G.R. No. L-40018 December 15, 1975
NORTHERN MOTORS, INC., petitioner, vs. HON. JORGE R. COQUIA, etc., et al., respondents, FILINVEST CREDIT CORPORATION, intervenor.

FACTS

Northern Motors, Inc. (NMI) was the chattel mortgagee of taxicabs owned by Manila Yellow Taxicab Co., Inc. (MYTCI). Honesto Ong, as assignee of a judgment creditor of MYTCI, caused the sheriff to levy upon and sell these mortgaged taxicabs at public auction to satisfy an unsecured judgment credit. NMI filed a third-party claim, asserting its superior lien as mortgagee. The lower court had cancelled the indemnity bond filed by NMI’s surety, Filwriters Guaranty Assurance Corporation, related to the case.
NMI and Ong filed separate motions for reconsideration of this Court’s prior resolution. Ong argued his levy was proper as the cabs were in the mortgagor’s possession and NMI had other remedies. NMI sought reinstatement of the cancelled surety bond and also prayed that the sheriff be ordered to deliver the entire auction proceeds to it without deducting execution expenses.

ISSUE

The primary issue is whether the levy by an unsecured judgment creditor on chattels already encumbered by a duly registered chattel mortgage is valid, and whose right to the property or its proceeds is superior.

RULING

The Court denied Ong’s motion and granted NMI’s partial reconsideration. The lien of a chattel mortgagee is superior to a subsequent levy by an unsecured judgment creditor of the mortgagor. The essence of a chattel mortgage is that the mortgaged property answers primarily for the mortgage debt. Registration of the mortgage constitutes binding notice to all persons, including judgment creditors. Therefore, Ong could only levy upon MYTCI’s equity of redemption, not the cabs themselves free of the encumbrance.
Purchasers at the execution sale acquired only the judgment debtor’s redeemable interest, subject to the existing mortgage lien, which was not extinguished by the sale. The sheriff’s levy was wrongful. Consequently, NMI, as mortgagee, is entitled to the entire proceeds of the auction as a substitute for the unrecoverable mortgaged chattels, without deduction for execution expenses. The lower court’s orders cancelling the indemnity bond were set aside, reinstating the bond for the protection of NMI’s interests.