RCBC vs ROYAL CARGO

FACTS:

Terrymanila filed a petition for voluntary insolvency with the RTC of Bataan on

February 13, 1991.

One of its creditors was RCBC 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.

Royal Cargo another creditor of Terrymanila, filed an action with RTC Manila for
collection of sum of money and preliminarily attached "some" of Terrymanila's

personal properties on March 5, 1991.

On April 12, 1991, the Bataan RTC declared Terrymanila insolvent.
On June 11, 1991, Manila RTC, rendered judgment in the collection case in favor
of Royal Cargo.
In the meantime, RCBC 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.

The provincial sheriff of Bataan thereupon scheduled on June 16, 1992 the public

auction sale of the mortgaged personal properties.

At the auction sale, RCBC was the sole bidder of the properties and purchased
them for P1.5 Million. Eventually, RCBC sold the properties to Domingo Bondoc

and Victoriano See.

Royal Cargo filed on July 30, 1992 a petition before the RTC of Manila against
the Provincial Sheriff of the RTC Bataan and RCBC, for annulment of the auction
sale . Apart from questioning the inclusion in the auction sale 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.

ISSUE:
WON Royal Cargo should have been given a ten day prior notice of the foreclosure sale.
RULING:
Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder to
redeem the mortgaged property only before its sale. [T]here is no law in our statute

books which vests the right of redemption over personal property. the right of
redemption applies to real properties, not personal properties, sold on execution. , 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 to clear it from the
encumbrance of the mortgage. It is not the same as right of redemption which is the
right of the mortgagor to redeem the mortgaged property after registration of the
foreclosure sale, and even after confirmation of the sale.
While respondent had attached some of Terrymanila's assets to secure the satisfaction
of a judgment what it effectively attached was Terrymanila's equity of redemption.
Having thus attached Terrymanila's 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. 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 court's Order of March 20, 1992 denying its Motion for
Reconsideration of the February 3, 1992 Order.
In any event, even if respondent would have participated in the auction sale and
matched petitioner's bid, the superiority of petitioner's lien over the mortgaged assets
would preclude respondent from recovering the chattels. "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
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 Terrymanila's
chattels in favor of respondent. 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.