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G.R. No. 176381 December 15, 2010PCI LEASING AND FINANCE, INC.,Petitioner,vs.TROJAN METAL INDUSTRIES INCORPORATED, WALFRIDO DIZON, ELIZABETH DIZON, and JOHN DOE,Respondents.CARPIO,J.:The CaseThis is a petition for review1with application for the immediate issuance of a temporary restraining order and writ of preliminary injunction assailing the 5 October 2006 Decision2and the 23 January 2007 Resolution3of the Court of Appeals in CA-G.R. CV No. 75855. The 5 October 2006 Decision set aside the 23 July 2002 Decision4of the Regional Trial Court (Branch 79) of Quezon City in Civil Case No. Q-99-37559, which granted petitioners complaint for recovery of sum of money and personal property with prayer for the issuance of a writ of replevin. The 23 January 2007 Resolution denied petitioners motion for reconsideration.The FactsSometime in 1997, respondent Trojan Metal Industries, Inc. (TMI) came to petitioner PCI Leasing and Finance, Inc. (PCILF) to seek a loan. Instead of extending a loan, PCILF offered to buy various equipment TMI owned, namely: a Verson double action hydraulic press with cushion, a Hinohara powerpress 75-tons capacity, a USI-clearing powerpress 60-tons capacity, a Watanabe powerpress 60-tons capacity, a YMGP powerpress 30-tons capacity, a YMGP powerpress 15-tons capacity, a lathe machine, a vertical milling machine, and a radial drill. Hard-pressed for money, TMI agreed. PCILF and TMI immediately executed deeds of sale5evidencing TMIs sale to PCILF of the various equipment in consideration of the total amount ofP2,865,070.00.PCILF and TMI then entered into a lease agreement,6dated 8 April 1997, whereby the latter leased from the former the various equipment it previously owned. Pursuant to the lease agreement, TMI issued postdated checks representing 24 monthly installments. The monthly rental for the Verson double action hydraulic press with cushion was in the amount ofP62,328.00; for the Hinohara powerpress 75-tons capacity, the USI-clearing powerpress 60-tons capacity, the Watanabe powerpress 60-tons capacity, the YMGP powerpress 30-tons capacity, and the YMGP powerpress 15-tons capacity, the monthly rental was in the amount ofP49,259.00; and for the lathe machine, the vertical milling machine, and the radial drill, the monthly rental was in the amount ofP22,205.00.The lease agreement required TMI to give PCILF a guaranty deposit ofP1,030,350.00,7which would serve as security for the timely performance of TMIs obligations under the lease agreement, to be automatically forfeited should TMI return the leased equipment before the expiration of the lease agreement.Further, spouses Walfrido and Elizabeth Dizon, as TMIs President and Vice-President, respectively executed in favor of PCILF a Continuing Guaranty of Lease Obligations.8Under the continuing guaranty, the Dizon spouses agreed to immediately pay whatever obligations would be due PCILF in case TMI failed to meet its obligations under the lease agreement.To obtain additional loan from another financing company,9TMI used the leased equipment as temporary collateral.10PCILF considered the second mortgage a violation of the lease agreement. At this time, TMIs partial payments had reachedP1,717,091.00.11On 8 December 1998, PCILF sent TMI a demand letter12for the payment of the latters outstanding obligation. PCILFs demand remained unheeded.On 7 May 1999, PCILF filed in the Regional Trial Court (Branch 79) of Quezon City a complaint13against TMI, spouses Dizon, and John Doe (collectively referred to as "respondents" hereon) for recovery of sum of money and personal property with prayer for the issuance of a writ of replevin, docketed as Civil Case No. Q-99-37559.On 7 September 1999, the RTC issued the writ of replevin14PCILF prayed for, directing the sheriff to take custody of the leased equipment. Not long after, PCILF sold the leased equipment to a third party and collected the proceeds amounting toP1,025,000.00.15In their answer,16respondents claimed that the sale with lease agreement was a mere scheme to facilitate the financial lease between PCILF and TMI. Respondents explained that in a simulated financial lease, property of the debtor would be sold to the creditor to be repaid through rentals; at the end of the lease period, the property sold would revert back to the debtor. Respondents prayed that they be allowed to reform the lease agreement to show the true agreement between the parties, which was a loan secured by a chattel mortgage.The Ruling of the RTCIn its 23 July 2002 Decision, the RTC granted the prayer of PCILF in its complaint. The RTC ruled that the lease agreement must be presumed valid as the law between the parties even if some of its provisions constituted unjust enrichment on the part of PCILF. The dispositive portion of its Decision reads:WHEREFORE, judgment is hereby rendered in favor of the plaintiff-PCI Leasing and Finance, Inc. and against defendants Trojan Metal, Walfrido Dizon, and Elizabeth Dizon, as follows:1. Ordering the plaintiff to be entitled to the possession of herein machineries.2. Ordering the defendants to pay the remaining rental obligation in the amount of Php 888,434.48 plus legal interest from the date of filing of the complaint;3. Ordering defendant to pay an attorneys fees in the amount of Php 50,000.00;4. Ordering the defendant to pay the cost of suit.SO ORDERED.17Respondents appealed to the Court of Appeals alleging that the RTC erred in ruling that PCILF was entitled to the possession of TMIs equipment and that respondents still owed PCILF the balance ofP888,423.48.The Ruling of the Court of AppealsThe Court of Appeals ruled that the sale with lease agreement was in fact a loan secured by chattel mortgage. The Court of Appeals held that since PCILF sold the equipment to a third party forP1,025,000.00 and TMI paid PCILF a guaranty deposit ofP1,030,000.00, PCILF had in its hands the sum ofP2,055,250.00, as against TMIs remaining obligation ofP888,423.48, or an excess ofP1,166,826.52, which should be returned to TMI in accordance with Section 14 of the Chattel Mortgage Law.Thus, in its 5 October 2006 Decision, the Court of Appeals set aside the Decision of the RTC. The Court of Appeals entered a new one dismissing PCILFs complaint and directing PCILF to pay TMI, by way of refund, the amount ofP1,166,826.52. The decretal part of its Decision reads:WHEREFORE, premises considered, the July 23, 2002 Decision of the Regional Trial Court of Quezon City, Branch 79, in Civil Case No. Q-99-37559, is hereby REVERSED and SET ASIDE, and a new one entered DISMISSING the complaint and DIRECTING the plaintiff-appellee PCI Leasing and Finance, Inc. to PAY, by way of REFUND, to the defendant-appellant Trojan Metal Industries, Inc., the net amount of Php 1,166,826.52.The IssuesThe issues for resolution are (1) whether the sale with lease agreement the parties entered into was a financial lease or a loan secured by chattel mortgage; and (2) whether PCILF should pay TMI, by way of refund, the amount ofP1,166,826.52.The Courts RulingThe petition lacks merit.PCILF contends that the transaction between the parties was a sale and leaseback financing arrangement where the client sells movable property to a financing company, which then leases the same back to the client. PCILF insists the transaction is not financial leasing, which contemplates extension of credit to assist a buyer in acquiring movable property which the buyer can use and eventually own. PCILF claims that the sale and leaseback financing arrangement is not contrary to law, morals, good customs, public order, or public policy. PCILF stresses that the guaranty deposit should be forfeited in its favor, as provided in the lease agreement. PCILF points out that this case does not involve mere failure to pay rentals, it deals with a flagrant violation of the lease agreement.Respondents counter that from the very beginning, transfer to PCILF of ownership over the subject equipment was never the intention of the parties. Respondents claim that under the lease agreement, the guaranty deposit would be forfeited if TMI returned the leased equipment to PCILF before the expiration of the lease agreement; thus, since TMI never returned the leased equipment voluntarily, but through a writ of replevin ordered by the RTC, the guaranty deposit should not be forfeited.Since the lease agreement in this case was executed on 8 April 1997, Republic Act No. 5980 (RA 5980), otherwise known as the Financing Company Act, governs as to what constitutes financial leasing. Section 1, paragraph (j) of the New Rules and Regulations to Implement RA 598019defines financial leasing as follows:LEASING shall refer to financial leasing which is a mode of extending credit through a non-cancelable contract under which the lessor purchases or acquires at the instance of the lessee heavy equipment, motor vehicles, industrial machinery, appliances, business and office machines, and other movable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least 70% of the purchase price or acquisition cost, including any incidental expenses and a margin of profit, over the lease period. The contract shall extend over an obligatory period during which the lessee has the right to hold and use the leased property and shall bear the cost of repairs, maintenance, insurance, and preservation thereof, but with no obligation or option on the part of the lessee to purchase the leased property at the end of the lease contract.The above definition of financial leasing gained statutory recognition with the enactment of Republic Act No. 8556 (RA 8556), otherwise known as the Financing Company Act of 1998.20Section 3(d) of RA 8556 defines financial leasing as:a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract.Thus, in a true financial leasing, whether under RA 5980 or RA 8556, a finance company purchases on behalf of a cash-strapped lessee the equipment the latter wants to buy but, due to financial limitations, is incapable of doing so. The finance company then leases the equipment to the lessee in exchange for the latters periodic payment of a fixed amount of rental.In this case, however, TMI already owned the subject equipment before it transacted with PCILF. Therefore, the transaction between the parties in this case cannot be deemed to be in the nature of a financial leasing as defined by law.The facts in the instant case are analogous to those inCebu Contractors Consortium Co. v. Court of Appeals.21There, Cebu Contractors Consortium Co. (CCCC) approached Makati Leasing and Finance Corporation (MLFC) to obtain a loan. MLFC agreed to extend financial assistance to CCCC but, instead of a loan with collateral, MLFC induced CCCC to adopt a sale and leaseback scheme. Under the scheme, several of CCCCs equipment were made to appear as sold to MLFC and then leased back to CCCC, which in turn paid lease rentals to MLFC. The rentals were treated as installment payments to repurchase the equipment.The Court held inCebu Contractors Consortium Co. v. Court of Appeals22that the transaction between CCCC and MLFC was not one of financial leasing as defined by law, but simply a loan secured by a chattel mortgage over CCCCs equipment. The Court went on to explain that where the client already owned the equipment but needed additional working capital and the finance company purchased such equipment with the intention of leasing it back to him, the lease agreement was simulated to disguise the true transaction that was a loan with security. In that instance, continued the Court, the intention of the parties was not to enable the client to acquire and use the equipment, but to extend to him a loan.Similarly, inInvestors Finance Corporation v. Court of Appeals,23a borrower came to Investors Finance Corporation (IFC) to secure a loan with his heavy equipment and machinery as collateral. The parties executed documents where IFC was made to appear as the owner of the equipment and the borrower as the lessee. As consideration for the lease, the borrower-lessee was to pay monthly amortizations over a period of 36 months. The parties executed a lease agreement covering various equipment described in the lease schedules attached to the lease agreement. As security, the borrower-lessee also executed a continuing guaranty.The Court inInvestors Finance Corporation v. Court of Appeals24held that the transaction between the parties was not a true financial leasing because the intention of the parties was not to enable the borrower-lessee to acquire and use the heavy equipment and machinery, which already belonged to him, but to extend to him a loan to use as capital for his construction and logging businesses. The Court held that the lease agreement was simulated to disguise the true transaction between the parties, which was a simple loan secured by heavy equipment and machinery owned by the borrower-lessee. The Court differentiated between a true financial leasing and a loan with mortgage in the guise of a lease. The Court said that financial leasing contemplates the extension of credit to assist a buyer in acquiring movable property which he can use and eventually own. If the movable property already belonged to the borrower-lessee, the transaction between the parties, according to the Court, was a loan with mortgage in the guise of a lease.In the present case, since the transaction between PCILF and TMI involved equipment already owned by TMI, it cannot be considered as one of financial leasing, as defined by law, but simply a loan secured by the various equipment owned by TMI.Articles 1359 and 1362 of the Civil Code provide:Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct, or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument.Under Article 1144 of the Civil Code, the prescriptive period for actions based upon a written contract and for reformation of an instrument is ten years.25The right of action for reformation accrued from the date of execution of the lease agreement on 8 April 1997. TMI timely exercised its right of action when it filed an answer26on 14 February 2000 asking for the reformation of the lease agreement.Hence, had the true transaction between the parties been expressed in a proper instrument, it would have been a simple loan secured by a chattel mortgage, instead of a simulated financial leasing. Thus, upon TMIs default, PCILF was entitled to seize the mortgaged equipment, not as owner but as creditor-mortgagee for the purpose of foreclosing the chattel mortgage. PCILFs sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can be deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee.The Court of Appeals correctly ruled that the transaction between the parties was simply a loan secured by a chattel mortgage. However, in reckoning the amount of the principal obligation, the Court of Appeals should have taken into account the proceeds of the sale to PCILF less the guaranty deposit paid by TMI. After deducting payments made by TMI to PCILF, the balance plus applicable interest should then be applied against the aggregate cash already in PCILFs hands.Records show that PCILF paid TMIP2,865,070.0027as consideration for acquiring the mortgaged equipment. In turn, TMI gave PCILF a guaranty deposit ofP1,030,350.00.28Thus, the amount of the principal loan wasP1,834,720.00, which was the net amount actually received by TMI (proceeds of the sale of the equipment to PCILF minus the guaranty deposit).Against the principal loan ofP1,834,720.00 plus the applicable interest should be deducted loan payments, totalingP1,717,091.00.29Since PCILF sold the mortgaged equipment to a third party forP1,025,000.00,30the proceeds of the said sale should be applied to offset the remaining balance on the principal loan plus applicable interest.However, the exact date of the sale of the mortgaged equipment, which is needed to compute the interest on the remaining balance of the principal loan, cannot be gleaned from the facts on record. We thus remand the case to the RTC for the computation of the total amount due from the date of demand on 8 December 1998 until the date of sale of the mortgaged equipment to a third party, which amount due shall be offset against the proceeds of the sale.In the absence of stipulation, the applicable interest due on the remaining balance of the loan is the legal rate of 12% per annum, computed from the date PCILF sent a demand letter to TMI on 8 December 1998. No interest can be charged prior to this date because TMI was not yet in default prior to 8 December 1998. The interest due shall also earn legal interest from the time it is judicially demanded, pursuant to Article 2212 of the Civil Code, which provides:Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of legal interest laid down by the Court inEasternShipping Lines, Inc. v. Court of Appeals,31to wit:1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.3.When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied)Applying the rules in the computation of interest, the remaining balance of the principal loan subject of the chattel mortgage must earn the legal interest of 12% per annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the filing of the complaint on 7 May 1999.In accordance with the rules laid down inEasternShipping Lines, Inc. v. Court of Appeals,32we derive the following formula for the RTCs guidance:TOTAL AMOUNT DUE = [principal partial payments made] + [interest + interest on interest], whereInterest = remaining balance x 12% per annum x no. of years from due date (8 December 1998 when demand was made) until date of sale to a third partyInterest on interest = interest computed as of the filing of the complaint on 7 May 1999 x 12% x no. of years until date of sale to a third partyFrom the computed total amount should be deductedP1,025,000.00 representing the proceeds of the sale already in PCILFs hands. The difference represents overpayment by TMI, which the law requires PCILF to refund to TMI.1avvphi1Section 14 of Act No. 1508, otherwise known as the Chattel Mortgage Law, provides:Section 14.Sale of property at public auction; officers return; fees; disposition of proceeds. x x x The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the mortgages, shall be paid to the mortgagor or person holding under him on demand.Section 14 of the Chattel Mortgage Law expressly entitles the debtor-mortgagor to the balance of the proceeds, upon satisfaction of the principal loan and costs. Prevailing jurisprudence33also holds that the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds.TMIs right to the refund accrued from the time PCILF received the proceeds of the sale of the mortgaged equipment. However, since TMI never made a counterclaim or demand for refund due on the resulting overpayment after offsetting the proceeds of the sale against the remaining balance on the principal loan plus applicable interest, no interest applies on the amount of refund due. Nonetheless, in accord with prevailing jurisprudence,34the excess amount PCILF must refund to TMI is subject to interest at 12% per annum from finality of this Decision until fully paid.WHEREFORE, weDENYthe petition. WeAFFIRM with MODIFICATIONthe 5 October 2006 Decision and the 23 January 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 75855. Petitioner PCI Leasing and Finance, Inc. is herebyORDEREDtoPAYrespondent Trojan Metal Industries, Inc., by way of refund, the excess amount to be computed by the Regional Trial Court based on the formula specified above, with interest at 12% per annum from finality of this Decision until fully paid.Costs against petitioner.G.R. No. 103576 August 22, 1996ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC,petitioners,vs.HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY,respondents.VITUG,J.:pWould 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? This question is the core issue in the instant petition for review oncertiorari.Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this effect (c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. . . .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.1In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent bank additional financial accommodations totalling P2,700,000.00.2These borrowings were on due date also fully paid.On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a 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 at maturity.3Respondent bank thereupon applied for an extra judicial foreclosure of the chattel mortgage, herein before cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage.Petitioner corporation appealed to the Court of Appeals4which, on 14 August 1991, affirmed, "in all respects," the decision of the court aquo. The motion for reconsideration was denied on 24 January 1992.The instant petition interposed by petitioner corporation was initially dinied on 04 March 1992 by this Court for having been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while petitioner corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's first motion for reconsideration but granted a second motion for reconsideration, thereby reinstating the petition and requiring private respondent to comment thereon.5Except in criminal cases where the penalty ofreclusion perpetuaor death is imposed6which 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 requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. These technical and procedural rules, however, are intended to help secure, not suppress, substantial justice. A deviation from the rigid enforcement of the rules may thus be allowed to attain the prime objective for, after all, the dispensation of justice is the core reason for the existence of courts. In this instance, once again, the Court is constrained to relax the rules in order to give way to and uphold the paramount and overriding interest of justice.Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal debt or is secured by thepersonalcommitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by anencumbrance of property in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; inreal estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and inantichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit upon the essential condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation,7but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory character8of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes,ipso facto, null and void.9While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described,10a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although apromiseexpressed 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.11Refusal 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.A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons acting in good faith12), the fact, however, that the statute has provided that the parties to the contract must execute 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 the same is a just and valid obligation, and one not entered into for the purpose of fraud.13makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. InBelgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc.,et al.,14the Courtsaid . . . A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage.15The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00 loan,16there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter.We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against it."17This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way ofmoral damages.18InLBC Express, Inc.vs.Court of Appeals,19we have said:Moral damages are granted in recompense for physical suffering, mental anguish, 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 no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank as an artificial person.20While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named as a party inrepresentationof petitioner corporation.Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the petition his so-called "One Final Word;"viz:In simply quotingin totothe patently erroneous decision of the trial court, respondent Court of Appeals should be required to justify its decision which completely 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 explanation is wholly unacceptable, this Honorable Court should impose appropriate sanctions 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 the admonition inGuerrero vs.Villamor;22thus:(L)awyers . . . should bear in mind their basic duty "to observe and maintain the respect due to the courts of justice and judicial officers and . . . (to) insist on similar conduct by others." This respectful attitude towards the court 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 best demonstrates his observance of the respect due to the courts and judicial officers . . .23The virtues of humility and of respect and concern for others must still live on even in an age of materialism.WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs.Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts.G.R. No. L-58469 May 16, 1983MAKATI LEASING and FINANCE CORPORATION,petitioner,vs.WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS,respondents.DE CASTRO,J.:Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for reconsideration.It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main drive motor of the subject machinery.The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that the machine is real property by constituting a chattel mortgage thereon.A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the case to this Court for review by writ of certiorari. It is contended by private respondent, however, that the instant petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated.The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by respondent's representative.1Considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted by such return may not be sustained.The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a personality, while the respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by said respondent.A similar, if not Identical issue was raised inTumalad v. Vicencio,41 SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee, and although this can not in itself alone determine the status of the property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases,Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson,wherein third persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the subject house as personality.Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate court did, the present case from the application of the abovequoted pronouncement. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage.In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law.It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and impresses upon the property the character determined by the parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as no interest of third parties would be prejudiced thereby.Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even granting that the charge is true, such fact alone does not render a contract voidab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom,From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal property, becomes very apparent. Moreover, the case ofMachinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the nature of the machinery and equipment involved therein as real properties never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling jurisprudential authority.WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent.G.R. No. 92989 July 8, 1991PERFECTO DY, JR.petitioner,vs.COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES,respondents.GUTIERREZ, JR.,J.:pThis is a petition for review oncertiorariseeking the reversal of the March 23, 1990 decision of the Court of Appeals which ruled that the petitioner's purchase of a farm tractor was not validly consummated and ordered a complaint for its recovery dismissed.The facts as established by the records are as follows:The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter.In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's request.Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question.At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure to pay the amortizations.Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also for a truck and Libra insisted on full payment for both.The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On November 22, 1979, a PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of Wilfredo Dy with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first before Libra could release the chattels in question.Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc.v.Wilfredo Dy", a collection case to recover the sum of P12,269.80 was pending in another court in Cebu.On the strength of analiaswrit of execution issued on December 27, 1979, the provincial sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales.It was only when the check was cleared on January 17, 1980 that the petitioner learned about GELAC having already taken custody of the subject tractor. Consequently, the petitioner filed an action to recover the subject tractor against GELAC Trading with the Regional Trial Court of Cebu City.On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of the decision reads as follows:WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, pronouncing that the plaintiff is the owner of the tractor, subject matter of this case, and directing the defendants Gelac Trading Corporation and Antonio Gonzales to return the same to the plaintiff herein; directing the defendants jointly and severally to pay to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36)On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against the petitioner. The Court of Appeals held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of execution issued in Civil Case No. R-16646.The petitioner now comes to the Court raising the following questions:A.WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT TO ANALIASWRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC.B.WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE TRIAL COURT.C.WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO-RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 AT WHICH TIME BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13)The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject tractor.In the case ofServicewide Specialists Inc.v.Intermediate Appellate Court. (174 SCRA 80 [1989]), we stated that:xxx xxx xxxThe rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines, (1972), Volume IV-B Part 1, p. 525). Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to therein.The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.xxx xxx xxxThe mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected.Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor. There is no dispute that the consent of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to the mortgagee, as well.Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner signing an agreement that the possession is transferred from the vendor to the vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in the case at bar.Article 1498 states:Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.xxx xxx xxxArticle 1499 provides:Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a)In the instant case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. (Art. 1499)The respondent court avers that the vendor must first have control and possession of the thing before he could transfer ownership by constructive delivery. Here, it was Libra Finance which was in possession of the subject tractor due to Wilfredo's failure to pay the amortization as a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the mortgaged property because possession is necessary in order to enable him to have the property sold.While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not divested from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation secured by the mortgagee. (SeeMartinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra gave its consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to the petitioner.Where a third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. (SeeIndustrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and the petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable.The sale of the subject tractor was consummated upon the execution of the public instrument on September 4, 1979. At this time constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff in December, 1979. Well settled is the rule that only properties unquestionably owned by the judgment debtor and which are not exempt by law from execution should be levied upon or sought to be levied upon. For the power of the court in the execution of its judgment extends only over properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 78771, January 23, 1991).The respondents further claim that at that time the sheriff levied on the tractor and took legal custody thereof no one ever protested or filed a third party claim.It is inconsequential whether a third party claim has been filed or not by the petitioner during the time the sheriff levied on the subject tractor. A person other than the judgment debtor who claims ownership or right over levied properties is not precluded, however, from taking other legal remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals,supra) This is precisely what the petitioner did when he filed the action for replevin with the RTC.Anent the second and third issues raised, the Court accords great respect and weight to the findings of fact of the trial court. There is no sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it must be established by clear convincing evidence.We agree with the trial court's findings that the actuations of GELAC Trading were indeed violative of the provisions on human relations. As found by the trial court, GELAC knew very well of the transfer of the property to the petitioners on July 14, 1980 when it received summons based on the complaint for replevin filed with the RTC by the petitioner. Notwithstanding said summons, it continued to sell the subject tractor to one of its stockholders on August 2, 1980.WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals promulgated on March 23, 1990 is SET ASIDE and the decision of the Regional Trial Court dated April 8, 1988 is REINSTATED.G.R. No. 179756 October 2, 2009RIZAL COMMERCIAL BANKING CORPORATION,Petitioner,vs.ROYAL CARGO CORPORATION,Respondent.CARPIO MORALES,J.:Terrymanila, Inc.1(Terrymanila) filed a petition for voluntary insolvency with theRegional Trial Court (RTC) of Bataanon February 13, 1991.2One of its creditors was Rizal Commercial Banking Corporation (petitioner) with which it had an obligation ofP3 Million that was secured by a chattel mortgage executed on February 16, 1989. The chattel mortgage was duly recorded in the notarial register of Amado Castano, a notary public for and in the Province of Bataan.3Royal Cargo Corporation (respondent), another creditor of Terrymanila, filed an action before the RTC of Manilafor collection of sum of money and preliminarily attached "some" of Terrymanilas personal propertieson March 5, 1991to secure the satisfaction of a judgment award ofP296,662.16, exclusive of interests and attorneys fees.4On April 12, 1991, the Bataan RTC declared Terrymanila insolvent.On June 11, 1991,5the Manila RTC, by Decision of even date, rendered judgment in the collection case in favor of respondent.In the meantime, petitioner sought in the insolvency proceedings at the Bataan RTC permission to extrajudicially foreclose the chattel mortgage which was granted by Order of February 3, 1992.6It appears thatrespondent, together with its employees union, moved to have this Order reconsidered but the motion was denied by Order of March 20, 1992 Order.7The provincial sheriff of Bataan thereupon scheduled on June 16, 1992 the public auction sale of the mortgaged personal properties at the Municipal Building of Mariveles, Bataan. At the auction sale, petitioner, the sole bidder of the properties, purchased them forP1.5 Million. Eventually, petitioner sold the properties to Domingo Bondoc and Victoriano See.8Respondent later filed on July 30, 1992 a petition before theRTC of Manila, docketed as Civil Case No. 92-62106, against the Provincial Sheriff of the RTC Bataan and petitioner, forannulment of the auction sale(annulment of sale case). Apart from questioning the inclusion in the auction sale9of some of the properties which it had attached, respondent questioned the failure to duly notify it of the sale at least 10 days before the sale, citing Section 14 of Act No. 1508 or the Chattel Mortgage Law which reads:Sec. 14. The mortgagee, his executor, administrator or assign, may, after thirty days, from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides, or where the property is situated, provided at least ten days notice of the time, place, and purpose of such sale has been posted at two or more public places in such municipality, and the mortgagee, his executor, administrator or assignee shallnotify the mortgagor or person holding under him and the persons holding subsequent mortgagesof the time and place of sale, either by notice in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not reside in such municipality,at least ten days previous to the date.(Emphasis and underscoring supplied),it claiming that its counsel received a notice only on the day of the sale.10Petitioner, alleging that the annulment of sale case filed by respondentstated no cause of action, filed on December 3, 1992 a Motion to Dismiss11which was, however, denied by Branch 16 of the Manila RTC.12Petitioner appealed the denial of the Motion to Dismiss via certiorari to the Court of Appeals, docketed asCA-G.R. SP No. 31125. The appellate court dismissed the petition, by Decision of February 21, 1994, it holding that respondents petition for annulment"prima facie states a sufficient cause of actionand thatthe [trial court] in denying [herein petitioner RCBCs] motion to dismiss, had acted advisedlyand well within its powers and authority."13Petitioner thereupon filed before the Manila RTC its Answer Ex Abundante Cautelam14in the annulment of sale case in which it lodged a Compulsory Counterclaim by seekingP1 Million for moral damages,P500,000 for exemplary damages, andP250,000 for attorneys fees. It thereafter elevated the case to this Court via petition for review oncertiorari,docketed as G.R. 115662. This Court by minute Resolution of November 7, 1994,15denied the petition for failure to show that a reversible error was committed by the appellate court.16Trial on the merits of the annulment of sale case thereupon ensued. By Decision17of October 15, 1997, Branch 16 of the Manila RTC rendered judgment in favor of respondent, disposing as follows:WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:1. ORDERING . . . RCBC to pay plaintiff [heein respondent Royal Cargo] the amount ofP296,662.16 andP8,000.00 as reasonable attorneys fees.2. No pronouncement as to costs.3. DISMISSING the petition as to respondents Provincial Sheriff of Balanga, Bataan RTC;SO ORDERED.Both parties appealed to the Court of Appeals which, by Decision18of April 17, 2007, denied herein petitioners appeal and partly granted herein respondents by increasing toP50,000 the attorneys fees awarded to it and additionally awarding it exemplary damages and imposing interest on the principal amount payable to it. Thus it disposed:WHEREFORE, the foregoing considered, the appeal instituted by appellant RCBC is hereby DENIED for lack of merit whilethe appeal of appellant Royal Cargo is PARTLY GRANTED in that the amount of attorneys fees awarded by the RTC is increased to P50,000.00.In addition, RCBC is ordered to pay Royal Cargo the amount of P100,000.00 asexemplary damages. The principal amount of P296,662.18 [sic] to be paid by RCBC to Royal Cargo shall likewise earn12% interest per annumfrom the time the petition was filed in the court a quo until fully paid. The rest of the decision is AFFIRMED.SO ORDERED. (Emphasis and underscoring supplied)In partly granting respondents appealfrom the Decision of Br. 16 of RTC Manila, the appellate court ratiocinated that respondent had a right to be "timely informed" of the foreclosure sale.RCBCs citations [sic] of numerous rulings on the matter more than supports the fact that as mortgagee, it had preferential right over the chattels subject of the foreclosure sale. This however is not at issue in this case.What is being contested is the right of Royal Cargo to be timely informed of the foreclosure saleas it too had interests over the mortgagee Terrymanila, Inc.s assets. We note thatthis matter had already been passed upon by this Court on February 21, 1994 in CA-G.R. SP No. 31125 as well as by the Supreme Court on November 7, 1994 in G.R. No. [1]15662. RCBC, by arguing about its preferential right as mortgagee in the instant appeal merelyreiterates what had already been considered and ruled upon in earlier proceedings.x x x xMoreover,Section 14of the Chattel Mortgage Law pertaining to the procedure in the foreclosure of chattel mortgages provides, to wit:x x x xThe above-quoted provision clearly requiresthat the mortgagee should notify in writing the mortgagor or person holding under him of the time and place of the saleby personal delivery of the notice. Thus, RCBCs failure to comply with this requirement warranted a ruling against it by the RTC. (Italics in the original; emphasis partly in the original; underscoring supplied)Its motion for reconsideration having been denied by the appellate court,19petitioner lodged the present petition for review which raises the following issues:IWHETHER OR NOT RESPONDENT SHOULD HAVE BEEN GIVEN A TEN(10)-DAY PRIOR NOTICEOF THE JUNE 16, 1992 FORECLOSURE SALEIIWHETHER OR NOT THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN DECLARING PETITIONER GUILTY OF CONSTRUCTIVE FRAUDIN FAILING TO PROVIDE RESPONDENT A TEN (10)-DAY PRIOR NOTICE OF THE FORECLOSURE SALE.IIIWHETHER OR NOT THE PETITIONER WAS CORRECTLY HELD LIABLE TO PAY RESPONDENT P296,662.[16] PLUS INTERESTTHEREON,EXEMPLARY DAMAGESANDATTORNEYS FEES.IVWHETHER OR NOT PETITIONER IS ENTITLED TO AN AWARD OF ATTORNEYS FEES.20(Underscoring supplied)Petitioner faults the appellate court in applying res judicata by holding that respondents entitlement to notice of the auction sale had already been settled in itsDecision inCA G.R. SP No. 31125and in this CourtsDecision in G.R. No. 115662. For, so it contends, the decisions in these cases dealt on interlocutory issues, viz: the issue ofwhether respondents petition for annulment of the sale stated a cause of action, and the issue ofwhether petitioners motion to dismiss was properly denied.21Arguing against respondents position that it was entitled to notice of the auction sale, petitioner cites the Chattel Mortgage Law which enumerates who are entitled to be notified under Section 14 thereof. It posits that "[h]ad the law intended to include in said Section an attaching creditor or a judgment creditor [like herein respondent], it could have so specifically stated therein, since in the preceding section, Section 13, it already mentioned that a subsequent attaching creditor may redeem."22Petitioner goes on to fault the appellate court in echoing its ruling inCA-G.R. SP No. 31125that Sections 1323and 14 of theChattel Mortgage Lawshould be read in tandem since the right given to the attaching creditor under Section 13 "would not serve its purpose if we were to exclude the subsequent attaching creditor from those who under Section 14 need to be notified of the foreclosure sale ten days before it is held."24Petitioner likewise posits that Section 13 permits a subsequent attaching creditor to "redeem" the mortgage onlybeforethe holding of the auction sale, drawing attention to Paray v. Rodriguez25which instructs that no right of redemption exists over personal property as theChattel Mortgage Lawis silent thereon.26Even assuming arguendo, petitioner contends, that there exists an obligation to furnish respondent a notice of the auction sale 10 days prior thereto, "respondents judgment award ofP296,662.16 with interest thereon at the legal rate from the date of filing of the [c]omplaint andP10,000.00 as reasonable attorneys fees is very much less than the P1.5 [m]illion bid of petitioner"27As for the issue of constructive fraud-basis of the award of damages to respondent, petitioner maintains that both the trial and appellate courts erred in concluding that it (petitioner) was the one which sent the notice of sheriffs sale to, which was received on the day of the sale by, the counsel for respondent for, so it contends, it had absolutely no participation in the preparation and sending of such notice.28In its Comment,29respondent reiterates that the respective decisions of the appellate court and this Court inCA G.R. SP No. 31125andG.R. No. 115662are conclusive between the parties, hence, "the right of [respondent] to a [ten-day] notice has a binding effect and must be adopted in any other controversy between the same parties in which the very same question is raised."30And respondent maintains that the obligation to notify the mortgagor or person holding under him and the persons holding subsequent mortgages falls upon petitioner as the mortgagee.The petition is MERITORIOUS.The respective decisions of the appellate court inCA G.R. SP No. 31125and this Court inG.R. No. 115662did not conclusively settle the issue on the need to give a 10-day notice to respondent of the holding of the public auction sale of the chattels.The elements ofres judicataare: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action.31Res judicatahas two concepts: (1)bar by prior judgmentas enunciated in Rule 39, Section 47 (b) of the Rules of Civil Procedure; and (2)conclusiveness of judgmentin Rule 39, Section 47 (c).32There is bar by prior judgment when, as between the first case where the judgment was rendered, and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. Where there is identity of parties and subject matter in the first and second cases, but no identity of causes of action, there is conclusiveness of judgment.33The first judgment is conclusive only as to those matters actually and directly controverted and determined,not as to matters merely involved therein.The Court of Appeals, inCA G.R. SP No. 31125, resolved only the interlocutory issue of whether the trial courts Order of April 12, 1993 denying petitioners motion to dismiss respondents petition for annulment was attended by grave abuse of discretion. The appellate court did not rule on the merits of the petition as to establish a controlling legal rule which has to be subsequently followed by the parties in the same case. It merely held that respondents petition in the trial court stated a sufficient cause of action. Its determination of respondents entitlement to notice of the public auction sale was at best prima facie. Thus, the appellate court held:In view of the above, We are of the considered view that the private respondents petition in the courta quo prima faciestates a sufficient cause of action and that the public respondent in denying the petitioners motion to dismiss, had acted advisedly and well within its powers and authority. We, therefore, findno cause to annul the challenged orderissued by the respondent court in Civil Case No. 92-62106. (Underscoring in the original; emphasis and italics supplied)34An order denying a motion to dismiss is merely interlocutory and cannot give rise tores judicata, hence, it is subject to amendments until the rendition of the final judgment.35On respondents contention that petitioner, as mortgagee, had the duty to notify it of the public auction sale, the Court finds the same immaterial to the case.Section 13 of theChattel Mortgage Lawallows the would-be redemptioner thereunder to redeem the mortgaged property onlybeforeits sale. Consider the following pronouncement in Paray:36[T]here is no law in our statute books which vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of redemption applies to real properties, not personal properties, sold on execution. (Emphasis, italics and underscoring supplied)Unmistakably, the redemption cited in Section 13 partakes of anequityof redemption, which is the right of the mortgagor to redeem the mortgaged propertyafter his defaultin the performance of the conditions of the mortgage butbeforethe sale of the property37to clear it from the encumbrance of the mortgage.38It is not the same as right of redemption which is the right of the mortgagor to redeem the mortgaged property after registration of the foreclosure sale,39andeven after confirmation of the sale.40While respondent had attached some of Terrymanilas assets to secure the satisfaction of aP296,662.16 judgment rendered in another case, what it effectively attached was Terrymanilas equity of redemption. That respondents claim is much lower than theP1.5 million actual bid of petitioner at the auction sale does not defeat respondentsequityof redemption.Top Rate International Services, Inc. v. IAC41enlightens:It is, therefore, error on the part of the petitioner to say that since private respondents lien is only a total ofP343,227.40, they cannot be entitled to the equity of redemption because the exercise of such right would require the payment of an amount which cannot be less thanP40,000,000.00.When herein private respondents prayed for the attachment of the properties to secure their respective claims against Consolidated Mines, Inc., the properties had already been mortgaged to the consortium of twelve banks to secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, therespondents liens on such properties became inferior to that of banks, which claims in the event of foreclosure proceedings, must first be satisfied.The appellate court, therefore, was correct in holding that in reality,what was attached by the respondents was merelyConsolidated Mines . . .equity of redemption. x x x xx x x xWe, therefore, hold that the appellate court did not commit any error in ruling that there was no over-levy on the disputed properties.What wasactually attachedby respondents was Consolidated Minesright or equity of redemption,an incorporeal and intangible right, the value of which can neither be quantified nor equated with the actual value of the properties upon which it may be exercised.42(Emphasis, italics and underscoring supplied)Having thus attached Terrymanilas equity of redemption, respondent had to be informed of the date of sale of the mortgaged assets for it to exercise such equity of redemption over some of those foreclosed properties, as provided for in Section 13.Recall, however, that respondent filed a motion to reconsider the February 3, 1992 Order of the RTC Bataan-insolvency court which granted leave to petitioner to foreclose the chattel mortgage, which motion was denied. Notably, respondent failed to allege this incident in his annulment of sale case before the RTC of Manila.Thus, even prior to receiving, through counsel, a mailed notice of the auction sale on the date of the auction sale itself on June 16, 1992, respondent was already put on notice of the impending foreclosure sale of the mortgaged chattels. It could thus have expediently exercised its equity of redemption, at the earliest when it received the insolvency courts Order of March 20, 1992 denying its Motion for Reconsideration of the February 3, 1992 Order.Despite its window of opportunity to exercise its equity of redemption, however, respondent chose to be technically shrewd about its chances, preferring instead to seek annulment of the auction sale, which was the result of the foreclosure of the mortgage, permission to conduct which it had early on opposed before the insolvency court. Its negligence or omission to exercise its equity of redemption within a reasonable time, or even on the day of the auction sale, warrants a presumption that it had either abandoned it or opted not to assert it.43Equitable considerations thus sway against it.It is also not lost on the Court that as early as April 12, 1991, Terrymanila had been judicially declared insolvent. Respondents recourse was thus to demand the satisfaction of its judgment award before the insolvency court as its judgment award is a preferred credit under Article 224444of the Civil Code. To now allow respondent have its way in annulling the auction sale and at the same time let it proceed with its claims before the insolvency court would neither rhyme with reason nor with justice.Parenthetically, respondent has not shown that it was prejudiced by the auction sale since the insolvency court already determined that even if the mortgaged properties were foreclosed, there were still sufficient, unencumbered assets of Terrymanila to cover the obligations owing to other creditors, including that of respondents.45In any event, even if respondent would have participated in the auction sale and matched petitioners bid, the superiority of petitioners lien over the mortgaged assets would preclude respondent from recovering the chattels.1avvphi1It has long been settled by this Court that "the right of those who acquire said propertiesshould not and can not be superior to that of the creditor who has in his favor an instrument of mortgageexecuted with the formalities of the law, in good faith, and without the least indication of fraud. x x x. In purchasing it, with full knowledge that such circumstances existed, it should be presumed that he did so, very much willing to respect the lien existing thereon, since he should not have expected that with the purchase, he would acquire a better right than that which the vendor then had. (Emphasis and underscoring supplied)46It bears noting that the chattel mortgage in favor of petitioner was registered more than two yearsbeforethe issuance of a writ of attachment over some of Terrymanilas chattels in favor of respondent. This is significant in determining who between petitioner and respondent should be given preference over the subject properties. Since the registration of a chattel mortgage is an effective and binding notice to other creditors of its existence and creates a real right or lien that follows the property wherever it may be,47the right of respondent, as an attaching creditor or as purchaser, had it purchased the mortgaged chattel at the auction sale, is subordinate to the lien of the mortgagee who has in his favor a valid chattel mortgage.48Contrary then to the appellate courts ruling, petitioner is not liable for constructive fraud for proceeding with the auction sale. Nor for subsequently selling the chattel. For foreclosure suits may be initiated even during insolvency proceedings, as long as leave must first be obtained from the insolvency court49as what petitioner did.The appellate courts award of exemplary damages and attorneys fees for respondent, given petitioners good faith, is thus not warranted.As for petitioners prayer for attorneys fees in its Compulsory Counterclaim, the same is in order, the dismissal of respondents Complaint nowithstanding.50Perkin Elmer Singapore v. Dakila Trading,51citingPinga v. Heirs of German Santiago,52enlightens:It bears to emphasize that petitionerscounterclaim against respondent is for damages and attorneys fees arising from the unfounded suit. While respondents Complaint against petitioner is already dismissed, petitioner may have very well incurred damages and litigation expenses such as attorneys fees since it wasforced to engage legal representationin the Philippines to protect its rights and to assert lack of jurisdiction of the courts over its person by virtue of the improper service of summons upon it.Hence, the cause of action of petitioners counterclaim is not eliminated by the mere dismissal of respondents complaint.53(Underscoring supplied)To the Court, the amount ofP250,000 prayed for by petitioner in its Counterclaim is just and equitable, given the nature and extent of legal services employed in controverting respondents unfounded claim.WHEREFORE, the petition for review is GRANTED. The challenged Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Civil Case No. 92-62106 lodged before the Regional Trial Court of Manila, Branch 16, is DISMISSED for lack of merit.Respondent, Royal Cargo Corporation, is ORDERED to pay petitioner, Rizal Commercial Banking Corporation,P250,000 as and for attorneys fees.No costs.G.R. No. 110048 November 19, 1999SERVICEWIDE SPECIALISTS, INC.,petitioner,vs.COURT OF APPEALS, HILDA TEE, & ALBERTO M. VILLAFRANCA,respondentsPURISIMA,J.:This is a petition for review oncertiorariunder Rule 45 of Decision of the Court of Appeals1in CA-G.R. CV No. 19571, affirming the judgment of the Regional Trial Court of Manila, Branch XX, dismissing Civil Case No. 84-25763 for replevin and damages.The litigation involves a motor vehicle, a Colt Galant, 4-door Sedan automobile, with Motor No. 2E-08927, Serial No. A112A-5297, Model No. 1976.The appellate court culled the facts that matter as follows:2On May 14, 1976, Leticia L. Laus of Quezon City purchased on credit a Colt Galant . . . from Fortune Motors (Phils.) Corporation. On the same date, she executed a promissory note for the amount of P56,028.00, inclusive of interest at 12%per annum, payable within a period of 48 months starting August, 1976 at a monthly installment of P1,167.25 due and demandable on the 17th day of each month (Exhibit "A", pp. 144, Orig. Records,). It was agreed upon, among others, that in case of default in the payment of any installment the total principal sum, together with the interest, shall become immediately due and payable (Exhibit "A"; p. 144, Orig. Records). As a security for the promissory note, a chattel mortgage was constituted over the said motor vehicle (Exhibit "B",ibid.), with a deed of assignment incorporated therein such that the credit and mortgage rights were assigned by Fortune Motors Corp. in favor of Filinvest Credit Corporation with the consent of the mortgagor-debtor Leticia Laus (Exhibits "B-1" and "B-2", p. 147,ibid.). The vehicle was then registered in the name of Leticia L. Laus with the chattel mortgage annotated on said certificate. (Exhibit "H"; p. 154,ibid.)On September 25, 1978, Filinvest Credit Corporation in turn assigned the credit in favor of Servicewide Specialists, Inc. (Servicewide, for brevity) transferring unto the latter all its rights under the promissory note and the chattel mortgage (Exhibit "B-3", p. 149,ibid.) with the corresponding notice of assignment sent to the registered car owner (Exhibit "C"; p. 150,ibid.).On April 18, 1977, Leticia Laus failed to pay the monthly installments for that month. The installments for the succeeding 17 months were not likewise fully paid, hence on September 25, 1978, pursuant to the provisions of the promissory note, Servicewide demanded payment of the entire outstanding balance of P46,775.24 inclusive of interests (Exhibits "D" and "E"; pp. 151-152,ibid.). Despite said formal demand, Leticia Laus failed to pay all the monthly installments due until July 18, 1980.On July 25, 1984, Servicewide sent a statement of account to Leticia Laus and demanded payment of the amount of P86,613.32 representing the outstanding balance plus interests up to July 25, 1985, attorney's fees, liquidated damages, estimated repossession expense, and bonding fee (Exhibit "F"; p. 153,ibid.)As a result of the failure of Leticia Laus to settle her obligation, or at least to surrender possession of the motor vehicle for the purpose of foreclosure, Servicewide instituted a complaint for replevin, impleading Hilda Tee and John Dee in whose custody the vehicle was believed to be at the time of the filing of the suit.In its complaint, plaintiff alleged that it had superior lien over the mortgaged vehicle; that it is lawfully entitled to the possession of the same together with all its accessories and equipments; (sic) that Hilda Tee was wrongfully detaining the motor vehicle for the purpose of defeating its mortgage lien; and that a sufficient bond had been filed in court. (Complaint with Annexes, pp. 1-13,ibid.). On July 30, 1984, the court approved the replevin bond (p. 20,ibid.)On August 1, 1984, Alberto Villafranca filed a third party claim contending that he is the absolute owner of the subject motor vehicle duly evidenced by the Bureau of Land Transportation's Certificate of Registration issued in his name on June 22, 1984; that he acquired the said mother vehicle from a certain Remedios D. Yang under a Deed of Sale dated May 16, 1984; that he acquired the same free from all lien and emcumbrances; and that on July 30, 1984, the said automobile was taken from his residence by Deputy Sheriff Bernardo Bernabe pursuant to the seizure order issued by the courta quo.Upon motion of the plaintiff below, Alberto Villafranca was substituted as defendant. Summons was served upon him. (pp. 55-56,ibid).On March 20, 1985, Alberto Villafranca moved for the dismissal of the complaint on the ground that there is another action pending between the same parties before the Regional Trial Court of Makati, Branch 140, docketed as Civil Case No. 8310, involving the seizure of subject motor vehicle and the indemnity bond posted by Servicewide (Motion to Dismiss with Annexes; pp. 57-110,ibid.) On March 28, 1985, the court granted the aforesaid motion (p. 122,ibid.), but subsequently the order of dismissal was reconsidered and set aside (pp. 135-136,ibid.). For failure to file his Answer as required by the courta quo, Alberto Villafranca was declared in default and plaintiff's evidence was receivedex parte.On December 27, 1985, the lower court rendered a decision dismissing the complaint for insufficiency of evidence. Its motion for reconsideration of said decision having been denied, . . . .In its appeal to the Court of Appeals, petitioner theorized that a suit for replevin aimed at the foreclosure of a chattel is an actionquasi in rem, and does not require the inclusion of the principal obligor in the Complaint. However, the appellate court affirmed the decision of the lower Court; ratiocinating, thus:A cursory reading, however, of the Promissory Note dated May 14, 1976 in favor of Fortune Motors (Phils.) Corp. in the sum of P56,028.00 (Annex "A" of Complaint, p. 7, Original Records) and the Chattel Mortgage of the same date (Annex "B" of Complaint; pp. 8-9,ibid.) will disclose that the maker and mortgagor respectively are one and the same person: Leticia Laus. In fact, plaintiff-appellant admits in paragraphs (sic) nos. 2 and 3 of its Complaint that the aforesaid public documents (Annexes "A" and "B" thereof) were executed by Leticia Laus, who, for reasons not explained, was never impleaded. In the case under consideration, plaintiff-appellant's main case is for judicial foreclosure of the chattel mortgage against Hilda Tee and John Doe who was later substituted by appellee Alberto Villafranca. But as there is no privity of contract, not even a causal link, between plaintiff-appellant Servicewide Specialists, Inc. and defendant-appellee Alberto Villafranca, the courta quocommitted no reversible error when it dismissed the case for insufficiency of evidence against Hilda Tee and Alberto Villafranca since the evidence adduced pointed to Leticia Laus as the party liable for the obligation sued upon (p. 2, RTC Decision).3Petitioner presented a Motion for Reconsideration but in its Resolution4of May 10, 1993, the Court of Appeals denied the same, taking notice of another case "pending between the same parties . . . relating to the very chattel mortgage of the motor vehicle in litigation.