G.R. No. 44552 . November 7, 1938.

ONG LIONG TIAK, plaintiff-appellant, vs. LUNETA MOTOR COMPANY and the SHERIFF OF MANILA, defendant-appellees.

FACTS

S. Arellano Choa Siong purchased an automobile from Luneta Motor Company, executing a chattel mortgage to secure payment of promissory notes and “*any other indebtedness of the mortgagor in favor of the mortgagee incurred in any other manner whatever*.” He later acted as surety for Jeronimo Angeles’ debt to Macondray & Co., Inc. Macondray assigned this credit to Luneta Motor Company. After Choa Siong paid the last promissory note for the car but while the surety debt remained unpaid, Luneta Motor Company refused to cancel the mortgage and foreclosed it, causing the sheriff to attach the automobile. By then, Choa Siong had already sold the car to Ong Liong Tiak, who sought to annul the attachment and recover damages.

ISSUE

Whether the chattel mortgage lien continued to exist and was enforceable against the automobile after its sale to Ong Liong Tiak, despite the payment of the primary promissory notes, due to the unpaid surety obligation covered by the mortgage’s “dragnet” clause.

RULING

Yes. The Supreme Court affirmed the lower court’s decision. The chattel mortgage’s explicit clause secured not only the promissory notes but also “any other indebtedness” of the mortgagor to the mortgagee. The unpaid surety obligation assigned to Luneta Motor Company fell under this clause. Therefore, the mortgage lien was not extinguished upon payment of the notes because another secured obligation remained outstanding. The mortgage, duly registered, was binding on subsequent purchasers like Ong Liong Tiak, who is presumed to have known of the lien and acquired the car subject to it.

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