RCBC v.

ROYAL CARGO
J. Gutierrez

Petitioner: Rizal Commercial Banking Corporation

Respondents: Royal Cargo Corporation
FACTS: Terrymanila Inc. filed a petition for voluntary
insolvency with RTC of Bataan. One of its creditors was
RCBC (P3M secured by chattel mortgage)
Royal Cargo Corporation, another creditor of Terrymanila,
filed an action before the RTC of Manila for collection
of sum of money and preliminarily attached "some" of
Terrymanila's personal properties to secure the
satisfaction of judgment award of P296,662.16, exclusive
of interests and atty's fees.
Bataan RTC declared Terry insolvent
Manila RTC judgment in favor of Royal Cargo
In the meantime, RCBC sought in the insolvency
proceedings at Bataan RTC permission to
extrajudicially foreclose the chattel mortgage -
granted
Provincial Sheriff scheduled the public auction sale of
mortgaged personal properties in Bataan. At the auction
sale, RCBC was the sole bidder, and purchased them for
P1.5M.
Royal Cargo attached Terry's equity of redemption.
Thus it had to be informed of the date of sale of
mortgaged assets for it to exercise such equity of
redemption over some of those foreclosed properties.
Royal Cargo was aware of the auction sale
- It was informed about the Order of the insolvency court
that granted leave to RCBC to foreclose the chattel
mortgage.
- Its negligence or omission to exercise its equity of
redemption within a reasonable time, or even on the day
of auction sale, warrants a presumption that it had either
abandoned it or opted not to assert it
Royal Cargo was not prejudiced by the auction sale
- Terry had sufficient, unencumbered assets to cover
obligations owing to its other creditors
RCBC had a superior lien over the mortgaged assets
- The right of those who acquire properties should not and
cannot be superior to that of a creditor, who has in his
favor an instrument of mortgage, executed with the
formalities of law, in good faith, and without the least
indication of fraud
- Right of Royal Cargo was subordinate to the lien of the
mortgagee, who has in his favor a valid chattel mortgage

Royal Cargo filed a petition for annulment of auction

sale before Manila RTC, against the Provincial Sheriff of
Bataan RTC and RCBC.
- Questioned the failure to duly notify Royal
Cargo
of the sale at least 10 days prior to the sale
- Basis: Act No. 1508, Sec. 14
Manila RTC judged in favor of Royal Cargo
(2) WON RCBC was guilty of constructive fraud in
failing to provide Royal Cargo with a 10-day notice
- NO
Foreclosure suits may be initiated even during insolvency
proceedings, as long as leave must first be obtained from
the insolvency court, as what RCBC did.

CA affirmed and increased atty's fees and awarded

exemplary damages and interest on principal amount

ISSUES/HELD:
(1) WON Royal Cargo should have been notified of
the foreclosure sale - NO

Petitioner: Chattel Mortgage Law only allows an

attaching creditor or judgment creditor to "redeem" the
mortgage, BEFORE the holding of the auction.

SC: Agrees. Sec. 13 of the Chattel Mortgage Law allows

the would-be redemptioner to redeem the mortgaged
property only BEFORE its sale.

The redemption cited in Sec. 13 partakes of an equity of

redemption, which is the right of the mortgagor to
redeem the mortgaged property after his default in the
performance of conditions of the mortgage, but before the
sale of property, to clear it from encumbrance of the
mortgage.