G.R. No. L-17500 Case Digest

G.R. No. L-17500, May 16, 1967

People's Bank and Trust Co. and Atlantic Gulf and Pacific Co. of Manila

vs Dahican Lumber Company, Dahican American Lumber Corporation and Connell Bros. Co.

Ponente: Dizon

Facts:

September 1948, Atlantic, a West Virginia corporation licensed to do business in the Philippines sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company. To fully paid and develop the concession, DALCO obtained a loan from the bank evidence by 5 promissory notes of $50K maturing on different dates.

As security for the payment of loans, DALCO mortgage five lands in Camarines Norte together with the buildings existing thereon and other personal properties located in its place of business. Another mortgage on the same properties was made in favor of Atlantic to secure the payment of the unpaid balance.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to the Export-Import Bank of Washington D.C. and the latter assigned to the former its credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1,1953 to pay the overdue promissory note. DALCO purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted heretofore regarding "after acquired properties", the BANK requested DALCO to submit complete lists of said properties but the latter failed to do so. On December 16, 1952, the Board of Directors of DALCO in a special meeting called for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it.On January 23, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12,1953, ATLANTIC and the BANK, commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against DALCO and DAMCO.

Issues:

(1) Whether acquired properties are covered by the subject of deeds of mortgage subject of foreclosure (2) are the mortgages valid? what is the effect?

Held:

(1) All property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipment, and other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection with the premises — that is, its lumber concession — "shall immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the time of their execution.

As the language thus used leaves no room for doubt as to the intention of the parties, we see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used — thus becoming subject to the inevitable wear and tear — but with the understanding — express or implied — that they shall be replaced with others to be thereafter acquired by the mortgagor.

Article 415 does not define real property but enumerates what are considered as such, among them being machinery, receptacles, instruments or replacements intended by owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the said industry or works. On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".

(2) As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by the mortgages under foreclosure.