G.R. No.

107554 February 13, 1997

CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, ROBERTO ONG AND ANG TAY, respondents.

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to
set aside the decision of the Court of Appeals in CA-G.R C.V. No. 26257 dated 2 July 1992 which affirmed
the decision of the Regional Trial Court in Civil Case No. CEB-6919, declaring the chattel mortgage void
and ordering petitioner and private respondent Robert Ong to pay damages to private respondent Ang
Tay. The Court of Appeals' resolution dated 30 September 1992 is similarly impugned for denying
petitioner's motion for reconsideration.

Gleaned from the records are the following facts:

On 4 March 1987, Jacinto Dy executed a Special Power of Attorney1 in favor of private respondent Ang
Tay, authorizing the latter to sell the cargo vessel Owned by Dy and christened LCT "Asiatic."

On 28 April 1987, through a Deed of Absolute Sale,2 Ang Tay sold the subject vessel to private
respondent Robert Ong (Ong) for P900,000.00. Ong paid the purchase price by issuing three (3) checks
in the following amounts: P150,000.000, P600,000.00 and P150,000.00. However, since the payment
was not made in cash, it was specifically stipulated in the deed of sale that the "LCT Asiatic shall not be
registered or transferred to Robert Ong until complete payment." 3 Thereafter, Ong obtained possession
of the subject vessel so he could begin deriving economic benefits therefrom. He, likewise, obtained
copies of the unnotarized deed of sale allegedly to be shown to the banks to enable him to acquire a
loan to replenish his (Ong's) capital. The aforequoted condition, however,which was handwritten on the
original deed of sale does not appear on Ong's copies.

Contrary to the aforementioned agreements and without the knowledge of Ang Tay, Ong had his copies
of the deed of sale (on which the aforementioned prohibition does not appear) notarized on 18 May
1987.4 Ong presented the notarized deed to the Philippine Coast Guard which subsequently issued him a
Certificate of Ownership5 and a Certificate of Philippine Register6 over the subject vessel on 27 May
1987. Ong also succeeded in having the name of the vessel changed to LCT "Orient Hope."

On 29 October 1987, Ong acquired a loan from petitioner in the amount of P496,008.00 to be paid in
installments as evidenced by a promissory note of even date.7

As security for the loan, Ong executed a chattel mortgage over the subject vessel,8 which mortgage was
registered with the Philippine Coast Guard and annotated on the Certificate of Ownership.9 In paragraph
3 of the Deed of Chattel Mortgage, it was stated that:

3. The said sum of FOUR HUNDRED NINETY SIX THOUSAND EIGHT ONLY (496,008.00)
represents the balance due on of MORTGAGOR(S) from the MORTGAGEE and is payable
in the office of the MORTGAGEE at Cebu City or in the office of the latter's assignee, in
case the rights and interests of the MORTGAGEE in the foregoing mortgage are assigned
to a third person, under the terms of said promissory note, as follows: (a) TWENTY
THOUSAND SIX HUNDRED SIXTY SEVEN ONLY** Pesos (P20,667.00) on or before . . . . . .
and (b) the balance in Twenty Four (24) equal successive monthly installments on the . .
. . . . day of each and every succeeding month thereafter until the amount is fully paid.
The interest on the foregoing installments shall be paid on the same date that the
installments become payable and additional interest at the rate of fourteen (14%) per
cent per annum will be charged on all amounts, principal and interest, not paid on due
date. 10(Emphasis ours.)
Ong defaulted in the payment of the monthly installments. Consequently, on 11 May 1988, petitioner
sent him a letter 11 demanding delivery of the mortgaged vessel for foreclosure or in the alternative to
pay the balance of P437,802.00 pursuant to paragraph 11 of the deed of chattel mortgage. 12

Meanwhile, the two checks (worth P600,000.00 and P150,000.00) paid by Ong to Ang Tay for the
purchase of the subject vessel bounced. Ang Tay's search for the elusive Ong and all attempts to confer
with him proved to be futile. A subsequent investigation and inquiry with the Office of the Coast Guard
revealed that the subject vessel was already in the name of Ong, in violation of the express undertaking
contained in the original deed of sale.

As a result thereof, on 13 January 1988, Ang Tay and Jacinto Dy filed a civil case for rescission and
replevin with damages against Ong and his wife (docketed as Civil Case No. CEB-6565) with the Regional
Trial Court of Cebu . City, Branch 10. The trial court issued a writ of replevin and the subject vessel was
seized and subsequently delivered to Ang Tay.

On 9 March 1988, petitioner filed a motion for intervention but withdrew the same on 29 April 1988.
Instead, on 26 May 1988, petitioner filed a separate case for replevin and damages against Ong and
"John Doe" (Ang Tay) with the same trial court, docketed as Civil Case No. CEB-6919.

The trial court granted petitioner's prayer for replevin. The vessel was seized and placed in the custody
of the trial court. However, Ang Tay posted a counterbond and the vessel was returned to his
possession.

On 3 October 1990 in CEB-6565, the trial court rendered a decision in favor of Ang Tay and Jacinto Dy.
The sale of the subject vessel was rescinded, the registration of the vessel with the Office of the Coast
Guard and other government agencies in Ong's name nullified and the vessel's registration in Dy's name
revived. Ong was, likewise, ordered to pay Jacinto Dy and Ang Tay actual damages for lost income, moral
damages, attorney's fees and litigation
13
expenses.

The Court of Appeals affirmed the trial court's decision and Ong's petition for review before this Court
was dismissed for lack of merit in a resolution dated 15 March 1993,

On the other hand, in CEB-6919, the subject of the present appeal, the trial court in a decision dated 14
February 1990, declared the chattel mortgage on the subject vessel null and void and ordered petitioner
and Ong to pay Ang Tay damages. The dispositive portion states, thus:

WHEREFORE, in view of all the foregoing, the chattel mortgage on the vessel LCT
ORIENT HOPE is declared null and void, rendering its annotation and registration at the
back of the Certificate of Ownership and Certificate of Philippine Registry respectively,
to be of no force and effect.

Plaintiff CIFC and defendant Robert Ong are hereby ordered to pay jointly and severally
to defendant Ang Tay the following amounts: P50,000.00 as unrealized income during
the five-day period when the vessel was take from Ang Tay's possession; P100,000.00,
representing the premiums Ang Tay paid for the redelivery of the vessel to him and
other expenses; P10,000.00 as actual expenses for the recovery of the vessel;
P100,000.00 as moral damages; P50,000.00 as exemplary damages; P40,000.00 as
actual expenses in attending trials and litigation expenses; and P30,000.00 as attorney's
fees.

SO ORDERED. 14

On 2 July 1992, the Court of Appeals affirmed in toto the above mentioned decision. 15 Hence, the
present petition for review on certiorari.

Petitioner enumerates the alleged errors oft he Court of Appeals as follows:

 I

THE COURT OF APPEALS ERRED IN BASING ITS DECISION ON SPECULATION,

CONJECTURE, AND SURMISE, WHEN IT DECLARED THAT THE CONTRACT BETWEEN CIFC
AND ROBERT ONG WAS ONE OF SALE, AND NOT LOAN (MUTUUM) WITH MORTGAGE.

II

THE RULING OF THE COURT OF APPEALS IS CONTRARY TO EXISTING AND WELL-SETTLED

JURISPRUDENCE THAT A MORTGAGEE HAS THE RIGHT TO RELY ON WHAT APPEARS IN
THE CERTIFICATE OF OWNERSHIP (TITLE).

III

THE DECISION OF THE COURT OF APPEALS IS REPUGNANT TO THE CLEAR RULING OF THE
HONORABLE COURT THAT BETWEEN TWO INNOCENT

PERSONS, THE ONE WHO MADE THE DAMAGE POSSIBLE BY HIS ACT OF CONFIDENCE
MUST BEAR THE LOSS. 16

We grant the petition.

In upholding the nullity of the chattel mortgage on the subject vessel, the Court of Appeals declared
thus:

In Par. 3 of the Chattel Mortgage Contract executed between appellants CIFC and
Robert Ong, it was made to appear that the subject vessel was sold by the plaintiff Cebu
International Finance Corporation to Robert Ong on installment. However, there is no
showing that appellant CIFC acquired the vessel in question from either Jacinto Dy or
Ang Tay, the owner of such vessel. Since, CIFC appears to have sold the vessel in
question to Ong on installment basis, the said contract is null and void, because CIFC
was never the owner of the vessel.

Moreover, Robert Ong CIFC's mortgagor, did not acquire ownership of the vessel
because of an express stipulation in the Deed of Sale that the vessel "shall not be
registered or transferred to Robert Ong until complete payment." (Exh. "7-C-1".) Since
Ong clearly was not the owner of the vessel at the time of the execution of the
mortgage, the said mortgage is null and void on that ground.

Furthermore, the evidence on record shows the chattel mortgage in question did not
comply with the requirements of P.D. 1521, The Ship Mortgage Decree of 1978. . . . 17

The Court of Appeals nullified the chattel mortgage contract between petitioner and Ong because
paragraph 3 of the said contract (where it appeared that petitioner sold the subject vessel to Ong on
installment basis and that the amount supposedly loaned to Ong represented the balance due on the
purchase price) seemed to indicate that the owner of the vessel mortgaged was petitioner although it
had been duly established that another party (Jacinto Dy) was the true owner thereof. 18

We disagree with the aforequoted ruling of the Court of Appeals. The chattel mortgage contract should
not be viewed in such a myopic context. The key lies in the certificate of ownership issued in Ong's name
(which, along with the deed of sale, he submitted to petitioner as proof that he is the owner of the ship
he gave as security for his loan). It was plainly stated therein that the ship LCT "Orient Hope" ex
"Asiatic," by means of a Deed of Absolute Sale dated 28 April 1987, was "sold and transferred by Jacinto
Dy to Robert Ong." 19 There can be no dispute then that it was Dy who was the seller and Ong the buyer
of the subject vessel. Coupled with the fact that there is no evidence euphony transaction between
Jacinto Dy or Ang Tay and petitioner, it follows, therefore, that petitioner's role in the picture is properly
and logically that of a creditor-mortgagee and not owner-seller. It is paragraph 2 of the mortgage
contract 20 which accurately expresses the true nature of the transaction between petitioner and Ong--
that it is a simple loan with chattel mortgage. The amount petitioner loaned to Ong does not represent
the balance of any purchase price since, as we have previously discussed, the aforementioned
documents state that Ong is already the absolute owner of the subject vessel. Obviously, therefore,
paragraph 3 of the said contract was filled up by mistake. Considering that petitioner used a form
contract, it is not improbable that such an oversight may have been committed--negligently but
unintentionally and without malice. As testified to by Mr. Benjamin C. Alfaro, petitioner's Senior Vice
President for Operations they only use one form for several kinds of transaction:

ATTY. UY: (TO WITNESS)

Q: Mr. Alfaro, as a financing institution, Cebu International finance

Corporation, how many kinds of lending transaction do you have in a
firm? Do you have financial leasing, discounting or whatever? Can you
explain briefly to the Honorable Court?

WITNESS:

A: We have direct loan transaction. We have financing transaction and

we have leasing transaction. Now, in the leasing transaction, the
document will show that we are the owner of the equipment and we
leased it out. In the financing transaction, where we used the same
Chattel Mortgage instrument, there are three parties involved, the
seller of the equipment. And then, the seller of the equipment would
sell or assign the contract with the financing company. That is the
financing transaction. And in the simple loan transaction, there appears
only two parties involved, the borrower and the lender.

ATTY. UY: (TO WITNESS)

Q: Now, Mr. Alfaro, the same document, Chattel Mortgage will apply
also to financing transaction, leasing transaction and simple loan
transaction?

WITNESS:

A: Simple loan and financing transactions.

ATTY. UY (TO WITNESS)

Q: Now, Mr. Alfaro, this paragraph 2 of Chattel Mortgage, can this apply
to a financing transaction?

WITNESS:

A: No, the paragraph 3 will be the one that is applicable to a financing

transaction. (Witness reading the document and after reading
continued) Paragraph 2 applies to both financing and simple loan
transaction.

ATTY. UY:

Q: And paragraph 3?

WITNESS:

A: Paragraph 3 applies to both financing and lending transactions but

paragraph 3 does not apply to Simple lending transaction.
xxx xxx xxx 21

ATTY. LOGRONIO: (TO WITNESS)

Q: You do not affirm the assertion made by your counsel that paragraph
3 arise only in case that your rights to a mortgage were assigned by you
to a third person, do you agree that also?

WITNESS:

A: This form of chattel mortgage, in fact, you will notice that the portion
for mortgagor and mortgagee are all blank because this is the same
form which is used by the company, used for the parties when there is a
dealer involved, when there is installment buyer involved and when we
come in as third party purchaser of the document because as practiced
by the different dealer, this is the same form used between the buyer
and the dealer of the motor vehicle. After this is being consummated
already, it is assigned to a finance company and these are the same
documents used. Now, in this particular case, this becomes already . . .
this is a direct transaction between the finance company and the
borrower. We, the finance company becomes the direct lender and Mr.
Ong became the direct borrower. As I explained earlier, this document
is also the form used between a dealer of a motor vehicle and an
installment buyer wherein after paying the down payment, the unpaid
balance which is secured by the chattel mortgage, the promissory note,
and the disclosure statement and this document is sold to a third party
and that is the finance company by the dealer.

ATTY. LOGRONIO:

Q: Up to this point, when you had the transaction with Mr. Ong, this
form that you executed, the Chattel Mortgage was in what kind of form
that was already used by the company?

WITNESS:

A: These are forms available to us.

ATTY. LOGRONIO:

Q: This is a form used when there is a buyer and a ...

WITNESS:

A: Third party or direct borrowing lender.

ATTY. LOGRONIO:

Q: And this refers to a direct borrower or lending transaction.

WITNESS:

A: Yes.

ATTY. LOGRONIO:

Q: No third party assignment has been involved so far?

 WITNESS:

A: No.

xxx xxx xxx 22

Accordingly, the chattel mortgage contract between petitioner and Ong is valid and subsisting.

The next issue for our determination is whether or not petitioner is a mortgagee in good faith whose
lien over the mortgaged vessel should be respected.

The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title
of the mortgagor to the property given as security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the
rightful owner of or does not have a valid title to the mortgaged property, the mortgagee or transferee
in good faith is nonetheless entitled to protection. 23 Although this rule generally pertains to real
property, particularly registered land, it may also be applied by analogy to personal property, in this case
specifically, since shipowners are, likewise, required by law to register their vessels with the Philippine
Coast Guard.

Private respondent Ang Tay, however, contends that the aforementioned rule does not apply in the case
at bar in the face of the numerous "badges of bad faith" on the part of petitioner.

Capitalizing on paragraph 3 of the chattel mortgage contract, Ang Tay argues as follows:

. . . The fraud and conspiracy by Robert Ong and some responsible employees of CIFC
against Jacinto Dy and Ang Tay are thus brought to the open by this stipulation. Since
CIFC appears in the registered chattel mortgage to have sold the vessel in question to
Robert Ong, the said contract is null and void because CIFC never for a second or a
moment became the owner of the vessel. CIFC was the one who prepared the chattel
mortgage and the one who registered the same without contemporaneous or
subsequent correction or modification; it cannot, after it notified the public by means of
registration that it acquired the vessel and became its owner, now shy away from a
stipulation which is the heart and nerve-center of the contract and which it made and
registered. This is both the essence and consequence of estoppel. Applicable is Article
1459 of the Civil Code which provides inter-alia: ". . . the vendor must have a right to
transfer the ownership thereof (the thing sold) at the time it is delivered."

2. Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel because of an
express stipulation which he signed that the vessel "shall not be registered or
transferred to Robert Ong until complete payment." (Exh. "7-C-1".) This stipulation is
expressly covered by Article 1478 of the Civil Code: "The parties may stipulate that
ownership in the thing shall not pass to the purchaser until he has fully paid the price."
Since Ong clearly was not the owner of the vessel at the time of the execution of the
mortgage, the said mortgage is null and void on that ground. 24

Ang Tay's contentions are unmeritorious. As previously discussed, paragraph 3 of the chattel mortgage
contract was erroneously but unintentionally filled up. The failure of petitioner to exercise due care in
filling up the necessary provisions in the chattel mortgage contract does not, however, amount to bad
faith. It was a mere oversight and not a deliberate and malicious act.

Petitioner's bad faith is further demonstrated, Ang Tay avers, by its failure to comply with the following
requirements of P.D. No. 1521 or the Ship Mortgage Decree of 1978:

1) The loan secured by the mortgaged vessel was not for any of purposes specified in
Sec. 2 of P.D. No. 1521, i.e., "financing the construction, acquisition, purchase of vessels
or initial operation of vessels" 25 and that petitioner failed to furnish the Central Bank a
copy of the mortgage; 26
 2) The special affidavit of good faith required in Sec. 4 of P.D. No. 1521 was lacking; and

3) Ong failed to disclose his creditors and lienors as provided in Sec. 6 of P.D. No. 1521.

There is no merit in private respondent's allegations. In the 9 November 1989 hearing, Ang Tay
confirmed his statement in his affidavit, executed in Civil Case No. CEB-6565, that Ong wanted to obtain
a loan to replenish his capital because he had used up his money in the purchase of the subject
vessel 27 and that the ship was delivered to Ong so that he could begin deriving economic benefits
therefrom. 28 Mr. Randolph Veloso petitioner's collector, processing clerk, credit investigator and
appraiser, further testified as follows:

xxx xxx xxx

Q: Do you know the purpose for that loan

A: Yes.

Q: What was his purpose?

A: He was going to mortgage the vessel to us.

Q: What was the purpose of the loan?

A: We don't usually ask our client what they will do with it.

Q: You don't ask the purpose?

A: It is understood that whenever a client approach the institution he

usually has a purpose for the money.

Q: Did not the corporation was what need has he for the money?

A: He is going to use it for his business in the boat.

Q: And that is his only statement? What was his specific statement?

ATTY. UY:

Already answered. He will use it in the business of his boat.

ATTY. LOGRONIO:

What was the purpose.

ATTY. UY:

Already answered Your Honor and besides it is immaterial.

ATTY. LOGRONIO:

Very material and it is important Your Honor as there is a violation of

the law. I am entitled to insist for the answer.

COURT:

Witness may answer, if he knows.

 (TO WITNESS)

Q: Did he tell you what was the purpose?

A: For the business of the boat.

ATTY. LOGRONIO: (TO WITNESS)

Q: That's all, that he is going to use the money for the business of the
boat?

A: Yes.

xxx xxx xxx 29

From the foregoing, therefore, it can be readily deduced that the loan was for the initial operation of the
subject vessel and thus falls under the purposes laid down in the Ship Mortgage Decree.

The special affidavit of good faith, on the other hand, is required only for the purpose of transforming an
already valid mortgage into a "preferred mortgage." 30 Thus, the abovementioned affidavit is not
necessary for the validity of the chattel mortgage itself but only to give it a preferred status.

As to the disclosure requirement in Sec. 6 of the Ship Mortgage Decree, 31 it was intentional on Ong's
part not to inform petitioner that he had yet to pay in full the purchase price of the subject vessel. Ong
presented himself to petitioner as the absolute owner of the LCT "Orient Hope" ex "Asiatic." The
Certificate of Ownership in Ong's name showed that the ship was conveyed to him by means of a Deed
of Absolute Sale which gave the idea that the purchase price had been fully paid and the sale completed.

Petitioner had every right to rely on the Certificate of Ownership and Certificate of Philippine Register
duly issued by the Philippine Coast Guard in Ong's name. Petitioner had no reason to doubt Ong's
ownership over the subject vessel. The documents presented by Ong, upon petitioner's insistence
before accepting the said vessel as loan security, were all in order and properly issued by the duly
constituted authorities. There was no circumstance that might have aroused petitioner's suspicion or
alerted it to any infirmity committed by Ong. It had no participation in and was not privy to the sale
transaction between Jacinto Dy (through Ang Tay) and Ong. Petitioner, thus, had no obligation to
undertake further investigation since it had the necessary documents to prove Ong's ownership. In
addition petitioner even took pains to inspect the subject vessel which was in Ong's possession. Mr.
Benjamin C. Alfaro testified thus: . . .

xxx xxx xxx

ATTY. LOGRONIO:

Q: In your credit investigation of Mr. Robert Ong did you have a chance
yourself or any of your employees to verify the condition and the
location of the vessel at the very time?

WITNESS:

A: Yes.

ATTY. LOGRONIO:

Q: Will you tell the Court where was the vessel at the time that he
applied for a loan with your bank?

WITNESS:
 A: It was under finishing touches in the drydock in . . . think in Lapulapu
or Mandaue.

ATTY. LOGRONIO:

Q: So, more or less, you are sure that at the time that he applied for a
loan and you approved the same, this vessel was still at the drydock?

WITNESS:

A: Yes finishing touches. In fact, it had pictures to support the

application. I don't know if we have it now.

ATTY. UY:

We have. (Counsel producing a picture of a vessel and handing it to the

witness).

WITNESS: (Cont)

This is the picture of the vessel because we required him to submit.

ATTY. LOGRONIO:

Q: You are referring to the picture which you asked the Court to mark as
Exhibit . . . .

ATTY. UY:

No, we are requesting now Your Honor. This has not been marked yet.
We asked that the picture showing the back portion of the vessel,
Orient Hope be marked as Exhibit "I" and the picture showing the front
portion of the vessel as Exhibit "I-1".

COURT: (TO INTERPRETER)

Mark it.

ATTY. LOGRONIO: (TO WITNESS)

Q: So, at the time that the vessel was submitted to you as collateral for
the loan, the condition of the vessel was as it is reflected in this exhibit?
(Cross- examiner referring to the picture).

WITNESS:

A: Yes.

xxx xxx xxx 32

Anent the last issue, although Ang Tay may also be an innocent person, a similar victim of Ong's
fraudulent machinations, it was his act of confidence which led to the present fiasco. Ang Tay readily
agreed to execute a deed of absolute sale in Ong's favor even though Ong had yet to make a complete
payment of the purchase price. It is true that in the copy of the said deed submitted by Ang Tay there
was an undertaking that ownership will not vest in Ong until full payment.33 However, Ong was able to
obtain several copies of the deed 34 with Ang Tay's signature and had these notarized without the
aforementioned undertaking as evidenced by the copy of the deed of sale presented by
petitioner. 35 The Deed of Absolute Sale consisted of two (2) pages. The signatures of Ang Tay and Ong
appeared only on the first page of the deed. The Second page contained the continuation of the
acknowledgment and the undertaking. Ong could have easily reproduced the second page without the
undertaking since this page was not signed by the contracting parties. To complete the deception, Ang
Tay unwittingly allowed Ong to have possession of the ship. Hence, in consonance with our ruling that:

. . . as between two innocent persons, the mortgagee and the owner of the mortgaged
property, one of whom must suffer the consequence of a breach of trust, the one who
made it possible by his act of confidence must bear the loss. 36

it is Ang Tay and his principal Jacinto Dy who must, unfortunately, suffer the consequences
thereof. They are considered bound by the chattel mortgage on the subject vessel.

WHEREFORE, this Court GRANTS the Petition for Review and REVERSES the questioned decision and
resolution of the Court of Appeals. The validity of the chattel mortgage on the vessel LCT ORIENT HOPE
is hereby upheld without prejudice to whatever legal remedies private respondent Ang Tay may have
against private1 respondent Robert Ong in the premises.

SO ORDERED
G. R. No. L-11466

ABLAZA VS. IGNACIO

BAUTISTA ANGELO, J.:

This is an action for deficiency arising from a foreclosure of a chattel mortgage instituted when the new
Civil Code has already taken effect.

Defendant, after having been served with the summons and the complaint, failed to answer within the
reglementary period. Upon motion of plaintiff, defendant was declared in default. Then plaintiff
presented his evidence and submitted the case for decision.

On August 30, 1956, the court rendered decision dismissing the complaint on the ground that, under the
provisions of Articles 2141 and 2115 of the new civil Code, "plaintiff is not entitled to deficiency
judgment notwithstanding defendant being declared in default for the reason that it is manifestly
against the law." Hence the present appeal.

It appears that defendant borrowed from plaintiff the amount of 52,250, payable after sixty days, with
interest at 12% per annum, and to secure the loan, he executed a chattel mortgage on an Oldsmobile
car. Defendant failed to pay the indebtedness on its date of maturity, thereby violating one of the
conditions of the mortgage. Thereupon, plaintiff proceeded to foreclose the mortgage extrajudicially
and the mortgaged chattel was sold at public auction for the amount of P700.00. Deducting this amount
from, the total obligation, in addition to the interest and liquidated damages agreed upon, the
remaining balance was P2,675. To collect this balance, plaintiff instituted the present action.

The lower court dismissed this case in spite of the fact that defendant was declared in default and
plaintiff presented enough evidence to support his claim because, being an action for deficiency oh a
chattel mortgage, it opined that the mortgage creditor is no longer entitled to it under the provisions of
the new Civil Code. Said the lower court:

"It is clear from the evidence presented that plaintiff in the instant case seeks deficiency judgment on a
chattel mortgage.

"The Civil Code provides:

'Art. 2141. The provisions of this Code on pledge insofar as they are not in conflict with the Chattel
Mortgage Law, shall be applicable to chattel mortgages.'

"Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the
proceeds of the 3ale are equal to the amount of the principal obligation, interest and expenses in a
proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed, if the price of the sale is less neither shall the creditor be entitled
to recover the deficiency, notwithstanding any stipulation to the contrary.'

"With the above-quoted provisions of the Civil Code, this Court is of the opinion that plaintiff is not
entitled to deficiency judgment notwithstanding defendant being declared in default for the reason that
it is manifestly against the law."

We are of the opinion that the trial court is in error. It is clear from Article 2141 that the provisions of
the new Civil Code on pledge shall apply to a chattel mortgage only in so far as they are not in conflict
with the Chattel Mortgage Law. In other words, the provisions of the new Civil Code on pledge can only
apply if they do not run counter to any provision of the Chattel Mortgage Law, otherwise, the provisions
of the latter law shall apply. Here we find tint the provisions of the Chattel Mortgage Law with regard to
the effects of the foreclosure of a chattel mortgage are precisely contrary to the provisions of Article
2115 which were applied by the trial court. This can be seen from a perusal of Section 14 of said law,
which we quote:

"SEC. 14. The mortgagee, his executor, administrator, or assign, may, after thirty days from the time of
condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a
public officer at a public place in the municipality where the mortgagor resides, or where the property is
situated, provided at least ten days notice of the time, place, and purpose of such sale has been posted
at two or more public places in such municipality, and the mortgagee, his executor, administrator, or
assign, shall notify the mortgagor or person holding under him and the person holding subsequent
mortgages of the time and place of sale, either by notice in writing direct to him or left at his abode, if
within the municipality, or sent by mail if he does not reside in such municipality at least ten days
previous to the sale.

"The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings
and file the same; in the office of the Registry of Deeds where the mortgage is recorded, and the
Register of Deeds shall record the same. The fees of the officer for selling the property shall be the same
as the case of sale on execution as provided in Act numbered one hundred and ninety, and the
amendments thereto, and the fees of the Register of Deeds for registering the officer's return shall be
taxed as a part of the costs of sale, which the officer shall pay to the Register of Deeds. The return shall
particularly describe the articles sold, and state the amount received for each article, and shall operate
as a discharge of the lien thereon created by the mortgage.The proceeds of such sale shall the be applied
to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the
demand or obligation secured by such mortgage, and the residue shall be paid to persons holding
subsequent; mortgages in their order, and the balance, after paying the mortgage, shall be paid to the
mortgagor or personsholding under him on demand." (Underlining supplied)

Interpreting the nature of a chattel mortgage and the effects of its foreclosure in case of non-payment
of the obligation, this Court made the following pronouncement:

"While it is true that section 3 of Act no. 1506 provides that 'a chattel mortgage is a conditional sale,1 it
further provides that it 'is a conditional sale of personal property as security for the payment of a debt,
or for the performance of some other obligation specified therein.' The lower court overlooked the fact
that the chattels included in the chattel mortgage are only given as a security and not as a payment of
the debt, in case of a failure of payment.

"The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the
mortgage, given as security, should sell for more than the amount of the indebtedness secured, that the
creditor would be entitled to the full amount for which it might be sold, even though the amount was
greatly in excess of the indebtedness. Such a result certainly was not contemplated by the legislature
when it adopted Act no. 1508. There seems to be no reason supporting that theory under the provision
of the law. The value of chattels changes greatly from time to time, and sometimes very rapidly. If, for
example, the chattels should greatly increase in value and a sale under that condition should result in
largely overpaying the indebtedness, and if the creditor is not permitted to retain the excess, then the
same token would require the debtor to pay the deficiency in case of a reduction in the price of the
chattels between, the date of the contract and a breach of the condition.

"Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of
chattel mortgages, have said, that 'in case of a sale under a foreclosure of a chattel mortgage, there is
no question that the mortgagee or creditor may maintain er action for the deficiency, if any should
occur.1 And the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of
the debt, to any greater extent than the value of the property at the time of the sale. The amount
received at the time of the sale, of course, always requiring good" faith and honesty in the sale, is only a
payment, pro tanto, and an action may be maintained for a deficiency in the debt." (Manila Trading and
Supply Go. vs. Tamaraw Plantation Co., 47 Phil., 513; Underlining supplied)

Considering that the provisions of the Chattel Mortgage law regarding the effects of the foreclosure of a
chattel mortgage are contrary to the provisions of Article 2115 of the new Civil Code, we find no
plausible reason why the latter should apply to the present case.

Wherefore, the decision appealed from is reversed. Judgment is hereby rendered ordering defendant to
pay to plaintiff the amount of P2,675, with interest thereon from January 3, 1955, and the costs of
action
G.R. No. 107846 April 18, 1997

LEOVILLO C. AGUSTIN, petitioner,

vs.
COURT OF APPEALS and FILINVEST FINANCE CORP., respondents.

RESOLUTION

FRANCISCO, J.:

This is an appeal by certiorari from the decision of respondent Court of Appeals in CA-G.R. No.
246841 which affirmed the order of Regional Trial Court, Branch 40, Manila, in Civil Case No. 84804.2

The dispute stemmed from an unpaid promissory note dated October 28, 1970, executed by petitioner
Leovillo C. Agustin in favor of ERM Commercial for the amount of P43,480.80. The note was payable in
monthly installments3and secured by a chattel mortgage over an Isuzu diesel truck,4 both of which were
subsequently assigned to private respondent Filinvest Finance
5
Corporation. When petitioner defaulted in paying the installments, private respondent demanded from
him the payment of the entire balance or, in lieu thereof, the possession of the mortgaged vehicle.
Neither payment nor surrender was made. Aggrieved, private respondent filed a complaint with the
Regional Trial. Court of Manila, Branch 26 (RTC Branch 26) against petitioner praying for the issuance of
a writ of replevin or, in the alternative, for the. payment of P32,723.97 plus interest at the rate of
14% per annum from due date until fully paid.6 Trial ensued and, thereafter, a writ of replevin was
issued by RTC Branch 26. By virtue thereof, private respondent acquired possession of the vehicle. Upon
repossession, the latter discovered that the vehicle was no longer in running condition and that several
parts were missing which private respondent replaced. The vehicle was then foreclosed and sold at
public auction.

Private respondent subsequently filed a "supplemental complaint" claiming additional reimbursement

worth P8,852.76 as value of replacement parts7 and for expenses incurred in transporting the
mortgaged vehicle from Cagayan to Manila. In response, petitioner moved to dismiss the supplemental
complaint arguing that RTC Branch 26 had already lost jurisdiction over the case because of the earlier
extra-jurisdicial foreclosure of the mortgage. The lower court granted the motion and the case was
dismissed. Private respondent elevated the matter to the appellate court, docketed as CA-G.R. No.
56718-R, which set aside the order of dismissal and ruled that repossession expenses incurred by private
respondent should be reimbursed.9 This decision became final and executory, hence the case was
accordingly remanded to the Regional Trial Court of Manila, Branch 40 (RTC Branch 40) for reception of
evidence to determine the amount due from petitioner. 10 After trial, RTC Branch 40 found petitioner
liable for the repossession expenses, attorney's fees, liquidated damages, bonding fees and other
expenses in the seizure of the vehicle in the aggregate sum of P18,547.38. Petitioner moved for
reconsideration. Acting thereon, RTC Branch 40 modified its decision by lowering the monetary award to
P8,852.76, the amount originally prayed for in the supplemental complaint. 11 Private respondent
appealed the case with. respect to the reduction of the amount awarded. Petitioner, likewise, appealed
impugning the trial court's order for him to pay private respondent P8,852.76, an amount over and
above the value received from the foreclosure sale. Both appeals were consolidated and in CA-G.R. No.
24684, the modified order of RTC Branch 40 was affirmed. Petitioner filed a motion for reconsideration,
but to no avail. 12 Hence, this petition for review on certiorari.

Petitioner contends that. the award of repossession expenses to private respondent as mortgagee is
"contrary to the letter, intent and spirit of Article 1484 13 of the Civil Code". 14 He asserts that private
respondent's repossession expenses have been amply covered by the foreclosure of the chattel
mortgage, hence he could no longer be held liable. The arguments are devoid of merit.

Petitioner's contentions, we note, were previously rejected by respondent court in its decision in CA-G.R
No. 56718-R the dispositive portion of which provides as follows:
 WHEREFORE, the order dismissing the case is hereby set aside and the case is remanded
to the lower court for reception of evidence of 'expenses properly incurred in effecting
seizure of the chattel (and) of recoverable attorney's fees in prosecuting the action for
replevin" as "repossession expenses" prayed for in the supplemental complaint, without
pronouncement as to costs. 15

which ruling has long acquired finality. It is clear, therefore, that the appellate court had already
settled the propriety of awarding repossession expenses in favor of private respondent. The
remand of the case to RTC Branch 40 was for the sole purpose of threshing out the correct
amount of expenses and not for relitigating the accuracy of the award. Thus, the findings of RTC
Branch 40, as affirmed by the appellate court in CA-G.R. No. 24684, were confined to the
appreciation of evidence relative to the repossession expenses for the query or issue passed
upon by the respondent court in CA-G.R. No. 56718-R (propriety of the award for repossession
expenses) has become the "law of the case". This principle is defined as "a term applied to an
established rule that when an appellate court passes on a question and remands the cause to
the lower court for further proceedings, the question there settled becomes the law of the case
upon subsequent appeal." 16 Having exactly the same parties and issues, the decision in the
former appeal (CA-G.R. No. 56718-R) is now the established and controlling rule. Petitioner may
not therefore be allowed in a subsequent appeal (CA-G.R. No. 24684) and in this petition to
resuscitate and revive formerly settled issues. Judgment of courts should attain finality at some
point in time, as in this case, otherwise, there will be no end to litigation.

At any rate, even if we were to brush aside the "law of the case" doctrine we find the award for
repossession expenses still proper. In Filipinas Investment & Finance Corporation v. Ridad, 17 the
Court recognized an exception to the rule stated under Art. 1484(3) upon which petitioner
relies. Thus:

. . . Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage
upon his failure to pay two or more installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, what then is the mortgagee expected to do? . . . It
logically follows as a matter of common sense, that the necessary expenses incurred in
the prosecution by the mortgagee of the action for replevin so that he can regain
possession of the chattel, should be borne by the mortgagor. Recoverable expenses
would, in our view, include expenses properly incurred in effecting seizure of the chattel
and reasonable attorney's fees in prosecuting the action for replevin. 18

Anent the denial of the award for attorney's fees, we find the same in order. The trial court, as
well as respondent court, found no evidence to support the claim for; attorney's fees which
factual finding is binding on us. 19 We find no compelling reason, and none was presented, to set
aside this ruling.

ACCORDINGLY, the petition is DENIED for lack of merit, and the decision of the Court of Appeals
is hereby AFFIRMED in toto.

SO ORDERED
G.R. No. 106435 July 14, 1999

PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY
R. PULIDO, petitioners,
vs.
HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

GONZAGA-REYES, J.:

Before Us for review on certiorari is the decision of the respondent Court of Appeals in C.A. G.R. C.V. No.
27861, promulgated on April 23, 1992, 1 affirming in toto the decision of the Regional Trial Court of
Makati 2 to a award respondent bank's deficiency claim, arising from a loan secured by chattel
mortgage.

The antecedents of the case are as follows:

On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of
US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan,
petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note for
the said amount, promising to pay the loan by installment. As security for the said loan, a chattel
mortgage was also executed over PAMECA's properties in Dumaguete City, consisting of inventories,
furniture and equipment, to cover the whole value of the loan.

On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank extrajudicially
foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed
properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for the
collection of the balance of P4,366,332.46 3 with Branch 132 of the Regional Trial Court of Makati City
against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the
promissory note.

On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which
we reproduce as follows:

WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and
severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim of the
latter as of March 31, 1984, plus 21% interest per annum and other charges from April
1, 1984 until the whole amount is fully paid and (2) the costs of the suit. SO ORDERED." 4

The Court of Appeals affirmed the RTC decision. Hence, this Petition.

The petition raises the following grounds:

1. Respondent appellate court gravely erred in not reversing the decision of the trial
court, and in not holding that the public auction sale of petitioner PAMECA's chattels
were tainted with fraud, as the chattels of the said petitioner were bought by private
respondent as sole bidder in only 1/6 of the market value of the property, hence
unconscionable and inequitable, and therefore null and void.

2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and
Article 2115 of the Civil Code by reading the spirit of the law, and taking into
consideration the fact that the contract of loan was a contract of adhesion.

3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria
Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood Treatment Plant,
Inc. when the intention of the parties was that the loan is only for the corporation's
benefit.
Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent
bank bid for and purchased the mortgaged properties was unconscionable and inequitable considering
that, at the time of the public sale, the mortgaged properties had a total value of more than
P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31, 1980 5, which
valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage
contract 6 between the parties that required that the inventories "be maintained at a level no less than
P2 million". Petitioners argue that respondent bank's act of bidding and purchasing the mortgaged
properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole
bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the
annulment of the auction sale.

To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were
not in fact submitted as evidence before the RTC of Makati, and that these documents were first
produced by petitioners only when the case was brought to the Court of Appeals. 7 The Court of
Appeals, in turn, disregarded these documents for petitioners' failure to present them in evidence, or to
even allude to them in their testimonies before the lower courtr. 8 Instead, respondent court declared
that it is not at all unlikely for the chattels to have sufficiently deteriorated as to have fetched such a low
price at the time of the auction sale. 9 Neither did respondent court find anything irregular or fraudulent
in the circumstance that respondent bank was the sole bidder in the sale, as all the legal procedures for
the conduct of a foreclosure sale have been complied with, thus giving rise to the presumption of
regularity in the performance of public duties. 10

Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners,
officers and stockholders of petitioner PAMECA, liable with PAMECA for the obligation under the loan
obtained from respondent bank, contrary to the doctrine of separate and distinct corporate
personality. 11 Private petitioners contend that they became signatories to the promissory note "only as
a matter of practice by the respondent bank", that the promissory note was in the nature of a contract
of adhesion, and that the loan was for the benefit of the corporation, PAMECA, alone. 12

Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484 13 and
2115 14 of the Civil Code be applied in analogy to the instant case to preclude the recovery of a
deficiency claim. 15

Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of
chattel mortgage. In the leading case of Ablaza vs. Ignacio 16, the lower court dismissed the complaint
for collection of deficiency judgment in view of Article 2141 of the Civil Code, which provides that the
provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as they are not in
conflict with the Chattel Mortgage Law. It was the lower court's opinion that, by virtue of Article 2141,
the provisions of Article 2115 which deny the creditor-pledgee the right to recover deficiency in case the
proceeds of the foreclosire sale are less than the amount of the principal obligation, will apply.

This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage
Law regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of Article
2115, Article 2115, in relation to Article 2141, may not be applied to the case.

Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, states:

xxx xxx xxx

The officer making the sale shall, within thirty days thereafter, make in writing a return
of his doings and file the same in the office of the Registry of Deeds where the mortgage
is recorded, and the Register of Deeds shall record the same. The fees of the officer for
selling the property shall be the same as the case of sale on execution as provided in Act
Numbered One Hundred and Ninety, and the amendments thereto, and the fees of the
Register of Deeds for registering the officer's return shall be taxed as a part of the costs
of sale, which the officer shall pay to the Register of Deeds. The return shall particularly
describe the articles sold, and state the amount received for each article, and shall
operate as a discharge of the lien thereon created by the mortgage. The proceeds of
 such sale shall be applied to the payment, first, of the costs and expenses of keeping
and sale, and then to the payment of the demand or obligation secured by such
mortgage, and the residue shall be paid to persons holding subsequent mortgages in
their order, and the balance, after paying the mortgage, shall be paid to the mortgagor
or persons holding under him on demand. (Emphasis supplied).

It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run
inconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the
sale in excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law
expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal
obligation and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale
proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in
case of a reduction in the price at public auction. As explained in Manila Trading and Supply Co. vs.
Tamaraw Plantation Co. 17, cited inAblaza vs. Ignacio, supra:

While it is true that section 3 of Act No. 1508 provides that "a chattel mortgage is a
conditional sale", it further provides that it "is a conditional sale of personal property as
security for the payment of a debt, or for the performance of some other obligation
specified therein." The lower court overlooked the fact that the chattels included in the
chattel mortgage are only given as security and not as a payment of the debt, in case of
a failure of payment.

The theory of the lower court would lead to the absurd conclusion that if the chattels
mentioned in the mortgage, given as security, should sell for more than the amount of
the indebtedness secured, that the creditor would be entitled to the full amount for
which it might be sold, even though that amount was greatly in excess of the
indebtedness. Such a result certainly was not contemplated by the legislature when it
adopted Act No. 1508. There seems to be no reason supporting that theory under the
provision of the law. The value of the chattels changes greatly from time to time, and
sometimes very rapidly. If for example, the chattels should greatly increase in value and
a sale under that condition should result in largely overpaying the indebtedness, and if
the creditor is not permitted to retain the excess, then the same token would require
the debtor to pay the deficiency in case of a reduction in the price of the chattels
between the date of the contract and a breach of the condition.

Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on
the question of chattel mortgages, have said, that "in case of a sale under a foreclosure
of a chattel mortgage, there is no question that the mortgagee or creditor may maintain
an action for the deficiency, if any should occur." And the. fact that Act No. 1508
permits a private sale, such sale is not, in fact, a satisfaction of the debt, to any greater
extent than the value of the property at the time of the sale. The amount received at
the time of the sale, of course, always requiring good faith and honesty in the sale, is
only a payment, pro tanto, and an action may be maintained for a deficiency in the debt.

We find no reason to disturb the ruling in Ablaza vs Ignacio, and the cases reiterating it. 18

Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant
case. As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of
personal property the price of which is payable in installments. Although Article 1484, paragraph (3)
expressly bars any further action against the purchaser to recover an unpaid balance of the price, where
the vendor opts to foreclose the chattel mortgage on the thing sold, should the vendee's failure to pay
cover two or more installments, this provision is specifically applicable to a sale on installments.

To accommodate petitioners' prayer even on the basis of equity would be to expand the application of
the provisions of Article 1484 to situations beyond its specific purview, and ignore the language and
intent of the Chattel Mortgage Law. Equity, which has been aptly described as "justice outside legality",
is applied only in the absence of, and never against, statutory law or judicial rules of procedure. 19

We are also unable to find merit in petitioners' submission that the public auction sale is void on
grounds of fraud and inadequacy of price. Petitioners never assailed the validity of the sale in the RTC,
and only in the Court of Appeals did they attempt to prove inadequacy of price through the
documents, i.e., the "Open-End Mortgage on Inventory" and inventory dated March 31, 1980, likewise
attached to their Petition before this Court. Basic is the rule that parties may not bring on appeal issues
that were not raised on trial.

Having nonetheless examined the inventory and chattel mortgage document as part of the records, We
are not convinced that they effectively prove that the mortgaged properties had a market value of at
least P2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel mortgage
contract only indicates the obligation of the mortgagor to maintain the inventory at a value of at least
P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, was as of March 31,
1980, or even prior to April 17, 1980, the date when the parties entered into the contracts of loan and
chattel mortgage, and is far from being an accurate estimate of the market value of the properties at the
time of the foreclosure sale four years thereafter. Thus, even assuming that the inventory and chattel
mortgage contract were duly submitted as evidence before the trial court, it is clear that they cannot
suffice to substantiate petitioners' allegation of inadequacy of price.1âwphi1.nêt

Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in
the public sale does not warrant the conclusion that the transaction was attended with fraud. Fraud is a
serious allegation that requires full and convincing evidence, 20 and may not be inferred from the lone
circumstance that it was only respondent bank that bid in the sale of the foreclosed properties. The
sparseness of petitioners' evidence in this regard leaves Us no discretion but to uphold the presumption
of regularity in the conduct of the public sale.

We likewise affirm private petitioners' joint and several liability with petitioner corporation in the loan.
As found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably set
forth the solidary nature of private petitioners' commitment. Thus:

On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT,
INC., a corporation organized and existing under the laws of the Philippines, with
principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to the
order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner
Buendia and Makati Avenues, Makati, Metro Manila, the principal sum of TWO
HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US
DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%) per annum
over DBP's borrowing rate for these funds. Before the date of maturity, we hereby bind
ourselves, jointly and severally, to make partial payments as follows:

xxx xxx xxx

In case of default in the payment of any installment above, we bind ourselves to pay
DBP for advances . . .

xxx xxx xxx

We further bind ourselves to pay additional interest and penalty charges on loan
amortizations or portion thereof in arrears as follows:

xxx xxx xxx

In addition to the above, we also bind ourselves to pay for bank advances for insurance
premiums, taxes . . .

xxx xxx xxx

 We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by
DBP on the foreign currency borrowings from where the loan shall be drawn . . .

xxx xxx xxx

In case of non-payment of the amount of this note or any portion of it on demand, when
due, or any other amount or amounts due on account of this note, the entire obligation
shall become due and demandable, and if, for the enforcement of the payment thereof,
the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its
attorneys, we jointly and severally bind ourselves to pay for attorney's fees as provided
for in the mortgage contract, in addition to the legal fees and other incidental expenses.
In the event of foreclosure of the mortgage securing this note, we further bind ourselves
jointly and severally to pay the deficiency, if any. (Emphasis supplied) 21

The promissory note was signed by private petitioners in the following manner:

PAMECA WOOD TREATMENT PLANT, INC.

By:

(Sgd) HERMINIO G. TEVES

(For himself & as President of above-named corporation)

(Sgd) HIRAM DIDAY PULIDO

(Sgd) VICTORIA V. TEVES 22

From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with
petitioner PAMECA in the loan. As correctly submitted by respondent bank, private petitioners are not
made to answer for the corporate act of petitioner PAMECA, but are made liable because they made
themselves co-makers with PAMECA under the promissory note.

IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April
23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners.

SO ORDERED
[G.R. No. 10630. December 21, 1915. ]

THE UNITED STATES, Plaintiff-Appellant, v. EUGENIO KILAYKO, Defendant-Appellee.

SYLLABUS

1. CHATTEL MORTGAGES; SALE BY DEBTOR; CRIMINAL LIABILITY NOT AFFECTED BY SUBSEQUENT

PAYMENT OF INDEBTEDNESS. — Where property mortgaged under the provisions of the Chattel
Mortgage Law (Act No. 1508) is wrongfully sold or disposed of by the mortgage debtor, the mortgage
debtor is not relieved of criminal liability under the penal provisions of that statute by the mere fact that
the mortgage indebtedness is thereafter paid in full.

2. ID.; CHATTEL MORTGAGE LAW; OBJECT OF PENAL PROVISIONS. — The object of the penal provisions
of the Chattel Mortgage Law is not merely to protect the mortgagee in particular cases in which criminal
actions are instituted, and to secure the payment of the mortgage indebtedness in such cases (although
they may, and should have that effect in many instances), but also to give the necessary sanction to the
provision of the statute in the interest of the public at large, so that in all cases wherein loans are made
and secured under the terms of the statute, the mortgage debtors may be deterred from the violation of
its provisions and the mortgage creditors may be protected against loss or inconvenience resulting from
the wrongful removal or sale of the mortgaged property.

3. CRIMINAL LAW; DISMISSAL OF INFORMATION AS DISMISSAL OF CASE. — The accused in a criminal

case having been duly arraigned and having pleaded not guilty, a so-called demurrer or motion to
dismiss the information was interposed by counsel for the accused, whereupon, after some discussion in
open court, the case was submitted for judgment on an agreed statement of facts. Held: That the
judgment of the court dismissing the information at this stage of the proceedings, although based upon
an erroneous interpretation of the law, was in effect a dismissal of the case upon merits, from which no
appeal lay on the part of the prosecution.

DECISION

CARSON, J. :

The information in this case charges the defendant and appellee with a violation of the penal provisions
of section 12 of the Chattel Mortgage Law (Act No. 1508), in that, as it is alleged, he sold certain
property, mortgaged by him under the provisions of that Act, without the consent of the mortgagee,
and notwithstanding the fact that the debt secured by the chattel mortgage had not been paid in full.

After the defendant had been arraigned and pleaded not guilty, and before any of the witnesses were
called to the witness stand, counsel for the accused interposed what he called a demurrer to the
information, wherein; after admitting the truth of the facts alleged in the information, he insisted, that
the information should be dismissed, because, as he urged, certain facts within the knowledge of the
court made it clear that the pending criminal action could not be successfully maintained.

After some discussion by counsel, the so-called demurrer, which was in truth a motion to dismiss the
information, was submitted with the understanding that both parties admitted and agreed upon the
following statement of facts: First, that the defendant did in fact sell the mortgaged property described
in the information without the consent of the mortgagee, and without having first paid the mortgage
debt in full. Second, that at the time when the mortgaged property was sold a substantial part of the
indebtedness secured by the mortgage still remained unpaid. Third, that at the time of the institution of
this action the total amount of the indebtedness had been discharged either by payment direct to the
creditor, or by the deposit of the total amount of the unpaid balance of the mortgage debt in the hands
of the clerk of the court, after formal tender of the creditor and his refusal to accept the amount thus
tendered in settlement of the indebtedness.
The contention of counsel for the defendant in the court below was based on the erroneous assumption
that the penal provisions of section 12, of Act No. 1508, do not authorize the enforcement of the
penalties therein prescribed, in any case wherein it appears that the mortgage indebtedness has been
discharged in full at the time of the institution of criminal proceedings. In support of this contention,
counsel assumes that the protection of the mortgagee, in any case in which criminal proceedings are
instituted, i9 the sole purpose and object of the penal provisions of the statute. The argument would
seem to be that since the statute prescribes that the fine which the courts are authorized to impose on
conviction of a wrongful sale of mortgaged property must be equal in amount to double the value of the
property sold, one-half of which is to go to the mortgagee, it could not have been the intention of the
legislator to permit the mortgagee to recover such a fine in any case in which he had already recovered
the amount of the indebtedness secured by the mortgage. Thus, in the case at bar, in which the
mortgage debt of P10,200 had been paid in full when the criminal action was instituted, it is urged that
it would be unjust and unreasonable to impose a fine of P20,400, and turn over one-half of that amount
to the mortgage creditor, thereby permitting him to recover double the amount of the original
indebtedness.

To these contentions of counsel we answer: First, that we know of no limitation on the power of the
legislator to prescribe lawful penalties for wrongful acts such as that with which the accused was
charged in the case at bar; and that on principle, and in accordance with a like usage in cases of robbery,
theft, embezzlement and estafa, the mere fact that the indebtedness secured by the mortgage has been
paid in whole or-in part, after a wrongful sale of the mortgaged property, does not necessarily relieve
the wrongdoer of criminal liability for the offense committed by him: Second, that the penalty
prescribed by the statute is either a fine, or imprisonment for not more than six months, or both; so that
it is left to the sound discretion of the courts whether or not a fine will be imposed in case of conviction;
and in any case wherein the imposition of the prescribed fine would seem to be excessive or to work an
undue hardship on the debtor, the courts are empowered to limit the penalty imposed to imprisonment
for a period which may not exceed six months and may be of as short duration as the court may deem
proper under all the circumstances of the case: and third, that the object of the penal provisions of the
Chattel Mortgage Law is not merely to protect the mortgagee in particular cases in which criminal
actions are instituted, and to secure the payment of the mortgage indebtedness in such cases (although
they may, and should have that effect in many instances), but also to give the necessary sanction to the
provision of the statute in the interest of the public at large, so that in all cases wherein loans are made
and secured under the terms of the statute, the mortgage debtors may be deterred from the violation of
its provisions and the mortgage creditors may be protected against loss or inconvenience resulting from
the wrongful removal or sale of the mortgaged property.

The trial judge granted the motion by counsel for the accused and dismissed the complaint, relying, as it
would appear from his opinion, on the fallacious contentions of counsel for the accused.

The parties seem to have treated the action of the judge merely as a ruling on a demurrer and not as a
decision of the cause on the merits; and the provincial fiscal brought the case here on appeal without
objection.

In dismissing the complaint the trial judge refers to the motion of counsel for the accused as a "so-called
demurrer;" but it does not clearly appear whether he regarded the entry of his order dismissing the
complaint as a decision of the case on the merits, or a ruling sustaining a demurrer.

We are of opinion, however, that the ruling of the trial judge on the motion of counsel for the accused
was in truth and in effect a final judgment on the merits from which no appeal lay on behalf of the
Government. The accused had been arraigned and pleaded "not guilty," and the judgment of the court
was entered upon an agreed statement of facts. The agreed statement of facts disclosed everything
which the prosecution and the accused were prepared to prove by the testimony of their respective
witnesses. After the submission of the agreed statement of facts, the trial was regularly terminated, and
it only remained for the trial judge to enter his judgment convicting and sentencing the accused, or
acquitting him and dismissing the information upon which the proceedings had been instituted.
Manifestly, the accused was in jeopardy of conviction from the moment the case was submitted on the
agreed statement of facts until judgment was entered dismissing the information. Indeed, there can be
no doubt that but for the erroneous view of the trial judge as to the nature and effect of the penal
provision of section 12 of the Chattel Mortgage Law, a judgment of conviction would have been lawfully
entered upon the agreed statement of facts, followed by the imposition of the prescribed penalty.

The judgment entered in the court below was not a mere order sustaining a demurrer, but a final
judgment disposing of the case on the merits; so that were we to reverse the judgment and direct the
court below to proceed with the trial, the accused would be entitled to have the information dismissed
on the plea of double jeopardy.

The provincial fiscal perfected an appeal from the judgment on the erroneous theory that the judgment
of dismissal was an order sustaining a demurrer to the information; and without objection on the part of
the accused, the record was brought here, and the case argued and submitted on that theory. Clearly
the Government had no right of appeal from the judgment entered in the court below, and the appeal
must be dismissed with the costs de oficio. We have, however, deemed it proper to discuss the
questions actually submitted with relation to the construction which should be placed upon the statute,
partly, in order to make clear the grounds upon which we base our ruling as to the nature and character
of the proceedings had in the court below, and partly, to avoid any possible misapprehension which
might arise as a result of the fact that our dismissal of the appeal leaves the judgment of the court
below, dismissing the information, in full force and effect.

Ten days hereafter let judgment be entered dismissing the appeal in this case with costs de oficio, and
ten days thereafter let the record be returned to the court wherein it originated. So ordered