Philippine Refining Co., Inc. v. Aboitiz & Co.

b. Immovable Property (Art. 415) — Kinds of real properties · c. Movable Property — Classes of movable/personal property (Arts. 416, 417)

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Case DigestChapter I — Classification of Property

Philippine Refining Co., Inc. v. Aboitiz & Co.

G.R. No. L-41506 · March 25, 1935 · Supreme Court

b. Immovable Property (Art. 415) — Kinds of real properties · c. Movable Property — Classes of movable/personal property (Arts. 416, 417)

Gist

The controversy involves the foreclosure of several mortgages executed by Francisco Jarque over the motor vessels Pandan and Zaragoza in favor of the Philippine Refining Co., Inc. and Aboitiz & Co. The mortgages were contested by the assignee of Jarque’s insolvent estate on the ground that they lacked the mandatory affidavit of good faith required by the Chattel Mortgage Law. The Supreme Court affirmed the trial court’s refusal to order foreclosure, declaring the mortgages fatally defective.

Core Doctrine

The central doctrine is that vessels are considered personal property under Article 585 of the Code of Commerce and are therefore subject to the provisions of the Chattel Mortgage Law (Act No. 1508); consequently, a mortgage on a vessel is unenforceable against third persons if it lacks the affidavit of good faith required by Section 5 of said Act.

Facts

On varying dates prior to May 1932, Philippine Refining Co., Inc. and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza, which were recorded in the record of transfers and incumbrances of vessels for the port of Cebu as "chattel mortgages".
The first two of these mortgages did not have an affidavit of good faith appended to them.
On May 12, 1932, a fourth mortgage was executed by Jarque and Ramon Aboitiz on the motorship Zaragoza and entered in the chattel mortgage registry.
On May 17, 1932, the third mortgage (which contained an affidavit signed by one M. N. Brink in an undisclosed capacity) was registered in the customs house.
On June 2, 1932, insolvency proceedings were instituted against Francisco Jarque in the Court of First Instance of Cebu, and he was subsequently declared an insolvent debtor.
Following the declaration of insolvency, an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.
Philippine Refining Co., Inc. brought an action to foreclose the mortgages, but the trial court (Judge Jose M. Hontiveros) declined the foreclosure, sustaining the special defenses of "fatal defectiveness" of the mortgages.
On March 25, 1935, the Supreme Court rendered the assailed judgment affirming the trial court.

Issue

Whether motor vessels constitute "personal property" and if a mortgage constituted over them must comply with the formal requirements of the Chattel Mortgage Law (Act No. 1508), specifically the requirement of an affidavit of good faith, to be enforceable against third persons.

Secondary issues. Whether a chattel mortgage of a vessel must be recorded in the registry of the register of deeds or the record of the Collector of Customs.

Ruling

Main issue. YES — and the mortgages fail for want of the statutory affidavit. "Vessels are considered personal property under the civil law" (Code of Commerce, art. 585), so their encumbrance is governed by the Chattel Mortgage Law (Act No. 1508). Section 5 makes an affidavit of good faith an element of a "good chattel mortgage," and its "absence... vitiates a mortgage as against creditors and subsequent encumbrancers." Since the assignee of the insolvent estate stands for the creditors, the defective mortgages cannot be enforced against him. The third mortgage fails twice over: it was signed in an undisclosed capacity and registered within the prohibited thirty days before insolvency.

Secondary issues. In the record of the Collector of Customs at the vessel's port of registry — not in the chattel mortgage registry of the register of deeds. A vessel's peculiar status as personalty that is nonetheless registered like realty means the recording that gives notice to the world is the customs entry.

"Judgment affirmed, the costs of this instance to be paid by the appellant.".

Ratio

The Court's reasoning is anchored on the explicit classification of vessels under commercial law.
Specifically, "Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)".
Because vessels are personalty, their encumbrance is governed by the Chattel Mortgage Law (Act No. 1508).
Under Section 5 of Act No. 1508, a "good chattel mortgage" must include an affidavit of good faith recorded therewith.
The Court held that the "absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers".
Since the assignee of an insolvent estate (Corominas) represents the creditors, the defective mortgages cannot be enforced against him.
Furthermore, the Court noted that the third mortgage was signed in an undisclosed capacity and registered within the prohibitive thirty-day period prior to insolvency, further undermining its validity.

Doctrine

Classification of Vessels: "Vessels are considered personal property under the civil law (Code of Commerce, article 585). Similarly under the common law, vessels are personal property, although occasionally referred to as a peculiar kind of personal property".
Applicability of Chattel Mortgage Law: "Since the term 'personal property' includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law (Act No. 1508, section 2)".
Affidavit of Good Faith Requirement: "The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith... a chattel mortgage of a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons".

The Court distinguished the registration process for vessels from other personal property: "The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a chattel mortgage of a vessel to be noted in the registry of the register of deeds, but it is essential that a record of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of entry".

Assigned twice. The syllabus lists this case under b. Immovable Property (Art. 415) — Kinds of real properties and c. Movable Property — Classes of movable/personal property (Arts. 416, 417). Both assignments are answered from the single digest below — the supra entry re-uses this holding rather than adding a new one.

Full Digest — Recitation Format

I. Gist and Central Doctrine

Relationship to requested topic: DIRECT. The controversy involves the foreclosure of several mortgages executed by Francisco Jarque over the motor vessels Pandan and Zaragoza in favor of the Philippine Refining Co., Inc. and Aboitiz & Co. The mortgages were contested by the assignee of Jarque’s insolvent estate on the ground that they lacked the mandatory affidavit of good faith required by the Chattel Mortgage Law. The Supreme Court affirmed the trial court’s refusal to order foreclosure, declaring the mortgages fatally defective. The central doctrine is that vessels are considered personal property under Article 585 of the Code of Commerce and are therefore subject to the provisions of the Chattel Mortgage Law (Act No. 1508); consequently, a mortgage on a vessel is unenforceable against third persons if it lacks the affidavit of good faith required by Section 5 of said Act.

II. Chronological Narration of Material Facts

On varying dates prior to May 1932, Philippine Refining Co., Inc. and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza, which were recorded in the record of transfers and incumbrances of vessels for the port of Cebu as "chattel mortgages".
The first two of these mortgages did not have an affidavit of good faith appended to them.
On May 12, 1932, a fourth mortgage was executed by Jarque and Ramon Aboitiz on the motorship Zaragoza and entered in the chattel mortgage registry.
On May 17, 1932, the third mortgage (which contained an affidavit signed by one M. N. Brink in an undisclosed capacity) was registered in the customs house.
On June 2, 1932, insolvency proceedings were instituted against Francisco Jarque in the Court of First Instance of Cebu, and he was subsequently declared an insolvent debtor.
Following the declaration of insolvency, an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.
Philippine Refining Co., Inc. brought an action to foreclose the mortgages, but the trial court (Judge Jose M. Hontiveros) declined the foreclosure, sustaining the special defenses of "fatal defectiveness" of the mortgages.
On March 25, 1935, the Supreme Court rendered the assailed judgment affirming the trial court.

III. Arguments of the Parties

A. Petitioner/Appellant (Philippine Refining Co., Inc.)

The petitioner asked the Court to find that the documents did not strictly constitute chattel mortgages or, in the alternative, to "gloss over the failure to include the affidavit of good faith" made a requisite by law.

B. Respondent/Appellee (Jose Corominas/Assignee)

The assignee contended that the mortgages were unenforceable against third parties (the creditors of the insolvent) because they lacked the affidavit of good faith required by Section 5 of Act No. 1508.

C. Common Ground

NOT IN RECORD.

IV. Issues

A. MAIN ISSUE

B. SECONDARY ISSUES

Whether a chattel mortgage of a vessel must be recorded in the registry of the register of deeds or the record of the Collector of Customs.

V. Ruling / Disposition

A. MAIN ISSUE

YES — and the mortgages fail for want of the statutory affidavit. "Vessels are considered personal property under the civil law" (Code of Commerce, art. 585), so their encumbrance is governed by the Chattel Mortgage Law (Act No. 1508). Section 5 makes an affidavit of good faith an element of a "good chattel mortgage," and its "absence... vitiates a mortgage as against creditors and subsequent encumbrancers." Since the assignee of the insolvent estate stands for the creditors, the defective mortgages cannot be enforced against him. The third mortgage fails twice over: it was signed in an undisclosed capacity and registered within the prohibited thirty days before insolvency.

B. SECONDARY ISSUES

In the record of the Collector of Customs at the vessel's port of registry — not in the chattel mortgage registry of the register of deeds. A vessel's peculiar status as personalty that is nonetheless registered like realty means the recording that gives notice to the world is the customs entry.

"Judgment affirmed, the costs of this instance to be paid by the appellant.".

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

The Court's reasoning is anchored on the explicit classification of vessels under commercial law.
Specifically, "Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)".
Because vessels are personalty, their encumbrance is governed by the Chattel Mortgage Law (Act No. 1508).
Under Section 5 of Act No. 1508, a "good chattel mortgage" must include an affidavit of good faith recorded therewith.
The Court held that the "absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers".
Since the assignee of an insolvent estate (Corominas) represents the creditors, the defective mortgages cannot be enforced against him.
Furthermore, the Court noted that the third mortgage was signed in an undisclosed capacity and registered within the prohibitive thirty-day period prior to insolvency, further undermining its validity.

B. Doctrines/Rules

Classification of Vessels: "Vessels are considered personal property under the civil law (Code of Commerce, article 585). Similarly under the common law, vessels are personal property, although occasionally referred to as a peculiar kind of personal property".
Applicability of Chattel Mortgage Law: "Since the term 'personal property' includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law (Act No. 1508, section 2)".
Affidavit of Good Faith Requirement: "The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith... a chattel mortgage of a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons".

C. Limitations/Exceptions

The Court distinguished the registration process for vessels from other personal property: "The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a chattel mortgage of a vessel to be noted in the registry of the register of deeds, but it is essential that a record of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of entry".

D. Topic Integration

Relationship is DIRECT.
This case is a mandatory authority for the classification of property under the Civil Code and Code of Commerce.
It solidifies the status of vessels as movables and establishes that they are subject to the same rigorous formal requirements (affidavits of good faith) as other personal property under Act No. 1508 when contested by third parties.

VII. Separate Opinions

NOT IN RECORD (Unanimous decision).

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Civil Code

Article 416, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title I (Classification of Property), Chapter 2 (Movable Property)

The following things are deemed to be personal property:

(1) Those movables susceptible of appropriation which are not included in the preceding article;

(2) Real property which by any special provision of law is considered as personalty;

(3) Forces of nature which are brought under control by science; and

(4) In general, all things which can be transported from place to place without impairment of the real property to which they are fixed. (335a)

Why it is cited here

The article that makes a ship personal property despite everything about it suggesting otherwise.

Paragraph (4) covers "all things which can be transported from place to place without impairment of the real property to which they are fixed" — which describes a vessel exactly, since moving is what it is for. Paragraph (2) then admits "[r]eal property which by any special provision of law is considered as personalty."

The decision rests on Article 585 of the Code of Commerce, which classifies vessels as personal property. Size and value are irrelevant to the classification; a ship worth more than a city block is still a movable.

The consequence is procedural and it is where the case bites: because a vessel is personal property, a mortgage over it is a chattel mortgage and must satisfy the Chattel Mortgage Law (Act No. 1508) — including the affidavit of good faith. Without it the mortgage is unenforceable against third persons, though it stands between the parties.

Civil Code

Article 415, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title I (Classification of Property), Chapter 1 (Immovable Property)

The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;

(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable;

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;

(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements;

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;

(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included;

(7) Fertilizer actually used on a piece of land;

(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant;

(9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast;

(10) Contracts for public works, and servitudes and other real rights over immovable property. (334a)

Why it is cited here

Included for the contrast, and paragraph (9) is the one that nearly catches a vessel and does not: "Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast."

Read the qualifier. A floating thing is immovable only where it is meant to stay put — a floating dock, a permanently moored casino. A vessel is the opposite: it is designed to move, so the paragraph excludes it by its own terms.

That is a good illustration of how Article 415 works throughout. Each paragraph carries a criterion, and a thing is immovable only if it satisfies one of them. Being large, expensive and registrable is not a criterion anywhere in the article.

Cited laws & provisions

Article 416, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title I (Classification of Property), Chapter 2 (Movable Property)

The following things are deemed to be personal property:

(1) Those movables susceptible of appropriation which are not included in the preceding article;

(2) Real property which by any special provision of law is considered as personalty;

(3) Forces of nature which are brought under control by science; and

(4) In general, all things which can be transported from place to place without impairment of the real property to which they are fixed. (335a)

Why it is cited here

The article that makes a ship personal property despite everything about it suggesting otherwise.

Full entry below ↓

Article 415, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title I (Classification of Property), Chapter 1 (Immovable Property)

The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;

(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable;

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;

(7) Fertilizer actually used on a piece of land;

(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant;

(9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast;

(10) Contracts for public works, and servitudes and other real rights over immovable property. (334a)

Why it is cited here

Full entry below ↓

Facts

On varying dates prior to May 1932, Philippine Refining Co., Inc. and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza, which were recorded in the record of transfers and incumbrances of vessels for the port of Cebu as "chattel mortgages".
The first two of these mortgages did not have an affidavit of good faith appended to them.
On May 12, 1932, a fourth mortgage was executed by Jarque and Ramon Aboitiz on the motorship Zaragoza and entered in the chattel mortgage registry.
On May 17, 1932, the third mortgage (which contained an affidavit signed by one M. N. Brink in an undisclosed capacity) was registered in the customs house.
On June 2, 1932, insolvency proceedings were instituted against Francisco Jarque in the Court of First Instance of Cebu, and he was subsequently declared an insolvent debtor.
Following the declaration of insolvency, an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.
Philippine Refining Co., Inc. brought an action to foreclose the mortgages, but the trial court (Judge Jose M. Hontiveros) declined the foreclosure, sustaining the special defenses of "fatal defectiveness" of the mortgages.
On March 25, 1935, the Supreme Court rendered the assailed judgment affirming the trial court.

Issue

Secondary issues. Whether a chattel mortgage of a vessel must be recorded in the registry of the register of deeds or the record of the Collector of Customs.

Ruling

"Judgment affirmed, the costs of this instance to be paid by the appellant.".

Ratio

The Court's reasoning is anchored on the explicit classification of vessels under commercial law.
Specifically, "Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)".
Because vessels are personalty, their encumbrance is governed by the Chattel Mortgage Law (Act No. 1508).
Under Section 5 of Act No. 1508, a "good chattel mortgage" must include an affidavit of good faith recorded therewith.
The Court held that the "absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers".
Since the assignee of an insolvent estate (Corominas) represents the creditors, the defective mortgages cannot be enforced against him.
Furthermore, the Court noted that the third mortgage was signed in an undisclosed capacity and registered within the prohibitive thirty-day period prior to insolvency, further undermining its validity.

Doctrine

Classification of Vessels: "Vessels are considered personal property under the civil law (Code of Commerce, article 585). Similarly under the common law, vessels are personal property, although occasionally referred to as a peculiar kind of personal property".
Applicability of Chattel Mortgage Law: "Since the term 'personal property' includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law (Act No. 1508, section 2)".
Affidavit of Good Faith Requirement: "The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith... a chattel mortgage of a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons".

Assigned twice. The syllabus lists this case under b. Immovable Property (Art. 415) — Kinds of real properties and c. Movable Property — Classes of movable/personal property (Arts. 416, 417). Both assignments are answered from the single digest below — the supra entry re-uses this holding rather than adding a new one.

Full Digest — Recitation Format

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts

On varying dates prior to May 1932, Philippine Refining Co., Inc. and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza, which were recorded in the record of transfers and incumbrances of vessels for the port of Cebu as "chattel mortgages".
The first two of these mortgages did not have an affidavit of good faith appended to them.
On May 12, 1932, a fourth mortgage was executed by Jarque and Ramon Aboitiz on the motorship Zaragoza and entered in the chattel mortgage registry.
On May 17, 1932, the third mortgage (which contained an affidavit signed by one M. N. Brink in an undisclosed capacity) was registered in the customs house.
On June 2, 1932, insolvency proceedings were instituted against Francisco Jarque in the Court of First Instance of Cebu, and he was subsequently declared an insolvent debtor.
Following the declaration of insolvency, an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.
Philippine Refining Co., Inc. brought an action to foreclose the mortgages, but the trial court (Judge Jose M. Hontiveros) declined the foreclosure, sustaining the special defenses of "fatal defectiveness" of the mortgages.
On March 25, 1935, the Supreme Court rendered the assailed judgment affirming the trial court.

III. Arguments of the Parties

A. Petitioner/Appellant (Philippine Refining Co., Inc.)

B. Respondent/Appellee (Jose Corominas/Assignee)

C. Common Ground

NOT IN RECORD.

IV. Issues

A. MAIN ISSUE

B. SECONDARY ISSUES

Whether a chattel mortgage of a vessel must be recorded in the registry of the register of deeds or the record of the Collector of Customs.

V. Ruling / Disposition

A. MAIN ISSUE

B. SECONDARY ISSUES

"Judgment affirmed, the costs of this instance to be paid by the appellant.".

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

The Court's reasoning is anchored on the explicit classification of vessels under commercial law.
Specifically, "Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)".
Because vessels are personalty, their encumbrance is governed by the Chattel Mortgage Law (Act No. 1508).
Under Section 5 of Act No. 1508, a "good chattel mortgage" must include an affidavit of good faith recorded therewith.
The Court held that the "absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers".
Since the assignee of an insolvent estate (Corominas) represents the creditors, the defective mortgages cannot be enforced against him.
Furthermore, the Court noted that the third mortgage was signed in an undisclosed capacity and registered within the prohibitive thirty-day period prior to insolvency, further undermining its validity.

B. Doctrines/Rules

Classification of Vessels: "Vessels are considered personal property under the civil law (Code of Commerce, article 585). Similarly under the common law, vessels are personal property, although occasionally referred to as a peculiar kind of personal property".
Applicability of Chattel Mortgage Law: "Since the term 'personal property' includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law (Act No. 1508, section 2)".
Affidavit of Good Faith Requirement: "The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and recorded therewith... a chattel mortgage of a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons".

C. Limitations/Exceptions

The Court distinguished the registration process for vessels from other personal property: "The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a chattel mortgage of a vessel to be noted in the registry of the register of deeds, but it is essential that a record of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of entry".

D. Topic Integration

Relationship is DIRECT.
This case is a mandatory authority for the classification of property under the Civil Code and Code of Commerce.
It solidifies the status of vessels as movables and establishes that they are subject to the same rigorous formal requirements (affidavits of good faith) as other personal property under Act No. 1508 when contested by third parties.

VII. Separate Opinions

NOT IN RECORD (Unanimous decision).