Allied Banking Corp. v. Salas
REITERATIONFacts
1. The Antecedents: The underlying dispute concerns printing machinery and equipment. Allied Banking Corporation's predecessor, General Bank and Trust Company, granted a time loan to Gencor Marketing, Inc., secured by a chattel mortgage over specific printing equipment. Gencor Marketing, Inc., through its President, Dr. Clarencio S. Yujuico, executed the mortgage, which was duly recorded. Subsequently, Gencor failed to pay its obligation. Meanwhile, Metropolitan Bank and Trust Company filed a separate action for a sum of money against Clarencio Yujuico and Jesus Yujuico, obtaining a writ of preliminary attachment over the same printing equipment. 2. Procedural History: Allied Banking Corporation, having taken over the affairs of General Bank and Trust Company, foreclosed the chattel mortgage and scheduled a public auction of the mortgaged properties. Prior to this auction, Metropolitan Bank and Trust Company, having previously attached the same properties in its separate civil case, filed an urgent motion to enjoin the Quezon City Sheriff from proceeding with the sale. The respondent judge, Emilio V. Salas, presiding over the Court of First Instance of Rizal, issued an order restraining the sheriff from conducting the auction sale, finding that the properties belonged to Clarencio Yujuico and not Gencor Marketing, Inc., and thus Gencor Marketing, Inc. had no authority to mortgage them. 3. The Petition: Allied Banking Corporation filed a petition for certiorari, prohibition, and mandamus with the Supreme Court, assailing the respondent judge's order. The petitioner argued that the respondent judge lacked jurisdiction over the petitioner and the City Sheriff of Quezon City, and acted in excess of jurisdiction and with grave abuse of discretion. The petitioner contended that the validity of the chattel mortgage was not an issue in the underlying sum of money case and that the mortgage, having been registered prior to the attachment, created a superior lien. The petition sought to annul the restraining order and allow the auction sale to proceed.
Issue(s)
Whether the respondent judge acted without and/or in excess of jurisdiction and/or with grave abuse of discretion amounting to lack of jurisdiction in issuing the order enjoining the public auction sale. Whether the chattel mortgage lien of petitioner is superior to the levy on attachment made by private respondent. Whether the registration of the chattel mortgage prior to the writ of attachment is a significant factor in determining priority of claims.
Ruling
The petition is GRANTED. The order dated July 27, 1978, of the respondent judge restraining the Sheriff of Quezon City from selling at public auction the printing machineries and equipment is annulled and set aside. Respondent judge is ordered to desist from further interfering with petitioner's property rights and to allow the Sheriff of Quezon City to proceed with the auction sale.
Ratio Decidendi
On the issue of jurisdiction and the propriety of the injunction: The Court found that while the counsel for petitioner entered a special appearance, the central thrust of the problem was whether the respondent judge could validly enjoin the sale of extrajudicially foreclosed properties. The respondent judge's order was based on the admission that the properties belonged to Clarencio Yujuico and not Gencor Marketing, Inc. However, the Court noted that Clarencio Yujuico, as president of Gencor Marketing, Inc., signed the promissory note and the board resolution authorizing the mortgage, thereby ratifying the chattel mortgage. The respondent judge's intervention in enjoining the sale of properties subject to a duly registered chattel mortgage, especially when the issue of ownership was intertwined with the validity of the mortgage, was deemed an overreach of jurisdiction, particularly when the petitioner's right to extrajudicial foreclosure was already initiated. On the superiority of the chattel mortgage lien over the levy on attachment: The Court held that the chattel mortgage, having been registered on February 7, 1974, predated the writ of attachment issued on April 22, 1977. The registration of the chattel mortgage constituted an effective and binding notice to other creditors of its existence and created a real right or lien that follows the chattel. Therefore, the private respondent, as an attaching creditor, acquired the properties subject to petitioner's mortgage lien as it existed at the time of the attachment. The lien of the chattel mortgage was superior to the levy on attachment. On the significance of registration and priority of liens: The Court emphasized that the registration of the chattel mortgage more than three years prior to the writ of attachment was a significant factor. This registration served as notice to all creditors, including the private respondent, of the existence of the mortgage. The lien created by the chattel mortgage attaches to the property and follows it. Consequently, the attaching creditor acquired the property subject to the existing lien. The rights of those who acquire the property should not be superior to the creditor with a validly executed mortgage. What could be attached by the private respondent was merely the equity or right of redemption of the mortgagor.
Main Doctrine
A duly registered chattel mortgage lien, established in good faith and without fraud, takes precedence over a subsequent levy on attachment, even if the attaching creditor is unaware of the prior mortgage. The attaching creditor can only attach the mortgagor's equity of redemption.