PHILIPPINE REFINING COMPANY V. JARQUE

FACTS:

Plaintiff Philippine Refining Co. and defendant Jarque executed three mortgages on the motor vessels Pandan and Zargazo. The documents were recorded as transfer and encumbrances of the vessels for the port of Cebu and each was denominated a chattel mortgage.

The first two mortgages did not have an affidavit of good faith. A fourth mortgage was executed by Jarque and Ramon Aboitiz over motorship Zaragoza and was entered in the Chattel Mortgage Registry on May 12, 1932, within the period of 30 days prior to the foreclosure/institution of the insolvency proceedings.

Jose Curaminas filed with the CFI of Cebu a petition praying that Francisco Jarque be declared an insolvent debtor. This was granted and Jarque’s properties were then assigned to Curaminas.

A problem arose when Judge Jose Hontiveros declined to order the foreclosure of the mortgages, and instead, ruled that they were defective because they did not have affidavits of good faith.

ISSUE:

1. Whether or not the mortgages of the vessels are governed by the Chattel Mortgage Law
2. Whether or not an affidavit of good faith is needed to enforce achattel mortgage on a vessel

RULING:

Yes. “Personal property” includes vessels. They are subject to the provisions of the Chattel Mortgage Law. The Chattel Mortgage Law says that a good chattel mortgage includes an affidavit of good faith. The absence of such affidavit makes mortgage unenforceable against creditors and subsequent encumbrances. The judge was correct.

Note: A mortgage on a vessel is generally like other chattel mortgages. The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personalty is that the first must be noted in the registry of the register of deeds.