Case Summary (G.R. No. 103576)
Factual Background
On June 27, 1978, petitioner corporation executed a chattel mortgage in favor of Producers Bank as security for a ₱3,000,000 loan. The instrument contained a broad clause purporting to secure future obligations—new loans, renewals, extensions or other accommodations—without requiring execution of a new mortgage. The original ₱3,000,000 was fully paid. In 1981, the corporation obtained and repaid ₱2,700,000. On January 10–11, 1984, it borrowed an additional ₱1,000,000 under four promissory notes (₱250,000 each) but defaulted at maturity.
Procedural History
Producers Bank moved for extrajudicial foreclosure with the Caloocan Sheriff. Petitioner filed injunctive relief in the Regional Trial Court of Caloocan City (Civil Case No. C-12081), which dismissed the complaint and ordered foreclosure. The Court of Appeals affirmed on August 14, 1991; its denial of reconsideration issued January 24, 1992. This Court initially dismissed petitioner’s certiorari petition for form and substance defects but later granted reconsideration and reinstated it.
Issue
Whether a chattel mortgage may validly extend its security to obligations incurred after its execution without executing a new or amended mortgage.
Applicable Law
1987 Philippine Constitution (appeals discretionary except in capital cases).
Chattel Mortgage Law (Act No. 1508): Section 3 (extinction upon payment of secured debt); Section 5 (requirement of affidavit of good faith specifying the obligation).
Civil Code provisions on accessory real security (Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139, 2140). Jurisprudence on future advances in pledges and mortgages.
Court’s Analysis
Contracts of real security are accessory: they exist only so long as the principal obligation remains unpaid. Upon full payment of the ₱3,000,000 loan, the 1978 mortgage automatically terminated under Section 3, Act 1508. Unlike pledges or real-estate mortgages that may secure accurately described future obligations, a chattel mortgage can secure only debts extant at its constitution. A promise to cover after-incurred obligations binds the parties personally but does not create a valid security interest until a new mortgage or an amendment complying with Act 1508 is executed. Refusal to execute such supplementary agreement may constitute default on the financing contract but does not extend the original security.
Ruling
The purported extension clause could not revive or continue the 1978 mortgage after full payment of the original loan. No chattel mortgage existed to secure the ₱1,000,000 indebtedness of 1984.
Observations on Damages Claim
Petitioner’s prayer for moral damages lacks merit. Corporations, as juridical persons, cannot suffer physical
...continue readingCase Syllabus (G.R. No. 103576)
Facts
- On June 27, 1978, petitioner Chua Pac, as president and general manager of Acme Shoe, Rubber & Plastic Corporation, executed a chattel mortgage in favor of Producers Bank of the Philippines to secure a ₱3,000,000 corporate loan.
- The mortgage contained an express clause extending its security to any subsequent promissory notes, renewals, extensions, overdrafts, letters of credit, acceptances, trust receipts, and “any and all other obligations” of the mortgagor to the mortgagee, whether contracted before, during, or after the mortgage’s constitution.
- The original ₱3,000,000 loan was fully paid. In 1981, the corporation obtained additional accommodations totaling ₱2,700,000, which were also settled in due course.
- On January 10 and 11, 1984, the bank further extended a ₱1,000,000 loan under four promissory notes (₱250,000 each), which went into default at maturity.
- The bank applied for extrajudicial foreclosure with the Caloocan City Sheriff. The corporation sought preliminary and permanent injunction in the Regional Trial Court (RTC) of Caloocan City; the RTC dismissed the complaint and ordered foreclosure.
Procedural History
- The corporation appealed to the Court of Appeals (CA), which on August 14, 1991 affirmed the RTC decision in all respects. The CA denied reconsideration on January 24, 1992.
- The corporation’s petition for review on certiorari to the Supreme Court was initially denied on March 4, 1992 for insufficiency in form and substance. Upon a second motion for reconsideration, the petition was reinstated and private respondent was directed to comment.
- The Supreme Court granted relief on the substantive question, with Justice Vitug