Facts:

On June 27, 1978, Chua Pac, acting as president and general manager of Acme Shoe, Rubber & Plastic Corporation, executed a chattel mortgage in favor of Producers Bank of the Philippines. This mortgage was designed to secure a corporate loan amounting to three million pesos (₱3,000,000.00). A notable provision in the chattel mortgage agreement created a binding obligation where the mortgage would remain effective even for future loans granted to the corporation by the bank. After settling the initial loan, the corporation later availed itself of additional financial accommodations totaling ₱2,700,000.00, which were also repaid. On January 10 and 11, 1984, another loan of one million pesos (₱1,000,000.00) was extended, represented by four promissory notes of ₱250,000.00 each. However, due to financial difficulties, the corporation defaulted at loan maturity.

Responding to the default, Producers Bank applied for the extrajudicial foreclosure of the chattel mortgage with the Reg

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Facts:

Parties and Transaction Background

• Petitioners: Acme Shoe, Rubber & Plastic Corporation and its representative Chua Pac.
• Respondents: Hon. Court of Appeals, Producers Bank of the Philippines, and Regional Sheriff of Caloocan City.
• On June 27, 1978, Chua Pac executed a chattel mortgage on behalf of Acme Shoe, Rubber & Plastic Corporation in favor of Producers Bank of the Philippines as security for a corporate loan of ₱3,000,000.00.

Chattel Mortgage Provisions and Scope

• The mortgage agreement included a clause which stated that, in addition to securing the existing obligation, the mortgage would also cover future obligations such as subsequent promissory notes or similar financial accommodations without the need to execute a new contract.
• The clause extended the mortgage’s coverage to any obligations contracted before, during, or after the constitution of the mortgage.

Subsequent Loans and Repayments

• After the original loan, Acme obtained additional financial accommodations:
• In 1981, additional loans amounting to ₱2,700,000.00 were secured under the same chattel mortgage.
• Both the ₱3,000,000.00 and ₱2,700,000.00 loans were fully paid.
• On January 10 and 11, 1984, the bank extended another loan of ₱1,000,000.00, evidenced by four promissory notes of ₱250,000.00 each.
• Due to financial constraints, the latest loan was not settled at maturity.

Initiation of Foreclosure Proceedings and Judicial Actions

• Following the non-payment of the ₱1,000,000.00 loan, Producers Bank applied for extrajudicial foreclosure of the chattel mortgage with the Sheriff of Caloocan City.
• In response, Acme filed an action for an injunction, damages, and a writ of preliminary injunction before the Regional Trial Court of Caloocan City (Civil Case No. C-12081).
• The trial court dismissed Acme’s complaint and ordered the foreclosure based on the stipulations of the chattel mortgage.
• On appeal, the Court of Appeals affirmed the decision “in all respects” on August 14, 1991, and the motion for reconsideration was denied on January 24, 1992.

Interlocutory and Procedural Developments

• Acme’s petition for review on certiorari was initially denied for insufficiency in form and substance but was later reinstated after a second motion for reconsideration.
• Private respondent Producers Bank filed a motion to dismiss the petition while petitioner filed opposition, leading the Court to proceed with adjudicating on the substance despite procedural deviations.

Lawyer’s Conduct and Court’s Advisory

• In his reply, petitioner’s counsel included a “One Final Word” criticizing the decision of the trial court and the appellate justices, urging sanctions for their alleged incompetence and dishonesty.
• The Court admonished counsel for the choice of disrespectful language and reiterated the duty of lawyers to maintain respect toward the courts and judicial officers.

Issue:

Validity and Effectiveness of the Mortgage Clause

• Whether a clause extending the chattel mortgage to cover future obligations or loans not originally contracted is valid and effective.
• The legal effect of such a clause in light of the accessory nature of contracts of real security.

Coverage of Subsequent Loans Under the Original Chattel Mortgage

• Whether the additional loans (₱2,700,000.00 in 1981 and ₱1,000,000.00 in 1984) could be considered as being secured by the original chattel mortgage.
• The impact of the full payment of the original ₱3,000,000.00 obligation on the validity of the mortgage as security for subsequent obligations.

Compliance With Statutory Requirements

• Whether the chattel mortgage, as constituted, met the statutory form and procedural requirements of the Chattel Mortgage Law.
• If the omission or insufficiency in complying with specific statutory requisites (such as the affidavit of good faith) affects the enforceability of the extended coverage clause.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)