Haystack: Philippine Refining v. Jarque (GR 41506, 25 March 1935)

Philippine Refining v. Jarque
[G.R. No. 41506. March 25, 1935.]
En Banc, Malcolm (J): 9 Concur

Facts: On varying dates the Philippine Refining Co., Inc., and Francisco Jarque executed three mortgages, denominated as “chattel mortgage” on the motor vessels Pandan and Zaragoza. The first two mortgages do not have an appended affidavit of good faith, while the third contains such. The third mortgage was subscribed by Jarque and MN Brink (in what capacity the latter signed is not disclosed) and was not registered in the customs house until 17 May 1932, or within the period of 30 prior to the commencement of insolvency proceedings against Jarque. A fourth mortgage was executed by Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage registry of the register of deeds on 12 May 1932, or again within the 30-day period before the institution of insolvency proceedings.

A petition was filed with the CFI Cebu on 2 June 1932 in which it was prayed that Francisco Jarque be declared an insolvent debtor, with the result that an assignment of all the properties of the insolvent debtor, was executed in favor of Jose Corominas. The petition on the matter of Jarque’s insolvency was granted. However, the judge declined to order the foreclosure of the mortgages, but on the contrary sustained the special defenses of fatal defectiveness of the mortgages.

The Supreme Court affirmed the judgment, with costs against appellant.

1. Admiralty jurisdiction of court raised to warrant court to sit en banc
The case was decided by the court in banc, as a motion was presented by counsel for the appellant in which it was asked that the case be heard and determined by the court sitting in banc because the admiralty jurisdiction of the court was involved, and this motion was granted in regular course. On further investigation it appears that this was an error because 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. (Bogart vs. Steamboat John Jay [1854], 17 How., 399.)

2. Vessels are personal property under civil and common law
Vessels are considered personal property under the civil law. (Code of Commerce, article 585.) Similarly under the common law, vessels are personal property. Under the common law, vessels are personal property although occasionally referred to as a peculiar kind of personal property.

3. Chattel mortgage of a vessel, distinguished to chattel mortgage of other personality
Since the term "personal property" includes vessels, they are subject to mortgage agreeably to the provisions of the Chattel Mortgage Law. (Act 1508, section 2.) Indeed, it has heretofore been accepted without discussion that a mortgage on a vessel is in nature a chattel mortgage. The only difference between a chattel mortgage of a vessel and a chattel mortgage of other personality 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. Otherwise a mortgage on a vessel is generally like other chattel mortgages as to its requisites and validity.

4. Chattel mortgage of a vessel without affidavit of good faith is unenforceable against third persons
Section 5 of the Chattel Mortgage Law deemed it a requirement to have 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. 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.

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