GR L 12377; (March, 1961) (Digest)
G.R. No. L-12377; March 29, 1961
WARNER, BARNES & CO., LTD., plaintiff-appellee, vs. RAMON FLORES, defendant-appellant.
FACTS
In November 1940, Ramon Flores purchased fertilizer from Warner, Barnes & Co., Ltd., amounting to P3,127.90, payable by December 31, 1941, with interest. To secure payment, Flores executed a chattel mortgage over 951 piculs of his expected sugar share from the 1941-42 crop. From his actual share of 918.39 piculs, the appellee received quedans (warehouse receipts) for only 278 piculs from the sugar central. The remaining sugar, both the portion covered by quedans and the balance, could not be sold due to the outbreak of World War II and the lack of shipping and buyers.
All sugar stored at the Ma-ao Sugar Central, including Flores’s mortgaged shares, was subsequently lost, burned, or destroyed during the Japanese occupation. The obligation remained unpaid, and by 1954, the debit balance had ballooned to P5,223.41. Warner, Barnes filed a collection suit. The trial court ruled in favor of the plaintiff, ordering Flores to pay the debt. Flores appealed, arguing that the loss of the mortgaged sugar extinguished his obligation.
ISSUE
Whether the loss of the mortgaged sugar, due to a fortuitous event (war), extinguishes the mortgagor’s (Flores’s) personal monetary obligation to the mortgagee (Warner, Barnes).
RULING
No. The Supreme Court affirmed the trial court’s judgment, holding that the loss of the mortgaged property does not extinguish the principal debt secured by it. The legal logic is anchored on the nature of a chattel mortgage as a mere security transaction, not a transfer of ownership. The Court, citing the analogous case of Martinez v. Philippine National Bank, reiterated that a mortgagee does not become the owner of the mortgaged property. The mortgagee merely holds a security interest, with the right to have the property sold to satisfy the obligation from the proceeds.
Consequently, the risk of loss of the mortgaged property remains with the owner-mortgagor. Since the sugar was lost due to a fortuitous event without the fault or negligence of the mortgagee, the loss is borne by the mortgagor, Flores. His personal obligation to pay the debt persists because the chattel mortgage was only an accessory contract to the principal contract of loan. The destruction of the accessory security does not, by itself, discharge the principal obligation. The terms of the mortgage contract, which granted the mortgagee control over the sale of the sugar, did not transfer the risk of loss to the mortgagee but merely outlined the method for enforcing the security. Therefore, Flores remains liable for the unpaid debt, plus stipulated interest and costs.