GR 61508; (March, 1999) (Digest)
G.R. No. 61508 March 17, 1999
CITIBANK, N.A. vs. THE HONORABLE COURT OF APPEALS and DOUGLAS F. ANAMA
FACTS
Petitioner Citibank extended a loan to respondent Douglas Anama, secured by a chattel mortgage over various machineries and equipment. The mortgage contract contained a “special power of attorney” clause authorizing Citibank, as attorney-in-fact for Anama, to enter the premises and take possession of the mortgaged chattels without a court order upon default. Anama defaulted on his payments. Citibank filed a complaint for sum of money and replevin. The trial court issued a writ of seizure. However, actual delivery of the chattels to Citibank did not proceed as the court encouraged amicable settlement and later appointed Citibank as a receiver to manage Anama’s business. When negotiations failed, Citibank moved for an alias writ of seizure. The trial court denied this motion, and the Court of Appeals affirmed the denial.
ISSUE
Whether the “special power of attorney” clause in the chattel mortgage contract legally authorizes Citibank to extrajudicially seize the mortgaged properties without a court order upon the debtor’s default.
RULING
No. The Supreme Court affirmed the Court of Appeals’ decision, ruling that the contractual clause is void. The legal logic is anchored on the principle that a mortgagee, such as Citibank, does not acquire ownership or an automatic right to possession of the mortgaged property upon default. Ownership remains with the mortgagor, Anama, who holds a possessory right entitled to protection under the law. Allowing a creditor to unilaterally and forcibly seize property based on a self-determined default would make the creditor both judge and executioner in its own cause, violating the debtor’s right to due process. The debtor may, in good faith, dispute the fact of default (e.g., by claiming payment or other reasons), and his possession must be respected during such controversy. The proper remedy for the mortgagee is judicial foreclosure, where the court can determine the existence of default and order the necessary proceedings. The Chattel Mortgage Law (Act No. 1508) does not sanction extrajudicial seizure by the mortgagee; it only allows extrajudicial foreclosure which must be conducted through a public sale with notice, not by mere unilateral taking of possession. Therefore, the contractual stipulation permitting such seizure is contrary to law and public policy and is invalid.