GR 42091; (November, 1935) (Digest)
G.R. No. 42091 . November 2, 1935.
GONZALO CHUA GUAN, plaintiff-appellant, vs. SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G. SOTTO, and EMILIO VERGARA, as president, secretary and treasurer respectively of the same, defendants-appellees.
FACTS
Gonzalo H. Co Toco mortgaged 5,894 shares of stock in Samahang Magsasaka, Inc. to Chua Chiu via a chattel mortgage. The mortgage was registered with the Register of Deeds of Manila. Chua Chiu later assigned his rights to the mortgage to Gonzalo Chua Guan. Upon Co Toco’s default, Chua Guan foreclosed the mortgage, purchased the shares at a sheriff’s auction, and demanded the corporation to cancel the old certificates and issue new ones in his name. The corporation refused because, prior to Chua Guan’s demand, eight other creditors had obtained and served writs of attachment on the same shares. These attachments were noted on the corporation’s books before it received notice of the mortgage. The parties submitted the case on a stipulation admitting all allegations in the complaint and special defenses.
ISSUE
Did the registration of the chattel mortgage on the shares of stock give constructive notice to the subsequent attaching creditors, thereby giving the mortgage priority over the attachments?
RULING
No. The chattel mortgage does not have priority over the writs of attachment. The registration of a chattel mortgage on shares of stock in the Registry of Deeds does not constitute constructive notice to third parties. The Court noted the inherent difficulties in applying the Chattel Mortgage Law to shares of stock, describing shares as intangible property for which the chattel mortgage mechanism is ill-suited. Following the precedent in Monserrat vs. Ceron, registration of such a mortgage in the corporate books is legally ineffective. The only secure method to hypothecate shares is for the creditor to obtain an assignment and delivery of the certificate and have the legal title transferred on the corporate books. Since the attaching creditors’ claims were noted on the corporate books before the corporation received notice of the mortgage, and the mortgage registration did not provide constructive notice, the attachments have priority. The judgment denying the writ of mandamus was affirmed.
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