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Acme Shoe V Ca

Acme Shoe, Rubber and Plastic Corp. (Acme Shoe) entered into a loan agreement with Producer’s Bank of the Philippines (Producer’s Bank) for P3M, secured by chattel mortgage. The chattel mortgage document included a provision on after-incurred obligations. Acme Shoe fully paid the P3M loan, and subsequently took out several other loans. Acme Shoe defaulted in a later loan, thus Producer’s Bank filed for extrajudicial foreclosure on the chattel mortgage. Acme Shoe filed a petition for injunction, which was dismissed by the RTC and whose dismissal was upheld by the Court of Appeals. Supreme Court set aside

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Catherine Merilleno
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156 views2 pages

Acme Shoe V Ca

Acme Shoe, Rubber and Plastic Corp. (Acme Shoe) entered into a loan agreement with Producer’s Bank of the Philippines (Producer’s Bank) for P3M, secured by chattel mortgage. The chattel mortgage document included a provision on after-incurred obligations. Acme Shoe fully paid the P3M loan, and subsequently took out several other loans. Acme Shoe defaulted in a later loan, thus Producer’s Bank filed for extrajudicial foreclosure on the chattel mortgage. Acme Shoe filed a petition for injunction, which was dismissed by the RTC and whose dismissal was upheld by the Court of Appeals. Supreme Court set aside

Uploaded by

Catherine Merilleno
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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|Page 1

Acme Shoe, Rubber and Plastic


Corp. FACTS: Acme Shoe entered into a loan agreement with Producer’s Bank for
P3M. This loan was secured by chattel mortgage (the subject property of the

V. chattel mortgage is never mentioned), with a provision as follows:

Court of Appeals
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of
the former note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases
G.R. No. 103576. August 22, 1996 of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the
Ponente: Vitug, J. payment of the said promissory note or notes and/or accommodations without the necessity of
Digest Maker: J. Ragragio executing a new contract and this mortgage shall have the same force and effect as if the said
promissory note or notes and/or accommodations were existing on the date thereof. This
SUMMARY: Acme Shoe, Rubber and Plastic Corp. (Acme Shoe) mortgage shall also stand as security for said obligations and any and all other obligations of the
MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have
entered into a loan agreement with Producer’s Bank of the been contracted before, during or after the constitution of this mortgage."
Philippines (Producer’s Bank) for P3M, secured by chattel
mortgage. The chattel mortgage document included a provision Acme Shoe eventually paid the P3M loan. Acme Shoe later took out another
on after-incurred obligations. Acme Shoe fully paid the P3M loan, loan for P2.7M, which was also eventually fully paid. Some time later, Acme
and subsequently took out several other loans. Acme Shoe Shoe took out another loan, this time for P1M. However, due to financial
defaulted in a later loan, thus Producer’s Bank filed for constraints, they were unable to settle the loan.
extrajudicial foreclosure on the chattel mortgage. Acme Shoe filed
a petition for injunction, which was dismissed by the RTC and Producer’s Bank applied for extrajudicial foreclosure of the chattel mortgage.
whose dismissal was upheld by the Court of Appeals. Supreme In response, Acme Shoe filed a petition for injunction at the RTC. The RTC
Court set aside both lower court decisions and declared the dismissed Acme Shoe’s petition, and ordered the foreclosure of the chattel
chattel mortgage to have ceased to exist upon full payment of the mortgage. On appeal, the Court of Appeals upheld the RTC in toto.
original P3M loan.

ISSUES/HELD: Is the foreclosure valid? (No)


DOCTRINE: A chattel mortgage can only secure current
obligations, and cannot be made to secure future obligations not RATIO: The Supreme Court discussed real securities (pledge, mortgage or
yet existing at the time the chattel mortgage can be entered into. antichresis), and gave the general rule that real securities may secure after-
At best, the borrower may make a promise to secure future incurred obligations, or future obligations not yet existing at the time the
obligations under the same chattel mortgage, and this promise security agreement is entered into. However, the Court pointed out that
will be a binding commitment that can be compelled upon. chattel mortgage is the exception to this rule, being covered by a special law
(Act No. 1508) that provides in the prescribed form:

"x x x (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and
one not entered into for the purpose of fraud."
|Page 2

The Court interpreted this provision in the prescribed form of a chattel


mortgage to refer to an existing obligation, and not a future obligation. As
applied in this case, the chattel mortgage only applied to the P3M loan and
was terminated when that loan was fully paid. Being merely accessory in
nature, the chattel mortgage could not have existed independently of the
principal obligation of P3M. Therefore, at the time that Producer’s Bank
applied for extrajudicial foreclosure, there was no longer anything to
foreclose, since the chattel mortgage already ceased to exist.

As to future obligations, the Court ruled that a chattel mortgage may, at best,
include a promise to include debts that are yet to be contracted, and this
promise can be a binding commitment that can be compelled upon. To
implement this, once a new debt is contracted, the parties must either execute
a new chattel mortgage agreement including the new debt, or must amend
the old contract according to the form provided by law. Refusal on the part of
the borrower to do so under such a promise may be considered an act of
default. Nevertheless, a foreclosure can only cover the debts extant at the time
of constitution and during the life of the chattel mortgage sought to be
foreclosed.

DISPOSITIVE: Appealed decisions set aside, without prejudice to to the


appropriate legal recourse by private respondent as may still be
warranted as an unsecured creditor.

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