Cebu International Financing Corp. v.

CA
G.R. No. 107554. February 13, 1997

FACTS:
Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay,
authorizing the latter to sell the cargo vessel (LC Asiatic) owned by Dy. Ang Tay sold the subject
vessel to private respondent Robert Ong who paid the purchase price by issuing three (3).
However, since the payment was not made in cash, it was stipulated in the deed of sale that the
vessel shall not be registered or transferred to Robert Ong until complete payment.
Thereafter, Ong obtained possession of the vessel. He likewise obtained copies of the
unnotarized deed of sale. The aforequoted condition, however, which was handwritten on the
original deed of sale does not appear on Ong's copies.
Without the knowledge of Ang Tay, Ong had his copies of the deed of sale (on which the
aforementioned prohibition does not appear) and presented the notarized deed to the Philippine
Coast Guard which subsequently issued him a Certificate of Ownership and a Certificate of
Philippine Register over the subject vessel.
Ong acquired a loan from petitioner to be paid in installments. As security for the loan,
Ong executed a chattel mortgage over the subject vessel. On the Deed, it was annotated that the
amount loaned represents the balance due on the purchase price. Ong defaulted in the payment.
Petitioner sent him a letter demanding delivery of the mortgaged vessel for foreclosure or in the
alternative to pay the balance of the loan.
Meanwhile, the two checks paid by Ong to Ang Tay bounced. Ong was nowhere to be
found. After investigation and inquiry with the Office of the Coast Guard, Ang Tay learned that
the subject vessel was already in the name of Ong. Ang Tay and Jacinto Dy filed a civil case for
rescission and replevin with damages against Ong and his wife which the trial court granted. The
subject vessel was seized and subsequently delivered to Ang Tay.
Petitioner filed a separate case for replevin and damages against Ong and Ang Tay which
the trial court granted. However, Ang Tay posted a counterbond and the vessel was returned to
his possession. The trial court rendered a decision in favor of Ang Tay and Jacinto Dy. The
vessel was registered back to the name of Dy.
However, the trial court declared the chattel mortgage on the subject vessel null and void
and ordered petitioner and Ong to pay Ang Tay damages. As a result, petitioners filed this
petition.

ISSUES:
1. WON the CA erred in ruling that the contract between CFIC and Robert Ong was one
of sale, and not loan with mortgage; and
2. WON petitioner is a mortgagee in good faith whose lien over the mortgaged vessel
should be respected.
HELD:
1. The Court of Appeals nullified the chattel mortgage contract between petitioner and
Ong because paragraph 3 of the said contract seemed to indicate that the owner of the
vessel mortgaged was petitioner although it had been duly established that another party
(Jacinto Dy) was the true owner thereof. The SC disagreed. It was plainly stated therein
that the ship LCT "Orient Hope" ex "Asiatic," by means of a Deed of Absolute was
"sold and transferred by Jacinto Dy to Robert Ong." There can be no dispute then that it
was Dy who was the seller and Ong the buyer of the subject vessel. The petitioner's role
is properly and logically that of a creditor-mortgagee and not owner-seller. The chattel
mortgage contract between petitioner and Ong is valid and subsisting.
2. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor to the property given as security and in the absence
of any sign that might arouse suspicion, has no obligation to undertake further
investigation. Although this rule generally pertains to real property, particularly registered
land, it may also be applied by analogy to personal property. it was intentional on Ong's
part not to inform petitioner that he had yet to pay in full the purchase price of the
subject vessel. Ong presented himself to petitioner as the absolute owner of the LCT
"Orient Hope" ex "Asiatic." The Certificate of Ownership in Ong's name showed that
the ship was conveyed to him by means of a Deed of Absolute Sale which gave the idea
that the purchase price had been fully paid and the sale completed.

Petitioner had every right to rely on the Certificate of Ownership and Certificate of
Philippine Register duly issued by the Philippine Coast Guard in Ong's name. Petitioner had
no reason to doubt Ong's ownership over the subject vessel.