G.R. No. 31865 , February 28, 1930
MARIANO B. ARROYO, Provincial Sheriff of Iloilo, Plaintiff-Appellee, vs. MARIA CORAZON YU DE SANE, JOSE M. PO PAUCO, and PO SUY LIONG, Defendants-Appellants; PHILIPPINE NATIONAL BANK, Defendant-Appellee.

FACTS

The Provincial Sheriff of Iloilo filed an action of interpleader to resolve conflicting claims over the lorchas “China” and “Cuylim.” The claimants were Maria Corazon Yu de Sane (a judgment creditor who had attached the vessels), Jose M. Po Pauco (a mortgagee of the vessels), Po Suy Liong (another creditor), and the Philippine National Bank (PNB) (to whom Po Pauco had assigned his mortgage). The trial court held that: (1) the mortgage executed by the owner, Lim Ponzo Navigation Co., in favor of Po Pauco and later assigned to PNB was valid and legal, despite its delayed registration with the Bureau of Customs; (2) the vessels, being property of the Navigation Co., were validly attached by Yu de Sane, but such attachment and any execution sale would be subject to the existing mortgage lien in favor of PNB; (3) the sheriff acted illegally by releasing the vessels to Po Pauco while they were under the court’s custody in the interpleader case; and (4) on PNB’s cross-claim, it ordered Po Pauco to pay PNB his debt, secured by the mortgage on the vessels and other properties. Yu de Sane, Po Pauco, and Po Suy Liong appealed.

ISSUE

1. Between Maria Corazon Yu de Sane (judgment creditor) and the Philippine National Bank (assignee of the mortgage), who has a superior right to the lorchas?
2. Was the trial court’s judgment ordering the foreclosure of the mortgage in favor of PNB against Po Pauco validly rendered?

RULING

1. As between Yu de Sane and PNB, PNB has the superior claim. The mortgage, though registered with the Customs Office only in March 1929 (after Yu de Sane’s attachment in December 1928), was deemed constructively registered. The delay was due to the Collector of Customs’ doubts about the applicability of Act No. 3324 to a mortgage executed in 1918 in favor of a Chinese subject, which was not the fault of PNB. Therefore, PNB’s mortgage lien, to the extent of P20,000, is prior to Yu de Sane’s attachment lien.
2. The judgment ordering Po Pauco to pay PNB and foreclosing the mortgage is set aside and the case remanded for further proceedings. The trial court erred in ordering the foreclosure of the mortgage against Po Pauco on the pleadings in the interpleader case. The record did not show that Po Pauco was properly summoned or given an opportunity to present his defenses in a foreclosure proceeding. This is a jurisdictional defect that can be raised for the first time on appeal. The proper procedure for foreclosure must be followed.

The appealed judgment is AFFIRMED in part (regarding the superiority of PNB’s mortgage over Yu de Sane’s claim) and SET ASIDE in part (regarding the foreclosure judgment against Po Pauco). The case is remanded to the trial court for further proceedings. No costs.