ACME

vs.

Court

of

Appeals

(G.R.

No.

103576

August

22,

1996 )

FACTS:
Petitioner Chua Pac, the president and general manager of co-petitioner Acme executed a chattel
mortgage in favor of private respondent Producers Bank as a security for a loan of P3,000,000. A
provision
in
the
chattel
mortgage
agreement
was
to
this
effect:
"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."
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional loan totalling
P2,700,000.00
which
was
also
duly
paid.
Another loan was again extended (P1,000,000.00) covered by four promissory notes for P250,000.00
each, but went unsettled prompting the bank to apply for an extrajudicial foreclosure with the Sheriff.
ISSUE:
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?
HELD:
No. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage, however, can
only cover obligations existing at the time the mortgage is constituted. Although a promise expressed
in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that
can be compelled upon, the security itself, however, does not come into existence or arise until after a
chattel mortgage agreement covering the newly contracted debt is executed either by concluding a
fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the
Chattel Mortgage Law. 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.

Central Bank v Court of Appeals (G.R. No. L-45710 October 3, 1985)

The banks asking for advance interest for the loan is improper considering that the total loan hasnt
been released. A person cant be charged interest for non-existing debt. The alleged discovery by the
bank of overvaluation of the loan collateral is not an issue. Since Island Savings Bank failed to furnish
the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent.
Facts:
Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the
same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan. The
loan called for a lump sum of P80,000, repayable in semi-annual installments for 3 yrs, with 12%
annual interest. After the agreement, a mere P17K partial release of the loan was made by the bank
and Tolentino and his wife signed a promissory note for the P17,000 at 12% annual interest payable
w/in 3 yrs. An advance interest was deducted fr the partial release but this prededucted interest was
refunded to Tolentino after being informed that there was no fund yet for the release of the P63K
balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited
the bank fr making new loans and investments. And after the bank failed to restore its solvency, the
Central Bank prohibited Island Savings Bank from doing business in the Philippines. Island Savings
Bank in view of the non-payment of the P17K filed an application for foreclosure of the real estate
mortgage. Tolentino filed petition for specific performance or rescission and damages with preliminary
injunction, alleging that since the bank failed to deliver P63K, he is entitled to specific performance
and if not, to rescind the real estate mortgage.
Issues: 1) Whether or not Tolentinos can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
3) Whether or not the real estate mortgage can be foreclosed
Held:
1) Whether or not Tolentinos can collect from the bank for damages
The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the
other party not ready nor willing incurs in delay. When Tolentino executed real estate mortgage, he
signified willingness to pay. That time, the banks obligation to furnish the P80K loan accrued. Now, the
Central Bank resolution made it impossible for the bank to furnish the P63K balance. The prohibition on
the bank to make new loans is irrelevant bec it did not prohibit the bank fr releasing the balance of
loans previously contracted. Insolvency of debtor is not an excuse for non-fulfillment of obligation but
is a breach of contract.
The banks asking for advance interest for the loan is improper considering that the total loan hasnt
been released. A person cant be charged interest for non-existing debt. The alleged discovery by the
bank of overvaluation of the loan collateral is not an issue. The bank officials should have been more
responsible and the bank bears risk in case the collateral turned out to be overvalued. Furthermore,
this was not raised in the pleadings so this issue cant be raised. The bank was in default and Tolentino
may choose bet specific performance or rescission w/ damages in either case. But considering that the
bank is now prohibited fr doing business, specific performance cannot be granted. Rescission is the
only remedy left, but the rescission shld only be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the P17,000.00
loan when it falls due. His failure to pay the overdue amortizations under the promissory note made
him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right
to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years,
he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as
there was no date for him to perform his reciprocal obligation to pay. Since both parties were in default
in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real
estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75%
of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of
78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.