FIRST DIVISION

[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.

Sotto & Sotto Law Offices for petitioners.

R. C. Domingo, Jr., & Associates for Producers Bank of the Philippines.
SYLLABUS
1.
REMEDIAL LAW; ACTIONS; APPEALS; APPEAL FROM JUDGMENT OF LOWER
COURTS, NOT A MATTER OF RIGHT BUT OF SOUND JUDICIAL DISCRETION. Except in
criminal cases where the penalty of reclusion perpetua or death is imposed which the
Court so reviews as a matter of course, an appeal from judgments of lower courts is not a
matter of right but of sound judicial discretion. 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.
2.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF SECURITY,
CONSTRUED. 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
ful llment 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, but that should the
obligation be duly paid, then the contract is automatically extinguished proceeding from
the accessory character of the agreement. As the law so puts it, once the obligation is
complied with, then the contract of security becomes, ipso facto, null and void.
3.

ID.; ID.; CONTRACTS OF SECURITY; CHATTEL MORTGAGE; COVERS OBLIGATION

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EXISTING AT TIME MORTGAGE IS CONSTITUTED; EFFECT OF PROMISE TO INCLUDE

DEBTS THAT ARE TO BE CONTRACTED. 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 nancing 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. In the chattel mortgage here involved, the only obligation
speci ed 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.
(Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.) The signi cance 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, there no
longer was any chattel mortgage that could cover the new loans that were concluded
thereafter.
4.
ID.; CHATTEL MORTGAGE LAW; EXECUTION OF AFFIDAVIT OF GOOD FAITH, A
CLEAR MANIFESTATION THAT DEBT REFERRED TO IS CURRENT. 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 af davit
of good faith. While it is not doubted that if such an af davit is not appended to the
agreement, the chattel mortgage would still be valid between the parties (not against third
persons acting in good faith), the fact, however, that the statute has provided that the
parties to the contract must execute an oath makes it obvious that the debt referred to in
the law is a current, not an obligation that is yet merely contemplated.
5.
ID.; DAMAGES; MORAL DAMAGES; NOT RECOVERABLE BY A JURIDICAL PERSON.
We nd no merit in petitioner corporation's other prayer that the case should be remanded
to the trial court for a speci c nding on the amount of damages it has sustained "as a
result of the unlawful action taken by respondent bank against it." This prayer is not
re ected in its complaint which has merely asked for the amount of P3,000,000.00 by way
of moral damages. In LBC Express, Inc. vs. Court of Appeals, we have said: "Moral
damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. A corporation, being an arti cial 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 be one
having a nervous system and it ows from real ills, sorrows, and griefs of life all of which
cannot be suffered by respondent bank as an arti cial person." 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.
6.
LEGAL ETHICS; ATTORNEYS; SHOULD BE CIRCUMSPECT IN DEALING WITH
COURTS. Petitioner corporation's counsel could be commended for his zeal in pursuing
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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 socalled "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. The statement is not called for. The Court
invites counsel's attention to the admonition in Guerrero vs. Villamor; thus: "(L)awyers . . .
should bear in mind their basic duty 'to observe and maintain the respect due to the courts
of justice and judical of cers and . . . (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 judical of ce, 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 . . .'" The
virtues of humility and of respect and concern for others must still live on even in an age of
materialism. Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be
circumspect in dealing with the courts.
DECISION
VITUG , J :
p

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 above-stated according to the
terms thereof, then this mortgage shall be null and void. . . .
"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
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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 nancial 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 nancial 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 le
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,
af rmed, "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 insuf cient in form and substance. Private respondent
led a motion to dismiss the petition while petitioner corporation led a compliance and
an opposition to private respondent's motion to dismiss. The Court denied petitioner's
rst 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 ful llment 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
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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 afterincurred obligations so long as these future debts are accurately described, 1 0 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. 1 1 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 nancing 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 af davit of good faith. While it is not doubted that if such an af davit is not
appended to the agreement, the chattel mortgage would still be valid between the parties
(not against third persons acting in good faith 1 2 ), the fact, however, that the statute has
provided that the parties to the contract must execute an oath that
". . . (the) mortgage is made for the purpose of securing the obligation speci ed 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
speci ed in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al. , 14
the Court said
". . . 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." 1 5

The signi cance 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, 1 6 there no longer was any chattel mortgage that could cover the new loans that were
concluded thereafter.
We nd no merit in petitioner corporation's other prayer that the case should be
remanded to the trial court for a speci c nding on the amount of damages it has
sustained "as a result of the unlawful action taken by respondent bank against it." 1 7
This prayer is not re ected in its complaint which has merely asked for the amount of
P3,000,000.00 by way of moral damages. 1 8 In LBC Express, Inc. vs. Court of Appeals,
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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 arti cial
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 ows 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." 2 1 (Emphasis supplied.)

The statement is not called for. The Court invites counsel's attention to the admonition in
Guerrero vs. Villamor; 2 2 thus:
"(L)awyers . . . should bear in mind their basic duty 'to observe and maintain the
respect due to the courts of justice and judicial of cers and . . . (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 of ce, 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 . . ..'" 2 3

The virtues of humility and of respect and concern for others must still live on even in an
age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court are set
aside without prejudice to the appropriate legal recourse by private respondent as may
still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in
dealing with the courts.
SO ORDERED.

Kapunan and Hermosisima, Jr., JJ ., concur.

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Padilla, J ., took no part.

Bellosillo, J ., is on leave.
Footnotes

1.

Rollo, p. 45.

2.

Ibid., p. 34.

3.

Ibid.

4.

Associate Justice Consuelo Ynares Santiago, ponente, with Associate Justices Ricardo
L. Pronove, Jr. and Nicolas P. Lapea, Jr., concurring.

5.

In the Court's resolution, dated 27 May 1992, Rollo, p. 91.

6.

Sec. 5 (2)(d), Art. VIII, 1987 Constitution.

7.

See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.

8.

See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.

9.

See Sec. 3, Act 1508.

10.

See Mojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49 Phil. 703.

11.

Act No. 1508.

12.

See Philippine Refining Co. vs. Jarque, 61 Phil. 229.

13.
14.

Civil Code, Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C. Grio-Aquino, pp.
610-611.
49 Phil. 647.

15.

At p. 655. This ruling was reiterated in Jaca vs. Davao Lumber Company , 113 SCRA
107.

16.

Being merely accessory in nature, it cannot exist independently of the principal

obligation.

17.

Petitioner's Memorandum, p. 5; Rollo, p. 119.

18.

Complaint, p. 6; Record, p. 9.

19.

236 SCRA 602.

20.

At p. 607.

21.

Rollo, p. 113.

22.

179 SCRA 355, 362.

23.

At p. 362.

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