G.R. No. 25729 , November 24, 1926
THE BELGIAN CATHOLIC MISSIONARIES, INC., plaintiff-appellee, vs. MAGALLANES PRESS, INC., ET AL., defendants. JOSE MARIA MEMIJE, appellant.

FACTS

1. Magallanes Press, Inc. (Magallanes) executed a chattel mortgage on its printing machinery in favor of J.P. Heilbronn & Co., Inc. (Heilbronn) on December 1, 1921, to secure two promissory notes totaling P14,188.69.
2. On June 19, 1922, Magallanes executed another chattel mortgage on the *same* machinery in favor of The Belgian Catholic Missionaries, Inc. (Belgian Missionaries) to secure a loan of P30,500.
3. In December 1922, Jose Maria Memije loaned P2,000 to Enrique Clemente (Magallanes’ president), which was applied to Magallanes’ debt to Heilbronn.
4. When Magallanes defaulted, Heilbronn assigned its entire mortgage credit to Memije on February 26, 1923, for P8,280.90 (the outstanding balance).
5. On March 14, 1923, Magallanes, through Clemente, executed a document (Exhibit C) in favor of Memije, purporting to extend the original Heilbronn mortgage to also secure an additional loan of P5,895.79 (which included the earlier P2,000).
6. The mortgaged property was insured. A fire occurred on April 21, 1923, damaging the property.
7. Belgian Missionaries sued to have Memije’s mortgages (Exhibits C and D) declared null and void for prejudicing its rights, and to recover the insurance proceeds. The trial court ruled in favor of Belgian Missionaries, declaring the mortgages void as to them, making the injunction against Memije permanent, and awarding the insurance proceeds to Belgian Missionaries.

ISSUE

1. Which creditor has a preferential right to the proceeds of the mortgaged chattels and the fire insurance policies?
2. Is the subsequent increase (P5,895.79) in Memije’s mortgage credit valid and entitled to preference?

RULING

The Supreme Court REVERSED the trial court’s decision.

1. On Preference of Credits: Memije, as the assignee of Heilbronn’s mortgage credit, acquired Heilbronn’s preferential right which dated back to the original mortgage on December 1, 1921. Belgian Missionaries’ mortgage was executed later, on June 19, 1922. Therefore, Memije’s credit of P8,280.90 is preferential over Belgian Missionaries’ credit of P30,500. The proceeds from the sale of the mortgaged property and the insurance policies must first satisfy Memije’s preferential credit.

2. On the Increased Mortgage Credit (P5,895.79): The increase is NOT valid as a mortgage credit. The original mortgage deed to Heilbronn specifically stated it was to secure the obligations specified therein “and for no other purpose.” A mortgage securing future advances is valid only from the date the advances are made, not from the date of the original mortgage. Since the increase was not specified in the original sworn mortgage deed, the extension to cover it is void. Thus, Memije’s claim for this amount is that of an ordinary creditor, subordinate to Belgian Missionaries’ mortgage credit.

DISPOSITIVE PORTION:
The Court revoked the appealed judgment and ordered a new one:
* Declaring all mortgages overdue.
* Declaring Memije’s mortgage credit of P8,280.90 (with 12% interest from Feb. 26, 1923) preferential over Belgian Missionaries’ credit.
* Declaring Belgian Missionaries’ mortgage credit of P30,500 (with 12% interest from June 19, 1922) plus P3,000 attorney’s fees, preferential over Memije’s additional credit of P5,895.59.
* Ordering the foreclosure of the mortgages and the application of the proceeds (including insurance) according to the established order of preference.