G.R. No. L-17500 May 16, 1967
PEOPLE’S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF MANILA, plaintiffs-appellants, vs. DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and CONNELL BROS. CO. (PHIL.), defendants-appellants.

FACTS

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila (ATLANTIC) sold its rights in the Dahican Lumber concession to Dahican Lumber Company (DALCO) for $500,000, with only $50,000 paid. To develop the concession, DALCO obtained loans from People’s Bank & Trust Company (BANK) totaling P200,000 and, through the BANK, a $250,000 loan from the Export-Import Bank of Washington D.C., evidenced by promissory notes executed by DALCO and Dahican American Lumber Corporation (DAMCO). As security, on July 13, 1950, DALCO executed a first mortgage on its properties in favor of the BANK (also as trustee for Export-Import Bank) and a second mortgage on the same properties in favor of ATLANTIC to secure the unpaid balance of $450,000. Both mortgages contained a clause extending the lien to “after acquired properties.” The mortgages were registered. DALCO and DAMCO also pledged shares of stock. After July 13, 1950, DALCO purchased additional machineries and supplies, appearing in its books as due to Connell Bros. Company (Philippines) (CONNELL) and DAMCO. Upon DALCO’s and DAMCO’s failure to pay a matured promissory note, the BANK paid it and was assigned the credit. DALCO’s Board later passed a resolution to rescind the sales of equipment from CONNELL and DAMCO, and executed agreements of rescission. The BANK and ATLANTIC demanded cancellation of these agreements and, upon refusal, commenced foreclosure proceedings. The court appointed a Receiver for the properties. The properties were later sold for P175,000 by agreement, with half considered proceeds from “undebated properties” and half from “after acquired properties.” After trial, the court rendered a judgment apportioning the sale proceeds among the parties and ordering payment of various sums. All parties appealed.

ISSUE

The main issues are: (1) Whether the “after acquired properties” were subject to the mortgage liens; (2) Whether the mortgages were null and void as to the “after acquired properties” for lack of registration under the Chattel Mortgage Law; (3) Whether the mortgage provision automatically subjected “after acquired properties” to the lien; (4) Whether the rescission of sales by DALCO with DAMCO and CONNELL could prejudice the mortgage lien; (5) Whether plaintiffs are entitled to damages from defendants for attempting to defraud them by rescinding the sales to defeat the mortgage lien; and (6) The propriety of the appointment of a Receiver and the allocation of costs and attorney’s fees.

RULING

The Supreme Court ruled that the “after acquired properties” were subject to the mortgage liens. The stipulation in the mortgages extending the lien to such properties is valid and binding. The mortgages, being real estate mortgages that included chattels located on the mortgaged land, were not required to be registered under the Chattel Mortgage Law; registration in the Registry of Deeds was sufficient. The lien attached automatically to the after-acquired properties by virtue of the contractual stipulation, without need for a new contract. The rescission of the sales by DALCO with DAMCO and CONNELL could not prejudice the mortgage lien already established in favor of the plaintiffs. The defendants, by conspiring to rescind the sales to defeat the lien, are liable for damages to the plaintiffs. The measure of damages requires further proceedings, but all expenses of the Receivership and attorney’s fees awarded shall be borne jointly and severally by the defendants. The proceeds from the sale of both the “after acquired properties” and the “undebated properties” should be awarded exclusively to the plaintiffs in payment of the obligations secured by the mortgages. The appealed judgment was modified accordingly, and the record was remanded for proceedings on the determination of damages.