G.R. No.

1227 May 13, 1903

THE UNITED STATES, complainant-appellee,
vs.
HOWARD D. TERRELL, defendant-appellant.
FACTS:
Howard D. Terrell, was convicted of estafa. The root of the case took place when the defendant,
desiring to borrow from Jacinto Lim Jap 1,000 pesos in Mexican currency, wrote a letter to him
on the 28th of December, 1901, asking for a loan of that amount, for thirty days, and with the
letter enclosed the promissory
note of the defendant for that sum and also a bill of sale, absolute in form, of his law library,
carriage and team of horses, and book accounts, stating in the letter that the bill of sale was
sent as security for the loan.
Jacinto Lim Jap delivered to the defendant the 1,000 pesos, and retained the note and bill
of sale; but he did not take possession of the law library or other personal property at that time,
or at any subsequent time; nor did he demand possession of the same, or take any legal steps at
any time to obtain possession or control of this property.
On the August 14, 1902, on the formation of a partnership with William Tutherly for the practice
of law, the defendant sold to Tutherly a half interest in the law library; and December 1, 1902, on
a dissolution of said partnership, he sold his remaining half interest in library to Tutherly.
There is no charge in the complaint that the defendant, by these sales, defrauded Jacinto Lim Jap.
There is, however, a charge that he defrauded William Tutherly by falsely and fraudulently
representing to him that the property was unencumbered, and by fraudulently concealing from
him the fact that the property had been sold to Jacinto Lim Jap.
ISSUE:
Whether or not the subject property is a pledge.
RULING:
Yes. While the bill of sale delivered by the defendant to Lim Jap appears on its face to be
an absolute sale of the books, etc., the letter of the defendant accompanying it states in effect that
it was a transfer of the property as security for the loan, and both parties treated it, throughout the
trial, as security or an offer to pledge the property for the payment of the debt. It has been
frequently held that an instrument in the form of a bill of sale may be construed as a pledge.
Under Article 1863 of the Civil Code, in order to constitute the contract of pledge, the
pledge should be placed in possession of the creditor, or of a third person, by common consent.
This is also the rule at common law. There should be an actual delivery of the thing to the
pledgee. Until the delivery of the thing, the whole rests in an executory contract, however strong
may be the engagement to deliver it; and the pledgee acquires no right of property in the thing."
The creditor acquires no right in or to the property until he takes it into his possession, because a
pledge is merely a lien, and possession is indispensable to the right of a lien. Jacinto Lim Jap,
through his failure or neglect to take this property into his possession, must be presumed to have
waived the right given him by the contract to make good his lien, if he saw fit to do.
The defendant is acquitted in the crime of Estafa.
 Service wide inc. v CA
FACTS:
Respondent spouses Atty. Jesus and Elizabeth Ponce bought on installment a Holden
Torana vehicle from C. R. Tecson Enterprises. They executed a promissory note and a chattel
mortgage on the vehicle dated December 24, 1975 in favor of the Enterprises to secure payment
of the note. The mortgage was registered both in the Registry of Deeds and the Land
Transportation Office. On the same date, C.R. Tecson Enterprises, executed a deed of
assignment of said promissory note and chattel mortgage in favor of Filinvest Credit Corporation
with the conformity of respondent spouses. The latter were aware of the endorsement of the note
and the mortgage to Filinvest as they in fact availed of its financing services to pay for the car.
The spouses transferred and delivered the vehicle to Conrado Tecson by way of sale with
assumption of mortgage. Subsequently, in 1978, Filinvest assigned all its rights and interest over
the same promissory note and chattel mortgage to petitioner without notice to the spouses. Due
to the failure of the spouses to pay the installments from October 1977 to March 1978, and
despite demands to pay or to return the vehicle, petitioner was constrained to a complaint
for replevin with damages against them.
Respondent spouses denied any liability claiming they had already returned the car to
Conrado pursuant to the Deed of Sale with Assumption of Mortgage. Thus, they filed a third
party complaint against Conrado praying that in case they are adjudged liable to petitioner,
Conrado should reimburse them.
The lower court found the spouses jointly and solidarily liable to petitioner, however,
Conrado was ordered to reimburse them for the sum that they would pay to petitioner. On appeal,
the CA reversed and set aside the judgment on the principal ground that the spouses were not
notified of the assignment of the promissory note and chattel mortgage to petitioner. Hence, this
petition for review.
ISSUE:
Whether or not the respondent spouses needed to notify or secure the consent of
petitioners predecessor to the alienation of the vehicle.
RULING:
Under Article 319 (2) of the same Code, the sale of the thing mortgaged may be made
provided that the mortgagee gives his consent and that the same is recorded. In any case,
applying by analogy Article 2128 of the Civil Code to a chattel mortgage, it appears that a
mortgage credit may be alienated or assigned to a third person. Since the assignee of the credit
steps into the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows that
the assignees consent is necessary in order to bind him of the alienation of the mortgaged thing
by the debtor-mortgagor. This is tantamount to a novation. As the new assignee, petitioners
consent is necessary before respondent spouses alienation of the vehicle can be considered as
binding against third persons.
 In this case, however, since the alienation by the spouses of the vehicle occurred prior to
the assignment of credit to petitioner, the former were not bound to obtain the consent of the
latter as it was not yet an assignee of the credit at the time of the alienation of the mortgaged
vehicle. But they should have obtained the consent of Filinvest. So that, insofar as Filinvest is
concerned, the debtor is still responsible because of the absence of its consent to the sale. Worse,
Filinvest was not even notified of such sale. Having subsequently stepped into the shoes of
Filinvest, petitioner acquired the same rights as the former had against respondent spouses. The
defenses that could have been invoked by Filinvest against the spouses can be successfully raised
by petitioner. Therefore, for failure of respondent spouses to obtain the consent of Filinvest
thereto, the sale of the vehicle to Conrado was not binding on the former. The decision of the
CA is reversed.
 G.R. No. 138145 June 15, 2006
SUICO RATTAN & BURI INTERIORS, INC. and SPOUSES ESMERALDO and ELIZABETH
D. SUICO, Petitioners,
vs.
COURT OF APPEALS and METROPOLITAN BANK and TRUST CO., INC., Respondents.

FACTS:
SRBII applied for a credit line with Metrobank. On September 5, 1991, SRBII and
Metrobank entered into a Credit Line Agreement wherein the latter granted the former a
discounting line and an export bills purchase or draft against payment line for a maximum
aggregate principal amount of P17,000,000.00. The drawings on the credit line are secured by a
Continuing Surety Agreement executed by the Suico sps., a REM executed by SRBII and the
Suico sps. over properties located at Brgy. Tabok, Mandaue City and Fire Insurance policies
over the properties. The said property was also used as a security for an existing loan by the sps.
Suico from Metrobank.
Subsequently, SRBII and the Suico spouses were unable to pay their obligations
prompting Metrobank to extra-judicially foreclose the four mortgages constituted over the
subject properties. On November 5, 1992, Metrobank filed an action for the recovery of a sum of
money arising from the obligations of SRBII and the Suico spouses on their export bills
purchases incurred between June and July, 1991. SRBII and the Suico spouses filed their Answer
contending that their indebtedness are secured by a real estate mortgage and that the value of the
mortgaged properties is more than enough to answer for all their obligations to Metrobank.
The RTC dismissed the complaint. Upon appeal, the CA reversed the decision of the
RTC. SRBII and the Suico sps. filed a Motion for Reconsideration but the same was denied by
the CA through its Resolution issued on April 6, 1999.
ISSUE:
1. Whether the real estate mortgage dated september 5, 1991 served as the collateral for all
the obligations of the petitioners.
2. Whether the foreclosure of the mortgaged properties precludes respondent bank from
claiming the deficiency to cover the whole debt.

RULING:
As to the first question, the Court agrees with petitioners that all their obligations,
including their indebtedness arising from their purchase of export bills, are secured by the Real
Estate Mortgage contract executed on September 5, 1991..
From the language of the contract, it is clear that the mortgaged properties were intended
to secure all loans, credit accommodations and all other obligations of herein petitioners to
Metrobank, whether such obligations have been contracted before, during or after the
constitution of the mortgage. Equally settled is the principle that contracts have the force of law
between the parties and are to be complied with in good faith. In the present case, it is clear from
the Continuing Surety Agreement executed by the Suico spouses that they hold themselves
solidarily liable with SRBII in the payment of the latter’s obligations to respondent bank.
As to the second question, the settled rule is that a mortgage creditor may, in the recovery
of a debt secured by a real estate mortgage, institute against the mortgage debtor either a
personal action for debt or a real action to foreclose the mortgage. These remedies available to
the mortgage creditor are deemed alternative and not cumulative. An election of one remedy
operates as a waiver of the other.
Given the fact that the proceeds of the auction sale were not sufficient to answer for the
entire obligation of petitioners to respondent bank, the latter still has the right to recover the
balance due it after applying the proceeds of the sale. The Court agree with the CA that where
the mortgage creditor chooses the remedy of foreclosure and the proceeds of the foreclosure sale
are insufficient to cover the debt, the mortgagee is entitled to claim the deficiency from the
debtor. The law gives the mortgagee the right to claim for the deficiency resulting from the price
obtained in the sale of the property at public auction and the outstanding obligation at the time of
the foreclosure proceedings.
The petition is partially granted.