Northern Motors v.

Coquia (Short title) ISSUE/S

GR # L-40018 | August 29, 1975 1. W/N Northern Motors has a better right to the possession
Petition: Petition for review on certiorari
Petitioner: NORTHERN MOTORS, INC. RULING & RATIO
Respondent: The Honorable Jorge R. Coquia, Executive Judge of the Court of First 1. Yes
Instance of Manila, Honesto Ong, the Sheriff of Manila, Dominador Q. Cacpal, the - The sheriff wrongfully levied upon the mortgaged taxicabs and erroneously
Acting Executive Sheriff of Manila, and/or His Duly Authorized Deputy Sheriff or took possession of them. He could have levied only upon the right or equity
Representative of redemption pertaining to the Manila Yellow Taxicab Co., Inc . as chattel
Intervenor: Filinvest Credit Corporation mortgagor and judgment debtor, because that was the only leviable or
attachable property right of the company in the mortgaged taxicabs.
FACTS o After a chattel mortgage is executed, there remains in the
- Manila Yellow Taxicab Co., Inc. purchased from Northern Motors, Inc, 200 mortgagor a mere right of redemption (Tizon vs. Valdez).
Holden Torana cars and executed chattel mortgages on the cars as security - To levy upon the mortgagor's incorporeal right or equity of redemption, it was
for the promissory notes covering the balance of the price. not necessary for the sheriff to have taken physical possession of the
o The notes and the chattel mortgages for 172 cars were assigned to mortgaged taxicabs.
Filinvest Credit Corporation. - It would have sufficed if he furnished the chattel mortgagor, Manila Yellow
- Tropical Commercial Co., Inc. obtained a judgment against Manila Yellow Taxicab Co., Inc., with a copy of the writ of execution and served upon it a
Taxicab Co., Inc. in another Civil Case. Part of that judgment was eventually notice that its right or equity of redemption in the mortgaged taxicabs was
assigned to Honesto Ong. being levied upon pursuant to that writ.
- To satisfy the judgment credit, the sheriff levied upon 20 taxicabs, of which, - Levying upon the property itself is distinguishable from levying on the
8 were mortgaged to Northern and 12 to Filinvest Credit. judgment debtor's interest in it. Justice Imperial noted that if the only
- Northern and Filinvest filed the corresponding third-party claims with the attachable interest of a chattel mortgagor in a mortgaged car was his right of
sheriff and Tropical posted indemnity bonds. On that same day, the cars redemption and if the purchaser at the execution sale could not acquire
were sold at public auction. The lower court cancelled the indemnity bonds anything except such right of redemption, then the purchaser was "not
without notice to the third-party claimants. entitled to the actual possession and delivery of the automobile without first
- The sheriff subsequently made an additional levy on 35 mortgaged taxicabs paying" the mortgage debt.
to satisfy the unpaid balance of the judgment. Of those, 7 were mortgaged to - In this case what the sheriff could have sold at public auction was merely the
Northern while 28 were to Filinvest. mortgagor's right or equity of redemption. The sheriff and the judgment
- Again, Northern and Filinvest filed third-party claims. The lower court refused creditor are deemed to have constructive notice of the chattel mortgages on
to reinstate the indemnity bonds. It ruled that the chattel mortgagee was not the taxicabs. As a consequence of the registration of the mortgages,
entitled to the possession of the mortgaged taxicabs by the mere fact of the Northern Motors, Inc. had the symbolical possession of the taxicabs.
execution of the mortgage and that the mortgage lien followed the chattel - If the judgment creditor, Tropical or the assignee, Ong, bought the
whoever might be its actual possessor. mortgagor's equity of redemption at the auction sale, then it would step into
- Northern Motors, Inc. then filed with SC a certiorari petition to annul the the shoes of the mortgagor, Manila Yellow Taxicab Co., Inc. and be able to
resolution and to stop the second auction sale. redeem the vehicles from Northern Motors, Inc., the mortgagee, by paying
- SC issued a restraining order against the scheduled auction sale, the writ of the mortgage debt.
execution and the disposition of the proceeds of the first execution sale. - Article 2140 of the Civil Code, in defining a chattel mortgage as the recording
Filinvest was allowed to intervene in the action. of personal property in the Chattel Mortgage Register as security for the
- Subsequently, the petition was denied and the restraining order was performance of an obligation, has adhered to the equitable conception of
dissolved. SC ruled that the mortgagee's remedy is to vindicate its claim in a that contract.
proper action as provided in the Rules of Court, and that its mortgage lien - At the same time, article 2140 has preserved the distinction between pledge
attached to the taxicabs wherever they might be. and chattel mortgage which was blurred by section 4 of the Chattel Mortgage
- Upon motion of Northern Motors, Inc. on the ground that the decision had Law when it provided that in a chattel mortgage" the possession of the
not yet become final, the restraining order was maintained. Filinvest did not property is delivered to and retained by the mortgagee" or, if no such
file any more a motion for reconsideration because it had entered into a possession is delivered, the mortgage should be recorded in the proper
compromise with Ong for the release of twenty-eight taxicabs. registry of deeds.
- Northern Motors, Inc. contends that as chattel mortgagee and unpaid - Historically, it is not proper that the contract of pledge, as one of the four real
vendor, it has the better right to the possession of the mortgaged taxicabs contracts of the jus civile (the others being mutuum, commodatum and
and that claims should be resolved in the case where the writ of execution depositum) should be absorbed by the chattel mortgage contract.
was issued and not in a separate action which allegedly would be an - Under section 4 of the Chattel Mortgage Law, it was held that the registration
ineffective remedy. of the chattel mortgage was tantamount to the symbolical delivery of the
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 possession of the mortgaged chattel to the mortgagee, a symbolical delivery
which was equivalent to actual delivery.
- The equity of redemption of the mortgagor will pass to the purchaser at an
execution sale (Tizon vs. Valdez and Morales, 48 Phil. 910, 914).
- Inasmuch as what remains to the mortgagor is only the equity of redemption,
it follows that the right of the judgment or attaching creditor, who purchased
the mortgaged chattel at an execution sale, is subordinate to the lien of the
mortgagee who has in his favor a valid chattel mortgage.
- Justice Moreland in a case observed that "no one can take the title away
from the mortgagee except the mortgagor and he only in the manner
prescribed by the mortgage itself and that the general statement is therefore
correct that after the execution of a chattel mortgage and its registry as
required by law, nobody can obtain an interest in that property adverse to
that of the mortgagee".
- That the chattel mortgagee has the symbolical possession and that he has
the preferential right to have physical possession is inferable from article 319
of the Revised Penal Code which penalizes any person who knowingly
removes the mortgaged chattel to any province or city other than the one in
which it was located at the time of the execution of the mortgage, without the
written consent of the mortgagee or his executors, administrators or assigns.
It penalizes also any mortgagor who sells or pledges the mortgaged chattel
without the consent of the mortgagee written on the back of the register of
deeds of the province where such chattel is located.
- The purpose of the Chattel Mortgage Law is to promote business and trade
and to give impetus to the country's economic development. In the business
world the chattel mortgage has greatly facilitated sales of goods and
merchandise.
- Sales of merchandise would be sluggish and insubstantial if the Chattel
Mortgage Law could not protect dealers against the defaults and
delinquencies of their customers and if the mortgagee's lien could be
nullified by the maneuvers of an unsecured judgment creditor of the chattel
mortgagor. It is not right nor just that the lien of a secured creditor should be
rendered nugatory by a wrongful execution engineered by an unsecured
creditor.

DISPOSITION
WHEREFORE, the decision of March 21, 1975 is reconsidered and set aside.
Respondent Sheriff is directed to deliver to Northern Motors, Inc. (a) the proceeds of
the execution sale held on December 18, 1974 for the eight taxicabs mortgaged to it
less the expenses of execution and (b) the seven taxicabs which were levied upon by
him and which are also mortgaged to the corporation.

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