FACTS:
Acme Shoe entered into a loan agreement with
Producers Bank for P3M. This loan was secured by chattel
mortgage (the subject property of the chattel mortgage is never
mentioned),
with
a
provision
as
follows:
"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."
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Acme Shoe eventually paid the P3M loan. Acme Shoe later took
out another loan for P2.7M, which was also eventually fully paid.
Some time later, Acme Shoe took out another loan, this time for
P1M. However, due to financial constraints, they were unable to
settle the loan.
Producers Bank applied for extrajudicial foreclosure of the
chattel mortgage. In response, Acme Shoe filed a petition for
injunction at the RTC. The RTC dismissed Acme Shoes petition,
and ordered the foreclosure of the chattel mortgage. On appeal,
the Court of Appeals upheld the RTC in toto.
ISSUES/HELD: Is the foreclosure valid? (No)
RATIO: The Supreme Court discussed real securities (pledge,
mortgage or antichresis), and gave the general rule that real
securities may secure after-incurred obligations, or future
obligations not yet existing at the time the security agreement is
entered into. However, the Court pointed out that chattel
mortgage is the exception to this rule, being covered by a special
law (Act No. 1508) that provides in the prescribed form:
"x x x (the) mortgage is made for the purpose of securing the obligation specified
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."