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Q: On September 13, 1965, A and B, spouses, filed a complaint against X and Y,

spouses, for recovery of P100,000 based on a promissory note. Upon motion of the
former, a writ of preliminary attachment was issued on September 14, 1965 and a
notice of levy of said attachment on a house and lot belonging to the latter was duly
registered. In addition, several personal properties of X and Y were attached. On
September 30, 1965, Y, without consent or authority from her husband X, executed
a chamttel mortgage over said personal properties in favour C as security for a loan
of P20,000. Said mortgage was registered on Oct.. 1, 1965. On Nov. 2, 1965, C filed
a third party claim over said attached over personal properties. Will the c of
themlaim prosper? Reasons.

A: No. Under Sec 14 of Rule 57 of the RoC, a third party claimant to a property
levied upon by a writ of attachment must show that he has title thereto or right to
the possession thereof. This excludes a chattel mortgage because a chattel
mortgage is merely security for a loan and does not transfer title of the property
mortgaged to the chattel mortgage. Neither is a chattel mortgagee entitle to the
possession of the property upon the execution of the chattel mortgage for otherwise
the contract becomes a pledge and ceases to be a chattel mortgage. By chattel
mortgage, personal property is recorded in the Chattel Mortgage Register as a
security for the performance of an obligation. If the movable, instead of being
recorded, is delivered to the creditor or a third person, the contract is a pledge and
not a chattel mortgage.

Moreover, the chattel mortgage is of doubtful validity since only the husband, as
administrator of the conjugal assets, has the power to dispose the same, and the
wife cannot bin the conjugal partnership without the husbands consent, except in
cases provided by law.

Furthermore, the chattel mortgage may be rescinded on the ground that it refers to
things under litigation and entered into by the debtor without the knowledge and
approval of the litigants or of competent judicial authority or that the same was
executed in fraud of creditors when the latter cannot in any other manner collect
the claim from them. (Serra v Rodriguez)

Q: X Taxicab Co. purchased by instalment ten Holden Toranas from A Co. at P28,500
per car. It paid P1000 as downpayment security for the promissory notes covering
the balance of the purchase price. Subsequently, B obtained a judgment for P50,000
against the taxicab company, and in order to satisfy the judgment credit, the sheriff
levied upon the ten Toranas and shielded by an indemnity bond posted by B,
immediately took possession of them. A Co. then filed as third party claim.

May A.Co qualify as a third party claimant within the meaning of Section 14 of Rule
57 of the Revised Rules of Court, or is the Serra ruling applicable?
A: No, in Northern Motors, Inc v Coquia, the SC, declared that even before there is a
breach of the chattel mortgege, the mortgagee may file a third party claim under
Sec. 14 of Rule 57 of the Rules of Court for the following reasons:

1. The recording of the mortgage in the Chattel Mortgage Register gives the
chattel mortgagee the symbolical possession of the mortgaged chattel. Such
recording is equivalent to the actual delivery of possession to the creditor.
Hence, under the Rules, the mortgagee is a person who has a right of
possession over the mortgaged chattel.

2. Besides, the Chattel Mortgage Law, in relation to Art. 319 of the RPC,
contemplates that the mortgagor should always have the physical possession
of the mortgaged chattel until there is a breach, in which case the mortgagee
is then entitled to take possession of the chattel so that the mortgage can be
foreclosed. Hence, what a judgement creditor of the chattel mortgage can
attach is only the equity or right of redemption and, to effectuate the
attachment levy, it is not a requisite that the mortgage chattel itself be
seized by the sheriff.

It is therefore, clear that the sheriff in the above problem wrongfully levied
upon the mortgaged taxicabs and erroneously took possession of them.

Q: Suppose that in the above problems, not only did the sheriff wrongfully levy upon
the mortgaged taxicabs and erroneously took possession of them, but the court
even dissolved the indemnity bond posted by B, as a consequence of which the ten
Toranas were sold at public auction to B as highest bidder, what would be the effect
upon the rights of A.Co.?

A: A Company still has a superior, preferential and paramount right to have

possession of the mortgaged taxicabs and to claim the proceeds of the execution
sale. (Bachrach v Motors Co. v Summers)

The Sheriff wrongfully levied upon the mortgaged taxicabs and erroneously took
possession of them. He could have levied only upon the right or equity of
redemption pertaining to the taxicab company as chattel mortgagor and mortgagor
and judgment debtor, because that was the only leviable or attachable property
right of the company in the mortgaged taxicabs. Therefore, what the sheriff could
have sold at public auction was merely the mortgagors right or equity of

Cabral v Evangelista: the judgment creditor of the chattel mortgagor who bought
the mortgaged chattels at the execution sale is solidarily liable with the mortgagor
to the chattel mortgagee for the mortgaged obligation, less net proceeds of the
sale. (Northern Motors Inc, Coquia)
Q: A bought a bus from X Co. by instalments. to secure the payment of the unpaid
instalments, he executed a chattel mortgage on the bus in favour of the company.
This mortgage was duly registered in the Chattel mortgage Registry. Subsequently,
A sold the bus to B. This sale was registered in the Land Transportation Commission.
Later, the bus, which was being used by B as a passenger truck. Fell into a ditch
because of overspeeding, thereby causing death to two of the passengers. A
judgement for damages was then rendered in favour of the legal heirs of the two
passengers against B. By writ of attachment issued by the court, the bus was levied
upon. X Co. subsequently filed a third party claim to the bus. Who has a preferred
right to the bus the company or the legal heirs of the vehicular accident victims?

A: The legal heirs of the vehicular accident victims have a preferred right to the bus
under attachment. As the SC has repeatedly held: A mortgage in order to affect
third persons should not only be registered in the Chattel Mortgage Registry, but the
same should be also recorded in the Land Transportation Commission as required by
Sec. 6 Land Transportation and Traffic Code.

In the instant case, the company did not record in the Land Transportation
Commission the mortgage executed in it favour. Such being the case, the mortgage
is ineffective as far as the legal heirs of the victims of the vehicular accident are
concerned. Its right, therefore, in the bus cannot prevail over that of the latter who
may now be considered innocent purchasers having derived their right from an
innocent purchaser, the bus operator B, who had recorded her purchase in the Land
Transportation Commission. (Aleman v De Calera)

Q: On October 27, 1978, Acme Shoe Corp. obtained a loan of P3 million from
Producers Bank of the Philippines. To secure its payment, Acme executed a chattel
mortgage, subsequent promissory note or notes either as renewal of the former
note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations. The mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without the necessity of
executing a new contract. This loan was paid. On January 10 and 11, 1984 the
bank granted Acme a new loan of P1 million that was not settled, prompting the
bank to institute foreclosure proceedings. Acme sought to enjoin the bank from
foreclosing but the regional trial court ruled that the P1m loan was covered by the
chattel mortgage, is the 1m loan covered by the chattel mortgage previously
executed by Acme?

A: the SC held in the case of Acme Shoes, Rubber and Plastic Corporation v CA, that
while a pledge, real estate mortgage, or antichresis may secure after in incurred
obligations so long as these future debts are accurately described, a chattel
mortgage, however can only recover obligations existing at the time the mortgage
is constituted. Although a promise expressed in a chattel mortgage to include debts
that are yet to be contracted can be a binding commitment that can be compelled
upon, the security itself, however, does not come into existence or arise until after a
chattel mortgage agreement covering the newly contracted debt is executed either
by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law.

Sec. 3 of the Chattel Mortgage Law requires that the parties must execute an oath
that the mortgage is made for the purpose of securing the obligation specified in
the conditions thereof, and for no other purpose, and that the same is a just and
valid obligation, and one not entered into for the purpose of fraud.

The debt referred to in the law must be a current one, not an obligation that is
merely contemplated. In this case, the only obligation specified in the chattel
mortgage was the P3-million loan that was already paid. By virtue of Sec. 3 of the
Chattel mortgage law, the payment of the obligation automatically rendered the
chattel mortgage void or terminated. Hence, there was no longer any chattel
mortgage that could cover the new loans that were concluded thereafter.