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Handout on the Pawnshop Regulation Act (Presidential Decree No.

114)

The minimum paid-in capital is P100,000.


What is the policy of PD 114? (Sec. 2) What is a pawn? (Sec. 3)
The prudential capital ratio or the ratio of total
Regulate establishment of pawnshops capital to pledge loans is 50% provided total A pawn is personal property delivered by the
pledge loans not exceed P 3 million. 2 pawner to the pawnee as security for a loan.
Prevent and mitigate practices prejudicial to
public interest If total pledge loans exceed P 3 million,
additional capital of 30% of pledge loans in
Lay down requirements and standards excess of P 3 million is required. How do you pawn something?

1)Deliver personal property to pawnshop.

What is a pawnshop? (Sec. 3) What is the citizenship requirement? (Sec. 8) 2)Pawnshop appraises the item.

A pawnshop is a person or entity engaged in In a single proprietorship, only Filipino citizen 3)Parties agree to the loan amount.
the business of lending money on personal
In partnership, 70% of capital must be owned 4)Pawnshop gives pawn ticket and money.
property delivered as security for loans.
by Filipinos 5)Pay debt with interest and redeem pawn.
A pawnshop may be established as a single
proprietorship, a partnership or a corporation. In a corporation, 70% of voting capital stock is
owned by Filipinos or if non-stock corporation,
70% of members are Filipinos How much can be loaned? (Sec. 9)
How do you register a pawnshop? (Sec. 5-6) The amount of loan is agreed by the parties.
1)If a single proprietorship, get certificate of Amount not less than 30% of appraised value
registration from Department of Trade & of security unless pawner manifests in writing
Industry. desire to borrow lesser amount.
2)If a partnership or corporation, submit articles
of partnership or articles of incorporation to the
Securities and Exchange Commission. What are the charges? (Sec. 10)

3)Get a business license from the city or Interest rates - no ceiling but not iniquitous,
municipality where pawnshop is located. unconscionable, or contrary to morals 3

4)Submit information sheet and requirements to Service charges - P5.00 maximum


Bangko Sentral ng Pilipinas.
It is unlawful for a pawnshop to divide the
5)BSP will issue an Acknowledgment of pawn to collect greater interest and to require
Registration (AOR). 1 additional charge as insurance premium.

How much capital is required? (Sec. 7) What is a pawn ticket? (Sec. 12)
A pawn ticket is the receipt for a pawn. What are other duties of pawnshops?
How is a pawn sold or disposed? (Sec. 15)
It states amount of loan, date of pawning, rate Safeguard pawnshop assets 5
of interest, name and residence of pawner. The disposition must be by public auction in
Exert ordinary diligence 6
his place of business or other public place
Be Insured against fire 7
How do you redeem a pawn? (Sec. 13) After notice to pawner and publication of sale

Pay the debt with interest within 90 days from


the date of maturity of the loan. What are the penalties? (Sec. 18)
What is the notice requirement? (Sec. 15)
Fine: P100 to P1,000
Published notice in two daily newspapers
How should pawnee notify pawner? (Sec. 14) Imprisonment: 30 days to 1 year
During week preceding the date of sale
On or before expiry of redemption period Notice contains name of pawnshop, owner, 1 Sec. 4101P4, Manual of Regulation for Non-Bank Financial Institutions,
Pawnshop shall notify pawner in writing address, hour and date of auction sale P Regulations (Regulations Governing Pawnshops) (MORP)

In remote area, post notice in public places 2 Sec. 4107P, MORP


Notice shall state date, hour and place of sale
3 Sec. 4303P, MORP
Mode is by text/SMS, email, fax, or mail 4
4 Sec. 4324P, MORP
How soon can a pawnshop close or transfer
its place of business? (Sec. 16) 5 Sec. 4141P, MORP
What if a pawn is not redeemed? (Sec. 14) 6 Sec. 4301P.1, MORP
No pawnbroker shall close or transfer his
If pawner fails to redeem, pawnbroker may place of business within three months
G.R. Nos. L-10837-38 May 30, 1958
sell or dispose of article received in pawn.
Following maturity of any loan or pledge

Before any pawn is sold or disposed ASSOCIATED INSURANCE and SURETY


COMPANY, INC., plaintiff,
May transfer place of business within city or
municipality upon published notice
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA
VALINO, defendants.
What is the BSP authorized to do? (Sec. 17)

Issue rules and regulations Facts:


Valino & Valino were the owners and
Require from pawnshops reports
possessors of a house of strong materials in
Exercise visitorial powers Rizal, which they purchased on installment
Impose administrative sanctions basis. To enable her to purchase on credit rice
from NARIC, Valino filed a bond (P11,000)
subscribed by Associated Insurance and
Surety Co Inc, and as a counter-guaranty, and that the auction sale resulting from the Moreover, in view of the absence of any
Valino executed an alleged chattel mortgage foreclosure of chattel mortgage was null and specific provision to the contrary, a building is
on the aforementioned house in favour of the void. an immovable property irrespective of whether
surety company. At the same time, the parcel or not said structure and the land on which it
of land which the house was erected was Surety company argued that as the lot on is adhered to belong to the same owner.
registered in the name of Philippine Realty which the house was constructed did not
Corporation. belong to the spouses at the time the chattel A building certainly cannot be divested of its
mortgage was executed, the house might be character of a realty by the fact that the land
Valino, to secure payment of an indebtedness considered as personal property, and they on which it is constructed belongs to another.
(P12,000) executed a real estate mortgage prayed that the said building be excluded from
over the lot and the house in favour of Iya. the real estate mortgage. In the case at bar, as personal properties
could only be the subject of a chattel
Valino failed to satisfy her obligation to Issue: mortgage and as obviously the structure in
NARIC, so the surety company was There is no question over Iyas right over the question is not one, the execution of the
compelled to pay the same pursuant to the land by real estate mortgage; however, as the chattel mortgage covering said building is
undertaking of the bond. In turn, surety building instructed thereon has been the clearly invalid and a nullity. While it is true that
company demanded reimbursement from subject of two mortgages, controversy arise said document was correspondingly
Valino, and as they failed to do so, the as to which of these encumbrances should registered in Chattel Mortgage Registry of
company foreclosed the chattel mortgage over receive preference over the other. Rizal, this act produced no effect whatsoever,
the house. As a result, public sale was for where the interest conveyed is in the
conducted and the property was awarded to Held: nature of real property, the registration of the
the surety company. The building is subject to the real estate document in the registry of chattels is merely
mortgage, in favour of Iya. Iyas right to a futile act. Thus, the registration of the chattel
The surety company then learned of the foreclose not only the land but also the mortgage of a building of strong materials
existence of the real estate mortgage over the building erected thereon is recognised. produced no effect as far as the building is
lot and the improvements thereon; thus, they concerned.
prayed for the exclusion of the residential While it is true that real estate connotes the
house from the real estate mortgage and the land and the building constructed thereon, it is
declaration of its ownership in virtue of the obvious that the inclusion of the building,
award given during bidding. separate and distinct from the land, in the
enumeration of what may constitute real
Iya alleged that she acquired a real right over properties (Article 415), could only mean that
the lot and the house constructed thereon, a building is by itself an immovable property.
EN BANC To secure the payment of this note, Aguinaldo
executed a deed of chattel mortgage over said
G.R. No. L-9451 March 29, 1957 car. The deed was duly registered in the office
of the Register of Deeds of Manila at 1:12
OLAF N. BORLOUGH, petitioner, p.m. on March 11, 1952 (Exhibit "B"). As the
vs. buyer-mortgagor defaulted in the payment of
FORTUNE ENTERPRISES, INC. and THE the installments due, counsel for Fortune
HONORABLE COURT OF APPEALS (2nd Enterprises Inc. addressed a letter on May 16,
DIVISION), respondents. 1952 (Exhibit "C"), requesting him to make the
necessary payment and to keep his account
Arturo M. del Rosario and Alfredo G. up to date, to that no court action would be
Fernando for petitioner. resorted to.
Laurel & Salonga for respondents.
It further appears that the above-described car
LABRADOR, J.: found its way again into the United Car
Exchange which sold the same in cash for
Appeal by certiorari against a judgment of the P4,000 to one O. N. Borlough on April 6,
Court of Appeals, Second Division. The facts 1952. Accordingly, he registered it on the
of the case have been briefly stated as following day with the Motor Vehicles Office.
follows: (Decision, Court of Appeal.).

On March 8, 1952, the United Car Exchange It also appears from the record that defendant
sold to the Fortune Enterprises, Inc., the 0. N. Borlough took possession of the vehicle
following described car from the time he purchased it, On July 10,
1952, Fortune Enterprises, Inc. brought action
Make: Chevrolet (1947); Plate No. 34- against Salvador Aguinaldo to recover the
1465 balance of the purchase price. Borlough filed
Type : Sedan; Motor No. a third-party complaint, claiming the vehicle.
EAA-20834 (Exhibit D). Thereupon, Fortune Enterprises, Inc.
amended its complaint, including Borlough as
a defendant and alleging that he was in
The same car was sold by the Fortune
connivance with Salvador Aguinaldo and was
Enterprises, Inc. to one Salvador Aguinaldo,
unlawfully hiding and concealing the vehicle in
and for not having paid it in full, the latter
order to evade seizure by judicial process.
executed on the same date a promissory note
Borlough answered alleging that he was in
in the amount of P2,400 payable in 20
legal possession thereof, having purchased it
installments including interest thereon at 12
Republic of the Philippines in good faith and for the full price of P4,000,
per cent per annum, the last of which
SUPREME COURT and that he had a certificate of registration of
installments fell due on January 9, 1953
Manila the vehicle issued by the Motor Vehicles
(Exhibit "A").
Office, and he prayed for the dismissal of the
complaint, the return of the vehicle and for in view of the express provisions of the These notice shall be filed by the Chief of the
damages against the plaintiff. Revised Motor Vehicles Law, which expressly Motor Vehicles Office in the motor records,
and specifically regulate the registration, sale and in the absence of more specific
The vehicle was seized by the sheriff of or transfer and mortgage of motor vehicles. information, shall be deemed evidence of the
Manila on August 4, 1952 and was later sold The following provisions of said law may help true status of ownership of the motor vehicle.
at public auction. The Court of First Instance decide the legal question now under (Revised Motor Vehicles Law.)
rendered judgment in favor of Borlough, and consideration:
against plaintiff, ordering the latter to pay It is to be noted that under section 4 (b) of the
Borlough the sum of P4,000, with interest at 6 SEC. 5 (c) Reports of motor vehicle sales. Revised Motor Vehicles Law the Chief of the
per cent per annum, from the date of the On the first day of each month, every dealer in Motor Vehicles Office is required to enter or
seizure of the car on August 4, 1952, and in motor vehicles shall furnish the Chief of the record, among other things, transfers of motor
addition thereto, attorney's fees in the sum of Motor Vehicles Office a true report showing vehicles "with a view of making and keeping
P1,000. the name and address of each purchase of a the same and each all of them as accessible
motor vehicle during the previous month and as possible to and for persons and officers
Upon appeal to the Court of Appeals, this the manufacturer's serial number and motor properly interested in the same," and to "issue
court rendered judgment ordering that Emil B. number; a brief description of the vehicle, and such reasonable regulations governing the
Fajardo pay Borlough P4,000 plus attorney's such other information as the Chief of the search and examination of the documents and
fees and that plaintiff pay to Borlough any Motor Vehicles Office may require. records . . . as will be consistent with their
amount received by it in excess of its credits availability to the public and their safe and
and judicial expenses. The reason for the SEC. 5 (e) Report of mortgages. Whenever secure prevention."
modification of the judgment is that the any owner hypothecates or mortgage any
mortgage was superior, being prior in point of motor vehicle as surety for a debt or other Two recording laws are here being invoked,
time, to whatever rights may have been obligation, the creditor or person in whose one by each contending party the Chattel
acquired by Borlough by reason of his favor the mortgage is made shall, within seven Mortgage Law (Act No. 1508), by the
possession and by the registration of his title days, notify the Chief of the Motor Vehicles mortgagor and the Revised Motor Vehicles
in the Motor Vehicle Office. Office in writing to the effect, stating the Law (Act No. 3992), by a purchaser in
registration number of the motor vehicle, date possession. What effect did the passenger of
The question involved in the appeal in this of mortgage, names and addresses of both the Revised Motor Vehicles Law have on the
case is one of law and may be stated thus: As parties, and such other information as the previous enactment?
between a prior mortgage executed over a Chief of the Motor Vehicles Office may
motor vehicle, registered under the Chattel require. This notice shall be signed jointly by The Revised Motor Vehicles Law is a special
Mortgage Law only, without annotation thereof the parties to the mortgage. legislation enacted to "amend and compile the
in the Motor Vehicles Office, and a laws relative to motor vehicles," whereas the
subsequent registration of the vehicle in the On termination, cancellation or foreclosure of Chattel Mortgage Law is a general law
Motor Vehicles Office accompanied by actual the mortgage, a similar written notice signed covering mortgages of all kinds of personal
possession of the motor vehicle, which should by both parties, shall be forwarded to the property. The former is the latest attempt to
prevail. While the question can be resolved by Chief of the Motor Vehicles Office by the assemble and compile the motor vehicle laws
the general principles found in the Civil Code owner. of the Philippines, all the earlier laws on the
and expressly stated in Article 559, there is no subject having been found to be very deficient
need resorting thereto (the general principles) in form as well as in substance (Villar and De
Vega, Revised Motor Vehicles Law, p. 1); it Mortgage Law. A mortgage in order to affect existing lien, which continues valid until the
had been designed primarily to control the third persons should not only be registered in record shows that it has been satisfied and a
registration and operation of motor vehicles the Chattel Mortgage Registry, but the same new certificate issued on legal authority, even
(section 2, Act No. 3992). should also be recorded in the motor Vehicles through another certificate which does not
Office as required by section 5 (e) of the disclose the lien is procured as the result of
Counsel for petitioner contends that the Revised Motor Vehicles Law. And the failure false statements made in the application
passage of the Revised Motor Vehicles Law of the respondent mortgage to report the therefore, and the vehicle is purchased by a
had the effect of repealing the Chattel mortgage executed in its favor had the effect bona fide purchaser.
Mortgage Law, as regards registration of of making said mortgage ineffective against
motor vehicles and of the recording of Borlough, who had his purchase registered in The holder of a lien who is derelict in his duty
transaction affecting the same. We do not the said Motor Vehicles Office. to comply and require compliance with the
believe that it could have been the intention of statutory provisions acts at his own peril, and
the legislature to bring about such a repeal. In On failure to comply with the statute, the must suffer the consequence of his own
the first place, the provisions of the Revised transferee's title is rendered invalid as against negligence; and accordingly, he is not entitled
Motor Vehicles Law on registration are not a subsequent purchaser from the transferor, to the lien as against a subsequent innocent
inconsistent with does of the Chattel Mortgage who is enabled by such failure of compliance purchaser filed as provided by other chattel
Law. In the second place, implied repeals are to retain the indicia of ownership, such as a mortgage statutes. The rule is otherwise,
not favored; implied repeals are permitted only subsequent purchaser in good faith, or a however, as against claimants not occupying
in cases of clear and positive inconsistency. purchaser from a conditional buyer in the position of innocent purchaser, such as a
The first paragraph of section 5 indicates that possession; and the lien of a chattel mortgage judgment creditor, or one acquiring title with
the provisions of the Revised Motor Vehicles given by the buyer to secure a purchase actual notice of an unregistered lien, and the
Law regarding registration and recording of money loan never becomes effective in such statutes do not protect a purchaser holding
mortgage are not incompatible with a case as against an innocent purchaser. (60 under registered title if a link in the title is
mortgage under the Chattel Mortgage Law. Corpus Juris Secundum, p. 171.) forgery. Moreover, such statute will not impair
The section merely requires report to the vested rights of a mortgage under a chattel
Motor Vehicles Office of a mortgage; it does One holding a lien on a motor vehicle, in so mortgage duly recorded. (60 C.J.S., pp. 181-
not state that the registration of the mortgage far as he can reasonably do so, must protect 182.)
under the Chattel Mortgage Law is to be himself and others thereafter dealing in good
dispensed with. We have, therefore, an faith by complying and requiring compliance The above authorities leave no room for doubt
additional requirements in the Revised Motor with the provisions of the laws concerning that purchaser O. N. Borlough's right to the
Vehicles Law, aside from the registration of a certificates of title to motor vehicles, such as vehicle as against the previous and prior
chattel mortgage, which is to report a statutes providing for the notation of liens or mortgage Fortune Enterprises, Inc., which
mortgage to the Motor Vehicles Office, if the claims against the motor vehicle certificate of failed to record its lien in accordance with the
subject of the mortgage is a motor vehicle; the title or manufacturer's certificate, or for the Revised Motor Vehicles Law, should be
report merely supplements or complements issuance to the mortgagee of a new certificate upheld.
the registration. of ownership. Where the lien holder has
satisfied himself that the existence of the lien For the foregoing consideration, the judgment
The recording provisions of the Revised Motor is recited in the certificate of title, he has done of the Court of Appeals is hereby reversed
Vehicles Law, therefore, are merely all that the law contemplates that he should and that of the Court of First Instance
complementary to those of the Chattel do, and there is notice to the public of the affirmed, with costs against respondent.
denied, and the case was appealed to this defendant Hospital de San Juan de Dios, Inc.
Court. obtained, in Civil Case No. 1930 of the
Municipal Court of Pasay City, a judgment
The facts are that on May 8, 1953, in order to was duly Josewfina Vda. de Eleazar. A writ of
secure an indebtedness of P15,000.00, execution was duly issued and, on January
Josefina Vda. de Aleazar executed in favor of 28, 1957, the same was served on the
the plaintiff-appellant Buenaventura Saldana a judgment debtor by the sheriff of Pasay City;
chattel mortgage covering properties whereupon the following properties of
described as follows: Josefina Eleazar were levied upon:

Republic of the Philippines A building of strong materials, used for 8 Tables with 4 (upholstered) chairs each.
SUPREME COURT restaurant business, located in front of the
Manila San Juan de Dios Hospital at Dewey 1 Table with 4 (wooden) chairs.
Boulevard, Pasay City, and the following
EN BANC personal properties therein contained: 1 Table (large) with 5 chairs.

G.R. No. L-13194 January 29, 1960 1 Radio, Zenith, cabinet type. 1 Radio-phono (Zenith, 8 tubes).

BUENAVENTURA T. SALDANA, plaintiff- 1 Cooler. 2 Showcases (big, with mirrors).


appellant,
vs. 1 Electric range, stateside, 4 burners. 1 Rattan sala set with 4 chairs, 1 table and 3
PHILIPPINE GUARANTY COMPANY, INC.,
sidetables .
et al., defendants-appellees.
1 Frigidaire, 8 cubic feet.
1 Wooden drawer.
Gatchalian & Padilla for appellant.
1 G.E. Deepfreezer.
Emiliano Tabasondra for appellee
1 Tocador (brown with mirror).
Company.Teodoro Padilla for the other
8 Tables, stateside.
appellees.
1 Aparador .
32 Chromium chairs, stateside.
REYES, J.B.L., J.:
2 Beds (single type).
1 Sala set upholstered, 6 pieces.
This case arose from a complaint for damages
1 Freezer (deep freeze).
filed by Buenaventura Saldana (docketed as
1 Bedroom set, 6 pieces.
Civil Case No. 32703 of the Court of First
Instance of Manila) that was dismissed by 1 Gas range (magic chef, with 4 burners).
order of the Court dated August 20, 1957, for And all other furniture's, fixtures or equipment
lack of sufficient cause of action. In another found in the said premises. 1 Freezer (G.E.).
order of September 30, 1957 of the same
court, plaintiff's motion for reconsideration was Subsequent to the execution of said mortgage On January 31, 1957, the plaintiff-appellant
and while the same was still in force, the Saldana filed a third-party claim asserting that
the above-described properties levied are description of the properties be such "as to where third parties with out actual notice come
subject to his chattel mortgage of May 8, enable the parties in the mortgage, or any in. In 11 C.J. 457, it is said: "Ad against third
1953. In virtue thereof, the sheriff released other person, after reasonable inquiry and persons the description in the mortgage must
only some of the property originally included in investigation to identify the same". Gauged by point out its subject matter so that such
the levy of January 28, 1957, to wit: this standard, general description have been person may identify the chattels observed, but
held by this Court. it is not essential that the description be so
1 Radio, Zenith, cabinet type. (See Stockholder vs. Ramirez, 44 Phil., 993; specific that the property may be identified by
Pedro de Jesus vs. Guam Bee Co., Inc., 72 it alone, if such description or means of
8 Tables, stateside. Phil., 464). identification which, if pursued will disclose the
property conveyed." In 5 R.C.L. 423 the rule is
32 Chromiun chairs, stateside. A similar rule obtains in the United States stated that a description which will enable a
courts and decisions there have repeatedly third person, aided by inquires which the
1 G.E. Deep freezer. upheld clauses of general import in mortgages instrument itself suggest to identify the
of chattels other than goods for trade, and property is sufficiently definite." In 1 Jones on
containing expressions similar to that of the Chattel Mortgages and Conditional Sales, Bowers Edition, at
To proceed with the execution sale of the rest page 95 the writer says: "As to them (third persons), the
of the properties still under levy, the contract now before us. Thus, "and all other description is sufficient if it points to evidence whereby the

defendants-appellees Hospital de San Juan stones belonging to me and all other goods precise thing mortgaged may be ascertained with certainty."
Here there is nothing in the description "873 head of sheep" from
de Dios, Inc. and the Philippine Guaranty Co., and chattels" (Russel vs. Winne, 97 Am. Dec. which anyone, the mortgagee or third persons, could ascertain
Inc., executed an indemnity bond to answer 755); "all of the property of the said W.W. with any certainty what chattels were covered by the mortgage.

for any damages that plaintiff might suffer. Allen used or situated upon the leased
Accordingly, on February 13, 1957, the said premises" (Dorman vs. Crooks State Bank, 64 In many instances the courts have held the
properties were sold to the defendant hospital A.L.R. 614); "all goods in the store where they description good where, though otherwise
as the highest bidder, for P1,500.00. are doing business in E. City, N.C." (Davis vs. faulty, the mortgage explicity states that the
Turner, 120 Fed. 605); "all and singular the property is in the possession of the mortgagor,
Appellants claims that the phrase in the goods, wares, stock, iron tools manufactured and especially where it is the only property of
chattel mortgage contract "and all other articles and property of every description, that kind owned by him.
furnitures, fixtures and equipment found in the being situated in or about the shop or building
said premises", validly and sufficiently now occupied by me in Howley Stree" The specifications in the chattel mortgage
covered within its terms the personal (Winslow vs. Merchants Ins. Co., 38 Am. Dec. contract in the instant case, we believe, in
properties disposed of in the auction sale, as 368,) were held sufficient description, on the substantial compliance with the "reasonable
to warrant an action for damages by the theory that parol evidence could supplement it description rule" fixed by the chattel Mortgage
plaintiff mortgagee. to render identification rule is expressed in Act. We may notice in the agreement,
Walker vs. Johnson (Mont.) 1254 A.L.R. 937: moreover, that the phrase in question is found
There is merit in appellant's contention. after an enumeration of other specific articles.
Section 7 of Act No. 1508, commonly and The courts and textbook writers have It can thus be reasonably inferred therefrom
better known as the Chattel Mortgage Law, developed several rules for determination of that the "furnitures, fixture and equipment"
does not demand a minute and specific the sufficiency of the description in a chattel referred to are properties of like nature,
description of every chattel mortgaged in the mortgage. The rules are general in nature and similarly situated or similarly used in the
deal of mortgage but only requires that the are different where the controversy is between restaurant of the mortgagor located in front of
the parties to the mortgage from the situation the San Juan de Dos Hospital at Dewey
Boulevard, Pasay City, which articles can be should be treshed out in the insolvency Plastic Corporation, executed a chattel
definitely pointed out or ascertain by simple proceedings, mortgage in favor of Producers Bank of
inquiry at or about the premises. Note that the the Philippines, as a security for a
limitation found in the last paragraph of which appears inconsistent with the definitive
section 7 of the Chattel Mortgage Law1on "like
corporate loan in the amount of P3M.
character of the rulings invoked.
or subsituated properties" make reference to The chattel mortgage contained a
those "thereafter acquired by the mortgagor We find that the ground for the appealed order clause that provided for the mortgage to
and placed in the same depository as the (lack of cause of action) does not appear so stand as security for all other obligations
property originally mortgaged", not to those indubitable as to warrant a dismissal of the contracted before, during and after the
already existing and originally included at the action without inquiry into the merits and constitution of the mortgage.
date of the constitution of the chattel without the description in the deed of
mortgage. A contrary view would unduly mortgage (Nico vs. Blanco, 81 Phil., 213;
impose a more rigid condition than what the
The P3M was paid. Subsequently, the
Zobel vs. Abreau, 52 Off. Gaz., 3592).
law prescribes, which is that the description corporation obtained additional financial
be only such as to enable identification after a Wherefore, the orders appealed from are set accommodations totalling P2.7M. This
reasonable inquiry and investigation. aside and the case remanded to the lower was also paid on the due date. Again,
court for further proceedings. Costs against the bank extended another loan to the
The case of Giberson vs. A.N. Jureidini Bros., appellee. corporation in the amount of P1M,
44 Phil., 216, 219, cited by the appellees and covered by four promissory notes.
the lower court, cannot be likened to the case
However, the corporation was unable to
at bar, for there, what were sought to be
mortgaged included two stores wit all its pay this at maturity. Thereupon, the
merchandise, effects, wares, and other bazar G.R. No. 103576, Aug. 22, bank applied for an extra-judicial
goods which were being constantly disposed foreclosure of mortgage.
of and replaced with new supplies in 1996
connection with the business, thereby making For its part, the corporation filed an
any particular or definite identification either action for injunction with prayer for
impractical or impossible under the o Contracts of Security: Chattel
Mortgage damages. The lower court ultimately
circumstances. Here, the properties deemed
overed were more or less fixed, or at least o The rule on after-incurred dismissed the case and ordered the
permanently situated or used in the premises obligations extra-judicial foreclosure of mortgage.
of the mortgagor's restaurant. o Is a corporation entitled to moral Hence, this appeal.
damages?
The rule in the Jureidini case is further ISSUEs:
weakened by the court's observation that (44
Phil., p. 220) o W/N extra-judicial foreclosure of
FACTS: the chattel mortgage is proper
Moreover, if there should exist any doubts on
the questions we have just discussed, they Chua Pac, president and general
manager of Acme Shoe, Rubber and
o If not proper, W/N the corporation then the property encumbered can be constitute as an act of default on the
is entitled to damages as a result of the alienated for the payment of the part of the borrower of the financing
extra-judicial foreclosure obligation, but that should the obligation agreement wherein the promise is
be duly paid, then the contract is written, but, of course, the remedy of
HELD: automatically extinguished proceeding foreclosure can only cover the debts
from the accessory character of the extant at the time of constitution and
Contracts of Security agreement. As the law so puts it, once during the life of the chattel mortgage
the obligation is complied with, then the sought to be foreclosed.
Contracts of security are either personal contract of security becomes, ipso facto,
or real. In contracts of personal security, null and void. In the case at bar, the chattel mortgage
such as a guaranty or suretyship, the was terminated when payment for the
faithful performance of the obligation by After-incurred Obligations P3M loan was made so there was no
the principal debtor is secured by the chattel mortgage to even foreclose at
personal commitment of another (the While a pledge, real estate mortgage, or the time the bank instituted the extra-
guarantor or surety). In contracts of real antichresis may exceptionaly secure judicial foreclosure.
security, such as a pledge, a mortgage after-incurred obligations so long as
or an antichresis, that fulfillment is these future debts are accurately Damages
secured by an encumbrance of property described, a chattel mortgage, however,
-- in pledge, the placing of movable can only cover obligations existing at the In its complaint, the corporation asked
property in the possession of the time the mortgage is constituted. for moral damages sustained "as a
creditor; in chattel mortgage by the Although a promise expressed in a result of the unlawful action taken by the
execution of the corresponding and chattel mortgage to include debts that respondent bank against it." The court
substantially in teh form prescribed by are yet to be contracted can be a said --
law; in real estate mortgage, by the binding commitment that can be
execution of a public instrument compelled upon, the security itself, "Moral damages are granted in
encumbering the real property covered however, does not come into existence recompense for physical suffering,
thereby; and in antichresis, by a written or arise until after a chattel mortgage mental anguish, fright, serious anxiety,
instrument granting to the creditor the agreement covered the newly besmirched reputation, wounded
right to receive the fruits of an contracted debt is executed either by feelings, moral shock, social humiliation,
immovable property with the obligation concluding a fresh chattel mortgage or and similar injury. A corporation, being
to apply such fruits to the payment of by amending the old contract an artificial person and having existence
interest, if owing, and thereafter to the conformably with the Chattel Mortgage only in legal contemplation, has no
principal of his credit -- upon the Law. Refusal on the part of borrower to feelings, no emotions, no senses;
essential condition that if the obligation execute the agreement so as to cover therefore it cannot experience physical
becomes due and the debtor defaults, the after-incurred obligation can suffering and mental anguish. Mental
suffering can be experienced only by Unmistakably, the redemption cited in Section However, even prior to receiving, through counsel, a
13 partakes of an equity of redemption, which is mailed notice of the auction sale on the date of the
one having a nervous system and it the right of the mortgagor to redeem the mortgaged auction sale itself on June 16, 1992, respondent was
flows from real ills and sorrows and property after his default in the performance of the already put on notice of the impending foreclosure
griefs of life -- all of which cannot be conditions of the mortgage but before the sale of the sale of the mortgaged chattels. Despite its window of
property to clear it from the encumbrance of the opportunity to exercise its equity of redemption,
suffered by respondent bank as an mortgage. It is not the same as right of however, respondent chose to be technically shrewd
artificial person. redemption which is the right of the mortgagor to about its chances, preferring instead to seek
redeem the mortgaged property after registration of annulment of the auction sale, which was the result of
the foreclosure sale, and even after confirmation of the foreclosure of the mortgage, permission to
"Although Chua Pac was included in the the sale. conduct which it had early on opposed before the
case, he was only so named as a party insolvency court. Its negligence or omission to
exercise its equity of redemption within a reasonable
in representation of the corporation."
While respondent had attached some of Terrymanilas time, or even on the day of the auction sale, warrants
RCBC V. ROYAL CARGO CORPORATION, assets to secure the satisfaction of a P296,662.16 a presumption that it had either abandoned it or
(2009) judgment rendered in another case, what it effectively opted not to assert it. Equitable considerations thus
Right of Redemption attached was Terrymanilas equity of sway against it. To now allow respondent have its way
redemption. That respondents claim is much lower in annulling the auction sale and at the same time let
than the P1.5 million actual bid of petitioner at the it proceed with its claims before the insolvency court
Issue: WON petitioner, as mortgagee, had the duty to auction sale does not defeat respondents equity of would neither rhyme with reason nor with justice.
notify the respondent of the public auction sale. redemption. Top Rate International Services, Inc. v.
IAC enlightens:

Section 13 of the Chattel Mortgage We, therefore, hold that


Law allows the would-be redemptioner thereunder to the appellate court did not commit In any event, even if respondent would have
redeem the mortgaged property only before its any error in ruling that there was no participated in the auction sale and matched
sale. Consider the following pronouncement over-levy on the disputed petitioners bid, the superiority of petitioners
in Paray: properties. What was actually (mortgagee) lien over the mortgaged assets would
attached by respondents was preclude respondent from recovering the chattels.
Consolidated Mines right or It has long been settled by
[T]here is no law in our statute books equity of redemption, an this Court that the right of those
which vests the right of redemption incorporeal and intangible right, the who acquire said
over personal property. Act No. 1508, value of which can neither be properties should not and can
or the Chattel Mortgage quantified nor equated with the not be superior to that of the
Law, ostensibly could have served as actual value of the properties upon creditor who has in his favor
the vehicle for any legislative intent to which it may be exercised. an instrument of
bestow a right of redemption over mortgage executed with the
personal property, since that formalities of the law, in good
law governs the extrajudicial sale of faith, and without the least
mortgaged personal property, but the indication of fraud. In
statute is definitely silent on the point. Held: Having thus attached Terrymanilas equity of purchasing it, with full knowledge
the right of redemption applies redemption, respondent had to be informed of the that such circumstances existed, it
to real properties, not personal date of sale of the mortgaged assets for it to exercise should be presumed that he did so,
properties, sold on execution. such equity of redemption over some of those very much willing to respect the lien
foreclosed properties, as provided for in Section 13. existing thereon, since he should
not have expected that with the
purchase, he would acquire a better
right than that which the vendor the sale of the thing entitles the mortgagor to
then had. pledged extinguishes the the balance of the
entire principal proceeds, upon
obligation, such that the satisfaction of the
It bears noting that the chattel mortgage in pledgor may no longer principal obligation and
favor of petitioner was registered more than two recover proceeds of the costs
years before the issuance of a writ of attachment over sale in excess of the
some of Terrymanilas chattels in favor of respondent. amount of the principal
This is significant in determining who between obligation
petitioner and respondent should be given preference Since the Chattel Mortgage Law bars the creditor-
over the subject properties. Since the registration of a mortgagee from retaining the excess of the sale
chattel mortgage is an effective and binding notice to PAMECA WOOD TREATMENT PLANT, INC. V. proceeds there is a corollary obligation on the part of
other creditors of its existence and creates a real right CA, (1999) the debtor-mortgagee to pay the deficiency in case of a
or lien that follows the property wherever it may Right to Surplus or Deficiency, Act. No 1508, Sec. 14 reduction in the price at public auction.
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 Section 14 of Act No. 1508, as amended, or The theory of the lower court would lead to the absurd
mortgagee who has in his favor a valid chattel the Chattel Mortgage Law, states: conclusion that if the chattels mentioned in the
mortgage. The officer making the sale shall, within 30 days mortgage, given as security, should sell for more than
thereafter, make in writing a return of his doings and the amount of the indebtedness secured, that the
file the same in the office of the Registry of Deeds creditor would be entitled to the full amount for which
Held: Petitioner is not liable for constructive fraud where the mortgage is recorded, and the Register of it might be sold, even though that amount was greatly
for proceeding with the auction sale. Nor for Deeds shall record the same. The fees of the officer in excess of the indebtedness. Such a result certainly
subsequently selling the chattel. For foreclosure suits for selling the property shall be the same as the case of was not contemplated by the legislature when it
may be initiated even during insolvency proceedings, sale on execution as provided in Act 190, and the adopted Act No. 1508. There seems to be no reason
as long as leave must first be obtained from the amendments thereto, and the fees of the Register of supporting that theory under the provision of the
insolvency court as what petitioner did. Deeds for registering the officers return shall be taxed law. The value of the chattels changes greatly from
as a part of the costs of sale, which the officer shall time to time, and sometimes very rapidly. If, for
pay to the Register of Deeds. The return shall example, the chattels should greatly increase in value
particularly describe the articles sold, and state the and a sale under that condition should result in
amount received for each article, and shall operate as largely overpaying the indebtedness, and if the
a discharge of the lien thereon created by the creditor is not permitted to retain the excess, then the
mortgage. The proceeds of such sale shall be applied same token would require the debtor to pay the
to the payment: deficiency in case of a reduction in the price of the
1. first, of the costs and expenses of keeping chattels between the date of the contract and a breach
and sale, and then of the condition.
2. to the payment of the demand or obligation
secured by such mortgage, and
3. the residue shall be paid to persons holding And the fact that Act No. 1508 permits a private sale,
subsequent mortgages in their order, and such sale is not, in fact, a satisfaction of the debt, to
4. the balance, after paying the mortgage, any greater extent than the value of the property at
shall be paid to the mortgagor or persons the time of the sale. The amount received at the time
holding under him on demand. of the sale, of course, always requiring good faith and
Pledge Chattel Mortgage honesty in the sale, is only a payment, pro tanto, and
Article 2115 Act No. 1508 an action may be maintained for a deficiency in the
debt.