G.R. No. 107554 - Cebu International Fice Corp. vs. Court of Appeals

On March 4, 1987, Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay, authorizing him to sell Dy’s cargo vessel.
On April 28, 1987, using a Deed of Absolute Sale, Ang Tay sold the vessel (initially named LCT “Asiatic”) to private respondent Robert Ong for P900,000.00.
The deed of sale expressly stipulated that the vessel “shall not be registered or transferred to Robert Ong until complete payment,” as the payment was made by issuing three checks rather than in cash.

Although Ong obtained possession and copies of an unnotarized deed of sale for bank purposes, his copies did not show the handwritten prohibition regarding transfer or registration.
Contrary to the deed’s express condition, Ong had his copy notarized on May 18, 1987, and presented it to the Philippine Coast Guard.
As a result, on May 27, 1987, Ong was issued a Certificate of Ownership and a Certificate of Philippine Register; the vessel’s name was subsequently changed to LCT “Orient Hope.”

On October 29, 1987, Ong obtained a loan from petitioner Cebu International Finance Corporation (CIFC) amounting to P496,008.00 evidenced by a promissory note.
In connection with the loan, Ong executed a chattel mortgage over the vessel which was duly registered with the Philippine Coast Guard.
The mortgage document contained a contested Paragraph 3 which erroneously indicated that the transaction was one of sale (installment basis) rather than a simple loan with mortgage, although other parts of the contract (notably Paragraph 2) accurately expressed its true nature.

Ong defaulted on the monthly installment payments, prompting CIFC to demand on May 11, 1988 either delivery of the mortgaged vessel or payment of an outstanding balance.
Simultaneously, two of the checks issued by Ong to Ang Tay for the vessel purchase bounced.
Ang Tay, together with Jacinto Dy, initiated a civil action for rescission and replevin with damages (Civil Case No. CEB-6565), resulting in the seizure of the vessel.
Petitioner CIFC later filed a separate replevin and damages case (Civil Case No. CEB-6919) for recovery, but the trial court in that case declared the chattel mortgage null and void and ordered CIFC and Ong to pay damages to Ang Tay.

The Court of Appeals affirmed the trial court’s decision in CEB-6919 on July 2, 1992, declaring the mortgage null and void based on the apparent sale transaction in Paragraph 3 and the fact that CIFC never owned the vessel.
Petitioner CIFC, through the present petition for review on certiorari under Rule 45, challenged the Court of Appeals’ decision and raised several points regarding speculative findings, misinterpretation of reliance on the certificate of title, and issues of bad faith.

Whether the chattel mortgage contract, though containing an erroneous reference in Paragraph 3 to a sale-on-installment, should be classified as a mere collateral (or chattel) mortgage securing a simple loan.
Whether the mistake in form (erroneous inclusion of sale terms) was a clerical oversight not sufficient to void the chattel mortgage.

Whether the petitioner, as a mortgagee, was entitled to rely on the Certificate of Ownership and Certificate of Philippine Register issued in Ong’s name.
Whether such reliance is justified in absence of any obvious irregularities that would have aroused suspicion regarding Ong’s ownership of the vessel.

Whether the chattel mortgage met the requirements of P.D. No. 1521, particularly regarding the purpose of the loan, the filing of the special affidavit of good faith, and the disclosure of existing creditors or lienors.
Whether any non-compliance with the procedural requirements under the decree affected the validity of the chattel mortgage.

Whether, as between two innocent parties (the mortgagee and the purported owner), the loss should fall upon the party whose act of confidence (i.e., Ang Tay and Jacinto Dy) contributed to the ensuing transaction complications.
Whether estoppel and principles of equity mandated that Ang Tay and Dy bear the consequences of their own lack of caution in executing the deed of sale.