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FIRST DIVISION

[G.R. No. 103576. August 22, 1996.]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC ,petitioners , vs . HON. COURT OF APPEALS, PRODUCERS BANK OF

THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY ,

respondents .

Sotto & Sotto Law Offices for petitioners.

R. C. Domingo, Jr., & Associates for Producers Bank of the Philippines.

SYLLABUS

1. REMEDIAL LAW; ACTIONS; APPEALS; APPEAL FROM JUDGMENT OF LOWER

COURTS, NOT A MATTER OF RIGHT BUT OF SOUND JUDICIAL DISCRETION. —Except in criminal cases where the penalty of reclusion perpetua or death isimposed which the Court so reviews as a matter of course, an appeal from

judgments of lower courts is not a matter of right but of sound judicial discretion The circulars of the Court prescribing technical and other procedural requirementsare meant to weed out unmeritorious petitions that can unnecessarily clog thedocket and needlessly consume the time of the Court. These technical andprocedural rules, however, are intended to help secure, not suppress, substantia

justice. A deviation from the rigid enforcement of the rules may thus be allowed toattain the prime objective for, after all, the dispensation of justice is the core reason

for the existence of courts.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF SECURITY,CONSTRUED. — Contracts of security are either personal or real. In contracts ofpersonal security, such as a guaranty or a suretyship, the faithful performance ofthe obligation by the principal debtor is secured by the personal commitment ofanother (the guarantor or surety). In contracts of real security, such as a pledge, amortgage or an antichresis, that fulfillment is secured by an encumbrance oproperty — in pledge , the placing of movable property in the possession of thecreditor; in chattel mortgage, by the execution of the corresponding deed

substantially in the form prescribed by law; in real estate mortgage , by theexecution of a public instrument encumbering the real property covered thereby;and in antichresis , by a written instrument granting to the creditor the right toreceive the fruits of an immovable property with the obligation to apply such fruitsto the payment of interest, if owing, and thereafter to the principal of his credit —upon the essential condition that if the principal obligation becomes due and thedebtor defaults, then the property encumbered can be alienated for the payment ofthe obligation, but that should the obligation be duly paid, then the contract isautomatically extinguished proceeding from the accessory character of theagreement. As the law so puts it, once the obligation is complied with, then the

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contract of security becomes, ipso facto , null and void.

3. ID.; ID.; CONTRACTS OF SECURITY; CHATTEL MORTGAGE; COVERSOBLIGATION EXISTING AT TIME MORTGAGE IS CONSTITUTED; EFFECT OF PROMISE

TO INCLUDE DEBTS THAT ARE TO BE CONTRACTED. — While a pledge, real estatemortgage, or antichresis may exceptionally secure after-incurred obligations so longas these future debts are accurately described, a chattel mortgage, however, canonly cover obligations existing at the time the mortgage is constituted. Although a

promise expressed in a chattel mortgage to include debts that are yet to becontracted can be a binding commitment that can be compelled upon, the securityitself, however, does not come into existence or arise until after a chattel mortgageagreement covering the newly contracted debt is executed either by concluding afresh chattel mortgage or by amending the old contract conformably with the formprescribed by the Chattel Mortgage Law. Refusal on the part of the borrower toexecute the agreement so as to cover the after-incurred obligation can constitute anact of default on the part of the borrower of the financing agreement whereon thepromise is written but, of course, the remedy of foreclosure can only cover the debtsextant at the time of constitution and during the life of the chattel mortgage sought

to be foreclosed. In the chattel mortgage here involved, the only obligation specifiedin the chattel mortgage contract was the P3,000,000.00 loan which petitionercorporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, thepayment of the obligation automatically rendered the chattel mortgage void orterminated. (Belgian Catholic Missionaries, Inc ., vs . Magallanes Press, Inc ., et al .

The significance of the ruling to the instant problem would be that since the 1978chattel mortgage had ceased to exist coincidentally with the full payment of theP3,000,000.00 loan, there no longer was any chattel mortgage that could cover thenew loans that were concluded thereafter.

4. ID.; CHATTEL MORTGAGE LAW; EXECUTION OF AFFIDAVIT OF GOOD FAITH, ACLEAR MANIFESTATION THAT DEBT REFERRED TO IS CURRENT. — A chattelmortgage, as hereinbefore so intimated, must comply substantially with the formprescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5thereof, is an affidavit of good faith. While it is not doubted that if such an affidavitis not appended to the agreement, the chattel mortgage would still be validbetween the parties (not against third persons acting in good faith), the facthowever, that the statute has provided that the parties to the contract mustexecute an oath makes it obvious that the debt referred to in the law is a current,not an obligation that is yet merely contemplated.

5. ID.; DAMAGES; MORAL DAMAGES; NOT RECOVERABLE BY A JURIDICALPERSON. — We find no merit in petitioner corporation's other prayer that the caseshould be remanded to the trial court for a specific finding on the amount ofdamages it has sustained "as a result of the unlawful action taken by respondentbank against it." This prayer is not reflected in its complaint which has merely askedfor the amount of P3,000,000.00 by way of moral damages. In LBC Express, Inc . vsCourt of Appeals , we have said: "Moral damages are granted in recompense forphysical suffering, mental anguish, fright, serious anxiety, besmirched reputationwounded feelings, moral shock, social humiliation, and similar injury. A corporation,

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being an artificial person and having existence only in legal contemplation, has nofeelings, no emotions, no senses; therefore, it cannot experience physical sufferingand mental anguish. Mental suffering can be experienced only be one having anervous system and it flows from real ills, sorrows, and griefs of life — all of whichcannot be suffered by respondent bank as an artificial person." While Chua Pac isincluded in the case, the complaint, however, clearly states that he has merely beenso named as a party in representation of petitioner corporation.

6. LEGAL ETHICS; ATTORNEYS; SHOULD BE CIRCUMSPECT IN DEALING WITHCOURTS. — Petitioner corporation's counsel could be commended for his zeal inpursuing his client's cause. It instead turned out to be, however, a source ofdisappointment for this Court to read in petitioner's reply to private respondent'scomment on the petition his so-called "One Final Word;" viz : "In simply quoting intoto the patently erroneous decision of the trial court, respondent Court of Appealsshould be required to justify its decision which completely disregarded the basiclaws on obligations and contracts, as well as the clear provisions of the ChatteMortgage Law and well-settled jurisprudence of this Honorable Court; that in theevent that its explanation is wholly unacceptable, this Honorable Court should

impose appropriate sanctions on the erring justices. This is one positive step inridding our courts of law of incompetent and dishonest magistrates especiallymembers of a superior court of appellate jurisdiction . The statement is not called for

The Court invites counsel's attention to the admonition in Guerrero vs . Villamor thus: "(L)awyers . . . should bear in mind their basic duty 'to observe and maintainthe respect due to the courts of justice and judical officers and . . . (to) insist onsimilar conduct by others.' This respectful attitude towards the court is to beobserved, 'not for the sake of the temporary incumbent of the judical office, but forthe maintenance of its supreme importance.' And it is 'through a scrupulouspreference for respectful language that a lawyer best demonstrates his observanceof the respect due to the courts and judicial officers . . .'" The virtues of humility andof respect and concern for others must still live on even in an age of materialismAtty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect indealing with the courts.

D E C I S I O N

VITUG, J

p

:Would it be valid and effective to have a clause in a chattel mortgage that purportsto likewise extend its coverage to obligations yet to be contracted or incurred? Thisquestion is the core issue in the instant petition for review on certiorari .

Petitioner Chua Pac, the president and general manager of co-petitioner "AcmeShoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf ofthe company, a chattel mortgage in favor of private respondent Producers Bank ofthe Philippines. The mortgage stood by way of security for petitioner's corporateloan of three million pesos (P3,000,000.00). A provision in the chattel mortgage

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agreement was to this effect —

"(c) If the MORTGAGOR, his heirs, executors or administrators shall welland truly perform the full obligation or obligations above-stated according tothe terms thereof, then this mortgage shall be null and void. . . .

"In case the MORTGAGOR executes subsequent promissory note or noteseither 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 of importshipments on Trust Receipts, etc., this mortgage shall also stand as securityfor the payment of the said promissory note or notes and/oraccommodations without the necessity of executing a new contract and thismortgage shall have the same force and effect as if the said promissorynote or notes and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any andall other obligations of the MORTGAGOR to the MORTGAGEE of whateverkind and nature, whether such obligations have been contracted before,during or after the constitution of this mortgage." 1

In due time, the loan of P3,000,000.00 was paid by petitioner corporationSubsequently, in 1981, it obtained from respondent bank additional financiaaccommodations totalling P2,700,000.00. 2 These borrowings were on due date alsofully paid.

On 10 and 11 January 1984, the bank yet again extended to petitioner corporationa loan of one million pesos (P1,000,000.00) covered by four promissory notes for

P250,000.00 each. Due to financial constraints, the loan was not settled atmaturity. 3 Respondent bank thereupon applied for an extrajudicial foreclosure ofthe chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan Cityprompting petitioner corporation to forthwith file an action for injunction, withdamages and a prayer for a writ of preliminary injunction, before the Regional TrialCourt of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed thecomplaint and ordered the foreclosure of the chattel mortgage. It held petitionercorporation bound by the stipulations, aforequoted, of the chattel mortgage.

Petitioner corporation appealed to the Court of Appeals 4 which, on 14 August 1991affirmed, "in all respects," the decision of the court

a quo . The motion for

reconsideration was denied on 24 January 1992.

The instant petition interposed by petitioner corporation was initially denied on 04March 1992 by this Court for having been insufficient in form and substance. Privaterespondent filed a motion to dismiss the petition while petitioner corporation filed acompliance and an opposition to private respondent's motion to dismiss. The Courtdenied petitioner's first motion for reconsideration but granted a second motion forreconsideration, thereby reinstating the petition and requiring private respondent tocomment thereon. 5

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Except in criminal cases where the penalty of reclusion perpetua or death isimposed 6 which the Court so reviews as a matter of course, an appeal from

judgments of lower courts is not a matter of right but of sound judicial discretion The circulars of the Court prescribing technical and other procedural requirementsare meant to weed out unmeritorious petitions that can unnecessarily clog thedocket and needlessly consume the time of the Court. These technical andprocedural rules, however, are intended to help secure, not suppress, substantia

justice. A deviation from the rigid enforcement of the rules may thus be allowed toattain the prime objective for, after all, the dispensation of justice is the core reasonfor the existence of courts. In this instance, once again, the Court is constrained torelax the rules in order to give way to and uphold the paramount and overridinginterest of justice.

Contracts of security are either personal or real. In contracts of personal securitysuch as a guaranty or a suretyship, the faithful performance of the obligation by theprincipal debtor is secured by the personal commitment of another (the guarantoror surety). In contracts of real security, such as a pledge, a mortgage or anantichresis, that fulfillment is secured by an encumbrance of property — in pledge

the placing of movable property in the possession of the creditor; in chattemortgage, by the execution of the corresponding deed substantially in the formprescribed by law; in real estate mortgage , by the execution of a public instrumentencumbering the real property covered thereby; and in antichresis , by a writteninstrument granting to the creditor the right to receive the fruits of an immovableproperty with the obligation to apply such fruits to the payment of interest, ifowing, and thereafter to the principal of his credit — upon the essential conditionthat if the principal obligation becomes due and the debtor defaults, then theproperty encumbered can be alienated for the payment of the obligation, 7 but thatshould the obligation be duly paid, then the contract is automatically extinguishedproceeding from the accessory character 8 of the agreement. As the law so puts itonce the obligation is complied with, then the contract of security becomes, ipsofacto , null and void. 9

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described, 10 achattel mortgage, however, can only cover obligations existing at the time themortgage is constituted. Although a promise expressed in a chattel mortgage toinclude debts that are yet to be contracted can be a binding commitment that canbe compelled upon, the security itself, however, does not come into existence or

arise until after a chattel mortgage agreement covering the newly contracted debtis executed either by concluding a fresh chattel mortgage or by amending the oldcontract conformably with the form prescribed by the Chattel Mortgage Law. 11

Refusal on the part of the borrower to execute the agreement so as to cover theafter-incurred obligation can constitute an act of default on the part of the borrowerof the financing agreement whereon the promise is written but, of course, theremedy of foreclosure can only cover the debts extant at the time of constitutionand during the life of the chattel mortgage sought to be foreclosed.

A chattel mortgage, as hereinbefore so intimated, must comply substantially with

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the form prescribed by the Chattel Mortgage Law itself. One of the requisites, underSection 5 thereof, is an affidavit of good faith. While it is not doubted that if such anaffidavit is not appended to the agreement, the chattel mortgage would still be validbetween the parties (not against third persons acting in good faith 12 ), the facthowever, that the statute has provided that the parties to the contract mustexecute an oath that —

". . . (the) mortgage is made for the purpose of securing the obligation

specified in the conditions thereof, and for no other purpose, and that thesame is a just and valid obligation, and one not entered into for the purposeof fraud." 13

makes it obvious that the debt referred to in the law is a current, not anobligation that is yet merely contemplated. In the chattel mortgage hereinvolved, the only obligation specified in the chattel mortgage contract was theP3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligationautomatically rendered the chattel mortgage void or terminated. In Belgian

Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al ., 14 the Court said—

". . . A mortgage that contains a stipulation in regard to future advances inthe credit will take effect only from the date the same are made and notfrom the date of the mortgage." 15

The significance of the ruling to the instant problem would be that since the 1978chattel mortgage had ceased to exist coincidentally with the full payment of theP3,000,000.00 loan, 16 there no longer was any chattel mortgage that could coverthe new loans that were concluded thereafter.

We find no merit in petitioner corporation's other prayer that the case should beremanded to the trial court for a specific finding on the amount of damages it hassustained "as a result of the unlawful action taken by respondent bank againstit." 17 This prayer is not reflected in its complaint which has merely asked for theamount of P3,000,000.00 by way of moral damages . 18 I n LBC Express, Inc. vs.Court of Appeals , 19 we have said:

"Moral damages are granted in recompense for physical suffering, mentalanguish, fright, serious anxiety, besmirched reputation, wounded feelings,moral shock, social humiliation, and similar injury. A corporation, being an

artificial person and having existence only in legal contemplation, has nofeelings, no emotions, no senses; therefore, it cannot experience physicalsuffering and mental anguish. Mental suffering can be experienced only byone having a nervous system and it flows from real ills, sorrows, and griefsof life — all of which cannot be suffered by respondent bank as an artificialperson." 20

While Chua Pac is included in the case, the complaint, however, clearly statesthat he has merely been so named as a party in representation of petitionercorporation.

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Petitioner corporation's counsel could be commended for his zeal in pursuing hisclient's cause. It instead turned out to be, however, a source of disappointment forthis Court to read in petitioner's reply to private respondent's comment on thepetition his so-called "One Final Word;" viz :

"In simply quoting in toto the patently erroneous decision of the trial court,respondent Court of Appeals should be required to justify its decision whichcompletely disregarded the basic laws on obligations and contracts, as well

as the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event that its explanationis wholly unacceptable, this Honorable Court should impose appropriatesanctions on the erring justices. This is one positive step in ridding our courts of law of incompetent and dishonest magistrates especially members

of a superior court of appellate jurisdiction ." 21 (Emphasis supplied.)

The statement is not called for. The Court invites counsel's attention to theadmonition in Guerrero vs. Villamor ; 22 thus:

"(L)awyers . . . should bear in mind their basic duty 'to observe and maintainthe respect due to the courts of justice and judicial officers and . . . (to)insist on similar conduct by others.' This respectful attitude towards thecourt is to be observed, 'not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is'through a scrupulous preference for respectful language that a lawyer bestdemonstrates his observance of the respect due to the courts and judicialofficers . . ..'" 23

The virtues of humility and of respect and concern for others must still live on evenin an age of materialism.

WHEREFORE, the questioned decisions of the appellate court and the lower courtare set aside without prejudice to the appropriate legal recourse by privaterespondent as may still be warranted as an unsecured creditor. No costs.

Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect indealing with the courts.

SO ORDERED.

Kapunan and Hermosisima, Jr ., JJ ., concur.

Padilla, J ., took no part.

Bellosillo, J ., is on leave.

Footnotes

1. Rollo , p. 45.

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2. Ibid., p. 34.

3. Ibid.

4. Associate Justice Consuelo Ynares Santiago, ponente , with Associate JusticesRicardo L. Pronove, Jr. and Nicolas P. Lapeña, Jr., concurring.

5. In the Court's resolution, dated 27 May 1992, Rollo , p. 91.

6. Sec. 5 (2)(d), Art. VIII, 1987 Constitution.

7. See Arts. 2085, 2087, 2093, 2125, 2126, 2132, 2139 and 2140, Civil Code.

8. See Manila Surety & Fidelity Co. vs. Velayo, 21 SCRA 515.

9. See Sec. 3, Act 1508.

10. See Mojica vs. Court of Appeals, 201 SCRA 517; Lim Julian vs. Lutero, 49 Phil.703.

11. Act No. 1508.

12. See Philippine Refining Co. vs. Jarque, 61 Phil. 229.

13. Civil Code, Vol. 3, 1990 Edition by Ramon C. Aquino and Carolina C. Griño-Aquino,pp. 610-611.

14. 49 Phil. 647.

15. At p. 655. This ruling was reiterated in Jaca vs. Davao Lumber Company , 113SCRA 107.

16. Being merely accessory in nature, it cannot exist independently of the principaobligation.

17. Petitioner's Memorandum, p. 5; Rollo , p. 119.

18. Complaint, p. 6; Record, p. 9.

19. 236 SCRA 602.

20. At p. 607.

21. Rollo , p. 113.

22. 179 SCRA 355, 362.

23. At p. 362.

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