CREDIT TRANSACTION CASE DIGEST/ DY VS. COURT OF APPEALS, 198 SCRA 826, G.R. NO. 92989, 8 JULY 1991

DY VS. COURT OF APPEALS,

198 SCRA 826, G.R. NO. 92989, 8 JULY 1991

TOPIC/DOCTRINE

Mortgagor retains ownership over the property given as security, and has the right to sell it with the obligation to secure written consent of the mortgagee; Validity of the sale not affected if no consent was obtained from the mortgagee.

FACTS

The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.

The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter. Libra approves the request. Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question. At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy’s failure to pay the amortizations. The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was affected since the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject tractor.

ISSUE

Whether the sale between the brothers was valid and binding as between them and to the mortgagee.

RULING

Yes.

The court held that the mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected.

Here, the court held that thus, we see no reason why Wilfredo Dy, as the chattel mortgagor cannot sell the subject tractor. There is no dispute that the consent of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to the mortgagee, as well.

In the instant case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee.

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