G.R. No. 34401 & G.R. No. 34402 ; September 24, 1931
DEE HAO KIM, plaintiff-appellee, vs. LEON BUSIANG and JOSE SY YOK PENG, assignee of the Involuntary Insolvency of Leon Busiang (alias Sun Bio), defendants-appellants. ( G.R. No. 34401 )

DEE HAO KIM, plaintiff-appellee, vs. MENZI & CO., INC., and THE SHERIFF OF THE CITY OF MANILA, defendants-appellants. ( G.R. No. 34402 )

FACTS

In G.R. No. 34401 , plaintiff Dee Hao Kim sued Leon Busiang and the assignee of his involuntary insolvency, Jose Sy Yok Peng, to recover P55,000. Dee Hao Kim claimed to be the assignee of a chattel mortgage executed by Busiang on his merchandise, goods, and furniture, which were allegedly disposed of without his consent. The assignee defended that the mortgage and assignment were void for lack of consideration and fraud but presented no evidence. In G.R. No. 34402 , Dee Hao Kim sued Menzi & Co., Inc. and the Sheriff of Manila to recover P5,000 as damages, representing the value of goods attached by Menzi & Co. in a separate civil case against Busiang. Dee Hao Kim claimed a preferred right to these goods as assignee of the same chattel mortgage. Menzi & Co. attacked the mortgage’s validity, arguing a stipulation allowing the mortgagor to sell and replace mortgaged goods violated section 7 of Act No. 1508 (the Chattel Mortgage Law). The trial court ruled in favor of Dee Hao Kim in both cases, holding the mortgage valid and its coverage extending to the attached goods.

ISSUE

1. Whether the stipulation in the chattel mortgage authorizing the mortgagor to sell the mortgaged goods and replace them with similar subsequently acquired goods is valid under Act No. 1508 .
2. Whether the goods attached by Menzi & Co. were included in the chattels covered by the mortgage.

RULING

1. Yes. The Supreme Court, citing Torres vs. Limjap, held that a stipulation in a chattel mortgage permitting the mortgagor to sell the mortgaged goods and replace them with similar goods thereafter acquired is valid and binding. This is not contrary to section 7 of Act No. 1508 .
2. Yes. The Court affirmed the trial court’s finding, supported by a preponderance of evidence, that the goods attached and sold in execution by the sheriff were included among the chattels covered by the mortgage.
The consolidated judgment of the lower court was affirmed in full. Dee Hao Kim was entitled to recover from the insolvency assignee and from Menzi & Co. as a judgment creditor whose attachment was subordinate to the chattel mortgage. Costs were awarded against the appellants.

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