G.R. No. 47467 ; March 14, 1941
OSAKA BOEKI KAISHA, INC., plaintiff-appellant, vs. LEONARDO GUISON, JOSE CASIMIRO, in his capacity as Sheriff of Manila, and LUZON SURETY CO., INC., defendants-appellees.

FACTS

The plaintiff-appellant, Osaka Boeki Kaisha, Inc., filed a complaint in the Court of First Instance of Manila against defendants-appellees Leonardo Guison and Luzon Surety Co., Inc. (with Guison as principal debtor and Luzon Surety as his surety). Osaka Boeki claimed to be a chattel mortgage creditor of Philippine Fish Co. for the unpaid balance of P3,540 from the sale of a Kinoshita semi-diesel engine. This engine was originally installed in the vessel “No. 2-Palawan,” later known as the motor boat M/B “Manila X,” which Philippine Fish Co. had purchased from its previous owners with Osaka Boeki’s consent.
The defendants were sued because the Sheriff of Manila sold the said engine at public auction under a writ of execution issued in Civil Case No. 50186, entitled “Leonardo Guison, plaintiff, vs. Philippine Fish Co., defendant.” In that prior case, Guison had obtained a judgment against Philippine Fish Co. for damages arising from a marine collision involving the M/B “Manila X.”
The parties stipulated to the following key facts:
1. Guison’s complaint and the judgment in Civil Case No. 50186 were duly registered in the Book of Registry of Vessels in the Bureau of Customs, Manila, where the M/B “Manila X” was registered.
2. Osaka Boeki’s chattel mortgage on the engine (executed by Philippine Fish Co. on August 6, 1936) was duly registered with the Register of Deeds of Manila but was not registered in the Book of Registry of Vessels in the Bureau of Customs.
3. Upon being informed of the levy on the M/B “Manila X,” Osaka Boeki filed a third-party claim with the Sheriff based on its chattel mortgage.
4. To proceed with the sale, Guison filed a counterbond with Luzon Surety Co., Inc., after which the Sheriff sold the M/B “Manila X” at public auction despite Osaka Boeki’s claim.
The trial court dismissed Osaka Boeki’s complaint, ruling that its right as a chattel mortgage creditor under the Chattel Mortgage Law was not superior or preferable to Guison’s right as a judgment creditor who had levied upon the vessel, especially since the chattel mortgage was not registered in the customs registry. Osaka Boeki appealed.

ISSUE

Whether the chattel mortgage right of Osaka Boeki Kaisha, Inc., over the engine installed in the M/B “Manila X,” is superior or preferable to the right of Leonardo Guison as a judgment creditor who caused the levy and sale of the vessel, considering that the chattel mortgage was registered only with the Register of Deeds and not in the Book of Registry of Vessels of the Bureau of Customs.

RULING

The Supreme Court AFFIRMED the trial court’s decision, holding that the right of defendant-appellee Leonardo Guison is undoubtedly preferable and superior to that of plaintiff-appellant Osaka Boeki Kaisha, Inc.
The Court ruled that the chattel mortgage contract between Osaka Boeki and Philippine Fish Co. only has obligatory force between the parties themselves because it was not inscribed in the Book of Registry of Vessels of the Bureau of Customs nor was any mention of it made in that Registry. Consequently, it does not obligate or diminish in the least the right of Guison as a judgment creditor. The registration of the vessel and the judgment in the customs registry is what governs and creates rights against third parties concerning the vessel as a whole, including its engine once installed. The engine, being installed and part of the vessel, was subject to the levy and execution based on the customs registry. The Court found no error in the trial court’s judgment and dismissed the appeal with costs against the appellant.