ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC

Vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY
G.R. No. 103576 August 22, 1996
--------------------------------------------------------------------------------------------------------------------FACTS:
1) On June 27, 1978, petitioner Chua Pac, the president and general manager of copetitioner Acme executed a chattel mortgage in favor of private respondent Producers
Bank as a security for a loan of P3,000,000. A provision in the chattel mortgage
agreement was to this effect:
"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 of import shipments on Trust Receipts, etc., this mortgage shall also
stand as security for the payment of the said promissory note or notes and/or
accommodations without the necessity of 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 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 been
contracted before, during or after the constitution of this mortgage."
2) In due time, the loan of P3,000,000.00 was paid. Subsequently, it obtained an additional
loan totalling P2,700,000.00 which was also duly paid.
3) Another loan was again extended (P1,000,000.00) covered by four promissory notes for
P250,000.00 each, but went unsettled.
The bank filed an application for an extrajudicial foreclosure of the property of the mortgagor
with the Sheriff of Caloocan City. Hence, petitioner-mortgagor filed an action for injuction with
damages and a prayer for a writ of preliminary injunction before the RTC of Caloocan City.
THE RULING OF THE RTC:
The court dismissed the complaint of Acme. It ordered the foreclosure of the chattel mortgage.
Hence, petitioner Acme appealed the RTC ruling before the Court of Appeals.
THE RULING OF THE CA:
The CA affirmed the RTC ruling in all respects. The motion for reconsideration filed by Acme
was subsequently denied. Hence, petitioner filed the present petition before the Supreme Court.

ISSUE: Would it be valid and effective to have a clause in a chattel mortgage that purports to
likewise extend its coverage to obligations yet to be contracted or incurred?
THE RULING OF THE SUPREME COURT:
The Supreme Court
HELD:
No. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage, however,
can only 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 be contracted can be a binding
commitment that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred obligation can constitute an
act of default on the part of the borrower of the financing agreement whereon the promise is
written but, of course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.