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Dy v.

CA the execution of the public instrument pursuant to

Article 1498 and upon the consent or agreement of the
FACTS: parties when the thing sold cannot be immediately
Wilfredo Dy purchased a truck and a farm tractor transferred to the possession of the vendee.
through LIBRA which was also mortgaged with the latter,
The payment of the check was actually intended to
as a security to the loan. extinguish the mortgage obligation so that the tractor
Petitioner, expresses his desire to purchased his could be released to the petitioner. It was never
brother’s tractor in a letter to LIBRA which also includes intended nor could it be considered as payment of the
his intention to shoulder its mortgaged. LIBRA approved purchase price because the relationship between Libra
the request. At the time that Wilfredo Dy executed a and the petitioner is not one of sale but still a mortgage.
deed of absolute sale in favor of petitioner, the tractor The clearing or encashment of the check which produced
and truck were in the possession of LIBRA for his failure the effect of payment determined the full payment of
to pay the amortization. the money obligation and the release of the chattel
mortgage. It was not determinative of the
When petitioner finally fulfilled its obligation to pay the consummation of the sale. The transaction between the
tractor, LIBRA would only release the same only if he brothers is distinct and apart from the transaction
would also pay for the truck. In order to fulfill LIBRA’s between Libra and the petitioner. The contention,
condition, petitioner convinced his sister to pay for the therefore, that the consummation of the sale depended
remaining truck, to which she released a check upon the encashment of the check is untenable.
amounting to P22,000. LIBRA however, insisted that the
check must be first cleared before it delivers the truck
and tractor. Tsai v. Court of Appeals
Meanwhile, another case penned “Gelac Trading Inc vs.
Wilfredo Dy” was pending in Cebu as a case to recover
for a sum of money (P12,269.80). By a writ of execution Ever Textile Mills, Inc. (EVERTEX) obtained a three million
the court in Cebu ordered to seize and levy the tractor peso (P3,000,000.00) loan from Philippine Bank of
which was in the premise of LIBRA, it was sold in a public Communications (PBCom) on November 26, 1975.
auction to which it was purchased by GELAC. The latter EVERTEX executed in favor of PBCom a deed of Real and
then sold the tractor to Antonio Gonzales. Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein
RTC rendered in favor of petitioner. as enumerated in a schedule attached to the mortgage
CA dismissed the case, alleging that it still belongs to contract.
Wilfredo Dy.
On April 23, 1979, PBCom granted a second loan of
ISSUE: P3,356,000.00 to EVERTEX. The loan was secured by a
Chattel Mortgage over personal properties enumerated
Whether or not there was a consummated sale between in a list attached thereto that were similar to those listed
Petitioner and LIBRA? in Annex A of the first mortgage deed.

HELD:NO. The mortgagor who gave the property as Upon EVERTEX’s failure to meet its obligation to PBCom,
security under a chattel mortgage did not part with the the latter commenced extrajudicial foreclosure
ownership over the same. He had the right to sell it proceedings against EVERTEX under Act 3135, otherwise
although he was under the obligation to secure the known as "An Act to Regulate the Sale of Property under
written consent of the mortgagee. And even if no Special Powers Inserted in or Annexed to Real Estate
consent was obtained from the mortgagee, the validity Mortgages" and Act 1506 or "The Chattel Mortgage
of the sale would still not be affected. Law."

Article 1496 of the Civil Code states that the ownership On March 7, 1984, PBCom consolidated its ownership
of the thing sold is acquired by the vendee from the over the lot and all the properties in it. In November
moment it is delivered to him in any of the ways 1986, it leased the entire factory premises to petitioner
specified in Articles 1497 to 1501 or in any other manner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988,
signing an agreement that the possession is transferred PBCom sold the factory, lock, stock and barrel to Tsai for
from the vendor to the vendee. In the instant case, P9,000,000.00, including the contested machineries.
actual delivery of the subject tractor could not be made.
However, there was constructive delivery already upon On March 16, 1989, EVERTEX filed a complaint for
annulment of sale, reconveyance, and damages with the
Regional Trial Court against PBCom, alleging inter alia Mortgage," instead of just "Real Estate Mortgage" if
that the extrajudicial foreclosure of subject mortgage indeed their intention is to treat all properties included
was in violation of the Insolvency Law. EVERTEX claimed therein as immovable, and (2) attached to the said
that no rights having been transmitted to PBCom over contract a separate "LIST OF MACHINERIES &
the assets of insolvent EVERTEX, therefore Tsai acquired EQUIPMENT." These facts, taken together, evince the
no rights over such assets sold to her, and should conclusion that the parties’ intention is to treat these
reconvey the assets. units of machinery as chattels. A fortiori, the contested
after-acquired properties, which are of the same
description as the units enumerated under the title "LIST
(1) Whether or not the contested properties are OF MACHINERIES & EQUIPMENT," must also be treated
personal or movable properties as chattels.

(2) Whether or not the sale of these properties to (2) Sale of the Properties Not included in the Subject
Ruby Tsai is valid of Chattel Mortgage is Not Valid

HELD The subject mortgages were intended by the parties to

involve chattels, insofar as equipment and machinery
(1) Nature of the Properties and Intent of the Parties were concerned, the Chattel Mortgage Law applies,
which provides in Section 7 thereof that: "a chattel
The nature of the disputed machineries, i.e., that they
mortgage shall be deemed to cover only the property
were heavy, bolted or cemented on the real property
described therein and not like or substituted property
mortgaged by EVERTEX to PBCom, make them ipso facto
thereafter acquired by the mortgagor and placed in the
immovable under Article 415 (3) and (5) of the New Civil
same depository as the property originally mortgaged,
Code. This assertion, however, does not settle the issue.
anything in the mortgage to the contrary
Mere nuts and bolts do not foreclose the controversy.
We have to look at the parties’ intent.
And, since the disputed machineries were acquired in
While it is true that the controverted properties appear
1981 and could not have been involved in the 1975 or
to be immobile, a perusal of the contract of Real and
1979 chattel mortgages, it was consequently an error on
Chattel Mortgage executed by the parties herein gives a
the part of the Sheriff to include subject machineries
contrary indication. In the case at bar, both the trial and
with the properties enumerated in said chattel
the appellate courts reached the same finding that the
true intention of PBCOM and the owner, EVERTEX, is to
treat machinery and equipment as chattels. As the auction sale of the subject properties to PBCom is
void, no valid title passed in its favor. Consequently, the
As stressed upon by appellees, appellant bank treated
sale thereof to Tsai is also a nullity under the elementary
the machineries as chattels; never as real properties.
principle of nemo dat quod non habet, one cannot give
Indeed, the 1975 mortgage contract, which was actually
what one does not have.
real and chattel mortgage, militates against appellants’
posture. It should be noted that the printed form used
by appellant bank was mainly for real estate mortgages.
But reflective of the true intention of appellant PBCOM ACME Shoe v. CA
and appellee EVERTEX was the typing in capital letters,
immediately following the printed caption of mortgage,
of the phrase "real and chattel." Petitioner Chua Pac, the president and general manager
of co-petitioner Acme executed a chattel mortgage in
Too, assuming arguendo that the properties in question
favor of private respondent Producers Bank as a security
are immovable by nature, nothing detracts the parties for a loan of P3,000,000. A provision in the chattel
from treating it as chattels to secure an obligation under mortgage agreement was to this effect:
the principle of estoppel. As far back as Navarro v.
Pineda, 9 SCRA 631 (1963), an immovable may be "In case the MORTGAGOR executes subsequent
considered a personal property if there is a stipulation as promissory note or notes either as a renewal of the
when it is used as security in the payment of an former note, as an extension thereof, or as a new loan,
obligation where a chattel mortgage is executed over it, or is given any other kind of accommodations such as
as in the case at bar. overdrafts, letters of credit, acceptances and bills of
exchange, releases of import shipments on Trust
In the instant case, the parties herein: (1) executed a Receipts, etc., this mortgage shall also stand as security
contract styled as "Real Estate Mortgage and Chattel for the payment of the said promissory note or notes
and/or accommodations without the necessity of To secure payment, the Manahan spouses executed a
executing a new contract and this mortgage shall have deed of chattel mortgage over a motor vehicle, a Ford
the same force and effect as if the said promissory note Cortina 1.6 GL, with motor and serial number CUBFWE-
or notes and/or accommodations were existing on the 801010. Carmasters later assigned the promissory note
date thereof. This mortgage shall also stand as security and the chattel mortgage to petitioner BA Finance
for said obligations and any and all other obligations of Corporation with the conformity of the Manahans.
the MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been When the latter failed to pay the due installments,
petitioner sent demand letters. The demands not having
contracted before, during or after the constitution of this
mortgage." been heeded, petitioner, on October 2, 1987, filed a
complaint for replevin with damages against the
In due time, the loan of P3,000,000.00 was paid. spouses, as well as against a John Doe, praying for the
Subsequently it obtained additional loan totalling recovery of the vehicle with an alternative prayer for the
P2,700,000.00 which was also duly paid. payment of a sum of money should the vehicle not be
Another loan was again extended (P1,000,000.00)
covered by four promissory notes for P250,000.00 each, Upon petitioner's motion and the filing of a bond in the
but went unsettled prompting the bank to apply for an amount of P169,161.00 the lower court issued a writ of
extrajudicial foreclosure with the Sheriff. replevin. The court, however, cautioned the petitioner
that should summons be not served on the defendants
ISSUE: within thirty (30) days from the writ's issuance, the case
Would it be valid and effective to have a clause in a would be dismissed because of failure to prosecute.
chattel mortgage that purports to likewise extend its (The warning was based on what the court perceived to
coverage to obligations yet to be contracted or incurred? be the deplorable practice of some mortgagees of
"freezing (the) foreclosure or replevin cases" which they
HELD: would so "conveniently utilize as a leverage for the
collection of unpaid installments on mortgaged
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 The service of summons upon the spouses Manahan was
chattel mortgage, however, can only cover obligations served by the petitioner at No. 35 Lantana St., Cubao,
existing at the time the mortgage is constituted. Quezon City. The original of the summons had the name
Although a promise expressed in a chattel mortgage to and the signature of private respondent Roberto M.
include debts that are yet to be contracted can be a Reyes, indicating that he received, on October 14, 1987,
binding commitment that can be compelled upon, the a copy of the same, as well as the complaint.
security itself, however, does not come into existence or
arise until after a chattel mortgage agreement covering The petitioner, through its Legal Assistant, Danilo E.
the newly contracted debt is executed either by Solano, issued a certification to the effect that it had
concluding a fresh chattel mortgage or by amending the received from Orson R. Santiago, the deputy sheriff of
old contract conformably with the form prescribed by the Regional Trial Court of Manila, Branch 20, the Ford
the Chattel Mortgage Law. Refusal on the part of the Cortina seized from private respondent Roberto M.
borrower to execute the agreement so as to cover the Reyes, the John Doe referred to in the complaint, in
after-incurred obligation can constitute an act of default Sorsogon, Sorsogon.
on the part of the borrower of the financing agreement
On October 20, 1987, the lower court came out with an
whereon the promise is written but, of course, the order of seizure.
remedy of foreclosure can only cover the debts extant at
the time of constitution and during the life of the chattel Alleging possession in good faith, private respondent
mortgage sought to be foreclosed. filed, on October 26, 1987, a motion for an extension of
time within which to file his answer and/or a motion for
intervention. The court granted the motion.
BA Finance Corp. v. CA A few months later, or on February 18, 1988, the court
Facts: On 15 May 1980, spouses Reynaldo and Florencia issued an order which, in part, stating that:
Manahan executed, a promissory note binding Considering that this is a replevin case and to forestall
themselves to pay Carmasters, Inc., the amount of the evils that arise from this practice, plaintiff failing to
P83,080.00 in thirty-six (36) monthly installments
heed the Order dated October 13, 1987, particularly
commencing July 1, 1980.
second paragraph thereof, the above-entitled case is • On August 2, 1988, the petitioner filed a motion
hereby ordered DISMISSED for failure to prosecute and to declare the private respondent in default. The court
further ordering the plaintiff to return the property granted the motion on the ground that the private
seized with all its accessories to defendant John Doe in respondent failed to filed an answer within the
the person of Roberto M. Reyes. reglementary period.

On February 26, 1988, petitioner filed a notice of • The court likewise granted petitioner's motion to
dismissal of the case "without prejudice and without set the case for the presentation, ex parte, of evidence.
pronouncement as to costs” before service of Summons Petitioner, thereupon, submitted the promissory note,
and Answer. the deed of chattel mortgage, the deed of assignment, a
statement of account in the name of Florencia Manahan
It also sought in another motion the withdrawal of the and two demand letters.
replevin bond. In view of the earlier dismissal of the case
(for petitioner's failure to prosecute), the court, on The Trial Court’s decision:
March 2, 1988, merely noted the notice of dismissal and
denied the motion to withdraw the replevin bond • On February 27, 1989, the trial court rendered a
considering that the writ of replevin had meanwhile decision dismissing the complaint against the Manahans
for failure of petitioner to prosecute the case against
been implemented.
them. It also dismissed the case against private
On March 9, 1988, private respondent filed a motion respondent for failure of petitioner to show any legal
praying that petitioner be directed to comply with the basis for said respondent's liability.
court order requiring the petitioner to return the vehicle
to him. • The court ratiocinated that Roberto M. Reyes
was merely an ancillary debtor in the case since the
In turn, the petitioner filed, on March 14, 1988, a motion defendant spouses Manahan are the principal debtor(s).
for the reconsideration of the orders of February 18, According to the court, there was no showing that the
1988 and March 2, 1988, contending that: latter (the Manahans) has been brought before the
jurisdiction of the court, and thus, it must necessarily
(a) the dismissal of the case was tantamount to follow that the plaintiff has no cause of action against
adjudication on the merits that thereby deprived it with said Roberto M. Reyes, herein before referred to as
the remedy to enforce the promissory note, the chattel
defendant John Doe. The lower court rendered that
mortgage and the deed of assignment, under Section 3, under the circumstances, it is incumbent upon the
Rule 117, of the Rules of Court; plaintiff to return the seized vehicle unto the said
(b) the order to return the vehicle to private Roberto M. Reyes.
respondent was a departure from jurisprudence Court of Appeals Findings (affirmed the decision of the
recognizing the right of the mortgagor to foreclose the trial court):
property to respond to the unpaid obligation secured by
the chattel mortgage; and • In its appeal to the Court of Appeals, petitioner
has asserted that a suit for replevin aimed at the
(c) there were no legal and factual bases for the court's foreclosure of the chattel is an action quasi in rem which
view that the filing of the replevin case was
does not necessitate the presence of the principal
"characterized (by) evil practices." obligors as long as the court does not render any
• On 20 April 1988, the court granted the personal judgment against them.
petitioner's motion for reconsideration and accordingly:
• The said argument did not persuade the
a. Recalled the order directing the return of the appellate court and it held that in an action quasi in rem,
vehicle to private respondent; an individual is named as defendant and the purpose of
the proceeding is to subject his interest therein to the
b. set aside the order dismissing the case; obligation or lien burdening the property, such as
proceedings having for their sole object the sale or
c. directed the petitioner "to cause the service of
disposition of the property of the defendant, whether by
summons together with a copy of the complaint on the
attachment, foreclosure, or other form of remedy.
principal defendants within five (5) days from receipt";
• In the case at bar, the court cannot render any
d. and ordered private respondent to answer the
judgment binding on the defendants spouses for having
allegedly violated the terms and conditions of the
promissory note and the contract of chattel mortgage on
the ground that the court has no jurisdiction over their Replevin is so usually described as a mixed action, being
persons since no summons were served on them. If that partly in rem and partly in personam — in rem insofar as
would be the case, then the defendant spouses will be the recovery of specific property is concerned, and in
denied due process of law, which contemplates notice personam as regards to damages involved. As an "action
and opportunity to be heard before judgment is in rem," the gist of the replevin action is the right of the
rendered, given that it would affect one's person or plaintiff to obtain possession of specific personal
property. property by reason of his being the owner or of his
having a special interest therein.
Issues: : 1 Whether or not BA Finance Corporation, as the
mortgagee, has a superior right of possession as against Consequently, the person in possession of the property
Roberto M. Reyes (John Doe), whose right to possession sought to be replevied is ordinary the proper and only
is dubious if not totally non-existent? (No); 2 Whether or necessary party defendant, and the plaintiff is not
not a mortgagee can maintain an action for replevin required to so join as defendants other persons claiming
against any possessor of the object of a chattel mortgage a right on the property but not in possession thereof.
even if the latter was not a party to the mortgage? (Yes,
Rule 60 of the Rules of Court allows an application for
but not applicable to Roberto M. Reyes on the ground
that his possession has to be respected. See discussion the immediate possession of the property but the
below) plaintiff must show that he has a good legal basis, (i.e., a
clear title thereto, for seeking such interim possession)
Ruling: : Anent issue No. 1, the Court declared that: The
subject motor vehicle was taken from the possession of Where the right of the plaintiff to the possession of the
said Roberto M. Reyes, a third person with respect to the specific property is so conceded or evident, the action
contract of chattel mortgage between the appellant and need only be maintained against him who so possesses
the defendants spouses Manahan. the property.

Every possessor has a right to be respected in his Accordingly, that the defendant is not privy to the
chattel mortgage should be inconsequential. By the fact
possession. It added that good faith is always presumed,
and upon him who alleges bad faith on the part of a that the object of replevin is traced to his possession,
one properly can be a defendant in an action for
possessor rests the burden of proof.
replevin. It is here assumed that the plaintiff's right to
Good faith is equivalent to a title; nevertheless, one who possess the thing is not or cannot be disputed.
has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of In case the right of possession on the part of the plaintiff,
the same. or his authority to claim such possession or that of his
principal, is put to great doubt (a contending party might
A possessor in good faith is entitled to be respected and contest the legal bases for plaintiffs cause of action or an
protected in his possession as if he were the true owner adverse and independent claim of ownership or right of
thereof until a competent court rules otherwise possession is raised by that party), it could become
essential to have other persons involved and accordingly
In the case at bar, the trial court did not err in holding
impleaded for a complete determination and resolution
that the complaint does not state any cause of action of the controversy.
against Roberto M. Reyes, and in ordering the return of
the subject chattel to him When the mortgagee seeks a replevin in order to effect
the eventual foreclosure of the mortgage, it is not only
Regarding Issue No. 2: the existence of, but also the mortgagor's default on, the
The Court held that Replevin, as broadly understood, is chattel mortgage that, among other things, can properly
both a form of principal remedy and of a provisional uphold the right to replevy the property.
relief. It may refer either to the action itself,( i.e., to However, since Roberto M. Reyes is a possessor who is
regain the possession of personal chattels being given by the law a right to be respected in his possession,
wrongfully detained from the plaintiff by another, or to
the burden to establish a valid justification for the action
the provisional remedy that would allow the plaintiff to of replevin against the latter lies with the plaintiff.
retain the thing during the pendency of the action and
hold it pendente lite). • An adverse possessor, like Reyes, who is not the
mortgagor, cannot just be deprived of his possession, let
The action is primarily possessory in nature and generally alone be bound by the terms of the chattel mortgage
determines nothing more than the right of possession. contract, simply because the mortgagee brings up an
action for replevin. His possession needs to be respected
and protected as if he were the true owner thereof until The City Court decided in favor of the Cabral spouses
a competent court rules otherwise. against the mortgage debtor, Tunaya, on confession of
the latter, but granted the motion to dismiss of the
• As such, the Supreme Court held that the defendants Evangelista spouses. The court upheld the
appellate court, accordingly, acted well in arriving at its superior rights of Cabral spouses as mortgage creditors
now questioned judgment. to the personal properties in question, holding the the
Evangelista spouses, "being subsequent judgment
creditors in another case, have only the right of
PNB v. CA redemption."

ISSUE/S: Who has the better right over the personal

properties? SPOUSES CABRAL


The prescription period for recovery of movables for

foreclosure purposes such as in the present case is eight
years as provided in Article 1140 of the Civil Code, and
here Spouses Cabral had timely filed their action within 8
months from the mortgage debtor's default.

Spouses Evangelista purchase of the mortgaged chattels

at the public sheriff's sale and the delivery of the chattels
to them with a certificate of sale did not give them a
Cabral v. Evangelista superior right to the chattels as against plaintiffs-
mortgagees. It has long been settled by this Court that
DOCTRINE: The rights of a mortgage creditor over the The right of those who so acquire said properties should
mortgaged properties are superior to those of a not and cannot be superior to that of the creditor who
subsequent attaching creditor. 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.
Defendant George L. Tunaya had executed in favor of
Alberta and Renato Cabral a chattel mortgage covering
an English piano, and an electric Stove as security for PAMECA Wood Treatment Plant, Inc. vs.CA
payment to the Spouses Cabral of a promissory note
executed on the same date by said defendant Tunaya FACTS: PAMECA loaned P2M from DBP and executed a
with his wife. The chattel mortgage deed was duly promissory note, secured by its inventory of furniture
inscribed in the Chattel Mortgage Register of Rizal and equipment. PAMECA defaulted thus DBP
province. extrajudicially foreclosed on the chattels. DBP was the
only bidder so it was able to buy said property for P322K.
Meanwhile, the Evangelista spouses, obtained in a civil Subsequently for the deficiency, it filed a complaint
case, a final money judgment against defendant Tunaya, against PAMECA and its solidary debtors, according to
They caused the levy in execution on personal properties the promissory note it signed.
of said defendant Tunaya, including the piano and stove
mortgaged to plaintiffs. The said mortgaged chattels, ISSUE: Whether an action can be instituted for deficiency
together with other personal properties of the judgment of a debt after a foreclosure of the chattel mortgage.
debtor, were sold at public to the Evangelista spouses.
RULING: Yes. Chattel Mortgage Law expressly entitles the
Eight months after the maturity of Tunaya's promissory mortgagor to the balance of the proceeds, upon
note and his having defaulted in the payment thereof, satisfaction of the principal obligation and costs. Since
Cabral spouses filed their complaint against Tunaya and the Chattel Mortgage Law bars the creditor-mortgagee
the Evangelista spouses, alleging that the Evangelista from retaining the excess of the sale proceeds, there is a
spouses had refused their demands to pay the amount corollary obligation on the part of the debtor-mortgagee
due on Tunaya's promissory note or to exercise their to pay the deficiency in case of a reduction in the price at
right of redemption and praying for judgment, ordering public auction.
the defendants, jointly and solidarity, to pay them.