Tizon v. Valdez
REITERATIONFacts
1. The Antecedents: This case concerns a dispute over ownership of personal property, specifically a steam engine and boiler. The property initially belonged to Leon Sibal, Sr., who mortgaged it to Emiliano J. Valdez on September 14, 1920. Subsequently, Sibal mortgaged the same chattels to Domiciano Tizon on May 18, 1921. Both mortgages were duly registered. 2. Procedural History: Valdez initiated a civil action against Sibal to recover the debt secured by his mortgage. During this action, Valdez obtained a writ of attachment, which was levied upon the property in question. Tizon intervened by providing a counter bond to lift the attachment. Valdez eventually obtained a judgment against Sibal and, upon this judgment, caused an execution to be levied on the same property. Meanwhile, Tizon foreclosed his second mortgage, purchased the property at the foreclosure sale, and took possession. When the sheriff levied upon the property under Valdez's execution, Tizon filed a claim of ownership. The sheriff, indemnified by Valdez, retained the property and sold it at an execution sale, with Valdez as the purchaser. Tizon then filed the present action seeking a declaration of ownership and damages. 3. The Petition: The appellant, Domiciano Tizon, argues that Valdez, by electing to pursue an ordinary civil action and obtain an attachment and execution against the mortgaged property instead of foreclosing his mortgage, waived his mortgage lien. Tizon contends that this waiver elevated his second mortgage to a superior position. The core of Tizon's argument is that the remedies of civil action and extrajudicial foreclosure are inconsistent, and that the attachment lien is incompatible with the mortgage lien, thereby extinguishing Valdez's priority.
Issue(s)
Whether the institution of a civil action by Valdez, including the suing out of an attachment and execution, constituted a waiver of his rights under the first chattel mortgage, thereby elevating Tizon's second mortgage to priority. Whether the attachment lien is incompatible with the lien of the chattel mortgage. Whether the second mortgagee, after foreclosing his mortgage, can prevail against the first mortgagee in possession.
Ruling
The Supreme Court affirmed the judgment of the Court of First Instance, absolving the defendants from the complaint. The Court held that the plaintiff-appellant (Tizon) cannot maintain an action to recover the property.
Ratio Decidendi
On the issue of waiver of lien by instituting a civil action and levying attachment/execution: The Court held that the institution of a civil action by Valdez to recover the mortgage debt, and the subsequent levying of attachment and execution upon the mortgaged property, did not constitute a waiver of his rights under the first chattel mortgage. The Court distinguished this jurisdiction's rules from certain American jurisdictions that hold a mortgage creditor loses his lien by attaching the property, noting that such a doctrine rests on technical common-law rules regarding legal title and the non-attachability of the equity of redemption, neither of which prevails in the Philippines. The Court reiterated its settled doctrine that a chattel mortgage creates only a lien in favor of the creditor, and a writ of execution reaches both legal and equitable interests, including the mortgagor's equity of redemption. The Court also addressed the argument that the affidavit required for attachment, stating no other sufficient security exists, constitutes an election to waive the mortgage lien. This was deemed invalid because the creditor only needs to swear to no sufficient other security, and more importantly, this court has held that the prohibition against attachment when other sufficient security exists does not apply when the attachment is levied upon the property constituting the security itself. Therefore, neither the attachment nor the execution sale destroyed the prior mortgage lien as between the parties. On the incompatibility of attachment lien with mortgage lien: The Court found no sound reason to hold that the suing out of an attachment by Valdez destroyed his prior mortgage lien. While the affidavit for attachment requires the creditor to state he has no other sufficient security, this does not preclude attachment on the very property that serves as security. The Court cited its own ruling in Pepperell vs. Taylor (5 Phil., 536) that the prohibition against attachment when other sufficient security exists does not apply when the attachment is levied upon the property constituting the security in an action to recover the debt so secured. Thus, the attachment lien did not render the mortgage lien invalid or inferior. On the rights of a second mortgagee against a first mortgagee in possession: The Court explained that after a first mortgage is executed, the mortgagor retains only a mere right of redemption, and only this right passes to a second mortgagee. Even if the second mortgagee forecloses his mortgage, the purchaser acquires no more than the right to redeem from the first mortgagee. In this case, Valdez, as the first mortgagee, was entitled to possession for the purpose of foreclosing his mortgage, as his lien subsisted unaffected by the civil action or execution sale. Since Valdez was entitled to possession, Tizon, the second mortgagee and purchaser at his own foreclosure sale, could not maintain an action to recover the property. Tizon's remedy was limited to the right to redeem by paying off the debt secured by the first mortgage, which was not the nature of the action filed.
Main Doctrine
A senior chattel mortgagee does not waive the priority of his lien by recovering a judgment on the debt secured and causing execution to be levied on the mortgaged chattels, nor does the issuance of an attachment, under certain circumstances, destroy the prior mortgage lien.