Professional Documents
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In the lower court there were three mortgagees each of whom claimed
preference. They were the two above mentioned and Concepcion Ayala. The
latter's claim was rejected by the trial court, and from that ruling she did not
appeal.
The appellant claims preference on these grounds: (a) That the first mortgage
above-mentioned is not valid because the property which is the
subject-matter thereof is not capable of being mortgaged, and the
description of said property is not sufficient; and (b) that the amount
due the appellant is a purchase price, citing article 1922 of the Civil
Code in support thereof, and that his mortgage is but a modification of
the security given by the debtor on February 15, 1919, that is, prior to
the mortgage executed in favor of the Fidelity & Surety Co.
As to the first ground, the thing that was mortgaged to this corporation is
described in the document as follows:
o
With regard to the nature of the property thus mortgaged, which is one-half
interest in the business above described, such interest is a personal property
The description contained in the document is sufficient. The law (sec. 7, Act No.
1508) requires only a description of the following nature:
o
Turning to the second error assigned, numbers 1, 2, and 3 of article 1922 of the
Civil Code invoked by the appellant are not applicable. Neither he, as debtor,
nor the debtor himself, is in possession of the property mortgaged,
which is, and since the registration of the mortgage has been, legally in
possession of the Fidelity & Surety Co. (Sec. 4, Act No. 1508;
Meyers vs. Thein, 15 Phil., 303.)
Moreover, the appellant cannot deny the preferential character of the mortgage
in favor of the Fidelity & Surety Co. because in the very document executed in
his favor it was stated that his mortgage was a second mortgage, subordinate to
the one made in favor of the Fidelity & Surety Co.
8. MANUEL C. MANARANG and LUCIA D. MANARANG, PetitionersAppellants, vs. MACARIO M. OFILADA, Sheriff of the City of Manila and
ERNESTO ESTEBAN, Respondents-Appellees.
Facts:
Issue: 1. Whether or not the house in question is a personal property which can be
subject of chattel mortgage
2. chaDoes the fact that the parties entering into a contract regarding a house gave
said property the consideration of personal property in their contract, bind the
sheriff in advertising the propertys sale at public auction as personal property?
Ruling:
1. Yes.
There cannot be any question that a building of mixed materials may be the
subject of a chattel mortgage, in which case it is considered as between the
parties as personal property. We held so expressly in the cases of Luna vs.
Encarnacion, et al., * 48 Off. Gaz., No. 7, p. 2664;ryStandard Oil Co. of New York
vs. Jaranillo, 44 Phil., 630; ryand De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464.
The matter depends on the circumstances and the intention of the parties.
cralaw The general principle of law is that a building permanently fixed to the
freehold becomes a part of it, that prima facie a house is real estate, belonging
to the owner of the land on which it stands, even though it was erected against
the will of the landowner, or without his consent cralaw . The general rule is
otherwise, however, where the improvement is made with the consent of the
landowner, and pursuant to an understanding either expressed or implied that it
shall remain personal property. Nor does the general rule apply to a building
which is wrongfully removed from the land and placed on the land of the person
removing it. (42 Am. Jur. 199-200.)
Facts:
After paying P1,205.61, representing the total monthly payments made to the
respondent from June, 1929, to May, 1930, plus P5.61 paid to the respondent in
June of the year last mentioned, the petitioner failed to make any other
payment. Accordingly, the sheriff, at the respondent's instance, took possession
of the mortgaged Chevrolet car for the purpose of selling it at public auction as
provided by law, notifying, however, the petitioner by registered mail sent on
February 5, 1932, of what he then intended to do. The petitioner received the
notice on the 10th of the said month and year, and the sale was effected by the
sheriff, as she had been previously informed, on April 9, 1932, in the municipality
of Legaspi, Albay, not that of Tabaco where the petitioner resided at the time and
from where the car had been taken some days before by the said sheriff. As the
respondent was the highest bidder at the public sale, having offered to pay P550
for the car, the same was adjudicated to said respondent. After the sale and the
deduction of the proceeds thereof from the respondent's credit, there remained
a balance to be paid by the petitioner in the amount of P575.10 plus stipulated
interest thereon at 12 per cent per annum and the costs.
The Court of Appeals also found as an established fact that the petitioner, after
acquiring the Chevrolet car as above stated, equipped it with an electric lighter
and a horn, for which she spent P1.50 and P8 respectively; that the said articles
were included in the sale, and that one month before the sale the petitioner
received from Paulino Samesa an offer of P1,000 for the car, which she refused.
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 assign, shall notify the mortgagor or person holding
under him and the persons holding subsequently 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 sale.
It seems clear that the purpose of the law in providing for the requisites and
procedure to be followed before proceeding to the sale of a mortgaged chattel
under the provisions of the cited law, is plainly to protect the rights of the
mortgagor. Nothing which took place in the case before us can be said to have
affected the public interest or that of a third person. At most, all that it affected
was the personal interest of the petitioner as mortgagor, and nothing else. In
view thereof, the remedy prayed for does not lie and will not prosper, because it
is a general principle, also clearly provided by law, that a person may waive any
right conferred on him by law, unless such waiver is prohibited or is not
authorized by law because against public interest or prejudicial to a third person.
If the sale was effected in Legaspi where the respondent had its main office, and
not in Tabaco where the petitioner resided, it was because the latter so expressly
agreed and consented thereto. The aforequoted clause of the mortgage deed
clearly shows this.
In the light of the facts and considerations above set out, we hold that the
remedy sought does not lie.
On June 11, 1991,5 the Manila RTC, by Decision of even date, rendered judgment
in the collection case in favor of respondent.
The provincial sheriff of Bataan thereupon scheduled 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.
Respondent later filed a petition before the RTC of Manila, 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 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:
o
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
Its claiming that its counsel received a notice only on the day of the sale.
Petitioner, alleging that the annulment of sale case filed by respondent stated no
cause of action, filed a Motion to Dismiss 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. The appellate court dismissed the petition, by Decision, it holding
that respondents petition for annulment "prima facie states 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."
Petitioner thereupon filed before the Manila RTC its Answer Ex Abundante
Cautelam 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. SC by minute Resolution denied
the petition for failure to show that a reversible error was committed by the
appellate court.
Trial on the merits of the annulment of sale case thereupon ensued. By Decision,
Branch 16 of the Manila RTC rendered judgment in favor of respondent.
Both parties appealed to the Court of Appeals which, by Decision, 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.
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.
Issues: 1. Whether or not respondent should have been given a ten(10)-day prior
notice of the June 16, 1992 foreclosure sale
2. 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.
Ruling: The petition is MERITORIOUS.
1. NO.
[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)
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
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 was actually
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. (Emphasis, italics and underscoring supplied)
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.
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 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)
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, 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.
2. YES.
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
Petition granted.
On December 4, 1970 Arnaldo Dizon sold to Consuelo Alcoba his 1966 model
Chevrolet car for P13,157.89, payable in eighteen monthly installments, which
were secured by a chattel mortgage on the car.
On that same date, Dizon assigned for ten thousand pesos to Industrial Finance
Corporation all his rights and interest in the chattel mortgage. Consuelo Alcoba
defaulted in the payment of the first four installments. Because of that default
and by virtue of the acceleration clause in the promissory note forming part of
the mortgage, the whole obligation became due and demandable.
As of February 27, 1972 Consuelo Alcoba owed Industrial Finance Corporation
the sum of P7,678.05.
Less than a year after Industrial Finance Corporation had discounted Consuelo
Alcoba's promissory, note to Dizon, the corporation sued her in the Court of First
Instance of Manila (Civil Case No. 85583). The complaint, a printed form used by
the corporation in collection cases, is denominated "replevin with damages".
It is necessary to scrutinize the allegations of the complaint because of the
controversy between the parties as to whether, by means of that complaint,
Industrial Finance Corporation sought to foreclose the chattel mortgage as
contemplated in article 1484 of the Civil Code, formerly Act No. 4122, otherwise
known as the Recto Installment Sales Law.
In its complaint Industrial Finance Corporation prayed for alternative reliefs. The
main objective of its complaint was recovery of the mortgaged car by means of a
writ of replevin. It submitted a redelivery bond. Undoubtedly, the mortgageeassignee wanted to foreclose extrajudicially the chattel mortgage but, before it
could do so, the sheriff had to seize the car by means of the provisional remedy
of an order for the delivery of personal property.
Industrial Finance Corporation prayed that, if the car could not be recovered by
means of replevin, then Consuelo Alcoba should be ordered to pay the
corporation the sum of P11,083.38, plus twelve percent interest per annum,
damages, and attorney's fees in the sum of P2,770.85. There was no prayer for
the foreclosure of the mortgage, a relief that should be invoked if the complaint
had been filed under section 8, Rule 68 of the Rules of Court.
Consuelo Alcoba in her answer merely pleaded that Industrial Finance
Corporation "waived the recovery" of the car by accepting the sum of P4,228.67.
She did not state what that amount represented.
Consuelo Alcoba's lawyer, after making reference to the corporation's
acceptance of the sum of P4.228.68, incoherently pleaded that the corporation
chose to "pursue the remaining balance of the loan extrajudicially".
The lower court issued the writ of replevin. But the sheriff was not able to seize
the mortgaged car. Consequently, there was no extrajudicial foreclosure of the
mortgage since, for that purpose, possession of the car by the sheriff is
necessary (Bachrach Motor Co. vs. Summers, 42 Phil. 3).
Consuelo Alcoba did not appear at the pre-trial. She was declared in default. On
the basis of the corporation's evidence, the trial court rendered judgment,
ordering her to pay the corporation the sum of P7,678.05, plus twelve percent
interest per annum from the filing of the complaint. No attorney's fees were
awarded by the trial court maybe because the corporation paid only ten
thousand pesos for a vote valued at P13,157.89.
Consuelo Alcoba did not appeal. That judgment became final and executory. On
September 27, 1973, or long after the judgment had become final, she paid
Industrial Finance Corporation the sum of P2,000. The lower court issued writs of
execution. The writs were returned unsatisfied.
A second alias writ of execution was issued. The sheriff was able to levy upon the
mortgaged car which was then in the possession of the Aco Motor Service of
Dagupan City. At the execution sale held Industrial Finance Corporation bought
the mortgaged car for P4,000
However, in order to take possession of the car, the corporation had to pay
P4,250 to the Aco Motor Service to satisfy its lien for the repair and storage of
the car.
The corporation contended that, because of that payment, it sustained a loss of
P250 in the execution sale. It asked for a third alias writ of execution in order to
satisfy the balance of Consuelo Alcoba's obligation which, together with the 12%
interest, it computed at P11,300.92 as of September 26, 1975.
Consuelo Alcoba opposed the motion for a third alias writ of execution. The lower
denied the motion for a third alias writ of execution. It treated the execution sale
as a "virtual foreclosure of the chattel mortgage" which, although not beneficial
to the mortgagee, Industrial Finance Corporation, barred it from recovering the
deficiency under article 1484.
Issue: Whether or not the order denying the issuance of third writ of execution is
proper.
Ruling: NO.
The lower court relied on Filipinos Investment & Finance Corporation vs. Ridad,
L- 27645. In the Ridad case, the mortgagee of a car, the price of which was
payable in installments, filed a replevin suit against the mortgagor with an
alternative prayer for the recovery of the unpaid price in case the car could not
be seized. The car was actually seized. The mortgage was extrajudicially
foreclosed. The trial court rendered judgment against the mortgagor only for
P300 as attorney's fees and P163.65 as expenses of foreclosure. There was no
judgment for the balance of the mortgage debt.
This Court held that the mortgagors should pay the mortgagee attorney's fees
and expenses of foreclosure because while the mortgagors should be protected
against the capacity of the mortgagees, the law should not be construed as
depriving the mortgagee of "protection against perverse mortgagors" (Castro, J,
in Ridad case).
It is obvious that the facts of the Ridad case are materially different from the
facts of the instant case. Here, there was no extrajudicial foreclosure of
the mortgage. Consuelo Alcoba, the mortgagee, acted perversely in not
surrendering the mortgaged car to the corporation and in preventing
extrajudicial foreclosure. Had she complied with the writ of replevin, then the
corporation could have foreclosed the mortgage and, in that event, she would
not be liable for any deficiency.
But she violated the mortgage by removing the car from her residence at 3
Gladiola Street, Roxas District, Quezon City. She did not comply with the
stipulation that, upon her default, the car should be delivered, on demand, to the
mortgagee in Manila.
The corporation's action was for specific performance or fulfillment of the
obligation and not for judicial foreclosure Consuelo Alcoba's payment of P2,000
on account of the money judgment against her signified that she acquiesced in
the action for specific performance. She cannot now be heard to say that the
judgment resulting from that action could not be enforced because the
mortgagees had opted for foreclosure of the mortgage. The Civil Code provides.
o ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
a) Exact fulfillment of the obligation, should the vendee fail to pay;
b) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
c) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement
to the contrary shall be void. (1454-A-a).
According to article 1484, it is only when there has been a foreclosure that the
mortgagor is not liable for any deficiency.
In this case, there was no foreclosure. The mortgagee evidently chose the
remedy of specific performance. It levied upon the car by virtue of an execution
and not as an incident of a foreclosure proceeding. It is entitled to an alias writ of
execution for the portion of the judgment that has not been satisfied.
The rule is that in installment sales, if the action instituted is for specific
performance and the mortgaged property is subsequently attached and sold, the
sale thereof does not amount to a foreclosure of the mortgage. Hence, the sellercreditor is entitled to a deficiency judgment (Southern Motors, Inc. vs. Moscoso,
112 Phil. 94).
WHEREFORE, the trial court's order denying the motion for a third writ of
execution is reversed and set aside.