TORRES VS LIMJAP
FACTS:
The plaintiffs alleged that Jose B. Henson, in his lifetime, executed in their favor a chattel mortgage on
his drug store at Nos. 101-103 Calle Rosario, known as Farmacia Henson, to secure a loan of P7,000,
although it was made to appear in the instrument that the loan was for P20,000. The plaintiffs alleged that
the defendant violated the terms of the mortgage and that, in consequence thereof they became entitled to
the possession of the chattels and to foreclose their mortgages thereon. Upon the petition of the plaintiffs
and after the filing of the necessary bonds, the court issued in each case an order directing the sheriff of
the City of Manila to take immediate possession of said drug stores.
After hearing the evidence adduced during the trial and on July 17, 1930, the Honorable Mariano Albert,
judge, in a very carefully prepared opinion, arrived at the conclusion (a) that the defendant defaulted in
the payment of interest on the loans secured by the mortgages, in violation of the terms thereof; ( b) that
by reason of said failure said mortgages became due, and (c) that the plaintiffs, as mortgagees, were
entitled to the possession of the drug stores Farmacia Henson at Nos. 101-103 Calle Rosario and Henson's
Pharmacy at Nos. 71-73 Escolta. Accordingly, a judgment was rendered in favor of the plaintiffs and
against the defendant, confirming the attachment of said drug stores by the sheriff of the City of Manila
and the delivery thereof to the plaintiffs.
ISSUE:
Whether or not a Chattel Mortgage can cover after-acquired properties
HELD:
As a general rule, pursuant to Section 7 of Act No. 1508, a chattel mortgage shall be deemed to cover
only the property described therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgage. However, it could not
have been the intention of the Philippine Commission to apply the provision of section 7 above quoted to
stores open to the public for retail business, where the goods are constantly sold and substituted with new
stock, such as drug stores, grocery stores, dry-goods stores, etc. If said provision were intended to apply
to this class of business, it would be practically impossible to constitute a mortgage on such stores
without closing them, contrary to the very spirit about a handicap to trade and business, would restrain the
circulation of capital, and would defeat the purpose for which the law was enacted, to wit, the promotion
of business and the economic development of the country.
Thus, a stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and
binding —
. . . where the after-acquired property is in renewal of, or in substitution for, goods on hand when
the mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc. (11
C.J., p. 436.)
Philippine National Bank vs. Cruz, et al, G.R. No. 80593
FACTS:
Sometime in 1980, Aggregate Mining Exponents (AMEX) laid-off majority of its employees because it
was experiencing business reverses, but the remaining 30 % of the employees
were not paid their wages. This non-payment went on until July 1982 when AMEX completely ceased
operations and instead entered into an operating agreement with T.M. San Andres Development
Corporation whereby the latter would be leasing the equipment and machineries of AMEX. The unpaid
employees sought redress from the Labor Arbiter who, on August 27, 1986, decided in their favour, and
ordered AMEX to pay the unpaid wages and separation pay of the employees. AMEX did not appeal
from this decision. But PNB, in its capacity as mortgagee-
creditor of AMEX interposed an appeal with the respondent NLRC, not being satisfied with the outcome
of the case. PNB alleged that the workers' lien does not cover the termination or severance pay which the
workers likewise claimed they were entitled to. In a resolution dated October 27, 1987, the NLRC
affirmed the decision of Labor Arbiter.
ISSUE:
WHETHER ARTICLE 110 OF THE LABOR CODE MUST BE READ IN RELATIONTO ARTICLES
2241, 2242, 2243, 2244 AND 2245 OF THE CIVIL CODE CONCERNINGTHE CLASSIFICATION,
CONCURRENCE AND PREFERENCE OF CREDITS
HELD:
NO, this Court must uphold the preference accorded to the private respondents in view of the provisions
of Article 110 of the Labor Code which are clear and which admit of no other interpretation. The phrase
"any provision of law to the contrary notwithstanding" indicates that such preference shall prevail despite
the order set forth in Articles 2241 to2245 of the Civil Code. No exceptions were provided under the
said article, henceforth, none shall be considered. Furthermore, the Labor Code was signed into Law
decades after the Civil Code took effect. Article 110 of the Labor Code provides that: Art. 110. Worker
preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer's business - his
workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any
provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims, shall be paid
in full before claims of the government and other creditors may be paid. Moreover, in A.C. Ransom that
the conflict between Article 110 of the Labor Code and Article 2241 to 2245 of the Civil Code must be
resolved in favor of the former. A contrary ruling would defeat the purpose for which Article 110 was
intended; that is, for the protection of the working class, pursuant to the never-ending quest for
social justice.
