1
Filipinas Marble Corpo v. IAC
FACTS:
On Jan19, 1983, petitioner Filipinas Marble Corporation filed an
action for nullification of deeds and damages with prayer for a
restraining order and a writ of preliminary injunction against the
private respondents.
In its complaint, the pet alleged that it applied for a loan in the
amount of $5 million with respondent Development Bank of the
Phil (DBP) in its desire to develop its mining claims and deposits;
that DBP granted the loan subject, however, to 60 onerous
conditions, among which are:
(a) petitioner shall have to enter into a management contract with
respondent Bancom Systems Control, Inc. [Bancom];
xxx xxx xxx
(b) the $5 Million loan shall be secured by:
1) a final mortgage on the following assets with a total approved
value of P48.6 million;
2) the joint and several signatures with Filipinas Marble of Mr.
Pelagio M. Villegas, Sr., Trinidad Villegas, and Jose E.
Montelibano and
3) assignment to DBP of the borrower firm's right over its mining
claims;
Pursuant to these above- mentioned and other conditions,
the pet entered into a management contract with Bancom
whereby the latter agreed to manage the plaintiff co. for a period
of 3 years;
that under the management agreement, the affairs of the pet
were placed under the complete control of DBP and Bancom
including the disposition and disbursement of the $5 million or
P37.6 million loan;
Respondents and their dir/officers mismanaged and misspent the
loan, after which Bancom resigned with the approval of DBP even
before the expiration date of the management contract, leaving
pet desolate and devastated; that among the acts and omissions
of the respondents are the following.
In essence, the pet in its complaint seeks the annulment of the
deeds of mortgage and deed of assignment which it executed in
favor of DBP in order to secure the $5 million loan
PETTITIONERS CONTENTION:
- there was no loan at all to secure since what DBP "lent" to pet
with its right hand, it also got back with its left hand;
- and that, there was failure of consideration with regard to the
execution of said deeds as the loan was never delivered to
the petitioner.
- further prayed that the trial court immediately issue a
restraining order and then a writ of preliminary injunction
against the sheriffs to enjoin the latter from proceeding with
the foreclosure and sale of the petitioner's properties in Metro
Manila and in Romblon.
Resp DBP opposed the issuance of a writ of preliminary
injunction stating that under PD No. 385, DBP's right to foreclose
is mandatory as the arrearages of petitioner had already
amounted to P123.8 million as against its total obligation of
P151.9 million;
that under the same decree, no court can issue any restraining
order or injunction against it to stop the foreclosure since Filipinas
Marble's arrearages had already reached at least 20% of its total
obligations;

that the alleged non-receipt of the loan proceeds by the pet could,
at best, be accepted only in a technical sense bec. the money
was received by the officers of the pet acting in such capacity
and, therefore, irrespective of whoever is responsible for placing
them in their positions, their receipt of the money was receipt by
the pet corp and that the complaint does not raise any substantial
controversy as to the amount due under the mortgage as the
issues raised therein refer to the propriety of the manner by which
the proceeds of the loan were expended by the petitioner's
management,
the allegedly precipitate manner with which DBP proceeded with
the foreclosure, and the capacity of the DBP to be an assignee of
the mining lease rights.
RTC:
Adheres to the mandatory provisions of P.D. 385.
The Court believes that it cannot enjoin the defendant DBP from
complying with the mandatory provisions of the said PD 385.
It having been shown that plaintiff's outstanding obligation as of
Dec 31, 1982 amounted to P151.9 million; the Court finds the
provisions of P.D. 385 applicable to the instant case.
CA: up held the ruling of the RTC
While pet concedes 'that PD. 385 applies only where it is clear
that there was a loan or where the loan is not denied'; it disclaims
receipt of the $5 million loan nor benefits derived therefrom and
bewails the onerous conditions imposed by DBP Resolution No.
385 dated Dec 7, 1977, which allegedly placed the petitioner
under the complete control of the private respondents DBP and
Bancom.
At the hearing for injunction before the counsel for DBP stressed
that $2.6 million of the $5 million loan was earmarked to finance
the acquisition of machinery, equipment and spare parts for pet's
2
Diamond gangsaw which machineries were actually imported by
pet Filipinas Marble Corporation and arrived in the Phil.
Indeed, a summary of releases to petitioner covering the period
June 1978 to October 1979 (Exh. 2, Injunction) showed
disbursements amounting to millions of pesos for working capital
and opening of letter of credits for the acquisition of its
machineries and equipment.
Petitioner does not dispute that releases were made for the
purchase of machineries and equipment but claims that such
imported machineries were left to the mercy of the elements as
they were never delivered to it.
xxxxxxxxx
Apart from the foregoing, petitioner is patently not entitled to a
writ of preliminary injunction for it has not demonstrated that at
least 20% of its outstanding arrearages has been paid after the
foreclosure proceedings were initiated. Nowhere in the record is it
shown or alleged that petitioner has paid in order that it may fall
within the exception prescribed on Sec 2, PD No. 385.
ISSUE(S):
1. There being 'persuasive' evidence that the $5 million
proceeds of the loan were not received and did not
benefit the petitioner per finding of the lower court which
should not be disturbed unless there is grave abuse of
discretion, it must follow that PD 385 does not and cannot
apply;
2. If there was no valid loan contract for failure of
consideration, the mortgage cannot exist or stand by itself
being a mere accessory contract. Additionally, the chattel
mortgage has not been registered. Therefore, the same is
null and void under Art 2125 of the New Civil Code; and
3. PD 385 is unconstitutional as a 'class legislation', and

violative of the due process clause.
RULING:
1. PD 385 cannot apply.
Sections 1 and 2 of P.D. No. 385 respectively provide:
It shall be mandatory for government financial institutions
after the lapse of 60 days from the issuance of this Decree,
to foreclose the collaterals and/or securities
for any loan including accrued interest and other
charges, amount to at least 20% of the total outstanding
obli, including interest and other charges, as appearing in
the book of accounts of the financial institution
concerned.
This shall be without prejudice to the exercise by the govt
financial institution of such rights and/or remedies
available to them under their respective contracts with
their debtors, including the right to foreclose on loans,
credits, accommodations, and/or guarantees on which the
arrearages are less than 20%.
Sec 2. No restraining order, temporary or permanent
injunction shall be issued by the court against any govt
financial institution in any action taken by such institution
in compliance with the mandatory foreclosure provided in
Sec 1 hereof, whether such restraining order, temporary
or permanent injunction is sought by the borrower(s) or
any third party or parties, except after due hearing in
which it is established by the borrower, and admitted by
the govt financial institution concerned that 20% of the
outstanding arrearages has been paid after the filing of
foreclosure proceedings.
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PD 385 was issued primarily to see to it that govt financial
institutions are not denied substantial cash inflows, which are
necessary to finance development projects all over the country,
by large borrowers who, when they become delinquent, resort to
court actions in order to prevent or delay the government's
collection of their debts and loans.
The govt, however, is bound by basic principles of fairness and
decency under the due process clause of the Bill of Rights. P.D.
385 was never meant to protect officials of government lending
institutions who take over the management of a borrower
corporation, lead that corporation to bankruptcy through
mismanagement or misappropriation of its funds, and who, after
ruining it, use the mandatory provisions of the decree to avoid the
consequences of their misdeeds.
The designated officers of the government financing institution
cannot simply walk away and then state that since the loans were
obtained in the corporation's name, then P.D. 385 must be
applied and that there is no way the borrower corporation can
prevent the automatic foreclosure of the mortgage on its
properties once the arrearages reach 20% of the total obli no
matter who was responsible.
In the case at bar, the respondents try to impress upon this Court
that the $5 million loan was actually granted and released to the
petitioner corporation and whatever the composition of the
management which received the loan is of no moment bec. this
management was acting in behalf of the corporation.
The respondents also argue that since the loan was extended to
the corporation, the releases had to be made to the then officers
of that borrower corporation.
Precisely, what the petitioner is trying to point out is that the DBP
and Bancom people who managed Filipinas Marble misspent the

proceeds of the loan by taking advantage of the positions that
they were occupying in the corporation which resulted in the
latter's devastation instead of its rehabilitation.
The petitioner does not question the authority under which the
loan was delivered but stresses that it is precisely this authority
which enabled the DBP and Bancom people to misspend and
misappropriate the proceeds of the loan thereby defeating its very
purpose, that is, to develop the projects of the corporation.
Therefore, it is as if the loan was never delivered to it and thus,
there was failure on the part of the respondent DBP to deliver the
consideration for which the mortgage and the assignment of deed
were executed.
We cannot conclude that resp DBP together with the Bancom
people actually misappropriated and misspent the $5 million
loan in whole or in part although the trial court found that
there is "persuasive" evidence that such acts were committed
by the respondent.
This matter should rightfully be litigated below in the main
action.
Pending the outcome of such litigation, P.D. 385 cannot
automatically be applied for if it is really proven that resp DBP
is responsible for the misappropriation of the loan, even if
only in part, then the foreclosure of the petitioner's properties
under the provisions of P.D. 385 to satisfy the whole amount
of the loan would be a gross mistake.
It would unduly prejudice the petitioner, its employees and
their families.
Only after trial on the merits of the main case can the true
amount of the loan which was applied wisely or not, for the
benefit of the petitioner be determined.
4
Consequently, the extent of the loan where there was no
failure of consideration and which may be properly satisfied
by foreclosure proceedings under P.D. 385 will have to await
the presentation of evidence in a trial on the merits.
As we have ruled in the case of Central Bank of the Phil vs. CA, (1
39 SCRA 46, 5253; 56):
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations, the obligation or promise of each party is the consideration for
that of the othe. (Penacio vs. Ruaya, 110 SCRA 46 [1981]; ...
xxxxxxxxx
The fact that when Sulpicio M. Tolentino executed his real estate mortgage,
no consideration was then in existence, as there was no debt yet because
Island Savings Bank had not made any release on the loan, does not make
the real estate mortgage void for lack of consideration. It is not necessary
that any consideration should pass at the time of the execution of the
contract of real mortgage (Bonnevie vs. Court of Appeals, 125 SCRA 122
[1983].
It may either be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage can
take effect only when the debt secured by it is created as a
binding contract to pay (Parks vs. Sherman, Vol. 2, pp. 5-6).
And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow, et al. vs.
Poore Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. C.J.S. p. 138). ...
Under the admitted circumstances of this petition, we, therefore,
hold that until the trial on the merits of the main case, P.D. 385
cannot be applied and thus, this Court can restrain the
respondents from foreclosing on petitioner's properties pending
such litigation.
2. SC agrees with the pet that a mortgage is a mere accessory
contract and, thus, its validity would depend on the validity of
the loan secured by it.

BUT it rejects the pet's argument that since the chattel
mortgage involved was not registered, the same is null and
void.
Art 2125 of the Civil Code clearly provides that the non-
registration of the mortgage does not affect the immediate
parties. It states:
Art. 2125. In addition to the requisites stated in art 2085, it
is indispensable, in order that a mortgage may be validly
constituted that the document in which it appears be
recorded in the Registry of Property. If the instrument is
not recorded, the mortgage is nevertheless binding
between the parties.
xxxxxxxxx
The petitioner cannot invoke the above provision to nullify the
chattel mortgage it executed in favor of respondent DBP.
We find no need to pass upon the constitutional issue raised in
the third assignment of error. We follow the rule started in Alger
Electric, Inc. vs. Court of Appeals, (135 SCRA 37, 45).
We see no necessity of passing upon the constitutional issues
raised by respondent Northern. This Court does not decide
questions of a constitutional nature unless absolutely necessary
to a decision of a case. If there exists some other grounds of
construction, we decide the case on a non- constitutional
determination. (See Burton vs. United States, 196 U.S. 283; Siler vs.
Luisville & Nashville R. Co., 123 U.S. 175; Berta College vs. Kentucky, 211
U.S. 45).
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED.
The orders of the Intermediate Appellate Court dated April 17, 1984 and July
3, 1984 are hereby ANNULLED and SET ASIDE. The trial court is ordered to
proceed with the trial on the merits of the main case. In the meantime, the
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temporary restraining order issued by this Court on July 23, 1984 shall
remain in force until the merits of the main case are resolved.
SO ORDERED.
SUMMARY:
In its desire to develop the full potentials of its mining claims and
deposits, Filipinas Marbles Corporation (FMC) applied and was
granted a loan in the amount of $5,000,000 by respondent
Development Bank of the Philippines (DBP) on the conditions that
the management contract will be handled by Bancom System
Control and the DBP. and the loan shall be secured by a final
mortgage on the assets of petitioner with a total approved vale of
PhP 48,630,756. The chattel mortgage was not registered
pursuant to Article 2125 of the Civil Code.
ISSUE: WON the non-registration of the mortgage will nullify the
contract between the parties, considering that a mortgage
contract is an accessory contract?
RULING:
The SC have to say this, we agree with the petitioner that a
mortgage is a mere accessory contract, and, thus its validity
would depend on the validity of the loan secured by it.
We, however, reject the petitioner's argument that since the
chattel mortgage involved was not registered, the same is null
and void. Art 2125 of the Civil Code clearly provides that non-
registration of the mortgage does not affect the immediate
parties.
The petitioner cannot invoke the mentioned provision to nullify the
mortgage (chattel).

G.R. No. L-18456 Nov 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee, v. RUFINO G.
PINEDA, RAMONA REYES, ET AL., defendants-appellants.
FACTS:
On Dec 14, 1959, defendants Rufino G. Pineda and his mother
Juana Gonzales (married to Gregorio Pineda), borrowed from
plaintiff Conrado P. Navarro, the sum of P2.5k payable 6 months
after said date or on June 14, 1959.
To secure the indebtedness, Rufino executed a document
captioned "DEED OF REAL ESTATE and CHATTEL
MORTGAGES", whereby:
- Juana Gonzales, by way of REM subjected a parcel of land,
belonging to her, registered with the Register of Deeds of
Tarlac, under TCT. 25776,
- & Rufino G. Pineda, by way of Chattel Mortgage, mortgaged
his 2-story residential house, erected on a lot belonging to
Atty. Vicente Castro, located Tarlac;
- and 1 motor truck, registered in his name
Both mortgages were contained in 1 instrument, which was
registered in both the Office of the Register of Deeds and the
Motor Vehicles Office of Tarlac.
The defendants failed to pay when the mortgage debt became
due and payable.
However, they asked for an extention and the same was granted
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to June 30, 1960, within which to pay.
Came June 30, defendants again failed to pay and, for the
second time, asked for another extension, which was given, up to
July 30, 1960.
In the second extension, defendant Pineda in a document entitled
"Promise", categorically stated that in the event he should fail to
make good the obligation on such date (July 30, 1960), the
defendant would no longer ask for further extension and there
would be no need for any formal demand, and plaintiff could
proceed to take whatever action he might desire to enforce his
rights, under the said mortgage contract.
In spite of said promise, defendants, failed and refused to pay the
obligation.
On Aug 10, 1960, plaintiff filed a complaint for foreclosure of the
mortgage and for damages, which consisted of liquidated
damages in the sum of P500.00 and 12% per annum interest on
the principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint,
They deny that they unreasonably failed and refuse to pay their
obligation to the plaintiff; because in financial restraint and
pleaded to the plaintiff to grant them more time within which to
pay their obligation and the plaintiff refused;
Defendants prayed to the RTC to render judgment granting the
defendants until January 31, 1961, within which to pay their
obligation to the plaintiff.
On Sept 30, 1960, plaintiff presented a Motion for summary
Judgment, claiming that the Answer failed to tender any genuine
and material issue.
On Nov 11, 1960, the parties submitted a Stipulation of Facts,
wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel

Mortgages; that the indebtedness has been due and unpaid since
June 14, 1960; that a liability of 12% per annum as interest was
agreed, upon failure to pay the principal when due and P500.00
as liquidated damages; that the instrument had been registered in
the Registry of Property and Motor Vehicles Office, both of the
province of Tarlac;
that the only issue in the case is whether or not the residential
house, subject of the mortgage therein, can be considered a
Chattel and the propriety of the attorney's fees.
RTC: On Feb 24, 1961,it held
... WHEREFORE, this Court renders decision in this Case:
(a)
xxx xxx xxx
(b) Ordering defendants Juana Gonzales and the spouses Rufino
Pineda and Ramon Reyes, to pay jointly and severally to the
plaintiff Conrado P. Navarro the principal sum of P2.5k. with 12%
compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as
liquidated damages and the costs of this suit, with the warning that
in default of said payment of the properties mentioned in the deed
of real estate mortgage and chattel mortgage (Annex "A" to the
complaint) be sold to realize said mortgage debt, interests,
liquidated damages and costs, in accordance with the pertinent
provisions of Act 3135, as amended by Act 4118, and Art. 14 of the
Chattel Mortgage Law, Act 1508; and
APPELLANTS CONTEND:
That Art. 415 of the New Civil Code, in classifying a house as
immovable property, makes no distinction whether the owner of
the land is or not the owner of the building; the fact that the land
belongs to another is immaterial, it is enough that the house
adheres to the land.
In other words, it is claimed that "a building is an immovable
property, irrespective of whether or not said structure and the land
on which it is adhered to, belong to the same owner" (Lopez v.
7
Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958).
Appellants argue that since only movables can be the subject of a
chattel mortgage (sec. 1, Act No. 3952) then the mortgage in
question which is the basis of the present action, cannot give rise
to an action for foreclosure, because it is nullity.
RULING: Appellants contention is wrong.
The trial court did not predicate its decision declaring the deed of
chattel mortgage valid solely on the ground that the house
mortgaged was erected on the land which belonged to a third
person,
- but also and principally on the doctrine of estoppel, in that
"the parties have so expressly agreed" in the mortgage to
consider the house as chattel "for its smallness and mixed
materials of sawali and wood".
In construing arts. 334 and 335 of the Spanish Civil Code
(corresponding to arts. 415 and 416, N.C.C.), for purposes of the
application of the Chattel Mortgage Law, it was held that under
certain conditions, "a property may have a character different
from that imputed to it in said articles. It is undeniable that the
parties to a contract may by agreement, treat as personal
property that which by nature would be real property" ( Standard Oil
Co. of N.Y. v. Jaranillo, 44 Phil. 632-633).
"There can not be any question that a building of mixed materials
may be the subject of a chattel mortgage, in which case, it is
considered as between the parties as personal property. ...
The matter depends on the circumstances and the intention of the
parties".
"Personal property may retain its character as such where it is so
agreed by the parties interested even though annexed to the
realty ...".

The view that parties to a deed of chattel mortgagee may agree
to consider a house as personal property for the purposes of said
contract, "is good only insofar as the contracting parties are
concerned. It is based partly, upon the principles of estoppel ..."
(Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958).
In a case, a mortgage house built on a rented land, was held to
be a personal property, not only because the deed of mortgage
considered it as such, but also because it did not form part of the
land for it is now well settled that an object placed on land by one
who has only a temporary right to the same, such as a lessee or
usufructuary, does not become immobilized by attachment (Valdez
v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v.
Castillo, et al., 61 Phil. 709).
Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal
property is so stipulated in the document of mortgage. (Evangelista
v. Abad, supra.)
The doctrine, therefore, gathered from these cases is that
although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it
has been a constant criterion nevertheless that, with respect to
third persons, who are not parties to the contract, and specially in
execution proceedings, the house is considered as an immovable
property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as
personal or movable property, by the parties to the contract
themselves.
In the deed of chattel mortgage, appellant Rufino G. Pineda
conveyed by way of "Chattel Mortgage" "my personal
properties", a residential house and a truck.
8
The mortgagor himself grouped the house with the truck,
which is, inherently a movable property. The house which was
not even declared for taxation purposes was small and made
of light construction materials: G.I. sheets roofing, sawali and
wooden walls and wooden posts; built on land belonging to
another.
The cases cited by appellants are not applicable to the present case. The Iya
cases (L-10837-38, supra), refer to a building or a house of strong materials,
permanently adhered to the land, belonging to the owner of the house
himself.
In the case of Lopez v. Orosa, (L-10817-18), the subject building was a
theatre, built of materials worth more than P62,000, attached permanently to
the soil.
In these cases and in the Leung Yee case, supra, third persons assailed the
validity of the deed of chattel mortgages; in the present case, it was one of
the parties to the contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from,
should be, as it is hereby affirmed, with costs against appellants.
SUMMARY
With regard to third persons who are not parties to the contract, a
house is still considered as an immovable property.
FACTS:
Pineda and his mother secured a loan from Navarro. In line with
this, they executed a REM over the land owned by his mother,
and a Chattel Mortgage over the residential house. They
defaulted on the payment of the loan, but they were able to ask
for an extension. However, they still defaulted, which caused
Navarro to file for a foreclosure of the mortgages.
ISSUE:
Whether or not the house should be considered as a movable or
immovable property?

RULING:
The stipulation of the parties still govern. Thus, with regard to a
building erected on a lot belonging to another, this may be the
subject matter of a chattel mortgage if the parties so stipulate.
However, with regard to third persons who are not parties to the
contract, the house is still considered as an immovable property.
G.R. No. L-40018 Dec 15, 1975
NORTHERN MOTORS, INC., petitioner, v. HON. JORGE R.
COQUIA, etc., et al., respondents, FILINVEST CREDIT
CORPORATION, intervenor.
Facts:
Manila Yellow Taxicab, executed a chattel mortgage over several
taxicabs in favor of Northern Motors.
TROPICAL is a judgment creditor of Yellow Taxicab who assigned
the judgment to ONG.
On December 12 1974, Sheriff then levied upon 20 taxicabs in
favor of Honesto Ong, 8 of which are security for the chattel
mortgage.
Northern Motors filed an intervention on December 18, 1974;
however, the levied taxicabs were sold the same day at 2pm
although agreement shows that it should have happened at 4pm.
Indemnity bond was posted by TROPICAL, but the bond was
cancelled after the sale without notice to Northern Motors.
The petitioner now seek reconsideration also on the
reinstatement of the bond.
A second levy was made upon 35 taxicabs, 7 of which are
mortgaged to Northern Motors.
9
This is a motion for reconsideration in the SC decision
pronouncing that the Mortgagee has a better right than the
judgment debtor over the taxicabs.
The taxies were levied and sold at an auction sale. Ong argues
admits that the mortgagee has a better right that the judgment
creditor, but argues that the purchaser from the auction sale must
have a right superior to that of the mortgagee. The auction sale
proceeded and the purchasers were of unknown addresses,
hence the 8 taxicabs cannot be recovered. The proceeds of the
auction were in contest and the sheriff is deducting the expenses
of the execution sale from the proceeds.
Issue/s:
1. Whether the expenses for the execution sale should be
deducted from the proceeds thereof?
2. Whether the purchaser has a better right than the
creditor?
3. Whether the bond should be reinstated?
Ruling:
1st: No, it was already established that the levy on the
property was illegal, it is therefore improper to deduct the
expenses of an illegal auction from the proceeds thereof. The
mortgagee can only able to collect the proceeds from the auction
sale because the purchasers are of unknown addresses. The full
proceeds of the sale are due to the mortgagee without any
unreasonable and illegal deductions.
2nd: No, the purchaser of the auction sale merely steps in the
shoes of the judgment creditor as they have been aware of the
claim of the mortgagee. The mortgagee has a better right to the
possession of the taxicabs, however, since the addresses of the
purchasers are unknown, the proceeds of the sale must be
delivered to the mortgagee.

3rd: Yes, the bond should be reinstated, as it is to serve as
indemnity for damages in cases that the sold taxicabs cannot be
recovered. Proceedings in the lower court would be an exercise
in futility if the bond will not be reinstated.
Tsai v. CA
On Nov 26, 1975, resp EVERTEX obtained a P3 million loan from
pet PBCom.
As security for the loan, EVERTEX executed in favor of PBCom,
a deed of Real and Chattel Mortgage over a lot, where its factory
stands, and the chattels located therein as enumerated in a
schedule attached to the mortgage contract.
xxx xxx xxx
On April 23, 1979, PBCom granted a second loan of P3.3million
to EVERTEX.
The loan was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto.
After April 23, 1979, the date of the execution of the second
mortgage, EVERTEX purchased various machines and
equipments.
On Nov 19, 1982, due to business reverses, EVERTEX filed
insolvency proceedings before the CFI of Pasay City.
The CFI issued an order on Nov 24, 1982 declaring the
corporation insolvent.
10
All its assets were taken into the custody of the Insolvency Court,
including the collateral, real and personal, securing the two
mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obli to
PBCom, the latter commenced extrajudicial foreclosure
proceedings against EVERTEX under Act 3135, otherwise known
as "An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages" and Act 1506
or "The Chattel Mortgage Law".
A Notice of Sheriff's Sale was issued on Dec 1, 1982.
On Dec 15, 1982, the first public auction was held where pet
PBCom emerged as the highest bidder and a Certificate of Sale
was issued in its favor on the same date.
On Dec 23, 1982, another public auction was held and again,
PBCom was the highest bidder. The sheriff issued a Certificate of
Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the
lot and all the properties in it.
In Nov 1986, it leased the entire factory premises to petitioner
Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom
sold the factory, lock, stock and barrel to Tsai for P9,000,000.00,
including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of
sale, reconveyance, and damages with the RTC against PBCom,
alleging inter alia that the extrajudicial foreclosure of subject
mortgage was in violation of the Insolvency Law.
EVERTEX claimed that no rights having been transmitted to
PBCom over the assets of insolvent EVERTEX, therefore Tsai
acquired no rights over such assets sold to her, and should

reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or
factual basis, appropriated the contested properties, which were
not included in the Real and Chattel Mortgage of Nov 26, 1975
nor in the Chattel Mortgage of April 23, 1979, and neither were
those properties included in the Notice of Sheriff's Sale dated Dec
1, 1982 and Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00,
are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1
Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were
irregular and illegal because they were not duly foreclosed nor sold at the
December 15, 1982 auction sale since these were not included in the
schedules attached to the mortgage contracts.
RTC: Ruled in favor of EVERTEX
1. Ordering the annulment of the sale executed by
defendant PBCom in favor of defendant Tsai on May 3,
1988 insofar as it affects the personal properties in
dispute, and their return to the plaintiff corp.
xxx xxx xxx
ISSUE:
1. Is the inclusion of the questioned properties in the
foreclosed properties is proper? NO.
2. Is the sale of these properties to petitioner Ruby Tsai is
valid? NO.
RULING:
Petitioners contend that the nature of the disputed machineries,
i.e., that they were heavy, bolted or cemented on the real property
mortgaged by EVERTEX to PBCom, make them ipso facto
immovable under Art 415 (3) and (5) of the NCC. This assertion,
11
however, does not settle the issue. Mere nuts and bolts do not
foreclose the controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be
immobile, a perusal of the contract of Real and Chattel Mortgage
executed by the parties herein gives us a contrary indication.
In the case at bar, both the trial and the appellate courts reached
the same finding that the true intention of PBCOM and the owner,
EVERTEX, is to treat machinery and equipment as chattels.
The pertinent portion of respondent appellate court's ruling is
quoted below:
As stressed upon by appellees, appellant bank treated the
machineries as chattels; never as real properties. Indeed, the
1975 mortgage contract, which was actually real and chattel
mortgage, militates against appellants' posture.
It should be noted that the printed form used by appellant bank
was mainly for real estate mortgages. But reflective of the true
intention of appellant PBCOM and appellee EVERTEX was the
typing in capital letters, immediately following the printed caption
of mortgage, of the phrase "real and chattel."
So also, the "machineries and equipment" in the printed form of
the bank had to be inserted in the blank space of the printed
contract and connected with the word "building" by typewritten
slash marks. Now, then, if the machineries in question were
contemplated to be included in the real estate mortgage, there
would have been no necessity to ink a chattel mortgage
specifically mentioning as part III of Schedule A a listing of the
machineries covered thereby. It would have sufficed to list them
as immovables in the Deed of Real Estate Mortgage of the land
and building involved.
As regards the 1979 contract, the intention of the parties is clear
and beyond question. It refers solely to chattels.

The inventory list of the mortgaged properties is an itemization of
63 individually described machineries while the schedule listed
only machines and 2,996,880.50 worth of finished cotton fabrics
and natural cotton fabrics.
In the absence of any showing that this conclusion is baseless,
erroneous or uncorroborated by the evidence on record, we find
no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are
immovable by nature, nothing detracts the parties from treating it
as chattels to secure an obligation under the principle of estoppel.
As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an
immovable may be considered a personal property if there is a
stipulation as when it is used as security in the payment of an
obligation where a chattel mortgage is executed over it, as in the
case at bar.
In the instant case, the parties herein: (1) executed a contract
styled as "Real Estate Mortgage and Chattel Mortgage," instead
of just "Real Estate Mortgage" if indeed their intention is to treat
all properties included therein as immovable, and (2) attached to
the said contract a separate "LIST OF MACHINERIES &
EQUIPMENT". These facts, taken together, evince the conclusion
that the parties' intention is to treat these units of machinery as
chattels. A fortiori, the contested after-acquired properties, which
are of the same description as the units enumerated under the
title "LIST OF MACHINERIES & EQUIPMENT," must also be
treated as chattels.
1. NO
Accordingly, the SC finds no reversible error in the res
appellate court's ruling that inasmuch as the subject
mortgages were intended by the parties to involve
12
chattels, insofar as equipment and machinery were
concerned, the Chattel Mortgage Law applies, which
provides in
Section 7 of Chattel Mortgage Law: "a chattel mortgage
shall be deemed to cover only the property described
therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same
depository as the property originally mortgaged, anything
in the mortgage to the contrary notwithstanding."
The disputed machineries were acquired in 1981 and could not
have been involved in the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to include subject
machineries with the properties enumerated in said chattel
mortgages.
As the auction sale of the subject properties to PBCom is void, no
valid title passed in its favor.
2. Consequently, the sale thereof to Tsai is also a nullity
under the elementary principle of nemo dat quod non
habet, one cannot give what one does not have.
Petitioner Tsai also argued that assuming that PBCom's
title over the contested properties is a nullity, she is
nevertheless a purchaser in good faith and for value who
now has a better right than EVERTEX.
To the contrary, however, are the factual findings and
conclusions of the trial court that she is not a purchaser in
good faith.
Well-settled is the rule that the person who asserts the
status of a purchaser in good faith and for value has the

burden of proving such assertion.18
Petitioner Tsai failed to discharge this burden
persuasively.
Moreover, a purchaser in good faith and for value is one
who buys the property of another without notice that
some other person has a right to or interest in such
property and pays a full and fair price for the same, at the
time of purchase, or before he has notice of the claims or
interest of some other person in the property.
Records reveal, however, that when Tsai purchased the
controverted properties, she knew of respondent's claim thereon.
As borne out by the records, she received the letter of
respondent's counsel, apprising her of respondent's claim, dated
February 27, 1987.
She replied thereto on March 9, 1987.
Despite her knowledge of respondent's claim, she proceeded to
buy the contested units of machinery on May 3, 1988.
Thus, the RTC did not err in finding that she was not a purchaser
in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot
where the disputed properties are located is equally unavailing.
This defense refers to sale of lands and not to sale of properties
situated therein.
Likewise, the mere fact that the lot where the factory and the
disputed properties stand is in PBCom's name does not
automatically make PBCom the owner of everything found
therein, especially in view of EVERTEX's letter to Tsai enunciating
its claim.
Finally, petitioners' defense of prescription and laches is less than
convincing. We find no cogent reason to disturb the consistent
13
findings of both courts below that the case for the reconveyance
of the disputed properties was filed within the reglementary
period.
Here, in our view, the doctrine of laches does not apply. Note that
upon petitioners' adamant refusal to heed EVERTEX's claim,
respondent company immediately filed an action to recover
possession and ownership of the disputed properties.
There is no evidence showing any failure or neglect on its part,
for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been
done earlier.
The doctrine of stale demands would apply only where by reason
of the lapse of time, it would be inequitable to allow a party to
enforce his legal rights.
Moreover, except for very strong reasons, this Court is not
disposed to apply the doctrine of laches to prejudice or defeat the
rights of an owner.
As previously stressed, petitioner Tsai's act of purchasing the
controverted properties despite her knowledge of EVERTEX's
claim was oppressive and subjected the already insolvent
respondent to gross disadvantage.
Petitioner PBCom also received the same letters of Atty. Villaluz,
responding thereto on March 24, 1987.
Thus, PBCom's act of taking all the properties found in the factory
of the financially handicapped respondent, including those
properties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith.
SO ORDERED.

Cebu International Finance Corp. v. CA 268 SCRA 178
The prevailing jurisprudence is that a mortgagee has a right to
rely in good faith on the certificate of title of the mortgagor to the
property given as security and in the absence of any sign that
might arouse suspicion, has no obligation to undertake further
investigation.
FACTS:
On March 4, 1987 Jacinto Dy executed an SPA in favor of private
resp Ang Tay, authorizing the latter to sell the cargo vessel owned
by Dy and christened LCT Asiatic.
Through a Deed of Absolute Sale, Ang Tay sold the subject vessel
to Robert Ong (Ong).
Ong paid the purchase price by issuing 3 checks.
However, since the payment was not made in cash, it was
specifically stipulated in the deed of sale that the LCT Asiatic
shall not be registered or transferred to Robert Ong until complete
payment.
Thereafter, Ong obtained possession of the subject vessel so he
could begin deriving economic benefits therefrom.
He, likewise, obtained copies of the unnotarized deed of sale
allegedly to be shown to the banks to enable him to acquire a
14
loan to replenish his (Ongs) capital.
The aforequoted condition, however, which was handwritten on
the original deed of sale does not appear on Ongs copies.
Contrary to the aforementioned agreements and without the
knowledge of Ang Tay,
- Ong had his copies of the deed of sale (on which the
aforementioned prohibition does not appear) notarized Ong
presented the notarized deed to the Phil Coast Guard which
subsequently issued him a Certificate of Ownership and a
Certificate of Phil Register over the subject vessel.
Ong also succeeded in having the name of the vessel changed to
LCT Orient Hope.
Using the acquired vessel, Ong acquired a loan from Cebu Intl
Finance Corp. to be paid in installments as evidenced by a
promissory note.
As security for the loan, Ong executed a chattel mortgage over
the subject vessel, which mortgage was registered with the Phil
Coast Guard and annotated on the Certificate of Ownership.
Ong defaulted in the payment of the monthly installments.
Consequently, Cebu Intl Finance Corp. sent him a letter]
demanding delivery of the mortgaged vessel for foreclosure or in
the alternative to pay the balance pursuant to par 11 of the deed
of chattel mortgage.
Meanwhile, the 2 checks paid by Ong to Ang Tay for the Purchase
of the subject vessel bounced.
Ang Tays search for Ong and all attempts to confer with him
proved to be futile.
A subsequent investigation and inquiry with the Office of the

Coast Guard revealed that the subject vessel was already in the
name of Ong, in violation of the express undertaking contained in
the original deed of sale.
As a result thereof, Ang Tay and Jacinto Dy filed a civil case for
rescission and replevin with damages against Ong and his wife.
ISSUE:
Can Cebu International Finance Corporation validly foreclose the
chattel mortgage?
RULING: YES.
The prevailing jurisprudence is that a mortgagee has a right to
rely in good faith on the certificate of title of the mortgagor to the
property given as security and in the absence of any sign that
might arouse suspicion, has no obligation to undertake further
investigation.
Hence, even if the mortgagor is not the rightful owner of or does
not have a valid title to the mortgaged property, the mortgagee or
transferee in good faith is nonetheless entitled to protection.
Although this rule generally pertains to real property, particularly
registered land, it may also be applied by analogy to personal
property, in this case specifically, since ship owners are, likewise,
required by law to register their vessels with the Philippine Coast
Guard.
The chattel mortgage constituted on a vessel by the buyer who
was able to register the vessel in his name despite the agreement
with the seller that the vessel would not be so registered until
after full payment of the price which do not appear in the buyers
copy of the deed of sale is VALID, for the mortgagee has the right
to rely in good faith on the certificate of registration.
15
G.R. No. 42551 September 4, 1935
ALEKO E. LILIUS, for himself and as guardian
ad litem of his minor child, Brita Marianne
Lilius, and SONJA MARIA LILIUS, plaintiffs-
appellees,
vs.
MANILA RAILROAD COMPANY, defendant.
LAURA LINDLEY SHUMAN, MANILA WINE
MERCHANTS, LTD., BANK OF THE PHILIPPINE ISLANDS
AND MANILA MOTOR CO., INC., intervenors-appellants, and
W.H. WATEROUS, M. MARFORI, JOHN R. MCFIE, JR.,
ERLANGER & GALINGER, INC., PHILIPPINE EDUCATION
CO., INC., HAMILTON BROWN SHOE CO., ESTRELLA DEL
NORTE and EASTERN & PHILIPPINE SHIPPING AGENCIES,
LTD., intervenors-appellees.
GODDARD, J.:
In this case Laura Lindley Shuman, the Manila Wine Merchants,
Ltd., the Bank of the Philippine Islands and the Manila Motor Co.,
Inc., have appealed from an order of the Court of First Instance of
Manila fixing the degree of preference of the claimants and
distributing the proceeds of the judgment of this court in the case
of Lilius vs. Manila Railroad Co. (59 Phil., 758), the amount of
which judgment in the sum of P33,525.03, including interest and
costs, was deposited by the railroad company with the clerk of the
lower court in that case. After deducting the attorneys' fees in the
sum of P8,016.88, which is not questioned, the net amount in the
hands of the clerk of the lower court pertaining to each of the
plaintiffs in the original action is follows:
Aleko E. Lilius P13,181.33
Sonja Maria Lilius 8,218.54
Brita Marianne Lilius 4,109.28
 16

There was a total of twenty-eight claimants to these funds, whose (c) As against the sum of P13,181.33, awarded to the plaintiff
claims were presented and decided without objection in the Aleko E. Lilius, the following claims or portions thereof in the
original case in the lower court. order stated:
The trial court in its order from which these appeals are taken,
allowed: The other half of the claim of Dr. W.H. Waterous by virtue of the final
(a) As against the sum of P8,218.54, separately awarded to the judgement in the original case, G.R. No. 39587 P
plaintiff Sonja Lilius, the following claims or portions thereof in the
order stated: The claim of Dr. M. Marfori, by virtue of the final judgment in the original case,
G.R. No. 39587 2
One-half of the claim of Dr. W.H. Waterous by virtue of a written assignment
of March 9, 1933, by the said Sonja Maria Lilius to him The claim of John R. McFie, Jr., by virtue of a written assignment to him by the
said Aleko E. Lilius of November 13, 1931 5
One-third of the claim of the appellant Laura Lindley
Shuman by virtue of a joint judgement obtained by her on August 10, 1933, in balance of P10, 931.33 of the judgment pertaining to the said Aleko E.
The
the Case No. 44254 of the Court of First Instance of Manila, against the said
Lilius was allowed and distributed by the lower court proportionately among
Sonja Maria Lilius, Aleko E. Lilius and Brita Marianne Lilius the following claimants by virtue of their written assignment of January 27,
1932:
One-third of the claim of the St. Paul's Hospital by
virtue of a joint written assignment of September 21, 1933, by the said Sonja Erlanger & Galinger, Inc. 3
Maria Lilius, Aleko E. Lilius and Brita Marianne Lilius to it
and the balance of the award was ordered paid to the said Brita Philippine Education Co., Inc., 3
Marianne Lilius, and
(b) As against the sum of P4,109.28, separately awarded to the Hamilton Brown Shoe Co. 1
plaintiff Brita Marriane Lilius, the following claims or portions
thereof in the order stated: Estrella del Norte 1
One-third of the claim of Laura Lindley Shuman by virtue of a joint judgment
obtained by her on August 10, 1933, in Case No. 44254 of the Court of First Eastern & Philippine Shipping Agencies, Ltd. 4
Instance of Manila, against the said Brita Marianne Lilius, Sonja Maria Lilius
APPEAL OF LAURA LINDLEY SHUMAN
and Aleko E. Lilius First assignments of error: "The lower court erred in holding that
Dr. W.H. Waterous and Dr. M. Marfori had a claim against the
One-third of the claim of St. Paul's Hospital by virtue plaintiff, Aleko E. Lilius superior to the claim of the appellant,
of a joint written assignment of September 21, 1933, by the Laura Lindley Shuman, against him."
said Brita Marianne Lilius, Sonia Maria Lilius and Aleko One of the contentions of this appellant under this assignment of
E. Lilius error is that her claim, having been made the basis of the
and the balance of the award was ordered paid to the said Brita plaintiffs' action and of the award for damages, as shown in the
Marianne Lilius, and original decision herein, should constitute, and does constitute a
superior lien against the funds awarded said plaintiffs, to those of

any other claimants, except the two doctors, the hospital and the
other nurse, and that as to the claims of the two doctors, the
hospital and the other nurse the claim of this appellant has equal
preference with their claims.
The following items were made the basis of a part of the
judgment for damages awarded to the plaintiffs in the original
action against the Manila Railroad Company:
Por honorarios del Dr. Waterous (Exhibit N-2)
Por la primera cura hecha en el Hospital de Calauang (Exhibit N-5)
Por el alquiler de la ambulancia del Hospital General (Exhibit N-4)
Por la estancia en el Hospital Saint Paul (Exhibit N-3)
Por los servicios prestados por la enfermera Laura Shuman (Exhibit N-6) her favor against the herein plaintiffs-appellees. The record
Por los servisios prestados por la enfermera Alejandra Alcayaga (Exhibit N-9)
Porlos servicios prestados por la enfermera Carmen Villanueva (Exhibit N-11)
Por la perdida de la camara fotografica, pluma fuente y lapiz (Exhibit N-1) taxed by the clerk on five days' written notice given by the
Por trajes daados en el choque
Total
The trial court in that case directed the defendant Railroad
Company to pay P3,000 to Dr. Waterous and to pay to Dr. Marfori
P250, but failed to direct the defendant to pay the corresponding
sums to the other persons and entities mentioned in the portion of
the decision copied above.
It must be admitted that the amounts due Dr. Waterous and the
others mentioned is the original decision, including the appellant
Shuman, were all used as a basis for a part of the judgment
which plaintiffs secured against the defendants Railroad
Company.
17
From the foregoing it is clear that the claim of this appellant rests
upon the same ground as those of Doctors Waterous and Marfori.
She was also among those who rendered services to plaintiffs in
aid of their recover from the injuries received by them in the
accident for which damages were awarded them in the case
against the Railroad Company. The fact that the trial court did not
direct the defendant Railroad Company to pay directly to this
appellant the amount of her claim does not modify or do away
with her equitable right to the same status as that given to the two
doctors mentioned above. The inevitable conclusion is that the
claims of Waterous and Marfori have no preference over her
claim for her services as a nurse. This assignment of error should
be and is hereby sustained.
This appellant in her second assignment of error contends that
the trial court erred in failing to allow her claim in the sum of
P61.94 as costs in the case in which judgment was rendered in
shows that the reason for the disallowance of this item was
because no proof was offered as to the amount of such costs.
The only thing appearing in the transcript on this point is the
statement of counsel that the amount of costs in case No. 44254,
as shown by the bill of costs, was P6l.94. Rule 38 of the Revised
Rules of Courts of First Instance requires that ". . . costs shall be
prevailing party to the adverse party, with which notice given by
the prevailing party, verified by his oath or that of his attorney,
shall be served. . . ." The proper evidence, therefore, of the costs
in that case would have been the bill of costs and the taxation of
such costs by the clerk. In order to recover such costs in a
separate proceeding, such as this, evidence must be presented
as to the amount of the same. As there was no evidence offered
in this case as to the amount of said costs, the lower court was
correct in disallowing that item. This assignment of error is
overruled.
Under her third assignment of error this appellant contends (1)
that the funds separately awarded the wife, Sonja Maria Lilius,
partake of the nature of conjugal property, at least to the extent of
the sum of P800 awarded to her as interest on the principal

award of P10,000 made in her favor by the trial court, and as
such should respond for the support of the family, including
medical expenses and (2) that even assuming that the sums
awarded separately to Sonja Maria Lilius are not conjugal
property, but her own paraphernal property, still under the
provisions of the Civil Code payment may be required out of said
funds, her husband being insolvent, under her liability for the
medical expenses incurred by her husband, one of the obligations
imposed by law upon the wife.
The second contention under this assignment of error can be
disposed of by calling attention to the fact that there is no proof in
this case that her husband is insolvent. It has not been proved
that Aleko E. Lilius had no other property outside of the sum
awarded to him in the case against the Railroad Company.
APPEAL OF THE MANILA WINE MERCHANTS, LTD., AND THE
BANK OF THE PHILIPPINE ISLANDS.
The appellants, the Manila Wine Merchants. Ltd., and the Bank of
the Philippine islands also contend that the sum separately
awarded Sonja Maria Lilius is conjugal property and therefore
liable for the payment of the private debts of her husband, Aleko
E. Lilius, contracted during her marriage.
it is contended that the damages awarded for personal injury are
not classified as separate property of each of the spouses in
article 1396 of the Civil Code and they should therefore be
resumed conjugal. In answer to this, article 1401 of the same
Code, in enumerating the property belonging to the conjugal
partnership, does not mention damages for personal injury.
The question raised by these appellants is one of first impression
in this jurisdiction and apparently has never been passed upon by
the Supreme Court of Spain.
The following comment is found in Colin y Capitant, Vol. 6, pages
217 and 218:
"No esta resuelta expresamente en la legislacion espa__ola la
cuestion de si las indemnizaciones debidas por accidentes del
trabajo tienen la consideracion de gananciales o son bienes
particulares de los conyuges.
"Inclinan a la solucion de que estas indemnizaciones deben ser
consideradas como gananciales, el hecho de que la sociedad
18
pierde la capacidad de trabajo con el accidente, que a ella le
pertenece, puesto que de la sociedad son los frutos de ese
trabajo; en cambio, la consideracion de que de igual manera que
los bienes que sustituyen a los que cada conyuge lleva al
matrimonio como propios tienen el caracter de propios, hace
pensar que las indemnizaciones que vengan a suplir la
capacidad de trabajo aportada por cada conyuge a la sociedad,
deben ser juridicamente reputadas como bienes propios del
conyuge que haya sufrido el accidente. Asi se Ilega a la misma
solucion aportada por la jurisprudencia francesa.".
From the above it appears that there are two distinct theories as
to whether damages rising from an injury suffered by one of the
spouses should be considered conjugal or separate property of
the injured spouse. The theory holding that such damages should
form part of the conjugal partnership property is based wholly on
the proposition, also advanced by the Manila Wine Merchants,
Ltd., that by the injury the earning capacity of the injured spouse
is diminished to the consequent prejudice of the conjugal
partnership.
Assuming the correctness of this theory, a reading of the decision
of this court in G. R. No. 39587 will show that the sum of P10,000
was awarded to Sonja Maria Lilius "by way of indemnity for
patrimonial and moral damages." The pertinent part of that
decision on this point reads:
"Taking into consideration the fact that the plaintiff Sonja Maria
Lilius, wife of the plaintiff Aleko E. Lilius is-in the language of the
court, which saw her at the trial "young and beautiful and the big
scar, which she has on her forehead caused by the lacerated
wound received by her from the accident, disfigures her face and
that the fracture of her left leg has caused a permanent deformity
which renders it very difficult for her to walk', and taking into
further consideration her social standing, neither is the sum of
P10,000, adjudicated to her by the said trial court by way, of
indemnity for patrimonial and moral damages, excessive.".
It should be added that the interest on that sum is part of the
damages "patrimonial and moral" awarded to Sonja Maria Lilius.
Furthermore it appears in the decision of the trial court in G. R.
No. 39587 that Aleko E. Lilius claimed the sum of P10,000 as

damages on account of the loss of the services of Sonja Maria
Lilius as secretary and translator, her particular work as a
member of the conjugal partnership. The trial court disallowed this
claim and neither of the plaintiffs in that case appealed to this
court.
In view of the foregoing it is held that the sum of P10,000 with
interest thereon awarded to Sonja Maria Lilius as damages is
paraphernal property.
The third assignment of error of the appellant Shuman, the
second assignment of error of the appellant Bank of the
Philippine Islands and the sole assignment of error of the
appellant Manila Wine Merchants, Ltd., are overruled.
In its first assignment of error it is contended by the Bank of the
Philippines Islands that by virtue of its writ of garnishment served
on the Manila Railroad Company of February 8, 1933, it acquired
a lilen superior to the preference granted by article 1924 of the
Civil Code to prior judgments. This error, if at all, is however non-
prejudicial as the record shows that all the creditors declared by
the court as having a right to participate in the proceeds of the
judgment in favor of Aleko E. Lilius were so held by virtue of
deeds of assignment executed prior to the date of the service of
notice of the bank's writ of garnishment on the Manila Railroad
Company. These creditors are John R. McFie, jr., whose claim is
based on a deed of assignment dated November 13, 1931, and
Erlanger & Galinger, Philippine Education Co., Inc., Hamilton
Brown Shoe Co., Estrella del Norte and Eastern & Philippine
Shipping Agencies, Ltd., whose claims are based on a deed of
assignment dated November 17, 1931. As the record shows that
whatever was left of the judgment in favor of Aleko E. Lilius is not
sufficient to pay in full the credits of the above mentioned
creditors and furthermore, in view of the fact that strictly speaking,
there was no existing credit in favor of Aleko E. Lilius to be
garnished on February 3, 1933, as it had been assigned, before
that date, to his creditors, this assignment of error, therefore,
must be overruled.
APPEAL OF THE THE MANILA MOTOR CO., INC.
The two error assigned by this appellant read as follows:
"I. The lower court erred in considering the date of the date
19
judgment, Exhibit A, Manila Motor Co., Inc., instead of the date of
the public document upon which it was based in determining the
preference among the several claims filed and litigated in this
proceeding.
"ll. The lower court erred in not holding the claim of the claimant-
appellant, Manila Motor Co., Inc., preferred over all other claims
against Aleko E. Lilius evidenced by public instruments and final
judgments.".
The claimant has not proven that its credit is evidenced by a
public document within the meaning of article 1924 of the Civil
Code. The only evidence offered by the Manila Motor Co., Inc., in
support of its claim of preference against the fund of Aleko E.
Lilius was a certified copy of its judgment against him in civil case
No. 41159 of the Court of First Instance of Manila, together with a
certified copy of the writ of execution and the garnishment issued
by virtue of said judgment. These documents appear in the record
as Exhibits A, B and C. The alleged public document evidencing
its claim was not offered in evidence and counsel of the Manila
Motor Co., Inc., merely stated at the hearing in the lower court
that its judgment was based on a public document dated May 10,
1931. There is no explanation as to why it was not presented as
evidence along with Exhibits A, B, and C. In their brief in this
court, counsel for the Motor Co., Inc., merely assume that its
credit is evidenced by a public document dated may 10, 1931,
because the court, in its judgment in said civil case No. 41159,
refers to a mortgage appearing in the evidence as Exhibit A, as
the basis of its judgment, without mentioning the date of the
execution of the exhibit. This reference in said judgment to a
mortgage is not competent or satisfactory evidence as against
third persons upon which to base a finding that the Manila Motor
Company's credit evidenced by a public document within the
meaning of article 1924 of the Civil Code. This court is not
authorized to make use of that judgment as a basis for its findings
of fact in this proceeding. This is shown by the decision of this
court in the case of Martinez vs. Diza 920 Phil., 498). In that
syllabus of that decision it is stated:
"1. COURTS OF FIRST INSTANCE; JUDGMENT IN FORMER
CIVIL ACTION AS BASIC FOR FINDINGS OF FACT; ERROR.-A

person who was not a party to a former civil action, or who did not
acquire his rights from one of the parties thereto after the entry of
judgment therein, is not bound by such judgment; nor can it be
used against him as a basis for the findings of fact in a judgment
rendered in a subsequent action.".
But even if the court is authorized to accept the statement in that
judgment as a basis for its finding of fact in relation to this claim,
still it would not establish the claim of preference of the Manila
Motor Co., Inc. Granting that a mortgage existed between the
Manila Motor Co., Inc., and Aleko E. Lilius, this does not warrant
the conclusion that the instrument evidencing that mortgage is a
public document entitled to preference under article 1924 of the
Civil Code. Under section 5 of Act No. 1507 as amended by Act
No. 2496, a chattel does not have to be acknowledge before a
notary public. As against creditors and subsequent
encumbrances, the law does require an affidavit of good faith
appended to the mortgage and recorded with it. (See Giberson
vs. A. N. Jureidini Bros., 44 Phil., 216, and Betita vs. Ganzon, 49
Phil., 87.) A chattel mortgage may, however, be valid as between
the parties without such an affidavit of good faith. In 11 Corpus
Juris, 482, the rule is expressly stated that as between the parties
and as to third persons who have no rights against the mortgagor,
no affidavit of good faith is necessary. It will thus be seen that
under the law, a valid mortgage may exist between the parties
without its being evidenced by a public document. This court
would not be justified, merely from the reference by the lower
court in that case to a mortgage, in assuming that its date
appears in a public document. if the Manila motor Co., Inc.,
desired to rely upon a public document in the form of a mortgagor
as establishing its preference in this case, it should have offered
that document in evidence, so that the court might satisfy itself as
to its nature and unquestionably fix the date of its execution.
There is nothing either in the judgment relied upon or in the
evidence to show the date of said mortgage. The burden was
upon the claimant to prove that it actually had a public Code. It is
essential that the nature and the date of the document be
established by competent evidence before the court can allow a
preference as against the other parties to this proceeding.
20
Inasmuch as the claimant failed to establish its preference, based
on a public document, the lower court properly held that its claim
against the said Aleko E. Lilius was based on the final judgment
in civil case No. 41159 of the Court of First Instance of Manila of
May 3, 1932. The court, therefore, committed no error in holding
that the claim of the Manila Motor Co., Inc., was inferior in
preference to those of the appellees in this case.
This appellant's assignments of error are overulled.
In view of the foregoing the following portion of the dispositive
part of the decision of the trial court is affirmed.
"Por estas consideraciones, se ordena y se decreta (a) que del
saldo de P8,219.54, que pertenece a Sonja Maria LIllius y que se
halla depositado en la Escribana del Juzgado, se pague po el
Escribano al Dr. W. H. Waterous la suma de mil quinientos pesos
(P1,500), a Laura L. Shuman, seiscientos sesenta y un pesos
con trece centavos (P661.13, y al St. Paul's Hospital, quinientos
diez y ocho pesos con diez y ocho centavos (P518.18), y el
remanente de cinco mil cuatrocientos setenta y siete pesos con
veinticuatro centavos (P5,477.24), a Sonja Maria Lililus, o su
apoderado; (b) que del saldo de P4,109.28 que pretence a Brita
Marianne Lilius y que se halla deposito en la Escribania del
Juzgado, se pague por el Escribano a Laura Shuman, la suma de
seicientos sesenta y un pesos con trece centavos (P661.13); y al
St. Paul's Hospital, quinientos diez y ocho pesos con diez y ocho
centavos (P518.18)y, y el sado de dos mil ochocientos sesenta y
siete pesos con noventa y siete centavos (P2,867.97), a Brita
Marianne Lilius, por conducto de su tutor;".
The remaining portion of the dispositive part of the decision of the
trial court is modified as follows:
"That from the sum of P13,181.33 pertaining to Aleko E. Lilius,
which is deposited with the clerk of the trial court, the following
claims shall first be paid:
Dr. W.H. Waterous P1,500.00
Dr. M. Marfori 250.00
Laura Lindley Shuman 661.13
 21

John R. McFie, Jr. 500.00 Hamilton-Brown Shoe Co. 2045.00

and the balance of the sum pertaining to Aleko E. Lilius shall be
divided among the following entities in proportion to their Estrella del Norte 2,014.45
respective claims:
Eastern and Philippine Shipping Agencies, Ltd. 470.38
Amount of claim
So ordered without special pronouncement as to costs.
Erlanger & Galinger, Inc. P3,672.76

Philippine Education Co., Inc. 3,695.20