles
Office, if the subject of the mortgage is a motor vehicle; the report merely supplements or complements the registration.
The recording provisions of the Revised Motor Vehicles Law, therefore, are merely complementary to those of the Chattel
Mortgage Law. A mortgage in order to affect third persons should not only be registered in the Chattel Mortgage Registry,
but the same should also be recorded in the motor Vehicles Office as required by section 5 (e) of the Revised Motor
Vehicles Law. And the failure of the respondent mortgage to report the mortgage executed in its favor had the effect of
making said mortgage ineffective against Borlough, who had his purchase registered in the said Motor Vehicles Office.
On failure to comply with the statute, the transferee's title is rendered invalid as against a subsequent purchaser
from the transferor, who is enabled by such failure of compliance to retain the indicia of ownership, such as a
subsequent purchaser in good faith, or a purchaser from a conditional buyer in possession; and the lien of a
chattel mortgage given by the buyer to secure a purchase money loan never becomes effective in such case as
against an innocent purchaser. (60 Corpus Juris Secundum, p. 171.)
One holding a lien on a motor vehicle, in so far as he can reasonably do so, must protect himself and others
thereafter dealing in good faith by complying and requiring compliance with the provisions of the laws concerning
certificates of title to motor vehicles, such as statutes providing for the notation of liens or claims against the motor
vehicle certificate of title or manufacturer's certificate, or for the issuance to the mortgagee of a new certificate of
ownership. Where the lien holder has satisfied himself that the existence of the lien is recited in the certificate of
title, he has done all that the law contemplates that he should do, and there is notice to the public of the existing
lien, which continues valid until the record shows that it has been satisfied and a new certificate issued on legal
authority, even through another certificate which does not disclose the lien is procured as the result of false
statements made in the application therefore, and the vehicle is purchased by a bona fide purchaser.
The holder of a lien who is derelict in his duty to comply and require compliance with the statutory provisions acts
at his own peril, and must suffer the consequence of his own negligence; and accordingly, he is not entitled to the
lien as against a subsequent innocent purchaser filed as provided by other chattel mortgage statutes. The rule is
otherwise, however, as against claimants not occupying the position of innocent purchaser, such as a judgment
creditor, or one acquiring title with actual notice of an unregistered lien, and the statutes do not protect a purchaser
holding under registered title if a link in the title is forgery. Moreover, such statute will not impair vested rights of a
mortgage under a chattel mortgage duly recorded. (60 C.J.S., pp. 181-182.)
The above authorities leave no room for doubt that purchaser O. N. Borlough's right to the vehicle as against the previous
and prior mortgage Fortune Enterprises, Inc., which failed to record its lien in accordance with the Revised Motor Vehicles
Law, should be upheld.
For the foregoing consideration, the judgment of the Court of Appeals is hereby reversed and that of the Court of First
Instance affirmed, with costs against respondent.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.
G.R. No. L-13194
January 29, 1960
BUENAVENTURA T. SALDANA, plaintiff-appellant,
vs.
PHILIPPINE GUARANTY COMPANY, INC., et al., defendants-appellees.
Gatchalian & Padilla for appellant.
Emiliano Tabasondra for appellee Company.Teodoro Padilla for the other appellees.
REYES, J.B.L., J.:
This case arose from a complaint for damages filed by Buenaventura Saldana (docketed as Civil Case No. 32703 of the
Court of First Instance of Manila) that was dismissed by order of the Court dated August 20, 1957, for lack of sufficient
cause of action. In another order of September 30, 1957 of the same court, plaintiff's motion for reconsideration was
denied, and the case was appealed to this Court.
The facts are that on May 8, 1953, in order to secure an indebtedness of P15,000.00, Josefina Vda. de Aleazar executed
in favor of the plaintiff-appellant Buenaventura Saldana a chattel mortgage covering properties described as follows:
A building of strong materials, used for restaurant business, located in front of the San Juan de Dios Hospital at
Dewey Boulevard, Pasay City, and the following personal properties therein contained:
1 Radio, Zenith, cabinet type.
1 Cooler.
1 Electric range, stateside, 4 burners.
1 Frigidaire, 8 cubic feet.
1 G.E. Deepfreezer.
8 Tables, stateside.
32 Chromium chairs, stateside.
1 Sala set upholstered, 6 pieces.

1 Bedroom set, 6 pieces.

And all other furniture's, fixtures or equipment found in the said premises.
Subsequent to the execution of said mortgage and while the same was still in force, the defendant Hospital de San Juan
de Dios, Inc. obtained, in Civil Case No. 1930 of the Municipal Court of Pasay City, a judgment was duly Josewfina Vda.
de Eleazar. A writ of execution was duly issued and, on January 28, 1957, the same was served on the judgment debtor
by the sheriff of Pasay City; whereupon the following properties of Josefina Eleazar were levied upon:
8 Tables with 4 (upholstered) chairs each.
1 Table with 4 (wooden) chairs.
1 Table (large) with 5 chairs.
1 Radio-phono (Zenith, 8 tubes).
2 Showcases (big, with mirrors).
1 Rattan sala set with 4 chairs, 1 table and 3 sidetables .
1 Wooden drawer.
1 Tocador (brown with mirror).
1 Aparador .
2 Beds (single type).
1 Freezer (deep freeze).
1 Gas range (magic chef, with 4 burners).
1 Freezer (G.E.).
On January 31, 1957, the plaintiff-appellant Saldana filed a third-party claim asserting that the above-described properties
levied are subject to his chattel mortgage of May 8, 1953. In virtue thereof, the sheriff released only some of the property
originally included in the levy of January 28, 1957, to wit:
1 Radio, Zenith, cabinet type.
8 Tables, stateside.
32 Chromiun chairs, stateside.
1 G.E. Deep freezer.
To proceed with the execution sale of the rest of the properties still under levy, the defendants-appellees Hospital de San
Juan de Dios, Inc. and the Philippine Guaranty Co., Inc., executed an indemnity bond to answer for any damages that
plaintiff might suffer. Accordingly, on February 13, 1957, the said properties were sold to the defendant hospital as the
highest bidder, for P1,500.00.
Appellants claims that the phrase in the chattel mortgage contract "and all other furnitures, fixtures and equipment
found in the said premises", validly and sufficiently covered within its terms the personal properties disposed of in the
auction sale, as to warrant an action for damages by the plaintiff mortgagee.
There is merit in appellant's contention. Section 7 of Act No. 1508, commonly and better known as the Chattel Mortgage
Law, does not demand a minute and specific description of every chattel mortgaged in the deal of mortgage but only
requires that the description of the properties be such "as to enable the parties in the mortgage, or any other person, after
reasonable inquiry and investigation to identify the same". Gauged by this standard, general description have been held
by this Court. (See Stockholder vs. Ramirez, 44 Phil., 993; Pedro de Jesus vs.Guam Bee Co., Inc., 72 Phil., 464).
A similar rule obtains in the United States courts and decisions there have repeatedly upheld clauses of general import in
mortgages of chattels other than goods for trade, and containing expressions similar to that of the contract now before us.
Thus, "and all other stones belonging to me and all other goods and chattels" (Russel vs. Winne, 97 Am. Dec. 755); "all of
the property of the said W.W. Allen used or situated upon the leased premises" (Dorman vs.Crooks State Bank, 64 A.L.R.
614); "all goods in the store where they are doing business in E. City, N.C." (Davis vs. Turner, 120 Fed. 605); "all and
singular the goods, wares, stock, iron tools manufactured articles and property of every description, being situated in or
about the shop or building now occupied by me in Howley Stree" (Winslow vs. Merchants Ins. Co., 38 Am. Dec. 368,) were
held sufficient description, on the theory that parol evidence could supplement it to render identification rule is expressed
in Walker vs. Johnson (Mont.) 1254 A.L.R. 937:
The courts and textbook writers have developed several rules for determination of the sufficiency of the description
in a chattel mortgage. The rules are general in nature and are different where the controversy is between the
parties to the mortgage from the situation where third parties with out actual notice come in. In 11 C.J. 457, it is
said: "Ad against third persons the description in the mortgage must point out its subject matter so that such
person may identify the chattels observed, but it is not essential that the description be so specific that the property
may be identified by it alone, if such description or means of identification which, if pursued will disclose the
property conveyed." In 5 R.C.L. 423 the rule is stated that a description which will enable a third person, aided by
inquires which the instrument itself suggest to identify the property is sufficiently definite." In 1 Jones on Chattel
Mortgages and Conditional Sales, Bowers Edition, at page 95 the writer says: "As to them (third persons), the
description is sufficient if it points to evidence whereby the precise thing mortgaged may be ascertained with
certainty." Here there is nothing in the description "873 head of sheep" from which anyone, the mortgagee or third
persons, could ascertain with any certainty what chattels were covered by the mortgage.

In many instances the courts have held the description good where, though otherwise faulty, the mortgage explicity
states that the property is in the possession of the mortgagor, and especially where it is the only property of that
kind owned by him.
The specifications in the chattel mortgage contract in the instant case, we believe, in substantial compliance with the
"reasonable description rule" fixed by the chattel Mortgage Act. We may notice in the agreement, moreover, that the
phrase in question is found after an enumeration of other specific articles. It can thus be reasonably inferred therefrom that
the "furnitures, fixture and equipment" referred to are properties of like nature, similarly situated or similarly used in the
restaurant of the mortgagor located in front of the San Juan de Dos Hospital at Dewey Boulevard, Pasay City, which
articles can be definitely pointed out or ascertain by simple inquiry at or about the premises. Note that the limitation found
in the last paragraph of section 7 of the Chattel Mortgage Law1 on "like or subsituated properties" make reference to those
"thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged", not to
those already existing and originally included at the date of the constitution of the chattel mortgage. A contrary view would
unduly impose a more rigid condition than what the law prescribes, which is that the description be only such as to enable
identification after a reasonable inquiry and investigation.
The case of Giberson vs. A.N. Jureidini Bros., 44 Phil., 216, 219, cited by the appellees and the lower court, cannot be
likened to the case at bar, for there, what were sought to be mortgaged included two stores wit all its merchandise, effects,
wares, and other bazar goods which were being constantly disposed of and replaced with new supplies in connection with
the business, thereby making any particular or definite identification either impractical or impossible under the
circumstances. Here, the properties deemed overed were more or less fixed, or at least permanently situated or used in
the premises of the mortgagor's restaurant.
The rule in the Jureidini case is further weakened by the court's observation that (44 Phil., p. 220)
Moreover, if there should exist any doubts on the questions we have just discussed, they should be treshed out in
the insolvency proceedings,
which appears inconsistent with the definitive character of the rulings invoked.
We find that the ground for the appealed order (lack of cause of action) does not appear so indubitable as to warrant a
dismissal of the action without inquiry into the merits and without the description in the deed of mortgage (Nico vs.Blanco,
81 Phil., 213; Zobel vs. Abreau, 52 Off. Gaz., 3592).
Wherefore, the orders appealed from are set aside and the case remanded to the lower court for further proceedings.
Costs against appellee.
Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera and Gutierrez David,
J., concur.
Footnotes
1
"A chattel mortage shall be deem to cover only the property prescribed therein and not like or substituted property
thereafter acquired by the mortgagor and place in the same depository as the property originally mortgaged,
anything in the mortgage to the contrary notwithstanding."
G.R. No. 103576. August 22, 1996]
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 pesos
(P3,000,000.00). A provision in the chattel mortgage agreement was to this effect "(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations abovestated 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 renewal of the former note, as an extension
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 shall also stand as security for the payment of the said
promissory note or notes and/or accommodations without the necessity of executing 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 thereof. 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 contracted before, during or after the constitution of this mortgage." [1]
In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from
respondent bank additional financial accommodations totalling P2,700,000.00. [2] 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 each. Due to financial constraints, the loan was not
settled at maturity.[3] 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. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel
mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals [4] which, on 14 August 1991, affirmed, "in all respects," the
decision of the court a quo.The motion for reconsideration was denied on 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. 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 granted a second motion for reconsideration, thereby reinstating the petition and
requiring private respondent to comment thereon. [5]
Except in criminal cases where the penalty of reclusion perpetua or death is imposed[6] 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. 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 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, the Court is constrained to relax the rules in order to
give way to and uphold the paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a 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 deed substantially in the 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 credit - upon the essential
condition that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation, [7] but that should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character [8] 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.[9]
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as
these future debts are accurately described, [10] a chattel mortgage, however, can only cover obligations existing at the time
the mortgage is constituted. Although a promiseexpressed 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
Mortgage Law.[11] Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred 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 the parties (not
against third persons acting in good faith[12]), 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 into for the purpose of fraud." [13]
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. InBelgian Catholic Missionaries, Inc., vs.
Magallanes Press, Inc., et al.,[14] the Court said "x x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are
made and not from the date of the mortgage."[15]
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist
coincidentally with the full payment of the P3,000,000.00 loan, [16] 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 of the unlawful action taken by respondent bank
against it."[17] This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way
of moral damages.[18] In LBC Express, Inc. vs. Court of Appeals,[19] 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, and griefs of
life - all of which cannot be suffered by respondent bank as an artificial person." [20]
While Chua Pac is included in the case, the complaint, however, clearly states that 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 petition his so-called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the trial 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-settled 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 jurisdiction."[21] (Italics supplied.)
The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. Villamor;[22] thus:
"(L)awyers x x x should bear in mind 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 respectful 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.
[G.R. No. 106435. July 14, 1999]

PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY R.
PULIDO,petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE
PHILIPPINES, respondents.
DECISION
GONZAGA-REYES, J.:
Before Us for review on certiorari is the decision of the respondent Court of Appeals in CA G.R. CV No. 27861, promulgated on
April 23, 1992,[1] affirming in toto the decision of the Regional Trial Court of Makati [2] to award respondent banks deficiency claim,
arising from a loan secured by chattel mortgage.
The antecedents of the case are as follows:
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 PAMECAs 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 PAMECAs 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 of P4,366,332.46 [3] with Branch 132 of the Regional Trial Court of
Makati City against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the promissory note.
On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which we reproduce as
follows:
WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1) sum of
P4,366,332.46 representing the deficiency claim of the latter as of March 31, 1984, plus 21% interest per annum and other charges
from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit. SO ORDERED.[4]
The Court of Appeals affirmed the RTC decision. Hence, this Petition.
The petition raises the following grounds:
1. Respondent appellate court gravely erred in not reversing the decision of the trial court, and in not holding that the public auction
sale of petitioner PAMECAs chattels were tainted with fraud, as the chattels of the said petitioner were bought by private respondent as
sole bidder in only 1/6 of the market value of the property, hence unconscionable and inequitable, and therefore null and void.
2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the
spirit of the law, and taking into consideration the fact that the contract of loan was a contract of adhesion.
3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria Teves and Hiram Diday R. Pulido solidarily
liable with PAMECA Wood Treatment Plant, Inc. when the intention of the parties was that the loan is only for the corporations
benefit.
Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent bank bid for and purchased
the mortgaged properties was unconscionable and inequitable considering that, at the time of the public sale, the mortgaged properties
had a total value of more than P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31, 1980 [5],
which valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage contract [6] between the parties that
required that the inventories be maintained at a level no less than P2 million. Petitioners argue that respondent banks act of bidding and
purchasing the mortgaged properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole
bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the annulment of the auction sale.
To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were not in fact submitted as
evidence before the RTC of Makati, and that these documents were first produced by petitioners only when the case was brought to the
Court of Appeals.[7] The Court of Appeals, in turn, disregarded these documents for petitioners failure to present them in evidence, or
to even allude to them in their testimonies before the lower court. [8] Instead, respondent court declared that it is not at all unlikely for
the chattels to have sufficiently deteriorated as to have fetched such a low price at the time of the auction sale. [9] Neither did respondent
court 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.[10]
Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners, officers and stockholders
of petitioner PAMECA, liable with PAMECA for the obligation under the loan obtained from respondent bank, contrary to the doctrine

of separate and distinct corporate personality.[11] Private petitioners contend that they became signatories to the promissory note only as
a matter of practice by the respondent bank, that the promissory note was in the nature of a contract of adhesion, and that the loan was
for the benefit of the corporation, PAMECA, alone.[12]
Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484 [13] and 2115[14] of the Civil
Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim. [15]
Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattel mortgage. In the
leading case of Ablaza vs. Ignacio[16], the lower court dismissed the complaint for collection of deficiency judgment in view of Article
2141 of the Civil Code, which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as
they are not in conflict with the Chattel Mortgage Law. It was the lower courts opinion that, by virtue of Article 2141, the provisions of
Article 2115 which deny the creditor-pledgee the right to recover deficiency in case the proceeds of the foreclosure sale are less than
the amount of the principal obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage Law regarding the effects
of foreclosure of chattel mortgage, being contrary to the provisions of Article 2115, Article 2115 in relation to Article 2141, may not be
applied to the case.
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
xxx
The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of
the Registry of Deeds where the mortgage is recorded, and the Register of Deeds shall record the same. The fees of the officer for
selling the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety, and the
amendments thereto, and the fees of the Register of Deeds for registering the officers return shall be taxed as a part of the costs of sale,
which the officer shall pay to the Register of Deeds. The return shall particularly describe the articles sold, and state the amount
received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall
be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation
secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance,
after paying the mortgage, shall be paid to the mortgagor or persons holding under him on demand. (Emphasis supplied)
It is clear from the above provision that 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 of the 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 explained
in Manila Trading and Supply Co. vs. Tamaraw Plantation Co.[17], cited in Ablaza vs. Ignacio, supra:
While it is true that section 3 of Act No. 1508 provides that a chattel mortgage is a conditional sale, it further provides that it is a
conditional sale of personal property as security for the payment of a debt, or for the performance of some other obligation specified
therein. The lower court overlooked the fact that the chattels included in the chattel mortgage are only given as security and not as a
payment of the debt, in case of a failure of payment.
The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage, given as security,
should sell for more than the amount of the indebtedness secured, that the creditor would be entitled to the full amount for which it
might be sold, even though that amount was greatly in excess of the indebtedness. Such a result certainly was not contemplated by the
legislature when it adopted Act No. 1508. There seems to be no reason supporting that theory under the provision of the law. The value
of the chattels changes greatly from time to time, and sometimes very rapidly. If, for example, the chattels should greatly increase in
value and a sale under that condition should result in largely overpaying the indebtedness, and if the creditor is not permitted to retain
the excess, then the same token would require the debtor to pay the deficiency in case of a reduction in the price of the chattels
between the date of the contract and a breach of the condition.
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattel mortgages, have said, that
in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action
for the deficiency, if any should occur. And the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of
the debt, to any greater extent than the value of the property at the time of the sale. The amount received at the time of the sale, of
course, always requiring good faith and honesty in the sale, is only a payment, pro tanto, and an action may be maintained for a
deficiency in the debt.
We find no reason to disturb the ruling in Ablaza vs. Ignacio, and the cases reiterating it [18]
Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case. 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 vendees failure to pay cover two or
more installments, this provision is specifically applicable to a sale on installments.
To accommodate petitioners prayer even on the basis of equity would be to expand the application of the provisions of Article
1484 to situations beyond its specific purview, and ignore the language and intent of the Chattel Mortgage Law. Equity, which has
been aptly described as justice outside legality, is applied only in the absence of, and never against, statutory law or judicial rules of
procedure.[19]
We are also unable to find merit in petitioners submission that the public auction sale is void on grounds of fraud and inadequacy
of price. Petitioners never assailed the validity of the sale in the RTC, and only in the Court of Appeals did they attempt to prove
inadequacy of price through the documents, i.e., the Open-End Mortgage on Inventory and inventory dated March 31, 1980, likewise
attached to their Petition before this Court. Basic is the rule that parties may not bring on appeal issues that were not raised on trial.
Having nonetheless examined the inventory and chattel mortgage document as part of the records, We are not convinced that they
effectively prove that the mortgaged properties had a market value of at least P2,000,000.00 on January 18, 1984, the date of the
foreclosure sale. At best, the chattel mortgage contract only indicates the obligation of the mortgagor to maintain the inventory at a
value of at least P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, was as of March 31, 1980, or even
prior to April 17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage, and is far from being an
accurate estimate of the market value of the properties at the time of the foreclosure sale four years thereafter. Thus, even assuming
that the inventory and chattel mortgage contract were duly submitted as evidence before the trial court, it is clear that they cannot
suffice to substantiate petitioners allegation of inadequacy of price.
Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in the public sale does not
warrant the conclusion that the transaction was attended with fraud. Fraud is a serious allegation that requires full and convincing
evidence,[20] and may not be inferred from the lone circumstance that it was only respondent bank that bid in the sale of the foreclosed
properties. The sparseness of petitioners evidence in this regard leaves Us no discretion but to uphold the presumption of regularity in
the conduct of the public sale.
We likewise affirm private petitioners joint and several liability with petitioner corporation in the loan. As found by the trial court
and the Court of Appeals, the terms of the promissory note unmistakably set forth the solidary nature of private petitioners
commitment. Thus:
On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, INC., a corporation organized and existing
under the laws of the Philippines, with principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to the
order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner Buendia and Makati Avenues, Makati, Metro
Manila, the principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US
DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%) per annum over DBPs borrowing rate for these
funds. Before the date of maturity, we hereby bind ourselves, jointly and severally, to make partial payments as follows:
xxx
In case of default in the payment of any installment above, we bind ourselves to pay DBP for advances xxx
xxx
We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows:
xxx
"In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes xxx
xxx
"We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings
from where the loan shall be drawn xxx
xxx
In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on
account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the
DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its attorneys, we jointly and severally bind

ourselves to pay for attorneys fees as provided for in the mortgage contract, in addition to the legal fees and other incidental
expenses. In the event of foreclosure of the mortgage securing this note, we further bind ourselves jointly and severally to pay the
deficiency, if any. (Emphasis supplied)[21]
The promissory note was signed by private petitioners in the following manner:
PAMECA WOOD TREATMENT PLANT, INC.
By:
(Sgd) HERMINIO G. TEVES
(For himself & as President of above-named corporation)
(Sgd) HIRAM DIDAY PULIDO
(Sgd) VICTORIA V. TEVES[22]
From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with petitioner PAMECA in the
loan. As correctly submitted by respondent bank, private petitioners are not made to answer for the corporate act of petitioner
PAMECA, but are made liable because they made themselves co-makers with PAMECA under the promissory note.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April 23, 1992 in
CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
RIZAL
COMMERCIAL
CORPORATION,
Petitioner,

BANKING

- versus ROYAL CARGO CORPORATION,

Respondent.

G.R. No. 179756

Present:
YNARES-SANTIAGO, *
CARPIO MORALES,**
Acting Chairperson,
PERALTA,***
DEL CASTILLO, and
ABAD, JJ.

Promulgated:
October 2, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
Terrymanila, Inc.[1] (Terrymanila) filed a petition for voluntary insolvency with the Regional Trial Court (RTC) of
Bataan on February 13, 1991.[2] One of its creditors was Rizal Commercial Banking Corporation (petitioner) with which it had an
obligation of P3 Million that was secured by a chattel mortgage executed on February 16, 1989. The chattel mortgage was duly
recorded in the notarial register of Amado Castano, a notary public for and in the Province of Bataan.[3]
Royal Cargo Corporation (respondent), another creditor of Terrymanila, filed an action before the RTC of Manila for
collection of sum of money and preliminarily attached some of Terrymanilas personal properties on March 5, 1991 to secure the
satisfaction of a judgment award of P296,662.16, exclusive of interests and attorneys fees.[4]
On April 12, 1991, the Bataan RTC declared Terrymanila insolvent.
On June 11, 1991,[5] the Manila RTC, by Decision of even date, rendered judgment in the collection case in favor of
respondent.
In the meantime, petitioner sought in the insolvency proceedings at the Bataan RTC permission to extrajudicially foreclose the
chattel mortgage which was granted by Order of February 3, 1992.[6] It appears that respondent, together with its employees union,
moved to have this Order reconsidered but the motion was denied by Order of March 20, 1992 Order.[7]
The provincial sheriff of Bataan thereupon scheduled on June 16, 1992 the public auction sale of the mortgaged personal
properties at the Municipal Building of Mariveles, Bataan. At the auction sale, petitioner, the sole bidder of the properties, purchased
them for P1.5 Million. Eventually, petitioner sold the properties to Domingo Bondoc and Victoriano See.[8]

Respondent later filed on July 30, 1992 a petition before the RTC of Manila, docketed as Civil Case No. 92-62106, against the
Provincial Sheriff of the RTC Bataan and petitioner, for annulment of the auction sale (annulment of sale case). Apart from questioning
the inclusion in the auction sale [9] of some of the properties which it had attached, respondent questioned the failure to duly notify it of
the sale at least 10 days before the sale, citing Section 14 of Act No. 1508 or the Chattel Mortgage Law which reads:
Sec. 14. The mortgagee, his executor, administrator or assign, may, after thirty days, from the time of
condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at
a public place in the municipality where the mortgagor resides, or where the property is situated, provided at least ten
days notice of the time, place, and purpose of such sale has been posted at two or more public places in such
municipality, and the mortgagee, his executor, administrator or assignee shall notify the mortgagor or person
holding under him and the persons holding subsequent mortgages of the time and place of sale, either by notice
in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not reside in
such municipality, at least ten days previous to the date. (Emphasis and underscoring supplied),
it claiming that its counsel received a notice only on the day of the sale.[10]
Petitioner, alleging that the annulment of sale case filed by respondent stated no cause of action, filed on December 3, 1992 a
Motion to Dismiss[11] which was, however, denied by Branch 16 of the Manila RTC.[12]
Petitioner appealed the denial of the Motion to Dismiss via certiorari to the Court of Appeals, docketed as CA-G.R. SP No.
31125.The appellate court dismissed the petition, by Decision of February 21, 1994, it holding that respondents petition for
annulment prima faciestates a sufficient cause of action and that the [trial court] in denying [herein petitioner RCBCs] motion to
dismiss, had acted advisedly and well within its powers and authority.[13]
Petitioner thereupon filed before the Manila RTC its Answer Ex Abundante Cautelam[14] in the annulment of sale case in which
it lodged a Compulsory Counterclaim by seeking P1 Million for moral damages, P500,000 for exemplary damages, and P250,000 for
attorneys fees. It thereafter elevated the case to this Court via petition for review on certiorari, docketed as G.R. 115662. This Court
by minute Resolution of November 7, 1994,[15] denied the petition for failure to show that a reversible error was committed by the
appellate court.[16]
Trial on the merits of the annulment of sale case thereupon ensued. By Decision[17] of October 15, 1997, Branch 16 of the
Manila RTC rendered judgment in favor of respondent, disposing as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. ORDERING . . . RCBC to pay plaintiff [heein respondent Royal Cargo] the amount of P296,662.16
and P8,000.00 as reasonable attorneys fees.
2. No pronouncement as to costs.
3. DISMISSING the petition as to respondents Provincial Sheriff of Balanga, Bataan RTC;
SO ORDERED.
Both parties appealed to the Court of Appeals which, by Decision [18] of April 17, 2007, denied herein petitioners appeal and
partly granted herein respondents by increasing to P50,000 the attorneys fees awarded to it and additionally awarding it exemplary
damages and imposing interest on the principal amount payable to it. Thus it disposed:
WHEREFORE, the foregoing considered, the appeal instituted by appellant RCBC is hereby DENIED for
lack of merit while the appeal of appellant Royal Cargo is PARTLY GRANTED in that the amount of attorneys fees
awarded by the RTC is increased to P50,000.00.
In addition, RCBC is ordered to pay Royal Cargo the amount of P100,000.00 as exemplary
damages. The principal amount of P296,662.18 [sic] to be paid by RCBC to Royal Cargo shall likewise earn 12%
interest per annum from the time the petition was filed in the court a quo until fully paid. The rest of the decision is
AFFIRMED.
SO ORDERED. (Emphasis and underscoring supplied)

In partly granting respondents appeal from the Decision of Br. 16 of RTC Manila, the appellate court ratiocinated that
respondent had a right to be timely informed of the foreclosure sale.
RCBCs citations [sic] of numerous rulings on the matter more than supports the fact that as mortgagee, it had
preferential right over the chattels subject of the foreclosure sale. This however is not at issue in this case. What is
being contested is the right of Royal Cargo to be timely informed of the foreclosure sale as it too had interests over
the mortgagee Terrymanila, Inc.s assets. We note that this matter had already been passedupon by this Court on
February 21, 1994 in CA-G.R. SP No. 31125 as well as by the Supreme Court on November 7, 1994 in G.R. No.
[1]15662.RCBC, by arguing about its preferential right as mortgagee in the instant appeal merely reiterates what
had already been considered and ruled uponin earlier proceedings.
xxxx
Moreover, Section 14 of the Chattel Mortgage Law pertaining to the procedure in the foreclosure of
chattel mortgages provides, to wit:
xxxx
The above-quoted provision clearly requires that the mortgagee should notify in writing the mortgagor
or person holding under him of the time and place of the sale by personal delivery of the notice. Thus, RCBCs
failure to comply with this requirement warranted a ruling against it by the RTC. (Italics in the original; emphasis
partly in the original; underscoring supplied)
Its motion for reconsideration having been denied by the appellate court, [19] petitioner lodged the present petition for review
which raises the following issues:
I
WHETHER OR NOT RESPONDENT SHOULD HAVE BEEN GIVEN A TEN(10)-DAY PRIOR NOTICE OF
THE JUNE 16, 1992FORECLOSURE SALE
II
WHETHER OR NOT THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN
DECLARING PETITIONER GUILTY OF CONSTRUCTIVE FRAUD IN FAILING TO PROVIDE RESPONDENT
A TEN (10)-DAY PRIOR NOTICE OF THE FORECLOSURE SALE.
III
WHETHER OR NOT THE PETITIONER WAS CORRECTLY HELD LIABLE TO PAY RESPONDENT P296,662.
[16] PLUS INTERESTTHEREON, EXEMPLARY DAMAGES AND ATTORNEYS FEES.
IV
WHETHER OR NOT PETITIONER IS ENTITLED TO AN AWARD OF ATTORNEYS FEES.[20] (Underscoring
supplied)
Petitioner faults the appellate court in applying res judicata by holding that respondents entitlement to notice of the auction
sale had already been settled in its Decision in CA G.R. SP No. 31125 and in this Courts Decision in G.R. No. 115662. For, so it
contends, the decisions in these cases dealt on interlocutory issues, viz: the issue of whether respondents petition for annulment of the
sale stated a cause of action, and the issue of whether petitioners motion to dismiss was properly denied.[21]
Arguing against respondents position that it was entitled to notice of the auction sale, petitioner cites the Chattel Mortgage
Law which enumerates who are entitled to be notified under Section 14 thereof. It posits that [h]ad the law intended to include in said
Section an attaching creditor or a judgment creditor [like herein respondent], it could have so specifically stated therein, since in the
preceding section, Section 13, it already mentioned that a subsequent attaching creditor may redeem. [22]
Petitioner goes on to fault the appellate court in echoing its ruling in CA-G.R. SP No. 31125 that Sections 13[23] and 14 of
the Chattel Mortgage Law should be read in tandem since the right given to the attaching creditor under Section 13 would not serve its

purpose if we were to exclude the subsequent attaching creditor from those who under Section 14 need to be notified of the foreclosure
sale ten days before it is held.[24]
Petitioner likewise posits that Section 13 permits a subsequent attaching creditor to redeem the mortgage only before the
holding of the auction sale, drawing attention to Paray v. Rodriguez[25] which instructs that no right of redemption exists
over personal property as theChattel Mortgage Law is silent thereon.[26]
Even assuming arguendo, petitioner contends, that there exists an obligation to furnish respondent a notice of the auction sale
10 days prior thereto, respondents judgment award of P296,662.16 with interest thereon at the legal rate from the date of filing of the
[c]omplaint andP10,000.00 as reasonable attorneys fees is very much less than the P1.5 [m]illion bid of petitioner [27]
As for the issue of constructive fraud-basis of the award of damages to respondent, petitioner maintains that both the trial and
appellate courts erred in concluding that it (petitioner) was the one which sent the notice of sheriffs sale to, which was received on the
day of the sale by, the counsel for respondent for, so it contends, it had absolutely no participation in the preparation and sending of
such notice.[28]
In its Comment,[29] respondent reiterates that the respective decisions of the appellate court and this Court in CA G.R. SP No.
31125and G.R. No. 115662 are conclusive between the parties, hence, the right of [respondent] to a [ten-day] notice has a binding
effect and must be adopted in any other controversy between the same parties in which the very same question is raised. [30]
And respondent maintains that the obligation to notify the mortgagor or person holding under him and the persons holding
subsequent mortgages falls upon petitioner as the mortgagee.
The petition is MERITORIOUS.
The respective decisions of the appellate court in CA G.R. SP No. 31125 and this Court in G.R. No. 115662 did not
conclusively settle the issue on the need to give a 10-day notice to respondent of the holding of the public auction sale of the chattels.
The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the
merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action. [31]
Res judicata has two concepts: (1) bar by prior judgment as enunciated in Rule 39, Section 47 (b) of the Rules of Civil
Procedure; and (2) conclusiveness of judgment in Rule 39, Section 47 (c).[32]
There is bar by prior judgment when, as between the first case where the judgment was rendered, and the second case that is
sought to be barred, there is identity of parties, subject matter, and causes of action. Where there is identity of parties and subject
matter in the first and second cases, but no identity of causes of action, there is conclusiveness of judgment.[33] The first judgment is
conclusive only as to those matters actually and directly controverted and determined, not as to matters merely involved therein.
The Court of Appeals, in CA G.R. SP No. 31125, resolved only the interlocutory issue of whether the trial courts Order of
April 12, 1993 denying petitioners motion to dismiss respondents petition for annulment was attended by grave abuse of
discretion. The appellate court did not rule on the merits of the petition as to establish a controlling legal rule which has to be
subsequently followed by the parties in the same case. It merely held that respondents petition in the trial court stated a sufficient cause
of action. Its determination of respondents entitlement to notice of the public auction sale was at best prima facie. Thus, the appellate
court held:
In view of the above, We are of the considered view that the private respondents petition in the court a
quo prima facie states a sufficient cause of action and that the public respondent in denying the petitioners motion
to dismiss, had acted advisedly and well within its powers and authority. We, therefore, find no cause to annul the
challenged order issued by the respondent court in Civil Case No. 92-62106. (Underscoring in the original;
emphasis and italics supplied)[34]
An order denying a motion to dismiss is merely interlocutory and cannot give rise to res judicata, hence, it is subject to
amendments until the rendition of the final judgment.[35]
On respondents contention that petitioner, as mortgagee, had the duty to notify it of the public auction sale, the Court finds the
same immaterial to the case.
Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder to redeem the mortgaged property
only beforeits sale. Consider the following pronouncement in Paray: [36]

[T]here is no law in our statute books which vests the right of redemption over personal property. Act No.
1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow
a right of redemption over personal property, since that law governs the extrajudicial sale of
mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of
Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of redemption applies
to real properties, not personal properties, sold on execution. (Emphasis, italics and underscoring supplied)
Unmistakably, the redemption cited in Section 13 partakes of an equity of redemption, which is the right of the mortgagor to
redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the
property[37] to clear it from the encumbrance of the mortgage.[38] It is not the same as right of redemption which is the right of the
mortgagor to redeem the mortgaged property after registration of the foreclosure sale, [39] and even after confirmation of the sale.[40]
While respondent had attached some of Terrymanilas assets to secure the satisfaction of a P296,662.16 judgment rendered in
another case, what it effectively attached was Terrymanilas equity of redemption. That respondents claim is much lower than the P1.5
million actual bid of petitioner at the auction sale does not defeat respondents equity of redemption. Top Rate International Services,
Inc. v. IAC[41]enlightens:
It is, therefore, error on the part of the petitioner to say that since private respondents lien is only a
total of P343,227.40, they cannot be entitled to the equity of redemption because the exercise of such right
would require the payment of an amount which cannot be less thanP40,000,000.00.
When herein private respondents prayed for the attachment of the properties to secure their respective claims
against Consolidated Mines, Inc., the properties had already been mortgaged to the consortium of twelve banks to
secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, the respondents liens on such
properties became inferior to that of banks, which claims in the event of foreclosure proceedings, must first be
satisfied. The appellate court, therefore, was correct in holding that in reality, what was attached by the
respondents was merelyConsolidated Mines . . . equity of redemption. x x x x
xxxx
We, therefore, hold that the appellate court did not commit any error in ruling that there was no over-levy on
the disputed properties. What wasactually attached by respondents was Consolidated Mines right or equity of
redemption, an incorporeal and intangible right, the value of which can neither be quantified nor equated with the
actual value of the properties upon which it may be exercised.[42] (Emphasis, italics and underscoring supplied)
Having thus attached Terrymanilas equity of redemption, respondent had to be informed of the date of sale of the mortgaged
assets for it to exercise such equity of redemption over some of those foreclosed properties, as provided for in Section 13.
Recall, however, that respondent filed a motion to reconsider the February 3, 1992 Order of the RTC Bataan-insolvency court
which granted leave to petitioner to foreclose the chattel mortgage, which motion was denied. Notably, respondent failed to allege this
incident in his annulment of sale case before the RTC of Manila.
Thus, even prior to receiving, through counsel, a mailed notice of the auction sale on the date of the auction sale itself on June
16, 1992, respondent was already put on notice of the impending foreclosure sale of the mortgaged chattels. It could thus have
expediently exercised its equity of redemption, at the earliest when it received the insolvency courts Order of March 20, 1992 denying
its Motion for Reconsideration of the February 3, 1992 Order.
Despite its window of opportunity to exercise its equity of redemption, however, respondent chose to be technically shrewd
about its chances, preferring instead to seek annulment of the auction sale, which was the result of the foreclosure of the mortgage,
permission to conduct which it had early on opposed before the insolvency court. Its negligence or omission to exercise its equity of
redemption within a reasonable time, or even on the day of the auction sale, warrants a presumption that it had either abandoned it or
opted not to assert it.[43]Equitable considerations thus sway against it.
It is also not lost on the Court that as early as April 12, 1991, Terrymanila had been judicially declared insolvent. Respondents
recourse was thus to demand the satisfaction of its judgment award before the insolvency court as its judgment award is a preferred
credit under Article 2244[44] of the Civil Code. To now allow respondent have its way in annulling the auction sale and at the same time
let it proceed with its claims before the insolvency court would neither rhyme with reason nor with justice.

Parenthetically, respondent has not shown that it was prejudiced by the auction sale since the insolvency court already
determined that even if the mortgaged properties were foreclosed, there were still sufficient, unencumbered assets of Terrymanila to
cover the obligations owing to other creditors, including that of respondents. [45]
In any event, even if respondent would have participated in the auction sale and matched petitioners bid, the superiority of
petitioners lien over the mortgaged assets would preclude respondent from recovering the chattels.
It has long been settled by this Court that the right of those who acquire said properties should not and
can not be superior to that of the creditor who has in his favor an instrument of mortgage executed with the
formalities of the law, in good faith, and without the least indication of fraud. x x x. In purchasing it, with full
knowledge that such circumstances existed, it should be presumed that he did so, very much willing to respect the lien
existing thereon, since he should not have expected that with the purchase, he would acquire a better right than that
which the vendor then had. (Emphasis and underscoring supplied)[46]
It bears noting that the chattel mortgage in favor of petitioner was registered more than two years before the issuance of a writ
of attachment over some of Terrymanilas chattels in favor of respondent. This is significant in determining who between petitioner and
respondent should be given preference over the subject properties. Since the registration of a chattel mortgage is an effective and
binding notice to other creditors of its existence and creates a real right or lien that follows the property wherever it may be, [47] the right
of respondent, as an attaching creditor or as purchaser, had it purchased the mortgaged chattel at the auction sale, is subordinate to the
lien of the mortgagee who has in his favor a valid chattel mortgage.[48]
Contrary then to the appellate courts ruling, petitioner is not liable for constructive fraud for proceeding with the auction
sale. Nor for subsequently selling the chattel. For foreclosure suits may be initiated even during insolvency proceedings, as long as
leave must first be obtained from the insolvency court[49] as what petitioner did.
The appellate courts award of exemplary damages and attorneys fees for respondent, given petitioners good faith, is thus not
warranted.
As for petitioners prayer for attorneys fees in its Compulsory Counterclaim, the same is in order, the dismissal of respondents
Complaint nowithstanding.[50] Perkin Elmer Singapore v. Dakila Trading,[51] citing Pinga v. Heirs of German Santiago,[52] enlightens:
It bears to emphasize that petitioners counterclaim against respondent is for damages and attorneys fees arising from
the unfounded suit. While respondents Complaint against petitioner is already dismissed, petitioner may have very
well incurred damages and litigation expenses such as attorneys fees since it was forced to engage legal
representation in the Philippines to protect its rights and to assert lack of jurisdiction of the courts over its person by
virtue of the improper service of summons upon it. Hence, the cause of action of petitioners counterclaim is not
eliminated by the mere dismissal of respondents complaint.[53] (Underscoring supplied)
To the Court, the amount of P250,000 prayed for by petitioner in its Counterclaim is just and equitable, given the nature and extent of
legal services employed in controverting respondents unfounded claim.
WHEREFORE, the petition for review is GRANTED. The challenged Decision and Resolution of the Court of Appeals
areREVERSED and SET ASIDE. Civil Case No. 92-62106 lodged before the Regional Trial Court of Manila, Branch 16,
is DISMISSED for lack of merit.
Respondent, Royal Cargo Corporation, is ORDERED to pay petitioner, Rizal Commercial Banking Corporation, P250,000 as
and for attorneys fees.