Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-19227 February 17, 1968

contract, executed a document of sale, Exhibit "4", transferring the two pledged vessels and plaintiff's equity in FS-203, to defendant bank for P30,042.72. 6 The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping Commission which rescinded the sale to plaintiff on September 8, 1948, for failure to pay the remaining installments on the purchase price thereof. 7 The other two boats, the M/S Surigao and the M/S Don Dino were sold by defendant bank to third parties on March 15, 1951. On July 19, 1948, plaintiff commenced action in the Court of First Instance of Cebu to recover the three vessels or their value and damages from defendant bank. The latter filed its answer, with a counterclaim for P202,000 plus P5,000 damages. After issues were joined, a pretrial was held resulting in a partial stipulation of facts dated October 2, 1958, reciting most of the facts above-narrated. During the course of the trial, defendant amended its answer reducing its claim from P202,000 to P8,846.01, 8 but increasing its alleged damages to P35,000. The lower court rendered its decision on February 13, 1960 ruling: (a) that the bank's taking of physical possession of the vessels on April 6, 1948 was justified by the pledge contract, Exhibit "A" & "1-Bank" and the law; (b) that the private sale of the pledged vessels by defendant bank to itself without notice to the plaintiff-pledgor as stipulated in the pledge contract was likewise valid; and (c) that the defendant bank should pay to plaintiff the sums of P1,153.99 and P8,000, as his remaining account balance, or set-off these sums against the indemnity which plaintiff was ordered to pay to it in the criminal cases. When his motion for reconsideration and new trial was denied, plaintiff brought the appeal to Us, the amount involved being more than P200,000.00. In support of the first assignment of error, plaintiff-appellant would have this Court hold that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the creditor defendant could not take possession of the chattels object thereof until after there has been default. The submission is without merit. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract 3. That a credit line of P50,000.00 was extended to the plaintiff by the defendant Bank, and the plaintiff obtained and received from the said Bank the sum of P50,000.00, and in order to guarantee the payment of this loan, the pledge contract, Exhibit "A" & Exhibit "1-Bank", was executed and duly registered with the Office of the Collector of Customs for the Port of Cebu on the date appearing therein; (Emphasis supplied)1wph1.t Necessarily, this judicial admission binds the plaintiff. Without any showing that this was made thru palpable mistake, no amount of rationalization can offset it. 9 The defendant bank as pledgee was therefore entitled to the actual possession of the vessels. While it is true that plaintiff continued operating the vessels after the pledge contract was entered into, his possession was expressly made "subject to the order of the pledgee." 10 The provision of Art. 2110 of the present Civil Code 11being new cannot apply to the pledge contract here which was entered into on June 30, 1947. On the other hand, there is an authority supporting the proposition that the pledgee can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is regarded as holding the pledged property merely as trustee for the pledgee. 12

DIOSDADO YULIONGSIU, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee. Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-appellant. Tomas Besa, R. B. de los Reyes and C. E. Medina for defendant-appellee. BENGZON, J.P., J.: Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels, namely: The M/S Surigao, valued at P109,925.78 and the M/S Don Dino, valued at P63,000.00, and operated the FS-203, valued at P210,672.24, which was purchased by him from the Philippine Shipping Commission, by installment or on account. As of January or February, 1943, plaintiff had paid to the Philippine Shipping Commission only the sum of P76,500 and the balance of the purchase price was payable at P50,000 a year, due on or before the end of the current year. 2 On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank, as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same day and duly registered with the office of the Collector of Customs for the Port of Cebu. 3 Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The remaining balance was renewed by the execution of two (2) promissory notes in the bank's favor. The first note, dated December 18, 1947, for P20,000, was due on April 16, 1948 while the second, dated February 26, 1948, for P10,000, was due on June 25, 1948. These two notes were never paid at all by plaintiff on their respective due dates. 4 On April 6, 1948, the bank filed criminal charges against plaintiff and two other accused for estafa thru falsification of commercial documents, because plaintiff had, as last indorsee, deposited with defendant bank, from March 11 to March 31, 1948, seven Bank of the Philippine Islands checks totalling P184,000. The drawer thereof one of the coaccused had no funds in the drawee bank. However, in connivance with one employee of defendant bank, plaintiff was able to withdraw the amount credited to him before the discovery of the defraudation on April 2, 1948. Plaintiff and his co-accused were convicted by the trial court and sentenced to indemnify the defendant bank in the sum of P184,000. On appeal, the conviction was affirmed by the Court of Appeals on October 31, 1950. The corresponding writ of execution issued to implement the order for indemnification was returned unsatisfied as plaintiff was totally insolvent. 5 Meanwhile, together with the institution of the criminal action, defendant bank took physical possession of three pledged vessels while they were at the Port of Cebu, and on April 29, 1948, after the first note fell due and was not paid, the Cebu Branch Manager of defendant bank, acting as attorney-in-fact of plaintiff pursuant to the terms of the pledge

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Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make pledge effective. He points to Betita v. Ganzon, 49 Phil. 87 which ruled that there has to be actual delivery of the chattels pledged. But then there is also Banco Espaol-Filipino v. Peterson, 7 Phil. 409 ruling that symbolic delivery would suffice. An examination of the peculiar nature of the things pledged in the two cases will readily dispel the apparent contradiction between the two rulings. In Betita v. Ganzon, the objects pledged carabaos were easily capable of actual, manual delivery unto the pledgee. In Banco EspaolFilipino v. Peterson, the objects pledged goods contained in a warehouse were hardly capable of actual, manual delivery in the sense that it was impractical as a whole for the particular transaction and would have been an unreasonable requirement. Thus, for purposes of showing the transfer of control to the pledgee, delivery to him of the keys to the warehouse sufficed. In other words, the type of delivery will depend upon the nature and the peculiar circumstances of each case. The parties here agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said property subject to the order of the pledgee." Considering the circumstances of this case and the nature of the objects pledged, i.e., vessels used in maritime business, such delivery is sufficient. Since the defendant bank was, pursuant to the terms of pledge contract, in full control of the vessels thru the plaintiff, the former could take actual possession at any time during the life of the pledge to make more effective its security. Its taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it unjustified considering that plaintiff had just defrauded the defendant bank in the huge sum of P184,000. The stand We have taken is not without precedent. The Supreme Court of Spain, in a similar case involving Art. 1863 of the old Civil Code, 13 has ruled: 14 Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder del acreedor o de un tercero y no quedar en la del deudor, como ha sucedido en el caso de autos, es lo cierto que todas las partes interesadas, o sean acreedor, deudor y Sociedad, convinieron que continuaran los coches en poder del deudor para no suspender el trafico, y el derecho de no uso de la prenda pertenence al deudor, y el de dejar la cosa bajo su responsabilidad al acreedor, y ambos convinieron por creerlo util para las partes contratantes, y estas no reclaman perjuicios no se infringio, entre otros este articulo. In the second assignment of error imputed to the lower court plaintiff-appellant attacks the validity of the private sale of the pledged vessels in favor of the defendant bank itself. It is contended first, that the cases holding that the statutory requirements as to public sales with prior notice in connection with foreclosure proceedings are waivable, are no longer authoritative in view of the passage of Act 3135, as amended; second, that the charter of defendant bank does not allow it to buy the property object of foreclosure in case of private sales; and third, that the price obtained at the sale is unconscionable. There is no merit in the claims. The rulings in Philippine National Bank v. De Poli, 44 Phil. 763 and El Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative despite the passage of Act 3135. This law refers only, and is limited, to foreclosure of real estate mortgages. 15 So, whatever formalities there are in Act 3135 do not apply to pledge. Regarding the bank's authority to be the purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938 only states that if the sale is public, the bank could purchase the whole or part of the property sold " free from any right of redemption on the part of the mortgagor or pledgor." This even argues against plaintiff's case since the import thereof is this if the sale were private and the bank became the purchaser, the mortgagor or pledgor could redeem the property. Hence, plaintiff could have recovered the vessels by exercising this right of redemption. He is the only one to blame for not doing so.

Regarding the third contention, on the assumption that the purchase price was unconscionable, plaintiff's remedy was to have set aside the sale. He did not avail of this. Moreover, as pointed out by the lower court, plaintiff had at the time an obligation to return the P184,000 fraudulently taken by him from defendant bank. The last assignment of error has to do with the damages allegedly suffered by plaintiffappellant by virtue of the taking of the vessels. But in view of the results reached above, there is no more need to discuss the same. On the whole, We cannot say the lower court erred in disposing of the case as it did. Plaintiff-appellant was not all-too-innocent as he would have Us believe. He did defraud the defendant bank first. If the latter countered with the seizure and sale of the pledged vessels pursuant to the pledge contract, it was only to protect its interests after plaintiff had defaulted in the payment of the first promissory note. Plaintiff-appellant did not come to court with clean hands. WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiff-appellant. So ordered. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24137 March 29, 1926

EULOGIO BETITA, plaintiff-appellee, vs. SIMEON GANZON, ALEJO DE LA FLOR, and CLEMENTE PEDRENA, defendantsappellants. Padilla, Trenas and Magalona for appellants. Varela and Ybiernas for appellee. OSTRAND, J.: This action is brought to recover the possession of four carabaos with damages in the sum of P200. Briefly stated, the facts are as follows: On May 15, 1924, the defendant Alejo de la Flor recovered a judgment against Tiburcia Buhayan for the sum of P140 with costs. Under this judgment the defendant Ganzon, as sheriff levied execution on the carabaos in question which were found in the possession of one Simon Jacinto but registered in the name of Tiburcia Buhayan. The plaintiff herein, Eulogio Betita, presented a third party claim (terceria) alleging that the carabaos had been mortgaged to him and as evidence thereof presented a document dated May 6, 1924, but the sheriff proceeded with the sale of the animals at public auction where they were purchased by the defendant Clemente Perdena for the sum of P200, and this action was thereupon brought. The document upon which the plaintiff bases his cause of action is in the Visayan dialect and in translation reads as follows:

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I, Tiburcia Buhatan, of age, widow and resident of the sitio of Jimamanay, municipality of Balasan, Province of Iloilo, Philippine Islands, do hereby execute this document extrajudicially and state that I am indebted to Mr. Eulogio Betita, resident of the municipality of Estancia, Province of Iloilo, Philippine Islands, in the sum of P470, Philippine currency, and was so indebted since the year 1922, and as a security to my creditor I hereby offer four head of carabaos belonging to me exclusively (three females and one male), the certificates of registration of said animals being Nos. 2832851, 4670520, 4670521 and 4670522, which I delivered to said Mr. Eulogio Betita. I hereby promise to pay said debt in the coming month of February, 1925, in case I will not be able to pay, Mr. Eulogio Betita may dispose of the carabaos given as security for said debt. This document is a new one or a renewal of our former document because the first carabaos mortgaged died and were substituted for by the newly branded ones." In testimony whereof and not knowing how to sign my name, I caused my name to be written and marked same with my right thumb. Estancia, May 6, 1924. (Marked). TIBURCIA BUHAYAN Signed in the presence of: MIGUEL MERCURIO TIRZO ZEPEDA The court below held that inasmuch as this document was prior in date to the judgment under which the execution was levied, it was a preferred credit and judgment was rendered in favor of the plaintiff for the possession of the carabaos, without damages and without costs. From this judgment the defendants appeal. The judgment must be reversed unless the document above quoted can be considered either a chattel mortgage or else a pledge. That it is not a sufficient chattel mortgage is evident; it does not meet the requirements of section 5 of the Chattel Mortgage Law (Act No. 1508), has not been recorded and, considered as a chattel mortgage, is consequently of no effect as against third parties (Williams vs. McMicking, 17 Phil., 408; Giberson vs. A. N. Jureidini Bros., 44 Phi., 216; Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros, 46 Phil., 753). Neither did the document constitute a sufficient pledge of the property valid against third parties. Article 1865 of the Civil Code provides that "no pledge shall be effective as against third parties unless evidence of its date appears in a public instrument." The document in question is not public, but it is suggested that its filing with the sheriff in connection with the terceria gave in the effect of a public instrument and served to fix the date of the pledge, and that it therefore fulfills the requirements of article 1865. Assuming, without conceding, that the filing of the document with the sheriff had that effect, it seems nevertheless obvious that the pledge only became effective as against the plaintiff in execution from the date of the filing and did not rise superior to the execution attachment previously levied (see Civil Code, article 1227).

Manresa, in commenting on article 1865, says: ART. 1865. A pledge will not be valid against a third party if the certainty of the date is not expressed in a public instrument. This article, the precept of which did not exist in our old law, answers the necessity for not disturbing the relationship or the status of the ownership of things with hidden or simulated contracts of pledge, in the same way and for the identical reasons that were taken into account by the mortgage law in order to suppress the implied and legal mortgages which produce so much instability in real property. Considering the effects of a contract of pledge, it is easily understood that, without this warranty demanded by law, the case may happen wherein a debtor in bad faith from the moment that he sees his movable property in danger of execution may attempt to withdraw the same from the action of justice and the reach of his creditors by simulating, through criminal confabulations, anterior and fraudulent alterations in his possession by means of feigned contracts of this nature; and, with the object of avoiding or preventing such abuses, almost all the foreign writers advise that, for the effectiveness of the pledge, it be demanded as a precise condition that in every case the contract be executed in a public writing, for, otherwise, the determination of its date will be rendered difficult and its proof more so, even in cases in which it is executed before witnesses, due to the difficulty to be encountered in seeking those before whom it was executed. Our code has not gone so far, for it does not demand in express terms that in all cases the pledge be constituted or formalized in a public writing, nor even in private document, but only that the certainty of the date be expressed in the first of the said class of instruments in order that it may be valid against a third party; and, in default of any express provision of law, in the cases where no agreement requiring the execution in a public writing exists, it should be subjected to the general rule, and especially to that established in the last paragraph of article 1280, according to which all contracts not included in the foregoing cases of the said article should be made in writing even though it be private, whenever the amount of the presentation of one or of the two contracting parties exceeds 1,500 pesetas. (Vol. 12, ed., p. 421.) If the mere filing of a private document with the sheriff after the levy of execution can create a lien of pledge superior to the attachment, the purpose of the provisions of article 1865 as explained by Manresa clearly be defeated. Such could not have been the intention of the authors of the Code. (See also Ocejo, Perez & Co. vs.International Banking Corporation, 37 Phil., 631 and Tec Bi & Co. Chartered Bank of India, Australia & China, 41 Phil., 596.) The alleged pledge is also ineffective for another reason, namely, that the plaintiff pledgee never had actual possession of the property within the meaning of article 1863 of the Civil Code. But it is argued that at the time of the levy the animals in question were in the possession of one Simon Jacinto; that Jacinto was the plaintiff's tenant; and that the tenant's possession was the possession of his landlord. It appears, however, from the evidence that though not legally married, Simon Jacinto and Tiburcia Buhayan were living together as husband and wife and had been so living for many years. Testifying as a witness for the plaintiff, Jacinto on cross-examination made the following statements:

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Q. But the caraballas in question had never been in possession of Eulogio Betita? A. The three young ones did not get into his hands. Q. And the others? A. Sometimes they were in the hands of Betita and at other times in the hands of Buhayan. Q. Those are the caraballas which formerly were mortgaged by Buhayan to Betita, isn't that so? A. Yes, sir. Q. And the four carabaos now in question had never been in possession of Betita, but were in your possession? A. When I worked they were in my hands. Q. And before you worked, these caraballas were in possession of your mistress, Tiburcia Buhayan? A. Yes, sir. Q. Do you mean to say that from the possession of Tiburcia Buhayan the animals passed immediately into your possession? A. Yes sir. This testimony is substantially in accord with that of the defendant sheriff to the effect that he found the animals at the place where Tiburcia Buhayan was living. Article 1863 of the Civil Code reads as follows: In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the contract of pledge, that the pledge be placed in the possession of the creditor or of a third person appointed by common consent. In his commentary on this article Manresa says: This requisite is most essential and is characteristic of a pledge without which the contract cannot be regarded as entered into or completed, because, precisely, in this delivery lies the security of the pledge. Therefore, in order that the contract of pledge may be complete, it is indispensable that the aforesaid delivery take place . . . . (P. 411, supra.) It is, of course, evident that the delivery of possession referred to in article 1863 implies a change in the actual possession of the property pledged and that a mere symbolic delivery is not sufficient. In the present case the animals in question were in the possession of Tiburcia Buhayan and Simon Jacinto before the alleged pledge was entered into and apparently remained with them until the execution was levied, and there was no actual delivery of possession to the plaintiff himself. There was therefore in reality no change in possession. It may further be noted that the alleged relation of landlord and tenant between the plaintiff and Simon Jacinto is somewhat obscure and it is, perhaps, doubtful if any tenancy, properly speaking, existed. The land cultivated by Jacinto was not the property of the plaintiff, but it appears that a part of the products was to be applied towards the payment of Tiburcia Buhayan's debt to the plaintiff. Jacinto states that he was not a tenant until after the pledge was made. From what has been said it follows that the judgment appealed from must be reversed and it is ordered and adjudged that the plaintiff take nothing by his action. Without costs. So ordered. G.R. No. L-6342

Republic of the Philippines SUPREME COURT Manila EN BANC January 26, 1954

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. LAUREANO ATENDIDO, defendants-appellant. Nicolas Fernandez for appellee. Gaudencio L. Atendido for appellant. BAUTISTA, ANGELO, J.: This is an appeal from a decision of the Court of First Instance of Nueva Ecija which orders the defendant to pay to the plaintiff the sum of P3,000, with interest thereon at the rate of 6% per annum from June 26, 1940, and the costs of action. On June 26, 1940, Laureano Atendido obtained from the Philippine National Bank a loan of P3,000 payable in 120 days with interests at 6% per annum from the date of maturity. To guarantee the payment of the obligation the borrower pledged to the bank 2,000 cavanes of palay which were then deposited in the warehouse of Cheng Siong Lam & Co. in San Miguel, Bulacan, and to that effect the borrower endorsed in favor of the bank the corresponding warehouse receipt. Before the maturity of the loan, the 2,000 cavanes of palay disappeared for unknown reasons in the warehouse. When the loan matured the borrower failed to pay either the principal or the interest and so the present action was instituted. Defendant set up a special defense and a counterclaim. As regards the former, defendant claimed that the warehouse receipt covering the palay which was given as security having been endorsed in blank in favor of the bank, and the palay having been lost or disappeared, he thereby became relieved of liability. And, by way of counterclaim, defendant claimed that, as a corollary to his theory, he is entitled to an indemnity which represents the difference between the value of the palay lost and the amount of his obligation. The case was submitted on an agreed statements of facts and thereupon the court rendered judgment as stated in the early part of this decision. Defendant took the case on appeal to the Court of Appeals but later it was certified to this Court on the ground that the question involved is purely one of law. The only issue involved in this appeal is whether the surrender of the warehouse receipt covering the 2,000 cavanes of palay given as a security, endorsed in blank, to appellee, has the effect of transferring their title or ownership to said appellee, or it should be considered merely as a guarantee to secure the payment of the obligation of appellant. In upholding the view of appellee, the lower court said: "The surrendering of warehouse receipt No. S-1719 covering the 2,000 cavanes of palay by the defendant in favor of the plaintiff was not that of a final transfer of that warehouse receipt but merely as a guarantee to the fulfillment of the original obligation of P3,000.00. In other word, plaintiff corporation had

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no right to dispose (of) the warehouse receipt until after the maturity of the promissory note Exhibit A. Moreover, the 2,000 cavanes of palay were not in the first place in the actual possession of plaintiff corporation, although symbolically speaking the delivery of the warehouse receipt was actually done to the bank." We hold this finding to be correct not only because it is in line with the nature of a contract of pledge as defined by law (Articles 1857, 1858 & 1863, Old Civil Code), but is supported by the stipulations embodied in the contract signed by appellant when he secured the loan from the appellee. There is no question that the 2,000 cavanes of palay covered by the warehouse receipt were given to appellee only as a guarantee to secure the fulfillment by appellant of his obligation. This clearly appears in the contract Exhibit A wherein it is expressly stated that said 2,000 cavanes of palay were given as a collateral security. The delivery of said palay being merely by way of security, it follows that by the very nature of the transaction its ownership remains with the pledgor subject only to foreclose in case of non-fulfillment of the obligation. By this we mean that if the obligation is not paid upon maturity the most that the pledgee can do is to sell the property and apply the proceeds to the payment of the obligation and to return the balance, if any, to the pledgor (Article 1872, Old Civil Code). This is the essence of this contract, for, according to law, a pledgee cannot become the owner of, nor appropriate to himself, the thing given in pledge (Article 1859, Old Civil Code). If by the contract of pledge the pledgor continues to be the owner of the thing pledged during the pendency of the obligation, it stands to reason that in case of loss of the property, the loss should be borne by the pledgor. The fact that the warehouse receipt covering the palay was delivered, endorsed in blank, to the bank does not alter the situation, the purpose of such endorsement being merely to transfer the juridical possession of the property to the pledgee and to forestall any possible disposition thereof on the part of the pledgor. This is true notwithstanding the provisions to the contrary of the Warehouse Receipt Law. In case recently decided by this Court (Martinez vs. Philippine National Bank, 93 Phil., 765) which involves a similar transaction, this Court held: In conclusion, we hold that where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or quedan but he merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and that if the property covered by the quedans or warehouse receipts is lost without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. Wherefore, the decision appealed from is affirmed, with costs against appellant. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21069 October 26, 1967

MANILA SURETY and FIDELITY COMPANY, INC., plaintiff-appellee, vs. RODOLFO R. VELAYO, defendant-appellant. Villaluz Law Office for plaintiff-appellee. Rodolfo R. Velayo for and in his own behalf as defendant-appellant. REYES, J.B.L., J.: Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case No. 49435) sentencing appellant Rodolfo Velayo to pay appellee Manila Surety & Fidelity Co., Inc. the sum of P2,565.00 with interest at 12-% per annum from July 13, 1954; P120.93 as premiums with interest at the same rate from June 13, 1954: attorneys' fees in an amount equivalent to 15% of the total award, and the costs. Hub of the controversy are the applicability and extinctive effect of Article 2115 of the Civil Code of the Philippines (1950). The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the Court of First Instance of Manila. Velayo undertook to pay the surety company an annual premium of P112.00; to indemnify the Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as well as reimburse the same for all money it should pay or become liable to pay under the bond including costs and attorneys' fees. As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the Surety Company "for the latter's further protection", with power to sell the same in case the surety paid or become obligated to pay any amount of money in connection with said bond, applying the proceeds to the payment of any amounts it paid or will be liable to pay, and turning the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs (Rec. App. pp. 12-15). Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and execution having been returned unsatisfied, the surety company was forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00 only. Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit in the Municipal Court. Velayo countered with a claim that the sale of the pledged jewelry extinguished any further liability on his part under Article 2115 of the 1950 Civil Code, which recites: Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale 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. The Municipal Court disallowed Velayo's claims and rendered judgment against him. Appealed to the Court of First Instance, the defense was once more overruled, and the case decided in the terms set down at the start of this opinion.

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Thereupon, Velayo resorted to this Court on appeal. The core of the appealed decision is the following portion thereof (Rec. Appeal pp. 71-72): It is thus crystal clear that the main agreement between the parties is the Indemnity Agreement and if the pieces of jewelry mentioned by the defendant were delivered to the plaintiff, it was merely as an added protection to the latter. There was no understanding that, should the same be sold at public auction and the value thereof should be short of the undertaking, the defendant would have no further liability to the plaintiff. On the contrary, the last portion of the said agreement specifies that in case the said collateral should diminish in value, the plaintiff may demand additional securities. This stipulation is incompatible with the idea of pledge as a principal agreement. In this case, the status of the pledge is nothing more nor less than that of a mortgage given as a collateral for the principal obligation in which the creditor is entitled to a deficiency judgment for the balance should the collateral not command the price equal to the undertaking. It appearing that the collateral given by the defendant in favor of the plaintiff to secure this obligation has already been sold for only the amount of P235.00, the liability of the defendant should be limited to the difference between the amounts of P2,800.00 and P235.00 or P2,565.00. We agree with the appellant that the above quoted reasoning of the appealed decision is unsound. The accessory character is of the essence of pledge and mortgage. As stated in Article 2085 of the 1950 Civil Code, an essential requisite of these contracts is that they be constituted to secure the fulfillment of a principal obligation, which in the present case is Velayo's undertaking to indemnify the surety company for any disbursements made on account of its attachment counterbond. Hence, the fact that the pledge is not the principal agreement is of no significance nor is it an obstacle to the application of Article 2115 of the Civil Code. The reviewed decision further assumes that the extinctive effect of the sale of the pledged chattels must be derived from stipulation. This is incorrect, because Article 2115, in its last portion, clearly establishes that the extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override: If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency notwithstanding any stipulation to the contrary. The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale. No deficiency is recoverable. It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the legal prescription contained in Article 1484(3) of the same Code, concerning the effect of a foreclosure of a chattel mortgage constituted to secure the price of the personal property sold in installments, and which originated in Act 4110 promulgated by the Philippine Legislature in 1933. WHEREFORE, the decision under appeal is modified and the defendant absolved from the complaint, except as to his liability for the 1954 premium in the sum of P120.93, and interest at 12-1/2% per annum from June 13, 1954. In this respect the decision of the Court below is affirmed. No costs. So ordered.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 132287 January 24, 2006

SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA, Petitioners, vs. DRA. ABDULIA C. RODRIGUEZ, MIGUELA R. JARIOL assisted by her husband ANTOLIN JARIOL, SR., LEONORA NOLASCO assisted by her husband FELICIANO NOLASCO, DOLORES SOBERANO assisted by her husband JOSE SOBERANO, JR., JULIA R. GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R. SORONIO assisted by her husband ALFONSO SORONIO, Respondents. DECISION TINGA, J.: The assailed decision of the Court of Appeals took off on the premise that pledged shares of stock auctioned off in a notarial sale could still be redeemed by their owners. This notion is wrong, and we thus reverse. The facts, as culled from the record, follow. Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known as the Quirino-Leonor-Rodriguez Realty Inc.1 Sometime during the years 1979 to 1980, respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray ("Parays") the payment of certain loan obligations. The shares pledged are listed below: Miguel Rodriguez Jariol .1,000 shares covered by Stock Certificates No. 011, 060, 061 & 062; Abdulia C. Rodriguez . 300 shares covered by Stock Certificates No. 023 & 093; Leonora R. Nolasco .. 407 shares covered by Stock Certificates No. 091 & 092; Genoveva Soronio. 699 shares covered by Stock Certificates No. 025, 059 & 099; Dolores R. Soberano. 699 shares covered by Stock Certificates

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No. 021, 053, 022 & 097; Julia Generoso .. 1,100 shares covered by Stock Certificates No. 085, 051, 086 & 084; Teresita Natividad.. 440 shares covered by Stock Certificates Nos. 054 & 0552 When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed complaints with the Regional Trial Court (RTC) of Cebu City. The actions, which were consolidated and tried before RTC Branch 14, Cebu City, sought the declaration of nullity of the pledge agreements, among others. However the RTC, in its decision3 dated 14 October 1988, dismissed the complaint and gave "due course to the foreclosure and sale at public auction of the various pledges subject of these two cases."4 This decision attained finality after it was affirmed by the Court of Appeals and the Supreme Court. The Entry of Judgment was issued on 14 August 1991. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction on 4 November 1991. However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of various amounts. It was claimed that respondents had attempted to tender these payments to the Parays, but had been rebuffed. The deposited amounts were as follows: Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991 Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991 Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991 38,385.44 .. 14 Oct. 1991 Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991 Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991 Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991 520,216.39 ..11 Nov. 1991 Miguela Jariol . 490,000.00.. 18 Oct. 1991 88,000.00 ..18 Oct. 19915 Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding the amount of P6,200,000.00 for all of the pledged shares. None of respondents participated or appeared at the auction of 4 November 1991.

Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the concluded public auction. The complaint, docketed as Civil Case No. CEB10926, was assigned to Branch 16 of the Cebu City RTC. Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts. Petitioners countered that the auction sale was conducted pursuant to the final and executory judgment in Civil Cases Nos. R-20120 and 20131, and that the tender of payment and consignations were made long after their obligations had fallen due. The Cebu City RTC dismissed the complaint, expressing agreement with the position of the Parays.6 It held, among others that respondents had failed to tender or consign payments within a reasonable period after default and that the proper remedy of respondents was to have participated in the auction sale.7 The Court of Appeals Eighth Division however reversed the RTC on appeal, ruling that the consignations extinguished the loan obligations and the subject pledge contracts; and the auction sale of 4 November 1991 as null and void.8 Most crucially, the appellate court chose to uphold the sufficiency of the consignations owing to an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws. The attempts at payment by respondents were characterized as made in the exercise of the right of redemption. The Court of Appeals likewise found fault with the auction sale, holding that there was a need to individually sell the various shares of stock as they had belonged to different pledgors. Thus, it was observed that the minutes of the auction sale should have specified in detail the bids submitted for each of the shares of the pledgors for the purpose of knowing the price to be paid by the different pledgors upon redemption of the auctioned sales of stock. Petitioners now argue before this Court that they were authorized to refuse as they did the tender of payment since they were undertaking the auction sale pursuant to the final and executory decision in Civil Cases Nos. R-20120 and 20131, which did not authorize the payment of the principal obligation by respondents. They point out that the amounts consigned could not extinguish the principal loan obligations of respondents since they were not sufficient to cover the interests due on the debt. They likewise argue that the essential procedural requisites for the auction sale had been satisfied. We rule in favor of petitioners. The fundamental premise from which the appellate court proceeded was that the consignations made by respondents should be construed in light of the rules of redemption, as if respondents were exercising such right. In that perspective, the Court of Appeals made three crucial conclusions favorable to respondents: that their act of consigning the payments with the RTC should be deemed done in the exercise of their right of redemption; that the buyer at public auction does not ipso facto become the owner of the pledged shares pending the lapse of the one-year redemptive period; and that the collective sale of the shares of stock belonging to several individual owners without specification of the apportionment in the applications of payment deprives the individual owners of the opportunity to know of the price they would have to pay for the purpose of exercising the right of redemption. The appellate courts dwelling on the right of redemption is utterly off-tangent. The right of redemption involves payments made by debtors after the foreclosure of their properties, and not those made or attempted to be made, as in this case, before the foreclosure sale. The proper focus of the Court of Appeals should have been whether the consignations made by respondents sufficiently acquitted them of their principal obligations. A pledge contract is an accessory contract, and is necessarily discharged if the principal obligation is extinguished.

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Nonetheless, the Court is now confronted with this rather new fangled theory, as propounded by the Court of Appeals, involving the right of redemption over pledged properties. We have no hesitation in pronouncing such theory as discreditable. Preliminarily, it must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged.9 In this case, petitioners attempted as early as 1980 to proceed extrajudicially with the sale of the pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil Cases No. R-20120 and 20131, which sought to annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed them in the following fashion: WHEREFORE, premises considered, judgment is hereby rendered dismissing the complaints at bar, and (1) Declaring the various pledges covered in Civil Cases Nos. R-20120 and R20131 valid and effective; and (2) Giving due course to the foreclosure and sale at public auction of the various pledges subject of these two cases. Costs against the plaintiffs. SO ORDERED.10 The phrase "giving due course to the foreclosure and sale at public auction of the various pledges subject of these two cases" may give rise to the impression that such sale is judicial in character. While the decision did authorize the sale by public auction, such declaration could not detract from the fact that the sale so authorized is actually extrajudicial in character. Note that the final judgment in said cases expressly did not direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to conduct such sale at their own volition. Indeed, as affirmed by the Civil Code,11 the decision to proceed with the sale by public auction remains in the sole discretion of the Parays, who could very well choose not to hold the sale without violating the final judgments in the aforementioned civil cases. If the sale were truly in compliance with a final judgment or order, the Parays would have no choice but to stage the sale for then the order directing the sale arises from judicial compulsion. But nothing in the dispositive portion directed the sale at public auction as a mandatory recourse, and properly so since the sale of pledged property in public auction is, by virtue of the Civil Code, extrajudicial in character. The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely execution sales of real property. The Court of Appeals expressly asserted the notion that pledged property, necessarily personal in character, may be redeemed by the creditor after being sold at public auction. Yet, as a fundamental matter, does the right of redemption exist over personal property? No law or jurisprudence establishes or affirms such right. Indeed, no such right exists.

The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally. Neither is it predicated on proprietary right, which, after the sale of property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory privilege to be exercised only by the persons named in the statute.12 The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of redemption applies to real properties, not personal properties, sold on execution. Tellingly, this Court, as early as 1927, rejected the proposition that personal property may be covered by the right of redemption. In Sibal 1. v. Valdez,13 the Court ruled that sugar cane crops are personal property, and thus, not subject to the right of redemption.14 No countervailing statute has been enacted since then that would accord the right of redemption over personal property, hence the Court can affirm this decades-old ruling as effective to date. Since the pledged shares in this case are not subject to redemption, the Court of Appeals had no business invoking and applying the inexistent right of redemption. We cannot thus agree that the consigned payments should be treated with liberality, or somehow construed as having been made in the exercise of the right of redemption. We also must reject the appellate courts declaration that the buyer of at the public auction is not "ipso facto" rendered the owner of the auctioned shares, since the debtor enjoys the one-year redemptive period to redeem the property. Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period. The Court of Appeals also found fault with the apparent sale in bulk of the pledged shares, notwithstanding the fact that these shares were owned by several people, on the premise the pledgors would be denied the opportunity to know exactly how much they would need to shoulder to exercise the right to redemption. This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place. Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately, such as in the case of lot sales for real property under Section 19. However, these instances again pertain to execution sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged properties sold at auction be sold separately. On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of the items should be sold if two or more things are pledged.15 No similar option is given to pledgors under the Civil Code. Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal obligation.16

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A different ruling though would obtain if at the auction, a bidder expressed the desire to bid on a determinate number or portion of the pledged shares. In such a case, there may lie the need to ascertain with particularity which of the shares are covered by the bid price, since not all of the shares may be sold at the auction and correspondingly not all of the pledge contracts extinguished. The same situation also would lie if one or some of the owners of the pledged shares participated in the auction, bidding only on their respective pledged shares. However, in this case, none of the pledgors participated in the auction, and the sole bidder cast his bid for all of the shares. There obviously is no longer any practical reason to apportion the bid price to the respective shares, since no matter how slight or significant the value of the purchase price for the individual share is, the sale is completed, with the pledgor and the pledgee not entitled to recover the excess or the deficiency, as the case may be. To invalidate the subject auction solely on this point serves no cause other than to celebrate formality for formalitys sake. Clearly, the theory adopted by the Court of Appeals is in shambles, and cannot be resurrected. The question though yet remains whether the consignations made by respondents extinguished their respective pledge contracts in favor of the Parays so as to enjoin the latter from auctioning the pledged shares. There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article 2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not been satisfied in due time, the creditor may proceed with the sale by public auction under the procedure provided under Article 2112 of the Code. Respondents argue that their various consignations made prior to the auction sale discharged them from the loan and the pledge agreements. They are mistaken. Petitioners point out that while the amounts consigned by respondents could answer for their respective principal loan obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per month or 60% per annum. Before this Court, respondents, save for Dolores Soberano, do not contest this interest rate as alleged by petitioners. Soberano, on the other hand, challenges this interest rate as "usurious."17 The particular pledge contracts did not form part of the records elevated to this Court. However, the 5% monthly interest rate was noted in the statement of facts in the 14 October 1988 RTC Decision which had since become final. Moreover, the said decision pronounced that even assuming that the interest rates of the various loans were 5% per month, "it is doubtful whether the interests so charged were exorbitantly or excessively usurious. This is because for sometime now, usury has become legally inexistent."18 The finality of this 1988 Decision is a settled fact, and thus the time to challenge the validity of the 5% monthly interest rate had long passed. With that in mind, there is no reason for the Court to disagree with petitioners that in order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should cover not just the principal loans, but also the 5% monthly interests thereon. It bears noting that the Court of Appeals also ruled that respondents had satisfied the requirements under Section 18, Rule 39, which provides that the judgment obligor may prevent the sale by paying the amount required by the execution and the costs that have been incurred therein.19 However, the provision applies only to execution sales, and not extra-judicial sales, as evidenced by the use of the phrases "sale of property on execution"

and "judgment obligor." The reference is inapropos, and even if it were applicable, the failure of the payment to cover the interests due renders it insufficient to stay the sale. The effect of the finality of the judgments in Civil Cases Nos. R-20120 and R-20131 should also not be discounted. Petitioners right to proceed with the auction sale was affirmed not only by law, but also by a final court judgment. Any subsequent court ruling that would enjoin the petitioners from exercising such right would have the effect of superseding a final and executory judgment. Finally, we cannot help but observe that respondents may have saved themselves much trouble if they simply participated in the auction sale, as they are permitted to bid themselves on their pledged properties.20 Moreover, they would have had a better right had they matched the terms of the highest bidder.21 Under the circumstances, with the high interest payments that accrued after several years, respondents were even placed in a favorable position by the pledge agreements, since the creditor would be unable to recover any deficiency from the debtors should the sale price be insufficient to cover the principal amounts with interests. Certainly, had respondents participated in the auction, there would have been a chance for them to recover the shares at a price lower than the amount that was actually due from them to the Parays. That respondents failed to avail of this beneficial resort wholly accorded them by law is their loss. Now, all respondents can recover is the amounts they had consigned. WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the decision of the Cebu City RTC, Branch 16, dated 18 November 1992 is REINSTATED. Costs against respondents. SO ORDERED. [G.R. No. 153710. September 2, 2002] SPS. ZOTOMAYOR vs. PEDRO RUBIO, et al. THIRD DIVISION Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated 02 SEPT 2002. G.R. No. 153710 (Sps. Vivencio Javier and Feliza Zotomayor vs. Pedro, Venancio, Candelaria, Elvira, Ben & Julia, all surnamed Rubio, The Honorable Court of Appeals.) Before us is a petition for review under Rule 45 with a prayer for Preliminary Injunction which seeks to set aside the resolution of the Court of Appeals dated May 23, 2002 which dismissed for lack of merit a Petition for Reopening/Annulment of Judgment filed before it, the pertinent portions of which held: Plaintiffs-appellees have now filed a Petition for Reopening/Annulment of Judgment under Rule 47 of the 1997 Rules of Civil Procedure, praying to give due course to herein petition by reopening, reconsidering and setting aside the decision rendered in this case. Unfortunately for plaintiffs-appellees, there is no such remedy in the Court of Appeals as a petition to reopen a case where a decision has already been rendered. The proper remedy is appeal to the Supreme

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Court by petition for review on certiorari under Rule 45, to be taken within the 15-day reglementary period. Likewise, there is no such remedy in the Court of Appeals as a petition to annul its own judgment. Rule 47 applies only to annulment by the Court of Appeals of judgment or final orders and resolutions in civil actions of Regional Trial Courts for which the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available through no fault of the petitioner (Section 1 of Rule 47, underlining supplied). WHEREFORE, premises considered, plaintiffs-appellees Petition for Reopening/Annulment of Judgment is DISMISSED outright for absolute lack of merit.[1] The pertinent facts as culled from the records are as follows: On May 15, 1979, petitioner spouses Vivencio and Feliza Javier secured two loans from a certain Tito Santos (now deceased), husband of Rufina Santos, now also deceased, who are both predecessors-in-interest of herein private respondents, all surnamed Rubio. The two loans granted by Tito Santos were in the total amount of One Hundred Three Thousand Eight Hundred Nine and Fifty-Six Centavos (P103,809.56) as evidenced by a promissory note which was to mature on May 15, 1980. According to the agreement of the parties in their Kasunduan, Sixty-Three Thousand Eight Hundred Nine Pesos and Fifty-Six Centavos (P63,809.56) of the loan was to be paid in the form of gravel and sand to be extracted by Tito Santos from the quarryconcession of the then debtors and herein petitioners Javier, granted to them by the Bureau of Mines. Under the terms of their Kasunduan, Tito Santos was to avail of the concession of petitioner-spouses until the value of the gravel and sand extracted reached the amount of Sixty-Three Thousand Eight Hundred Nine Pesos and Fifty-Six Centavos (P63,809.56). The other loan amounting to Forty Thousand Pesos (P40,000.00) was to be paid within a period of one (1) year and was secured by a real estate mortgage on petitioners property consisting of Ten Thousand Two Hundred Eleven (10,211) square meters situated at Bo. Oogong, Sta. Cruz, Laguna and covered by TCT No. T-84259. The parties also agreed that, despite full payment of Sixty-Three Thousand Eight Hundred Nine Pesos and Fifty-Six Centavos (P63,809.56) in the form of gravel and sand, if the other loan of Forty Thousand Pesos (P40,000.00) remained unpaid after one year, then Tito Santos (predecessor-in-interest of private respondents) had the option to either continue extracting from the quarry until such time as the value of the extracted materials reached Forty Thousand Pesos (P40,000.00) or foreclose the property covered by the mortgage. In any case, it was agreed that once the loan was fully paid, the real estate mortgage, executed on May 16, 1979, was to be discharged.[2] However, Tito Santos failed to extract quarry materials from petitioners concession since the latters permit from the Bureau of Mines had already expired on April 26, 1979. For petitioners failure to pay the first loan of Sixty-Three Thousand Eight Hundred Nine Pesos and Fifty-Six Centavos (P63,809.56), Tito Santos commenced a collection suit docketed as Civil Case SC-2096 against the spouses Javier. Before the case could be decided on the merits, however, the parties executed a compromise agreement wherein the spouses Javier admitted their indebtedness of SixtyThree Thousand Eight Hundred Nine Pesos and Fifty-Six Centavos (P63,809.56) and obligated themselves to pay the same. On April 24, 1986, the trial court rendered judgment based on the compromise agreement. When petitioners again failed to comply with the judgment within the specified time, a writ of execution was issued. Petitioners, in partial satisfaction thereof, issued a check in the amount of Fifty Thousand Pesos (P50,000.00).

In the meantime, in 1981, since petitioners also reneged on their obligation to pay their second loan of Forty Thousand Pesos (P40,000.00) which was secured by the real estate mortgage, Tito Santos foreclosed on petitioners property. The foreclosure was annotated on petitioners TCT No. T-84259. In 1984, Tito Santos died. In 1989, Rufina Santos, his surviving spouse, had petitioners TCT No. T-84259 cancelled and a new title (TCT No. T-116652) issued in her name. In December 1990, herein petitioners filed a complaint against Rufina Santos for Annulment of Certificate of Title and Damages before the Regional Trial Court of Laguna. In their complaint, petitioners alleged that their entire indebtedness to Tito Santos for One Hundred Three Thousand Eight Hundred Nine and Fifty-Six Centavos (P103,809.56) had been fully paid in the form of gravel and sand quarried by Santos from their concession. They also alleged that Tito Santos, despite petitioners full payment of their loan, still foreclosed on the mortgage. In her answer to the complaint, Rufina Santos denied that petitioners paid their loan of P103,809.56 in the form of quarry materials and alleged by way of affirmative defense that petitioners, in the action against them for collection of sum of money docketed as Civil Case No. SC-20965, even admitted their failure to pay the two loans within the period agreed upon. Private respondents also declared that the mortgage on petitioners property was foreclosed due to the non-payment of the Forty Thousand Pesos (P40,000.00) loan and only after several chances to pay were given to herein petitioners. They contended that petitionerspouses action was a mere ploy to pre-empt private respondents intended petition for a writ of possession. After trial on the merits, the trial court on November 27, 1995 ruled for the then plaintiffs (petitioners herein) and declared the new title issued in the name of Rufina Santos as null and void. In ruling favorably for the petitioners, the trial court simply held that the contract entered into by the parties with respect to the Forty Thousand Pesos (P40,000.00) loan was not a real estate mortgage but a contract of antichresis. There being no mortgage to foreclose, according to the court, the new transfer certificate of title issued in the name of Rufina Santos was null and void. Rufina Santos died during the pendency of the case and was duly substituted by her legal heirs, private respondents in this case. The trial courts decision was appealed by herein private respondents to the Court of Appeals. Before the appellate court, private respondents asserted that the trial court erred when it ruled that a contract of antichresis existed between the parties since the language of the Deed of Real Estate Mortgage executed between them was explicit that petitioners were indebted to private respondents in the amount of Forty Thousand Pesos (P40,000.00) and that the lot in Laguna was the security for its payment. According to private respondents, neither the facts of the case nor the evidence supported the conclusion of the trial court. They claimed that Tito Santos, during his lifetime, neither acquired possession of the mortgaged property nor profited from the fruits thereof during the interval between the execution of the mortgage and its execution, [3] two of the indispensable attributes of antichresis. Private respondents also pointed out that the trial courts decision was void since its ruling went beyond the issues raised by the parties in their respective pleadings. The Court of Appeals found the appeal meritorious and reversed the trial court. The appellate court held that since issues in a case are determined by the allegations in the

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pleadings and only issues contained in the pre-trial brief and pre-trial order should be threshed out during the trial, the trial court erred when it resolved the validity of the mortgage contract since the records showed that the only issues for determination during the trial were simply: (1) whether the second loan of Forty-Thousand Pesos (P40,000.00) was ever paid by petitioners to Tito Santos and (2) whether or not the foreclosure of the real estate mortgage on the Oogong property was attended by fraud, deceit and misrepresentation. The appellate court criticized the trial court for deciding the case not on the issues presented by the parties but on a question which was not even the issue in the case before it. The Court of Appeals also assailed the conclusion of the trial court on the existence of a contract of antichresis. In ruling for the private respondents, the appellate court reasoned out: In any event, the conclusion of the trial court that the contract entered into by Tito Santos and appellee-spouses is a contract of antichresis is without factual and legal basis. Under Article 2132 of the Civil Code, a contract is one of antichresis when the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest of the loan, if owing, and thereafter to the principal of his credit. Thus, when a contract of loan with security does not stipulate that the creditor would apply the fruits of his debtors immovable to the interest of the loan when owing, and thereafter to the principal, the contract is not a contract of antichresis but a contract of mortgage. To be sure, the Kasunduan which supplemented the Deed of Real Estate Mortgage executed by appellee-spouses and Tito Santos gave the latter the option to extract quarry materials from the concession of the former and apply the value thereof to the payment of the P40,000.00 portion of appellee-spouses loan. The aforesaid agreement, however, does not qualify the subject contract of mortgage as one of antichresis. First, the use of the concession is not the immovable contemplated by law, the fruits of which is to be applied towards the payment of the interest of the loan, if owing, and thereafter to the principal. Second, the concession for quarry extraction is merely a privilege granted to appellee-spouses by the government. It is not an immovable property that can be used as security for the payment of an obligation. Third, and more importantly, the concession was in fact not used as security for appellee-spouses loan. Rather, it is the property of appellee-spouses as a collateral for the P40,000.00 portion of the loan. Thus, the Kasunduan was merely a mode of payment, separate and distinct from the real estate mortgage. [Emphasis supplied][4] As to the central issue of whether the Forty Thousand Pesos (P40,000.00) loan secured by mortgage was ever paid, the appellate court found that while several receipts were presented by petitioners during trial, such receipts did not show that they were issued with reference to the quarry materials extracted by Tito Santos but merely indicated the number of hauling trips taken during the corresponding period stated therein. Furthermore, the receipts presented did not bear the signatures of either petitioners or private respondents but that of a third person. The Court of Appeals also took into account the fact that petitioner spouses, in an earlier collection case filed against them, admitted the existence and non-payment of the debt due the private respondents despite the supposed receipts. The appellate court also ruled out fraud, deceit or misrepresentation in the foreclosure of the Oogong property.[5] All told, the Court of Appeals, in its decision dated July 5, 2001, reversed the trial court and dismissed the complaint for annulment of title and damages filed by petitioners.

The appealed case was decided without the appellees brief since the appellees (herein petitioners) failed to file one despite sufficient notice. Petitioners herein filed a Manifestation with Motion for Reconsideration with the Court of Appeals praying that they be given a chance to submit their appellees brief in view of the fact that they did not know that their counsel failed to file it. On October 3, 2001, the Court of Appeals denied the aforestated Motion for Reconsideration and held: Considering that a decision has already been rendered, appellees prayer that they be given a chance to submit their brief is DENIED. Considering further that the motion (should be period) for filing a motion for reconsideration is non-extendible, their prayer that they be likewise extended consideration is also DENIED.[6] Undaunted, petitioners, assisted by a new counsel, filed on March 13, 2002 a Petition for Reopening and/or Annulment of Judgment under Rule 47 of the 1997 Rules of Civil Procedure which the appellate court again dismissed for lack of merit on the ground that both were improper remedies. Hence, the instant petition. Before this Court, petitioners insist that, in the interest of substantial justice, the reopening of the case or annulment of judgment should be allowed. They argue that the decision rendered by the Court of Appeals was null and void since such was rendered without their appellees brief. This allegedly prevented them from presenting their side of the controversy, thus depriving them of due process. Furthermore, petitioners maintain that the negligence of their counsel should not bind them since they were allegedly given false promises to purposely keep them ignorant of the developments in the suit. The petition is without merit. While it is true that a motion to reopen is not specifically prescribed as a remedy under the Rules of Court, it is still an accepted procedural recourse, deriving validity and acceptance from long established usage. However, it is also a settled rule that this remedy may be availed of only after either or both parties have formally offered and closed their evidence but before judgment.[7] In the case at bar, the motion to reopen was filed after judgment, thus rendering it an improper remedy. Moreover, Section 1, Rule 47 of the 1997 Rules of Civil Procedure explicitly provides: SECTION 1. Coverage. This Rule shall govern the annulment by the Court of Appeals of judgments or final orders and resolutions in civil actions of Regional Trial Courts for which the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available through no fault of the petitioner. (Emphasis Supplied) The appellate court was therefore correct when it held that the extraordinary action to annul a final judgment applies only to the annulment by the Court of Appeals of judgments or final orders and resolutions in civil actions of Regional Trial Courts but never as a remedy to annul its own judgments. More importantly, the remedy of annulment under Rule 47 is restricted to the grounds specifically provided for by the Rules of Court: a) lack of jurisdiction and b) extrinsic fraud.

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The extrinsic fraud which will invalidate a final judgment must refer to some fraudulent act of the prevailing party committed outside trial which prevents the losing party from presenting his side. It does not refer to the negligence of the petitioners lawyer[8]. The Court of Appeals was therefore correct in dismissing the petition since petitioners allegation on the existence of extrinsic fraud had neither factual nor legal basis. The assertion of petitioners on the lack of due process (allegedly since their case was decided without their having filed their appellees brief due to the negligence of their counsel) must also fail. A review of the records reveals that the Court of Appeals dispensed with the appellees brief only after sufficient notice had been given to herein petitioners. Losing a case on account of counsels negligence is a bitter pill to swallow for any litigant. But then, the Court is duty bound to observe its rules and procedures. Time and again, this Court has held that rules of procedure, especially those prescribing specific time frames within which certain acts must be done, should not be taken lightly nor ignored for such rules are necessary for the proper, efficient and orderly discharge of judicial functions. As to the issue of negligence of counsel, suffice it to say that clients are bound by the mistakes and omissions of their counsel whom they themselves hired[9] although in the case at bar, we seriously doubt if the filing of the appellees brief in the Court of Appeals would have made much difference in the face of the convincing evidence of non-payment by petitioners herein (appellees in the Court of Appeals) of their financial obligations to Tito Santos. WHEREFORE, there being no reversible error, the petition is hereby DENIED. SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9451 March 29, 1957

The same car was sold by the Fortune Enterprises, Inc. to one Salvador Aguinaldo, and for not having paid it in full, the latter executed on the same date a promissory note in the amount of P2,400 payable in 20 installments including interest thereon at 12 per cent per annum, the last of which installments fell due on January 9, 1953 (Exhibit "A"). To secure the payment of this note, Aguinaldo executed a deed of chattel mortgage over said car. The deed was duly registered in the office of the Register of Deeds of Manila at 1:12 p.m. on March 11, 1952 (Exhibit "B"). As the buyer-mortgagor defaulted in the payment of the installments due, counsel for Fortune Enterprises Inc. addressed a letter on May 16, 1952 (Exhibit "C"), requesting him to make the necessary payment and to keep his account up to date, to that no court action would be resorted to. It further appears that the above-described car found its way again into the United Car Exchange which sold the same in cash for P4,000 to one O. N. Borlough on April 6, 1952. Accordingly, he registered it on the following day with the Motor Vehicles Office. (Decision, Court of Appeal.). It also appears from the record that defendant 0. N. Borlough took possession of the vehicle from the time he purchased it, On July 10, 1952, Fortune Enterprises, Inc. brought action against Salvador Aguinaldo to recover the balance of the purchase price. Borlough filed a third-party complaint, claiming the vehicle. Thereupon, Fortune Enterprises, Inc. amended its complaint, including Borlough as a defendant and alleging that he was in connivance with Salvador Aguinaldo and was unlawfully hiding and concealing the vehicle in order to evade seizure by judicial process. Borlough answered alleging that he was in legal possession thereof, having purchased it in good faith and for the full price of P4,000, and that he had a certificate of registration of the vehicle issued by the Motor Vehicles Office, and he prayed for the dismissal of the complaint, the return of the vehicle and for damages against the plaintiff. The vehicle was seized by the sheriff of Manila on August 4, 1952 and was later sold at public auction. The Court of First Instance rendered judgment in favor of Borlough, and against plaintiff, ordering the latter to pay Borlough the sum of P4,000, with interest at 6 per cent per annum, from the date of the seizure of the car on August 4, 1952, and in addition thereto, attorney's fees in the sum of P1,000. Upon appeal to the Court of Appeals, this court rendered judgment ordering that Emil B. Fajardo pay Borlough P4,000 plus attorney's fees and that plaintiff pay to Borlough any amount received by it in excess of its credits and judicial expenses. The reason for the modification of the judgment is that the mortgage was superior, being prior in point of time, to whatever rights may have been acquired by Borlough by reason of his possession and by the registration of his title in the Motor Vehicle Office. The question involved in the appeal in this case is one of law and may be stated thus: As between a prior mortgage executed over a motor vehicle, registered under the Chattel Mortgage Law only, without annotation thereof in the Motor Vehicles Office, and a subsequent registration of the vehicle in the Motor Vehicles Office accompanied by actual possession of the motor vehicle, which should prevail. While the question can be resolved by the general principles found in the Civil Code and expressly stated in Article 559, there is no need resorting thereto (the general principles) in view of the express provisions of the Revised Motor Vehicles Law, which expressly and specifically regulate the registration, sale or transfer and mortgage of motor vehicles. The following provisions of said law may help decide the legal question now under consideration:

OLAF N. BORLOUGH, petitioner, vs. FORTUNE ENTERPRISES, INC. and THE HONORABLE COURT OF APPEALS (2nd DIVISION), respondents. Arturo M. del Rosario and Alfredo G. Fernando for petitioner. Laurel & Salonga for respondents. LABRADOR, J.: Appeal by certiorari against a judgment of the Court of Appeals, Second Division. The facts of the case have been briefly stated as follows: On March 8, 1952, the United Car Exchange sold to the Fortune Enterprises, Inc., the following described car Make: Type : Chevrolet (1947); Sedan; Plate No. 34-1465 Motor No. EAA-20834 (Exhibit D).

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SEC. 5 (c) Reports of motor vehicle sales. On the first day of each month, every dealer in motor vehicles shall furnish the Chief of the Motor Vehicles Office a true report showing the name and address of each purchase of a motor vehicle during the previous month and the manufacturer's serial number and motor number; a brief description of the vehicle, and such other information as the Chief of the Motor Vehicles Office may require. SEC. 5 (e) Report of mortgages. Whenever any owner hypothecates or mortgage any motor vehicle as surety for a debt or other obligation, the creditor or person in whose favor the mortgage is made shall, within seven days, notify the Chief of the Motor Vehicles Office in writing to the effect, stating the registration number of the motor vehicle, date of mortgage, names and addresses of both parties, and such other information as the Chief of the Motor Vehicles Office may require. This notice shall be signed jointly by the parties to the mortgage. On termination, cancellation or foreclosure of the mortgage, a similar written notice signed by both parties, shall be forwarded to the Chief of the Motor Vehicles Office by the owner. These notice shall be filed by the Chief of the Motor Vehicles Office in the motor records, and in the absence of more specific information, shall be deemed evidence of the true status of ownership of the motor vehicle. (Revised Motor Vehicles Law.) It is to be noted that under section 4 (b) of the Revised Motor Vehicles Law the Chief of the Motor Vehicles Office is required to enter or record, among other things, transfers of motor vehicles "with a view of making and keeping the same and each all of them as accessible as possible to and for persons and officers properly interested in the same," and to "issue such reasonable regulations governing the search and examination of the documents and records . . . as will be consistent with their availability to the public and their safe and secure prevention." Two recording laws are here being invoked, one by each contending party the Chattel Mortgage Law (Act No. 1508), by the mortgagor and the Revised Motor Vehicles Law (Act No. 3992), by a purchaser in possession. What effect did the passenger of the Revised Motor Vehicles Law have on the previous enactment? The Revised Motor Vehicles Law is a special legislation enacted to "amend and compile the laws relative to motor vehicles," whereas the Chattel Mortgage Law is a general law covering mortgages of all kinds of personal property. The former is the latest attempt to assemble and compile the motor vehicle laws of the Philippines, all the earlier laws on the subject having been found to be very deficient in form as well as in substance (Villar and De Vega, Revised Motor Vehicles Law, p. 1); it had been designed primarily to control the registration and operation of motor vehicles (section 2, Act No. 3992). Counsel for petitioner contends that the passage of the Revised Motor Vehicles Law had the effect of repealing the Chattel Mortgage Law, as regards registration of motor vehicles and of the recording of transaction affecting the same. We do not believe that it could have been the intention of the legislature to bring about such a repeal. In the first place, the provisions of the Revised Motor Vehicles Law on registration are not inconsistent with does of the Chattel Mortgage Law. In the second place, implied repeals are not favored; implied repeals are permitted only in cases of clear and positive inconsistency. The first paragraph of section 5 indicates that the provisions of the Revised Motor Vehicles Law regarding registration and recording of mortgage are not incompatible with a mortgage under the Chattel Mortgage Law. The section merely requires report to the Motor Vehicles Office of a mortgage; it does

not state that the registration of the mortgage under the Chattel Mortgage Law is to be dispensed with. We have, therefore, an additional requirements in the Revised Motor Vehicles Law, aside from the registration of a chattel mortgage, which is to report a mortgage to the Motor Vehicles Office, if the subject of the mortgage is a motor vehicle; the report merely supplements or complements the registration. The recording provisions of the Revised Motor Vehicles Law, therefore, are merely complementary to those of the Chattel Mortgage Law. A mortgage in order to affect third persons should not only be registered in the Chattel Mortgage Registry, but the same should also be recorded in the motor Vehicles Office as required by section 5 (e) of the Revised Motor Vehicles Law. And the failure of the respondent mortgage to report the mortgage executed in its favor had the effect of making said mortgage ineffective against Borlough, who had his purchase registered in the said Motor Vehicles Office. On failure to comply with the statute, the transferee's title is rendered invalid as against a subsequent purchaser from the transferor, who is enabled by such failure of compliance to retain the indicia of ownership, such as a subsequent purchaser in good faith, or a purchaser from a conditional buyer in possession; and the lien of a chattel mortgage given by the buyer to secure a purchase money loan never becomes effective in such case as against an innocent purchaser. (60 Corpus Juris Secundum, p. 171.) One holding a lien on a motor vehicle, in so far as he can reasonably do so, must protect himself and others thereafter dealing in good faith by complying and requiring compliance with the provisions of the laws concerning certificates of title to motor vehicles, such as statutes providing for the notation of liens or claims against the motor vehicle certificate of title or manufacturer's certificate, or for the issuance to the mortgagee of a new certificate of ownership. Where the lien holder has satisfied himself that the existence of the lien is recited in the certificate of title, he has done all that the law contemplates that he should do, and there is notice to the public of the existing lien, which continues valid until the record shows that it has been satisfied and a new certificate issued on legal authority, even through another certificate which does not disclose the lien is procured as the result of false statements made in the application therefore, and the vehicle is purchased by a bona fide purchaser. The holder of a lien who is derelict in his duty to comply and require compliance with the statutory provisions acts at his own peril, and must suffer the consequence of his own negligence; and accordingly, he is not entitled to the lien as against a subsequent innocent purchaser filed as provided by other chattel mortgage statutes. The rule is otherwise, however, as against claimants not occupying the position of innocent purchaser, such as a judgment creditor, or one acquiring title with actual notice of an unregistered lien, and the statutes do not protect a purchaser holding under registered title if a link in the title is forgery. Moreover, such statute will not impair vested rights of a mortgage under a chattel mortgage duly recorded. (60 C.J.S., pp. 181-182.) The above authorities leave no room for doubt that purchaser O. N. Borlough's right to the vehicle as against the previous and prior mortgage Fortune Enterprises, Inc., which failed to record its lien in accordance with the Revised Motor Vehicles Law, should be upheld. For the foregoing consideration, the judgment of the Court of Appeals is hereby reversed and that of the Court of First Instance affirmed, with costs against respondent.

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4637 June 30, 1952

by Act No. 4118, is invalid because the mortgage in question is not a real estate mortgage and, besides, it does not contain an express stipulation authorizing the mortgagee to foreclose the mortgage extra-judicially. There is merit in this claim. As may be gleaned from a perusal of the deed signed by the parties (Annex "C"), the understanding executed by them is a chattel mortgage, as the parties have so expressly designated, and not a real estate mortgage, specially when it is considered that the property given as security is a house of mixed materials which by its very nature is considered as personal property. Such being the case, it is indeed a mistake for the mortgagee to consider this transaction in the light of Act No. 3135, as amended by Act No. 4118, as was so considered by her when she requested to provincial sheriff to sell it extrajudicially in order to secure full satisfaction of the indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as amended, only covers real estate mortgages and is intended merely to regulate the extra-judicial sale of the property mortgaged if and when the mortgagee is given a special power or express authority to do so in the deed itself, or in a document annexed thereto. These conditions do not here obtain. The mortgage before us is not a real estate mortgage nor does it contain an express authority or power to sell the property extra-judicially. But regardless of what we have heretofore stated, we find that the validity of the sale in question may be maintained, it appearing that the mortgage in question is a chattel mortgage and as such it is covered and regulated by the Chattel Mortgage Law, Act No. 1508. Section 14 of this Act allows the mortgagee through a public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No. 4118, provided that the requirements of the law relative to notice and registration are complied with. We are not prepared to state if these requirements of the law had been complied with in the case for the record before us is not complete and there is no showing to that effect. At any rate, this issue is not how important because the same can be treshed out when the opportunity comes for its determination, nor is it necessary for us to consider it in reaching a decision in the present case. Suffice it to state that for the present we are not expressing any opinion on this matter which concerns the validity of the sale in question for the reason that this opinion will only be limited to a matter of procedure relative to the step taken by the mortgagee in securing the possession of the property involved. In the supposition that the sale of the property made by the sheriff has been made in accordance with law, and the question he is confronted is how to deliver the possession of the property to the purchaser in case of refusal to surrender its possession on the part of the debtor or mortgagor, the remedy of the purchaser according to the authorities, is to bring an ordinary action for recovery of possession (Continental Gin Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14 C.J.S., pp. 1027, 1028). The purchaser cannot take possession of the property by force either directly or through the sheriff. And the reason for this is "that the creditor's right of possession is conditioned upon the fact of default, and the existence of this fact may naturally be the subject of controversy" (Bachrah Motor Co. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file a petition for a writ of possession as was done by Trinidad Reyes in this case. Her remedy is to file an ordinary action for recovery of possession in ordered that the debtor may be given an opportunity to be heard not only in regarding possession but also regarding the obligation covered by the mortgage. The petition she has filed in the lower court, which was not even docketed, is therefore improper and should be regarded. Wherefore, the order subject of the present petition for certiorari is hereby set aside, with costs against respondent Trinidad Reyes. Republic of the Philippines SUPREME COURT Manila

JOSE A. LUNA, petitioner, vs. DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES and THE PROVINCIAL SHERIFF OF RIZAL, respondents. Jose S. Fineza for petitioner. BAUTISTA ANGELO, J.: On September 25, 1948, a deed designated as chattel mortgage was executed by Jose A. Luna in favor of Trinidad Reyes whereby the former conveyed by way of first mortgage to the latter a certain house of mixed materials stated in barrio San Nicolas, municipality of Pasig, Province of Rizal, to secure the payment of a promissory note in the amount of P1,500, with interest at 12 per cent per annum. The document was registered in the office of the register of deeds for the Province of Rizal. The mortgagor having filed to pay the promissory note when it fell due, the mortgage requested the sheriff of said province to sell the house at public auction so that with its proceeds the amount indebted may be paid notifying the mortgagor in writing of the time and place of the sale as required by law. The sheriff acceded to the request and sold the property to the mortgagee for the amount covering the whole indebtedness with interest and costs. The certificate of sale was issued by the sheriff on May 28, 1949. After the period for the redemption of the property had expired without the mortgagor having exercised his right to repurchase, the mortgagee demanded from the mortgagor the surrender of the possession of the property, but the later refused and so on October 13, 1950, she filed a petition in the Court of First Instance of Rizal praying that the provincial sheriff be authorized to place her in possession of the property invoking in her favor the provisions of Act No. 3135, as amended by Act No. 4118. When the petition came up for hearing before the court on October 25, 1950, Jose A. Luna, the mortgagor, opposed the petition on the following grounds: (1) that Act No. 3135 as amended by Act No. 4118 is applicable only to a real estate mortgage; (2) that the mortgage involved herein is a chattel mortgage; and (3) that even if the mortgage executed by the parties herein be considered as real estate mortgage, the extra-judicial sale made by the sheriff of the property in question was valid because the mortgage does not contain an express stipulation authorizing the extra-judicial sale of the property. After hearing, at which both parties have expressed their views in support of their respective contentions, respondent judge, then presiding the court, overruled the opposition and granted the petition ordering the provincial sheriff of Rizal, or any of this disputives, to immediately place petitioner in possession of the property in question while at the same time directing the mortgagor Jose A. Luna to vacate it and relinquish it in favor of petitioner. It is from this order that Jose A. Luna desires now to obtain relief by filing this petition for certiorari contending that the respondent judge has acted in excess of his jurisdiction. The first question which petitioner poses in his petition for certiorari is that which relates to the validity of the extra-judicial sale made by the provincial sheriff of Rizal of the property in question in line with the request of the mortgagee Trinidad Reyes. It is contended that said extra-judicial sale having been conducted under the provisions of Act No. 3135, as amended

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EN BANC

G.R. No. L-27132 April 29, 1971 PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MANILA INVESTMENT & CONSTRUCTION, INC. and CIPRIANO S. ALLAS defendantsappellants. Medina, Pajarillo, Magtalas and Sadao for plaintiff-appellee. Aristorenas, Relova and Opea for defendants-appellants.

1. That sometime after the judgment rendered by the Court of First Instance of Manila in Civil Case No. 33074 became final and executory, plaintiff sold to various parties in a private sale the mortgaged properties specifically mentioned in the judgment to be foreclosed and sold at public auction hence the proceeds thereof must therefore be accounted by plaintiff to the defendants in order that the same be properly and accordingly applied to the judgment. 2. That notwithstanding the aforesaid sale which was effected sometime in 1958, plaintiff never rendered an accounting of the proceeds of the sale of the mortgaged properties to the defendants; 3. That plaintiff has no cause of action in reviving the aforesaid judgment not until it has rendered proper accounting to the defendants of the proceeds of the aforesaid sale. Thereafter, the parties submitted a stipulation of facts, paragraph 3 thereof being of the following tenor:

DIZON, J.: In Civil Case No. 33074 of the Court of First Instance of Manila, Branch XV entitled "Philippine National Bank vs. Manila Investment & Construction, Inc., et al.," decision was rendered on December 26, 1957, its dispositive portion being partly as follows: IN VIEW WHEREOF, judgment is rendered condemning defendants, jointly and severally, to pay plaintiff: (1) Under the first cause of action the sum of P88,939.48 with daily interest of P12,77385 plus 1/4% commission or P194.6689 for every 30 days or a fraction thereof, plus 10% on the principal as attorney's fees and the cost; (2) On the second cause of action the sum of P356,913.01, plus P48,464 03 and 1/4% or P629.31 for every 30 days or fraction thereof that the amount remain outstanding and unpaid plus 10% of the principal as attorney's fees, and the cost. In case of non-payment of the amounts adjudged, the decision also provided for the sale at public auction of the personal properties covered by the chattel mortgage executed by the defendants in favor of the plaintiff Bank, and for the disposition of the proceeds in accordance with law. After the decision had become executory, instead of having the mortgaged personal properties sold at public auction, the parties agreed to have them sold, and were in fact sold, at a private sale. The net proceeds obtained therefrom amounting to P256,941.70 were applied to the partial satisfaction of the above judgment. On August 11, 1964, that is, more than five years but less than ten years from the date when the decision aforesaid became executory, the Philippine National Bank filed in the same Court of First Instance of Manila an action to revive it. On October 21, 1964, the defendants filed their answer in which, after admitting some of the allegations of the complaint and denying others, they interposed the following affirmative defenses:

3.That as of August 11, 1964, here remains the sum of P382,388.47 still unsatisfied which is arrived at in the manner specified in Annex "A". After the parties had submitted their respective memorandum, the court rendered on August 30, 196,6 the appealed decision whose dispositive portion reads as follows: WHEREFORE, the Court renders judgment ordering the defendants to pay the plaintiff, jointly and severally, the amount of THREE HUNDRED EIGHTY TWO THOUSAND THREE HUNDRED THIRTY EIGHT AND 47/100 (P382,338.47) PESOS, with interest at the legal rate from August 12, 1964 until fully paid. Costs against the defendants. The defendants appealed to secure a reversal of the above decision claiming firstly, that the action instituted below is not the proper remedy; secondly, that the private sale of the mortgaged personal properties was null and void, and lastly, that the appellee is not entitled to a deficiency judgment. We are of the opinion that, upon the facts of the case and the law thereto applicable, appellants' contentions are without merit. In relation to the first, it is true that the decision rendered in Civil Case 33074 of the Court of First Instance of Manila provided for the sale at public auction of the personal properties covered by the chattel mortgage executed in favor of the Bank, but it is likewise true that said personal properties were sold at a private sale by agreementbetween the parties. Besides, We see nothing illegal, immoral or against public order in such agreement entered into freely and voluntarily. In line with the provisions of the substantive law giving the contracting parties full freedom to contract provided their agreement is not contrary to law, morals, good customs, public order or public policy (Article 1306, Civil Code of the Philippines), We held in Philippine National Bank vs. De Poli thus: Under article 1255 of the Civil Code (Art. 1306 New Civil Code), the contracting parties may stipulate that in case of violation of the conditions of the mortgage contract, the creditor may sell, at private sale and without previous advertisement or notice, the whole or part of the good mortgaged

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for the purpose of applying the proceeds thereof on the payment of the debt. Said stipulation is not contrary to law or public order, and therefore it is valid. (Emphasis supplied). As the disposition of the mortgaged personalities in a private sale was by agreement between the parties, it is clear that appellants are now in estoppel to question it except on the ground of fraud or duress pleas that they do not invoke. They do not even claim that the private sale agreed upon had caused them substantial prejudice. Appellants contend likewise that, instead of the action to revive the judgment rendered in its favor, the appellee Bank should have filed a motion in Civil Case 33074 of the Court of First Instance of Manila for the rendition of a deficiency judgment. It is to be borne in mind, in this connection, that the action for revival was instituted after the lapse of five but of less than ten years from the time the decision sought to be revived became executory. Having thus become stale or dormant, it was not subject to execution by mere motion. Consequently, before the judgment creditor could move for the rendition of a deficiency judgment and for the issuance of the corresponding writ of execution, it had to seek the revival of the decision in accordance with law. In Bank, etc. vs. Greene 61 Phil. 654, We held that "A judgment foreclosing a mortgage which has lost executory force by the lapse of five years may be revived by filing a complaint based thereon." This, precisely, is what the appellee Bank did.

sale, is only a payment, pro tanto and an action may be maintained for a deficiency in the debt. (Manila Trading and Supply Co., vs. Tamaraw Plantation Co., 47 Phil. 513; Emphasis supplied.) It is clear, therefore, that the proceeds of the sale of the mortgaged personal properties of the herein appellants constitute only a pro tanto satisfaction of the monetary award made by the court and the appellee Bank is entitled to collect the balance. WHEREFORE, the decision appealed from is hereby affirmed, with costs. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 106435 July 14, 1999 Technically, the original judgment, rendered by the Court of First Instance of Manila in Civil Case No. 33074 should have been literally revived, but the record shows that at the hearing of the action below the parties formally stipulated that the unpaid portion of the amount due under the decision in favor of the Bank was the sum of P383,388.47 only, after taking into account all the payments made by the judgment debtors up to the date the stipulation of facts was submitted to the lower court. Consequently, the deficiency judgment that may be rendered in Civil Case No. 33074 and the writ of execution that may be issued to enforce the same shall be only for said amount. Lastly, it is appellants' contention that the appellee Bank is not entitled to a deficiency judgment, invoking the provisions of Article 2115 of the new Civil Code. The issue thus raised was already resolved in the negative inAblaza vs. Ignacio, G.R. No. L-11466, promulgated on March 23, 1958 where We said, inter alia, the following: 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 counter to any provision of the Chattel Mortgage Law, otherwise the provisions of the latter will not apply. Here we find that the provisions of the Chattel Mortgage 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. xxx xxx xxx Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors in 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 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.

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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.

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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.1wphi1.nt 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

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In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes . . . G.R. No. 150673 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. Republic of the Philippines SUPREME COURT Manila CALLEJO, SR., J.:

SECOND DIVISION February 28, 2003

SUPERLINES TRANSPORTATION COMPANY, INC., and MANOLET LAVIDES, petitioners, vs. ICC LEASING & FINANCING CORPORATION, respondent. DECISION

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the Decision1 of the Court of Appeals in CA-G.R. No. 65126 reversing on appeal the Decision2 of Branch 142 of the Regional Trial Court of Makati City in Civil Case No. 97-816. The Antecedents In 1995, Superlines Transportation Co., Inc. (Superlines, for brevity) decided to acquire five new buses from the Diamond Motors Corporation for the price of P10,873,582.00. However, Superlines lacked financial resources for the purpose. By virtue of a board resolution, Superlines authorized its President and General Manager, Manolet Lavides, a graduate of the Ateneo de Manila School of Law and a businessman for twenty years, to look for and negotiate with a financing corporation for a loan for the purchase of said buses. Lavides negotiated with ICC Leasing & Financing Corporation (ICC, for brevity) through the latters Assistant Vice-President for Operations Aida F. Albano, for a financial scheme for the planned purchase. ICC agreed to finance the purchase of the new buses via a loan and proposed a three-year term for the payment thereof at a fixed interest rate of 22% per annum. The new buses to be purchased were to be used by Superlines as security for the loan. ICC required Superlines to submit certificates of registration of the said buses under the name of Superlines before the appropriate document was executed by the parties and their transactions consummated. On October 19, 1995, Diamond Motors Corporation sold to Superlines five new buses under Vehicle Invoice Nos. 9225 to 9229.3 Superlines, through Lavides, acknowledged receipt of the buses. On November 22, 1995, the vehicle invoices were filed with the Land Transportation Office which then issued certificates of registration covering the five buses under the name of Superlines.4 With the buses now registered under its name, Superlines, through Lavides, executed two documents, namely: a deed of chattel mortgage over the said buses as security for the purchase price of the buses in the amount of P13,114,287.005 loaned by ICC to Superlines, which deed was annotated on the face of said certificates of registration, and a promissory note in favor of ICC binding and obliging itself to pay to the latter the amount of P10,873,582.00 in monthly installments ofP415,290.00, the first installment to start on December 23, 1995, with interest thereon at the rate of 22% per annum until full payment of said amount6 in favor of Superlines and ICC covenanted in said deed that: Effective upon the breach of any condition of this mortgage, and in case of loss or damage of the mortgaged property/ies and in addition to the remedies herein stipulated, the MORTGAGEE is hereby appointed attorney-in-fact of the MORTGAGOR with full power and authority, by the use of force if necessary, to take actual possession of the mortgaged

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property/ies without the necessity of any judicial order or any other permission or power, to remove, sell or dispose of the mortgaged property/ies, and collect rents therefor, to execute bill of sale, lease or agreements that may be deemed convenient; to make repairs or improvements in the mortgaged property/ies and pay the same and perform any other act which the MORTGAGEE may deem convenient for the proper administration of the mortgaged property/ies; and to file, prove, justify, prosecute, compromise or settle insurance claims with the insurance company, without the participation of the MORTGAGOR, under such terms and conditions as the Mortgagee as attorney-in-fact may consider fair and reasonable. The payment of any expenses advanced by the MORTGAGEE or its assigns in connection with the purpose indicated herein is also guaranteed by this mortgage. Any amount received from the sale, disposal or administration abovementioned may be executed by the MORTGAGEE by virtue of this power and applied to the satisfaction of the obligations hereby secured, which act is hereby ratified. The MORTGAGEE shall have the option of selling the property/ies either at public or private sale at the municipality or at the capital of the province where it may be situated at the time; or at any municipality where the MORTGAGEE may have a branch, office, or at Metro Manila, the MORTGAGOR hereby waiving all rights to any notice of such sale. The MORTGAGOR hereby expressly waives the term of thirty (30) days or any other term granted or which may hereafter be granted him/it by law as the period which must elapse before the MORTGAGEE or its assigns shall be entitled to foreclose this mortgage, it being expressly understood and agreed that the MORTGAGEE may foreclose this mortgage at any time after the breach of any condition hereof. It is further agreed that in case of the sale at public auction under foreclosure proceedings of the property/ies herein mortgaged, or of any part thereof, the MORTGAGEE shall be entitled to bid for the properties so sold, or for any part thereof, to buy the same, or any part thereof, and to have the amount of his/its bid applied to the payment of the obligations secured by this mortgage without requiring payment in cash of the amount of such bid. The remedies of the MORTGAGEE under the powers hereby conferred upon him/it shall be and are in addition to and cumulative with such right of action as the said MORTGAGEE or the assigns may have in accordance with the present or any future laws of the Philippines.7 Superlines and Lavides executed a Continuing Guaranty to pay jointly and severally in favor of ICC the amount ofP13,114,285.00.8 ICC drew and delivered to Superlines Metrobank Check No. 0661909113, dated November 23, 1995, payable to the account of Superlines in the amount of P10,873,582.00,9 representing the net proceeds of the loan. The latter acknowledged receipt of the check in Cash Voucher No. 0.0769.10 Superlines remitted the said check to Diamond Motors Corporation in full payment of the purchase price of the new buses. After paying only seven monthly amortizations for the period of December 1995 to June 1996, Superlines defaulted in the payment of its obligation to ICC.11 On April 2, 1997, ICC wrote Superlines demanding full payment of its outstanding obligation, which as of March 31, 1997 amounted to P12,606,020.55.12 However, Superlines failed to heed said demand. ICC filed a complaint13 for collection of sum of money with prayer for a writ of replevin on April 21, 1997 with Branch 142 of the Regional Trial Court of Makati City against Superlines and Lavides. The case was entitled "ICC Leasing & Finance Corporation vs. Superlines Transportation Co., Inc., et al." and docketed as Civil Case No. 97-816. ICC alleged, by way of alternative cause of action, that:

xxx xxx xxx 13. In the event that the Plaintiff fails to locate and/or seize the above-described mortgaged vehicles from Defendant, its agents and/or assigns, or any such person other than said Defendant or its representatives, Defendant is obligated to pay Plaintiff the sum of P12,072,895.59, and an amount equivalent to 5% of the total amount due from Defendant as and for attorneys fees, plus expenses of collection, the costs of suit and cost of Replevin Bond. ICC prayed that after due proceedings, judgment be rendered in its favor, thus: WHEREFORE, it is respectfully prayed that: 1. A Writ of Replevin be issued, ordering the Court Sheriff and/or any of his deputies, to seize from Defendant, its agents and/or assigns, or any such person other than said Defendant or its representatives in possession thereof at present, the above-described vehicles wherever they may be found, to take and keep the same in custody and, to dispose of them in accordance with Section 6, Rule 60 of the Revised Rules of Court. 2. Judgment be rendered in favor of the Plaintiff and against the Defendant, as follows: a) Declaring that Plaintiff is entitled to the possession of the subject properties in accordance with the terms and conditions of the Chattel Mortgage; b) Ordering Defendant, in case the amount realized from the sale of the mortgaged properties shall be insufficient to cover its total indebtedness, to pay the Plaintiff the deficiency; c) Ordering Defendant to pay Plaintiff the expenses of litigation and costs of suit, including the costs of the Replevin Bond, plus the stipulated attorneys fees. As to the ALTERNATIVE CAUSE OF ACTION Ordering Defendants to pay the outstanding principal balance of P12,072,895.59, to pay the costs of suit, expenses of litigation and the costs of the Replevin Bond, plus an amount equivalent to 5% of the total amount due as and for attorneys fees. In the meantime, the trial court issued a writ of seizure for the five mortgaged buses.14 On May 29, 1997, the sheriff took possession of the five buses in compliance with the writ of seizure issued by the trial court.15Thereafter, ICC instituted extra-judicial foreclosure proceedings over the subject buses. An auction sale was held on July 2, 1997. ICC offered a bid of P7,200,000.00 for the motor vehicles and was declared the winning bidder, resulting in a deficiency of P5,406,029.55. In addition, ICC incurred necessary expenses in the amount ofP920,524.62. Superlines thus still owed ICC the amount of P6,326,556.17.

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In their Answer with Counterclaim, Superlines and Lavides asserted that the real agreement of the parties was one of financing a sale of personal property, the prices for which shall be payable on installments. Relying on Article 1484(3) of the Civil Code, Superlines and Lavides claimed that since the chattel mortgage on subject buses was already foreclosed by ICC, the latter had no further action against Superlines and Lavides for the unpaid balance of the price. They interposed compulsory damages in the total amount of P750,000.00 excluding costs of suit. Leonardo Serrano, Jr., the Executive Vice-President and Chief Operations Officer of ICC, testified that the transaction forged by ICC and Superlines was an amortized commercial loan and not a consumer loan, because under the latter transaction, ICC should have paid the price of the purchase of its customers (Superlines) directly to the suppliers. However, ICC did not do business directly with Diamond Motors Corporation; it transacted directly with Superlines. ICC remitted the purchase price of the buses directly to Superlines and not to Diamond Motors Corporation. ICC had no contract with Diamond Motors Corporation. On the other hand, Lavides testified that he and ICCs Assistant Vice-President for Operations Aida Albano agreed on a consumer loan for the financing of the purchase of the buses, with ICC as the vendor, and Superlines as the vendee, of said buses; and that ICC had a special arrangement with Diamond Motors Corporation on the purchase by Superlines of the buses. On June 1, 1999, the trial court rendered a decision ordering the dismissal of the case and for ICC to pay damages and litigation expenses to Superlines and Lavides, the decretal portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered DISMISSING the instant complaint and ORDERING plaintiff to pay defendants the following: 1. The sum of P150,000.00 as and for attorneys fees; 2. The sum of P300,000.00 as moderate damages; 3. The sum of P50,000.00 as litigation expenses and 4. The costs of suit. SO ORDERED.16 The trial court found that, as testified to by Lavides, ICC and Superlines forged a consumer loan agreement and not an amortized commercial loan. It further declared that, as testified to by Lavides, there was a special arrangement for the purchase by ICC of said buses. The trial court finally stated that Superlines purchased the buses from ICC, the purchase price therefor payable in monthly installments. ICC appealed the trial courts decision to the Court of Appeals. On July 30, 2001, the appellate court rendered a decision reversing the decision of the RTC and ordering Superlines and Lavides to pay the deficiency claim of ICC. The decretal portion thereof reads: In view of the foregoing, it is Our conclusion that plaintiff-appellant is entitled to the deficiency claim ofP5,376,543.96 (Exh. "F-1", p. 155 Record), plus costs of P71,807.22 for the Replevin Bond (Exh. "H", p. 156, Record) and attorneys fees of P508,000.00 (Exh. "G", p. 156, Record).

WHEREFORE, the appealed Decision is REVERSED and SET ASIDE and a new one is rendered ordering defendants to pay jointly and severally the sum of P5,956,351.18 to the plaintiff. SO ORDERED.17 The Court of Appeals stated that ICC and Superlines entered into an amortized commercial loan agreement with ICC as creditor-mortgagee and Superlines as debtor-mortgagor, and ordered Superlines and Lavides to pay to ICC jointly and severally the sum of P5,956,351.18 as deficiency.18 It further declared that it was Diamond Motors Corporation and not ICC which sold the subject buses to Superlines. It held that no evidence had been presented by Superlines to show that ICC bought the said buses from Diamond Motors Corporation under a special arrangement and that ICC sold the buses to Superlines. The appellate court also ruled that Article 1484(3) is applicable only where there is vendor-vendee relationship between the parties and since ICC did not sell the buses to Superlines, the latter cannot invoke said law. Hence, this petition. Petitioners contend that the appellate court committed serious errors of law and/or grave abuse of discretion amounting to excess or lack of jurisdiction: 1. In concluding that Article 1484 (3) of the Civil Code is inapplicable to the instant transaction between the parties, and in holding that said transaction was an "amortized commercial loan", the same being patently contrary to the unrebutted evidence as well as the admissions of the respondents sole witness that the parties may "verbally" agree as regards the financial scheme applied for and that the chattel mortgage, promissory note and other documents executed in the case of a "commercial loan" are no different from those documents executed in the case of a "consumer loan". 2. In concluding that the respondent is in any event entitled to deficiency judgment as it is deemed to have chosen the remedy of exacting fulfillment of the obligation under paragraph (1) of Article 1484 of the Civil Code, the same being patently contrary to incontestable fact that what respondent availed of in the instant case is foreclosure of the chattel mortgage and not the alternative prayer contained in the relief portion of its complaint.19 Anent the first assignment of error, petitioners aver that the findings of the Court of Appeals that the transaction forged by petitioners and private respondent was an amortized commercial loan and not a consumer loan are belied by the evidence on record, more specifically the testimony of Lavides and that of respondents witness Leonardo Serrano, Jr. The Promissory Note and Chattel Mortgage executed by petitioner Superlines and the Continuing Guaranty executed by both petitioners are not conclusive of the nature of the transaction concluded by them, private respondent and Diamond Motors Corporation. Petitioners further claim that the appellate court also ignored the unrebutted testimony of Lavides that respondent and Diamond Motors Corporation forged a special arrangement under which the latter will expedite the issuance of the certificates of registration over the buses under the name of Superlines. Petitioners also argue that the word "vendee" in Article 1484(3) of the New Civil Code is used in its generic term, and hence, it may mean an assignee or a mortgagee such as respondent.

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For its part, respondent contends that the findings and conclusions of the Court of Appeals were buttressed by the documentary and testimonial evidence on record which should prevail over those of the trial court: We do not agree with the lower court that Art. 1484 (3) of the New Civil Code is applicable to the instant case. DIAMOND is the seller of the five units of buses and not the plaintiff. No convincing evidence, except the self-serving testimony of defendant Manolet Lavides, was presented to prove that there was an internal arrangement between the plaintiff, as financing agent, and Diamond, as seller of the buses. In fact, defendant Lavides admitted under oath that DIAMOND and plaintiff did not enter into transaction over the sale of the buses (TSN, February 26, 1999, p. 12). The conclusion of the lower court that the parties entered into a financing scheme covered by Article 1484 (3) of the New Civil Code is therefore unsubstantiated. The evidence shows that the transaction between the parties was an "amortized commercial loan" to be paid in installments. Defendants failed to prove that a "special arrangement" regarding the nature of the transaction was agreed upon between the plaintiff and the defendants. Aida Albano, plaintiffs employee who allegedly agreed with the request of defendant Manolet Lavides for a special arrangement, was not presented. It bears emphasizing that whoever alleges fraud or mistake affecting a transaction must substantiate his allegation, since it is presumed that a person takes ordinary care of his concerns and private transactions have been fair and regular (Mangahas vs. CA, 304 SCRA 375). If indeed defendant Manolet Lavides, a law graduate from a prestigious law school (TSN, February 26, 1999, p. 3) and a successful businessman for twenty (20) years ...., who admits to having meticulously examined the subject documents ... intended a financing scheme covered by Art. 1484 of the New Civil Code, he should have objected to the contents of the documents and incorporated therein his true intent.20 At the core of petitioners case is their claim that the findings of facts of the Court of Appeals and its conclusions anchored thereon are belied by the evidence on record in contrast to those of the trial court. It bears stressing, however, that in a petition for review on certiorari, only questions of law may be raised in said petition. The jurisdiction of this Court in cases brought to it from the Court of Appeals is confined to reviewing and reversing the errors of law ascribed to it, findings of facts being conclusive on this Court. The Court is not tasked to calibrate and assess the probative weight of evidence adduced by the parties during trial all over again.21 In those instances where the findings of facts of the trial court and its conclusions anchored on said findings are inconsistent with those of the Court of Appeals, this Court does not automatically delve into the record to determine which of the discordant findings and conclusions should prevail and to resolve the disputed facts for itself. This Court is tasked to merely determine which of the findings of the two tribunals are conformable to the facts at hand.22 So long as the findings of facts of the Court of Appeals are consistent with or are not palpably contrary to the evidence on record, this Court shall decline to embark on a review on the probative weight of the evidence of the parties. Indeed, in Tan vs. Lim,23 this Court, citing its ruling in Hermo vs. Court of Appeals,24 held that it is the findings of the Court of Appeals and not those of the trial court which are final and conclusive on this Court. The rule is not without exception. This Court may review the findings of facts of the Court of Appeals and its conclusions based thereon if the inference made by the appellate court from its findings of facts is manifestly erroneous, absurd or impossible, or when the judgment of the said court is premised on a misappreciation of facts.25 In this case, the findings of facts of the Court of Appeals and its conclusions anchored thereon are in terra firma, buttressed as they are by the evidence on record. The Court of Appeals correctly ruled that the findings of facts, deductions, and conclusions of the trial court are not warranted by the evidence on record.

Petitioners failed to adduce a preponderance of evidence to prove that respondents and Diamond Motors Corporation entered into a special arrangement relative to the issuance of certificates of registration over the buses under the name of petitioner Superlines. Petitioners were also unable to prove that respondent purchased from Diamond Motors Corporation the new buses. In contrast, the vehicle invoices of Diamond Motors Corporation26 irrefragably show that it sold the said buses to petitioner Superlines. The net proceeds of the loan were remitted by respondent to petitioner Superlines and the latter remitted the same to Diamond Motors Corporation in payment of the purchase price of the buses. In fine, respondent and Diamond Motors Corporation had no direct business transactions relative to the purchase of the buses and the payment of the purchase price thereof. As aptly observed by the Court of Appeals, petitioner Lavides is a graduate of the Ateneo de Manila University School of Law. He had been in business for twenty years or so. It is incredible that petitioner Superlines through petitioner Lavides never required respondent and Diamond Motors Corporation to execute a deed evidencing their special agreement or arrangement if indeed they had one. The trial court indulged in a non sequitur when it quoted part of the testimony of Leonardo Serrano, Jr. out of context and used it as anchor for its finding that respondent and Diamond Motors Corporation forged a special arrangement. The testimony of Leonardo Serrano, Jr. is as follows: ATTY. FABIE Q Now, on page 12 of the transcript of stenographic notes of October 9, 1998, to the question of Atty. Agcaoili, the question is this and I quote: Q - Now, after that visit to the office of Superlines Inc. in Atimonan, Quezon what other circumstances or events transpired in connection with the evaluation or approval of the loan of the defendants Superlines?" And your answer was this: A - The regular paper requirements, meaning the way the loan proposal and the approval report inclusive of credit showing credit checking was presented for approval by our Executive Committee." ATTY. FABIE What is this regular papers requirement you are referring to, Mr. Witness? WITNESS A Those papers that are presented to the Executive Committee, Sir. ATTY. FABIE Q Papers that are presented to the Executive Committee? WITNESS

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A This will include evaluation report of the corporations financial statement credit checking from his creditors and this will include evidence of the collaterals being presented for the loan, Sir. ATTY. FABIE

ATTY. FABIE Q So, you did not extend consumer loans to corporations other than individuals, Mr. Witness? WITNESS

Q In this particular case of Superlines Transportation Company, those requirements were complied with, Mr. Witness? WITNESS

A For companies or corporations, we classified them as commercial loan already, Sir. ATTY. FABIE

A Yes, Sir. ATTY. FABIE Q By way, in consumer loan, these papers are practically the same, am I correct, Mr. Witness? WITNESS A In consumer loan, sometimes we have additional requirements, Sir. ATTY. FABIE Q What is that, Mr. Witness? WITNESS A Because they are individual applicants, we require them to submit their certificate of employment with the corresponding amount of their salary, Sir. ATTY. FABIE Q You mean to say that consumer loan are specifically for individual and entities are not supposed to apply in consumer loans, is that what you mean, Mr. Witness? WITNESS ATTY. FABIE A As a matter of practice, we classify them as consumer loan, loans for individuals, Sir. ATTY. FABIE WITNESS Q For individuals only? A When the company ...... WITNESS ATTY. FABIE A Yes, sir. Q That you may depart from certain requirements between your company and the applicant? Mr. Witness? Q Although the scheme adopted on both loans are the same or would be the same, Mr. Witness? WITNESS A In consumer loan, Sir, usually it is for purposes of buying a car or a motor vehicle, Sir. ATTY. FABIE Q That is the normal practice, Mr. Witness? WITNESS A Yes, Sir. That is the normal practice. ATTY. FABIE Q But arrangement can be made by your company regarding the nature of the transaction, am I correct? Specific arrangement? WITNESS A What do you mean?

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Q In special cases? WITNESS A When the company is presented with a loan proposal, we require them to submit documents depending on the loan proposal, Sir. ATTY. FABIE Q Now, did Superlines Transportation Company or Mr. Lavides present to you a loan proposal and where is that now, Mr. Witness? WITNESS

ATTY. FABIE Q Even in consumer loan, Mr. Witness? WITNESS A We only require when the consumer or individual is applying. Then we require him to submit the application form. ATTY. FABIE Q So, there is an application form, Mr. Witness? WITNESS

A The loan proposal of Mr. Lavides, Mr. Witness? A For consumer loan, yes. ATTY. FABIE ATTY. FABIE Q Yes, in writing? WITNESS A No, not in writing? ATTY. FABIE Q No written loan proposal, Mr. Witness? WITNESS A It was verbally told to us the purpose of his loan, Sir. ATTY. FABIE Q Now, is that normal in your corporation, Mr. Witness? WITNESS A In the practice? ATTY. FABIE Q I am asking you whether that is normal in your corporation that you do not require any written loan proposal from the applicants, Mr. Witness? WITNESS WITNESS A We do not, Sir. Q And in commercial loan, you dont require the applicant to submit a written loan proposal, Mr. Witness? WITNESS A As a matter of (loan) marketing consideration, anybody who wants .... ATTY. FABIE Q I am asking you whether that is normal in your operation like Superlines? WITNESS A This ..... ATTY. AGCAOILI Already answered, Your Honor. ATTY. FABIE I am asking him now to specific, Your Honor. COURT Witness may answer.

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A That is not normal. Sorry. That is normal. We do not require them. That is the regular practice. ATTY. FABIE Q And why not? ATTY. AGCAOILI Objection, misleading. It was already answered that that was the normal practice, Your Honor. ATTY. FABIE Q Why do you not require the applicants to submit papers or written loan proposal, Mr. Witness? WITNESS A Because in our business marketing consideration, we finance companies after evaluation of a particular account and if this account is credit worthy, we sometimes do away with it, Sir. ATTY. FABIE Q So, what is normal is that you ask for written loan proposal and what is sometimes not normal is that you do not require them to submit any loan proposal, Mr. Witness? WITNESS A We.... ATTY. AGCAOILI I think counsel is already (arguing) with the witness, Your Honor. The question has been asked several times and the witness consistently answered in the same fashion. ATTY. FABIE The Court will know .... COURT The answer he gave was that with marketing considerations, we do not require papers in consumer loan because the client is credit worthy risk. Sometimes we do not require submission of papers anymore. That is the answer. Alright, proceed.

ATTY. FABIE I think that is all for the witness, Your Honor.27 Leonardo Serrano, Jr. never testified that respondent and Diamond Motors Corporation had a special arrangement relative to the registration of the new buses. The mere admission of the witness that respondent in the course of its business transactions allowed special arrangements does not constitute proof that it in fact had a special arrangement with Diamond Motors Corporation relative to the registration of the new buses. The evidence on record shows that under the Promissory Note, Chattel Mortgage and Continuing Guaranty, respondent was the creditor-mortgagee of petitioner Superlines and not the vendor of the new buses. Hence, petitioners cannot find refuge in Article 1484(3) of the New Civil Code. As correctly held by the Court of Appeals, what should apply was the Chattel Mortgage executed by petitioner Superlines and respondent in relation to the Chattel Mortgage Law.28 This Court had consistently ruled that if in an extra-judicial foreclosure of a chattel mortgage a deficiency exists, an independent civil action may be instituted for the recovery of said deficiency. To deny the mortgagee the right to maintain an action to recover the deficiency after foreclosure of the chattel mortgage would be to overlook the fact that the chattel mortgage is only given as security and not as payment for the debt in case of failure of payment.29 Both the Chattel Mortgage Law and Act 3135 governing extra-judicial foreclosure of real estate mortgage, do not contain any provision, expressly or impliedly, precluding the mortgagee from recovering deficiency of the principal obligation. In a case of recent vintage, this Court held that if the proceeds of the sale are insufficient to cover the debt in an extra-judicial foreclosure of the mortgage, the mortgagee is still entitled to claim the deficiency from the debtor: To begin with, it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages, while silent as to the mortgagees right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.30 In the case of PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals,31 this Court declared that under Section 14 of the Chattel Mortgage Law, the mortgagor is entitled to recover the balance of the proceeds, upon satisfaction of the principal obligation and costs, thus there is a corollary obligation on the part of the debtor-mortgagor to pay the deficiency in case of a reduction in the price at public auction. In fine then, the Court of Appeals correctly ruled that respondent is entitled to a deficiency judgment against the petitioners. IN LIGHT OF THE FOREGOING, the petition is DENIED. The Decision of the Court of Appeals dated July 30, 2001 appealed from is AFFIRMED in toto. With costs against petitioners. SO ORDERED

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19207 December 21, 1922 W. R. GIBERSON, plaintiff-appellee, vs. A. N. JUREIDINI BROS., INC., defendant-appellant. Del Rosario and Del Rosario for appellant. McVean and Vickers and Block, Johnston and Greenbaum for appellee.

the statute books to cover exactly such a situation, and to give equal rights to all of the creditors of the insolvent. The evidence discloses that A. N. Jureidini Bros., Inc. had reasonable cause to believe that H. K. Motoomul & Co. was insolvent. With reference to appellant's first and seventh assignments of error, no one denies that H. K. Motoomul & Co. was indebted to A. N. Jureidini Bros., Inc., for a considerable sum of money. This reason, alone, however, gives the creditor no right to a preference. But, in this connection, appellant relies on Exhibit 1, which purports to be a chattel mortgage executed in the sum of P100,000 by H. Dialdas Motoomul and A. N. Jureidini Bros., Inc., on December 1, 1919, but not registered until May 5, 1921. The operative words in the alleged mortgage make reference to the list A, and the only description of the property contained in this list is: "1. A store No. 79 on Magallanes Street, municipality of Cebu, formerly belonging to T. Thakurdas, with all the merchandise, effects, wares, and other bazar goods contained on the said store. 2. A store No. 19 on Real Street, Iloilo, Panay, P. I., formerly belonging to Guillermo Asayas, with all the merchandise, effects, wares and other bazar goods contained in the said store." The document contains no oath as required by our Chattel Mortgage Law. The trial judge held, and properly, that Exhibit 1 was invalid because the oath required by law did not appear therein, and because the subject-matter was not described therein with sufficient particularity. The Chattel Mortgage Law, in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirements of an affidavit of good faith appended to the mortgage and recorded therewith. It has been held by reputable courts that the absence of the affidavits vitiates a mortgage as against creditors and subsequent encumbrancers. (People vs. Burns [1910], 161 Mich., 169; 137 A. S. R., 466, and notes; Deseret National Bank vs. Kidman [1903], 25 Utah, 379; 95 A. S. R., 856.) Section 7 of the Chattel Mortgage Law provides that "The description of the mortgage property shall be such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same." Identification of the mortgaged property would be impossible in this case.lawphil.net Moreover, if there should exist any doubt on the questions we have just discussed, they should be thrashed out in the insolvency proceedings. Our constant ruling has been that the court having possession of the property of the insolvent has ancillary jurisdiction to hear and determine all questions concerning the title, possession, or control of the same. (De Amuzategui vs. Macleod [1915], 33 Phil., 80; De Krafft vs. Velez [1916], 34 Phil., 854; Mitsui Bussan Kaisha vs. Hongkong & Shanghai Banking Corporation [1917], 36 Phil., 27.) With reference to the proper valuation of the merchandise, which is the subject of appellant's second and fourth assignments of error, we find sufficient evidence in the record to support the findings of the trial court. The documents of transfer did not accurately appraise the value of the property. As to the credits amounting to P16,892.72, assigned by H. K. Motoomul & Co. to the defendant, the evidence discloses that with the possible exception of P1,117.06 paid by Florentino Espiritu and P400 paid by Panjoomul Fulsidas, none of the rest have been collected. Hence, appellant's ninth assignment of error should be sustained in part. The assignee takes the property in the same plight and condition that the bankrupt held it. (Winsor vs. McLellan [1843], 2 Story 492; Fed. Cas. No. 17887; Stewart vs. Platt [1879], 101 U. S., 739.) Judgment is affirmed, with the sole modification that the defendant, under plaintiff's second cause of action, shall turn over to the plaintiff only such portions of the credits as have been realized, but the evidences of indebtedness shall pass to the receiver for such action as may be proper. Without special finding as to costs in this instance, it is so ordered.

MALCOLM, J.: This is an appeal from a judgment rendered by the Honorable Adolph Wislizenus, Judge of First Instance of Cebu, finding in favor of each of plaintiff's four causes of action, and authorizing the recovery by the plaintiff, the receiver in insolvency proceedings in civil case No. 3586, of various goods, wares, merchandise, credits, and money transferred by H. K. Motoomul & Co. to A. N. Jureidini Bros., Inc., on May 24, 1921, and June 13, 1921. H. K. Motoomul & Co. was, at the times mentioned in the complaint, a partnership doing business in the cities of Cebu and Iloilo. Sometime prior to May 24, 1921, the company became financially embarrassed. A. N. Jureidini Bros., Inc., a larger creditor of Motoomul & Co., became aware of the precarious condition of the latter, because of the diminishing payments on account of a debt. Ultimately, Motoomul & Co. delivered to Jureidini Brothers, on May 24, 1921, one of the debtor's Iloilo stores known as Bazar Aguila de Oro. On the same day also, credits receivable belonging to Motoomul & Co. were transferred to Jureidini Bros. Still later, on June 13, 1921, another stock of goods belonging to Motoomul & Co. passes to Jureidini Bros. The documents evidencing these transfer appears in the record. Within thirty days after these assignments were made, or, to be exact, on June 22, 1921, a number of creditors of H. K. Motoomul & Co. initiated successfully involuntary insolvency proceedings against it. Later, action was brought by the receiver appointed by the court, with the results above related. The above constitute the principal facts, which are accurately stated in the decision of the trial court. In so far as the ten assignments of error made in this court relate to question of fact, we may say, generally, that we agree with the findings of the trial judge. It would be possible to forego consideration of many of appellant's point, because he himself announces on page 46 of the bill of exceptions, "That the defendant has not filed the bond required by the court, because it agrees to the judgment being executed in accordance with law, except so far as concerns the second cause of action." We prefer, however, not to hold appellant to this allegation or admission in his own pleadings, and propose, therefore, to comment on the various assignments of error. Addressing attention directly to appellant's third, fifth, sixth, and eight assignments of error, the court clearly did not err in holding that the transfer or assignments must be revoked, because made for the purpose of giving A. N. Jureidini Bros., Inc., preference over the other creditors of H. K. Motoomul & Co. The provisions of section 70 of the Insolvency Law (Act No. 1956), were placed on

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