G.R. No. L-40018 December 15, 1975 Northern Motors, Inc.

as the "ransom" for the

taxicabs levied upon by the sheriff at the behest of
NORTHERN MOTORS, INC., petitioner, Honesto Ong.
vs.
HON. JORGE R. COQUIA, etc., et al., Honesto Ong's theory that Manila Yellow Taxicab's
respondents, FILINVEST CREDIT breach of the chattel mortgage should not affect him
CORPORATION, intervenor. because he is not privy of such contract is
untenable. The registration of the chattel mortgage
RESOLUTION is an effective and binding notice to him of its
existence (Ong Liong Tiak vs. Luneta Motor
AQUINO, J.: Company, 66 Phil 459). The mortgage creates a real
right (derecho real, jus in re or jus ad rem, XI
Respondent Honesto Ong and City Sheriff of Manila Enciclopedia Juridica Española 294) or a lien which,
filed a motion for the reconsideration of this Court's being recorded, follows the chattel wherever it goes.
resolution of August 29, 1975. In that resolution, it
was held that the lien of Northern Motors, Inc., as Honesto Ong's contention that Northern Motors,
chattel mortgagee, over certain taxicabs is superior Inc., was negligent because it did not sue the sheriff
to the levy made on the said cabs by Honesto Ong, within the 120-day period provided for in section 17,
the assignee of the unsecured judgment creditor of Rule 39 of the Rules of Court is not correct. Such
the chattel mortgagor, Manila Yellow Taxicab Co., action was filed on April 14, 1975 in the Court of First
Inc. Instance of Rizal, Pasig Branch XIII, in Civil Case
No. 21065 entitled "Northern Motors, Inc. vs.
On the other hand, Northern Motors, Inc. in its Filwriters Guaranty Assurance Corporation, et al.".
motion for the partial reconsideration of the same However, instead of Honesto Ong, his assignor,
August 29 resolution, prayed for the reversal of the Tropical Commercial Corporation, was impleaded
lower court's orders cancelling the bond filed by as a defendant therein. That might explain his
Filwriters Guaranty Assurance Corporation. unawareness of the pendency of such action.
Northern Motors, Inc. further prayed that the sheriff
should be required to deliver to it the proceeds of the The other arguments of Honesto Ong in his motion
execution sale of the mortgaged taxicabs without may be boiled down to the proposition that the levy
deducting the expenses of execution. made by mortgagor's judgment creditor against the
chattel mortgagor should prevail over the chattel
1. Respondents' motion for reconsideration. — mortgage credit. That proposition is devoid of any
Honesto Ong in his motion invokes his supposed legal sanction and is glaringly contrary to the nature
"legal and equity status" vis-a-vis the mortgaged of a chattel mortgage. To uphold that contention is
taxicabs. He contends that his only recourse was to to destroy the essence of chattel mortgage as a
levy upon the taxicabs which were in the possession paramount encumbrance on the mortgaged chattel.
of the judgment debtor, Manila Yellow Taxicab Co.
Inc., whereas, Northern Motors, Inc., as unpaid Respondent Ong admits "that the mortgagee's right
seller and mortgagee, "has still an independent legal to the mortgaged property is superior to that of the
remedy" against the mortgagor for the recovery of judgment creditor". But he contends that the rights
the unpaid balance of the price. of the purchasers of the cars at the execution sale
should be respected. He reasons out they were not
That contention is not a justification for setting aside parties to the mortgage and that they acquired the
the holding that Ong had no right to levy upon the cars prior to the mortgagee's assertion of its rights
mortgaged taxicabs and that he could have levied thereto.
only upon the mortgagor's equity of redemption. The
essence of the chattel mortgage is that the That contention is not well-taken. The third-party
mortgaged chattels should answer for the mortgage claim filed by Northern Motors, Inc. should have
credit and not for the judgment credit of the alerted the purchasers to the risk which they were
mortgagor's unsecured creditor. The mortgagee is taking when they took part in the auction sale.
not obligated to file an "independent action" for the Moreover, at an execution sale the buyers acquire
enforcement of his credit. To require him to do so only the right of the judgment debtor which in this
would be a nullification of his lien and would defeat case was a mere right or equity of redemption. The
the purpose of the chattel mortgage which is to give sale did not extinguish the pre-existing mortgage
him preference over the mortgaged chattels for the lien (See sec. 25, Rule 39, Rules of Court;
satisfaction of his credit. (See art. 2087, Civil Code). Potenciano vs. Dineros and Provincial Sheriff of
Rizal, 97 Phil, 196; Lara vs. Bayona, 97 Phil. 951;
It is relevant to note that intervenor Filinvest Credit Hacbang vs. Leyte Autobus Co., Inc., L-7907, May
Corporation, the assignee of a portion of the chattel 30, 1963, 8 SCRA 103).
mortgage credit, realized that to vindicate its claim
by independent action would be illusory. For that Some arguments adduced by Honesto Ong in his
pragmatic reason, it was constrained to enter into a motion were intended to protect the interests of the
compromise with Honesto Ong by agreeing to pay mortgagor, Manila Yellow Taxicab Co., Inc., which
him P145,000. That amount was characterized by he erroneously characterized as a "respondent" (it is
not a respondent in this case). Ong argues that the surety be ordered to pay to it damages in the event
proceeds of the execution sale, which was held on that the eight taxicabs could not be surrendered to
December 18, 1974, should be delivered to Northern the mortgagee.
Motors, Inc. "only to such extent as has exceeded
the amount paid by respondent Manila Yellow Northern Motors, Inc., in its instant motion for partial
Taxicab to" Northern Motors, Inc. That argument is reconsideration, reiterates its petition for the
not clear. Ong probably means that the installments reinstatement of the bond filed by Filwriters
already paid by Manila Yellow Taxicab Co., Inc. to Guaranty Assurance Corporation. If the said bond is
Northern Motors, Inc. should be deducted from the not reinstated or if the lower court's orders cancelling
proceeds of the execution sale. If that is the point it are allowed to stand, the aforementioned Civil
which Ong is trying to put across, and it is something Cases Nos. 20536 and 21065 would be baseless or
which does not directly affect him, then, that matter futile actions against the surety. That injustice
should be raised by Manila Yellow Taxicab Co., Inc. should be corrected. Hence, our resolution of
in the replevin case, Civil Case No. 20536 of the August 29, 1975, insofar as it did not disturb the
Court of First Instance of Rizal, Pasig Branch VI, lower court's orders cancelling the indemnity bonds,
entitled "Northern Motors, Inc. versus Manila Yellow should be reconsidered.
Taxicab Co., Inc. et al."
Northern Motors. Inc. further prays for the
Ong's contention, that the writ of execution, which reconsideration of that portion of our resolution
was enforced against the seven taxicabs (whose allowing the sheriff to deduct expenses from the
sale at public auction was stopped) should have proceeds of the execution sale for the eight taxicabs
precedence over the mortgage lien, cannot be which sale was held on December 18, 1974. It
sustained. Those cabs cannot be sold at an argues that Honesto Ong or Manila Yellow Taxicab
execution sale because, as explained in the Co., Inc. should shoulder such expenses of
resolution under reconsideration, the levy thereon execution.
was wrongful.
We already held that the execution was not justified
The motion for reconsideration of Ong and the and that Northern Motors, Inc., as mortgagee, was
sheriff should be denied. entitled to the possession of the eight taxicabs.
Those cabs should not have been levied upon and
2. Petitioners motion for partial reconsideration. — sold at public auction to satisfy the judgment credit
The lower court in its order of January 3, 1975 which was inferior to the chattel mortgage. Since the
cancelled the indemnity bonds for P480,000 filed on cabs could no longer be recovered because
December 18, 1975 by Filwriters Guaranty apparently they had been transferred to persons
Assurance Corporation for Tropical Commercial whose addresses are unknown (see par. 12, page
Co., Inc. The bonds were cancelled without notice to 4, Annex B of motion), the proceeds of the execution
Northern Motors, Inc. as third-party claimant. sale may be regarded as a partial substitute for the
unrecovarable cabs (See arts. 1189[2] and 1269,
We already held that the cancellation of the bonds Civil Code; Urrutia & Co. vs. Baco River Plantation
constituted a grave abuse of discretion but we Co., 26 Phil. 632). Northern Motors, Inc. is entitled
previously denied petitioner's prayer for the to the entire proceeds without deduction of the
reinstatement of the bonds because Northern expenses of execution.
Motors Inc. had given the impression that it had not
filed any action for damages against the sheriff WHEREFORE, private respondents' motion for
within the one hundred twenty-day period reconsideration is denied and petitioner's motion for
contemplated in Section 17, Rule 39 of the Rules of partial reconsideration is granted. The resolution of
Court. August 29, 1975 is modified in the sense that the
lower court's orders of January 3 and 6, 1975,
As already noted above, the truth is that such an cancelling the indemnity bond for P240,000 (as
action for damages was filed on April 14, 1975 reaffirmed in its order of January 17, 1975), are set
against the surety, the sheriff and the judgment aside. The said indemnity bond for P240,000 is
creditor in Civil Case No. 21065 of the Court of First regarded as in full force and Respondent Sheriff of
Instance of Rizal, Pasig Branch XIII. The action Manila is further directed to deliver to Northern
involves the indemnity bond for P240,000 (No. 0032 Motors, Inc. the entire proceeds of the execution
posted on December 18, 1974). sale held on December 18, 1974 for the eight
taxicabs which were mortgaged to that firm.
It may also be noted that in a prior case, Civil Case
No. 20536 of the Court of First Instance of Rizal at SO ORDERED.
Pasig, entitled "Northern Motors, Inc. vs. Manila
Yellow Taxicab Co., Inc., et al.", a replevin case Makalintal, C.J., Teehankee, Makasiar, Antonio,
(where an amended complaint dated January 15, Esguerra, Muñoz Palma, Concepcion Jr., and
1975 was filed), the surety, Filwriters Guaranty Martin, JJ., concur.
Assurance Corporation, was impleaded as a
defendant by reason of its bond for P240,000. Castro, Fernando, and Barredo JJ., took no part.
Northern Motors, Inc. in that case prayed that the