Philippine Refining Co., Inc. vs. Jarque

A mortgage on a vessel is a chattel mortgage under Act No. 1508, so the absence of the affidavit of good faith required by section 5 vitiates it against creditors and subsequent encumbrancers; record in the Collector of Customs, not the register of deeds, is essential. A mere mortgage of a ship does not confer admiralty jurisdiction because it is a contract entered into without reference to navigation or perils of the sea.

Philippine Refining Co., Inc. was a mortgagee of the motor vessels Pandan and Zaragoza under mortgages executed by Francisco Jarque; Jose Corominas is the assignee of Jarque's insolvent estate, and Aboitiz & Co. is a defendant. The statutory backdrop is the Chattel Mortgage Law's requirements for a valid chattel mortgage and the Code of Commerce's treatment of vessels as personal property. The case tests whether mortgages over vessels are chattel mortgages subject to those requisites and whether their defects make them unenforceable against third persons.

Philippine Refining Co., Inc. was the plaintiff-appellant; Francisco Jarque, Jose Corominas, and Aboitiz & Co. were defendants. On varying dates, Philippine Refining Co., Inc. and Francisco Jarque executed three mortgages on the motor vessels Pandan and Zaragoza. These documents were recorded in the record of transfers and incumbrances of vessels for the port of Cebu, and each was therein denominated a “chattel mortgage.” Neither of the first two mortgages had appended an affidavit of good faith. The third mortgage contained such an affidavit, but this mortgage was not registered in the customs house until May 17, 1932, or within the period of thirty days prior to the commencement of insolvency proceedings against Francisco Jarque; also, while the third mortgage was subscribed by Francisco Jarque and M. N. Brink, there was nothing to disclose in what capacity M. N. Brink signed.

A fourth mortgage was executed by Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage registry of the register of deeds on May 12, 1932, or again within the thirty-day period before the institution of insolvency proceedings. These proceedings were begun on June 2, 1932, when a petition was filed with the Court of First Instance of Cebu in which it was prayed that Francisco Jarque be declared an insolvent debtor, which soon thereafter was granted, with the result that an assignment of all the properties of the insolvent was executed in favor of Jose Corominas.

On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on the contrary sustained the special defenses of fatal defectiveness of the mortgages.

• Admiralty Jurisdiction: Appellant's counsel moved that the case be heard and determined by the SC sitting En Banc because admiralty jurisdiction was involved.
• Nature of the Documents: Appellant asked the SC to find that the documents appearing in the record do not constitute chattel mortgages, or at least to gloss over the failure to include the affidavit of good faith made a requisite for a good chattel mortgage by the Chattel Mortgage Law.
• Code of Commerce, Article 585: Appellant would have the SC disregard article 585 of the Code of Commerce, but no reason was shown for holding this article not in force.
• Prior Doctrines: Appellant would have the SC revise doctrines heretofore announced in a series of cases.
• Foreign Issues: Appellant would have the SC make rulings on points entirely foreign to the issues of the case.

• Admiralty Jurisdiction: Whether the mere mortgage of a ship confers admiralty jurisdiction and requires the case to be heard by the SC sitting En Banc.
• Nature of Vessel Mortgages: Whether a mortgage on a vessel is a chattel mortgage governed by the Chattel Mortgage Law.
• Affidavit of Good Faith: Whether the absence of the affidavit of good faith required by section 5 of the Chattel Mortgage Law vitiates a chattel mortgage of a vessel as against creditors and subsequent encumbrancers.
• Place of Registration: Whether a chattel mortgage of a vessel must be recorded in the record of the Collector of Customs at the port of entry rather than in the registry of the register of deeds.
• Enforceability Against Third Persons: Whether the mortgages are enforceable against third persons given the absence of the affidavit of good faith and the registration defects.

• Admiralty Jurisdiction: No. The mere mortgage of a ship is a contract entered into without reference to navigation or perils of the sea and does not confer admiralty jurisdiction.
• Nature of Vessel Mortgages: Yes. Vessels are personal property under the Code of Commerce and are subject to mortgage under the Chattel Mortgage Law; a mortgage on a vessel is in nature a chattel mortgage.
• Affidavit of Good Faith: Yes. The absence of the affidavit of good faith required by section 5 of the Chattel Mortgage Law vitiates a chattel mortgage as against creditors and subsequent encumbrancers; a vessel mortgage lacking it is unenforceable against third persons.
• Place of Registration: The record of documents affecting title to a vessel must be entered in the record of the Collector of Customs at the port of entry; it is not now necessary to note a chattel mortgage of a vessel in the registry of the register of deeds.
• Enforceability Against Third Persons: No. The mortgages were not enforceable against third persons because of the fatal defects, and the trial judge correctly declined to order foreclosure.

• Admiralty Jurisdiction: The SC first corrected the reason for the En Banc sitting. A motion by appellant's counsel asked for En Banc because admiralty jurisdiction was involved, and the motion was granted. On further investigation, the SC held this was error. The mere mortgage of a ship is a contract entered into by the parties without reference to navigation or perils of the sea; it does not confer admiralty jurisdiction. The SC cited Bogart vs. Steamboat John Jay.

• Nature of Vessel Mortgages: The SC held that vessels are considered personal property under the civil law, citing Code of Commerce, article 585, and under the common law, citing Reynolds vs. Nielson and Atlantic Maritime Co. vs. City of Gloucester. Since “personal property” includes vessels, they are subject to mortgage under the Chattel Mortgage Law, Act No. 1508, section 2. The SC noted it had been accepted without discussion that a mortgage on a vessel is in nature a chattel mortgage, citing McMicking vs. Banco Español-Filipino and Arroyo vs. Yu de Sane. Otherwise, a mortgage on a vessel is generally like other chattel mortgages as to its requisites and validity.

• Affidavit of Good Faith: The Chattel 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. The absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers, citing Giberson vs. A. N. Jureidini Bros. and Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros. As a consequence, 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 first two mortgages had no affidavit of good faith.

• Place of Registration: The SC held that 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 title to a vessel be entered in the record of the Collector of Customs at the port of entry. It cited Rubiso and Gelito vs. Rivera and Arroyo vs. Yu de Sane. The fourth mortgage was entered in the chattel mortgage registry of the register of deeds on May 12, 1932, within the thirty-day period before insolvency; the third mortgage was not registered in the customs house until May 17, 1932, within the same period.

• Enforceability Against Third Persons: The SC affirmed the trial judge's refusal to order foreclosure and his sustaining of the special defenses of fatal defectiveness of the mortgages. It rejected appellant's request to find the documents not chattel mortgages or to gloss over the missing affidavit of good faith. It declined to disregard Code of Commerce, article 585, to revise prior doctrines, or to rule on points foreign to the issues. As neither the facts nor the law remained in doubt, the seven assigned errors were overruled.

• Vessel Mortgage as Chattel Mortgage — Vessels are personal property under Code of Commerce, article 585 and are subject to mortgage under the Chattel Mortgage Law, Act No. 1508, section 2; a mortgage on a vessel is in nature a chattel mortgage. The SC applied this to the mortgages on the motor vessels Pandan and Zaragoza.
• Affidavit of Good Faith in Chattel Mortgages — Section 5 of the Chattel Mortgage Law requires an affidavit of good faith appended to the mortgage and recorded therewith; absence vitiates the mortgage as against creditors and subsequent encumbrancers, and a vessel mortgage lacking it is unenforceable against third persons. The SC applied this to the first two mortgages, which had no affidavit.
• Admiralty Jurisdiction over Ship Mortgages — A mere mortgage of a ship is a contract entered into without reference to navigation or perils of the sea and does not confer admiralty jurisdiction. The SC applied this to hold that the case need not have been heard En Banc on that ground.
• Registration of Vessel Mortgages — It is not now necessary to note a chattel mortgage of a vessel in the registry of the register of deeds, but it is essential that a record of documents affecting title to a vessel be entered in the record of the Collector of Customs at the port of entry. The SC applied this to the fourth mortgage entered in the register of deeds and to the third mortgage not registered in the customs house until May 17, 1932.

• “The mere mortgage of a ship is a contract entered into by the parties to it without reference to navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction.” — The SC used this to correct the En Banc motion and hold that a ship mortgage is not an admiralty matter.
• “Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)” — The SC used this as the basis for treating vessel mortgages as chattel mortgages under Act No. 1508.
• “The absence of the affidavit vitiates a mortgage as against creditors and subsequent encumbrancers.” — The SC applied section 5 of the Chattel Mortgage Law to the first two mortgages, which lacked the affidavit of good faith.
• “As a consequence 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 SC extended the affidavit requirement to vessel mortgages and held such a mortgage unenforceable against third persons.

• Bogart vs. Steamboat John Jay, 17 How., 399 (1854) — Cited for the rule that a mere mortgage of a ship does not confer admiralty jurisdiction.
• Reynolds vs. Nielson, 96 Am. Rep., 1000 (1903) — Cited for the common-law treatment of vessels as personal property.
• Atlantic Maritime Co. vs. City of Gloucester, 117 N.E., 924 (1917) — Cited for the same common-law rule.
• McMicking vs. Banco Español-Filipino, 13 Phil., 429 (1909) — Cited as accepting that a mortgage on a vessel is in nature a chattel mortgage.
• Arroyo vs. Yu de Sane, 54 Phil., 511 (1930) — Cited for the chattel-mortgage nature of vessel mortgages and for the Collector of Customs registration rule.
• Rubiso and Gelito vs. Rivera, 37 Phil., 72 (1917) — Cited for the requirement that documents affecting title to a vessel be recorded with the Collector of Customs at the port of entry.
• Giberson vs. A. N. Jureidini Bros., 44 Phil., 216 (1922) — Cited for the rule that absence of the affidavit of good faith vitiates a mortgage as against creditors and subsequent encumbrancers.
• Benedicto de Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental Negros, 46 Phil., 753 (1923) — Cited for the same rule on the affidavit of good faith.

• Code of Commerce, article 585 — Treats vessels as personal property under the civil law; the SC used it to subject the mortgages on Pandan and Zaragoza to the Chattel Mortgage Law.
• Act No. 1508, section 2 (Chattel Mortgage Law) — Includes vessels within personal property subject to mortgage; the SC used it to classify the vessel mortgages as chattel mortgages.
• Act No. 1508, section 5 (Chattel Mortgage Law) — Requires the affidavit of good faith to be appended to the mortgage and recorded therewith; the SC held its absence vitiated the first two mortgages as against creditors and subsequent encumbrancers and made a vessel mortgage unenforceable against third persons.