Dee Hao Kim v. Busiang
REITERATIONFacts
The Antecedents: Dee Hao Kim, as assignee of a chattel mortgage (Exhibit A) executed by Leon Busiang on his merchandise, filed two separate actions. The first action (G.R. No. 34401) was against Leon Busiang and the assignee of his insolvency, Jose Sy Yok Peng, seeking recovery of P55,000 for goods disposed of without consent, except for a portion valued at P5,000 in the hands of the sheriff. The second action (G.R. No. 34402) was against Menzi & Co., Inc. and the Sheriff of Manila for P5,000, representing the value of goods attached by Menzi & Co., Inc., to which Dee Hao Kim claimed a preferred right as assignee of the mortgagee. The chattel mortgage and assignment were recorded. Procedural History: In the first case, the Court of First Instance rendered judgment in favor of Dee Hao Kim against Jose Sy Yok Peng, as assignee, for P55,649 with legal interest and costs. In the second case, the parties entered into a stipulation of facts. The trial court concluded that the attached merchandise was not the same as that covered by the mortgage, thus Menzi & Co., Inc.'s right as judgment creditor did not have preference over Dee Hao Kim's claim. The court also upheld the validity of the stipulation in paragraph 3 of the mortgage. Judgment was rendered in favor of Dee Hao Kim against Menzi & Co., Inc. for P4,212.24 with legal interest. The sheriff was absolved. The defendants appealed both judgments. The Petition: The defendants appealed, contending that the chattel mortgage was null and void due to the stipulation in paragraph 3 being contrary to Section 7 of Act No. 1508, and that the attached goods were not included in the mortgage.
Issue(s)
Whether the stipulation in paragraph 3 of the chattel mortgage, authorizing the mortgagor to sell the mortgaged chattels and replace them with similar goods subsequently acquired, is valid and binding under Act No. 1508. Whether the goods attached by Menzi & Co., Inc. were included in the chattels covered by the chattel mortgage.
Ruling
The Supreme Court affirmed the judgment of the lower court in both cases. It held that the stipulation in paragraph 3 of the chattel mortgage is valid and binding, and that the goods attached by Menzi & Co., Inc. were indeed included in the chattels covered by the mortgage. Therefore, Dee Hao Kim, as assignee of the chattel mortgage, had a superior right over Menzi & Co., Inc., as a subsequent attaching creditor.
Ratio Decidendi
On the validity of the stipulation in paragraph 3 of the chattel mortgage: The Court held that the stipulation in paragraph 3 of the chattel mortgage, which allowed the mortgagor to sell the mortgaged goods and replace them with similar goods subsequently acquired, is valid and binding. This ruling is consistent with the prevailing doctrine in various states of the Union and has been recently affirmed by this Court in Torres vs. Limjap. The Court found no contravention of the provisions of section 7 of Act No. 1508, as interpreted by the Court. On whether the attached goods were included in the mortgage: The Court agreed with the lower court that the goods attached by Menzi & Co., Inc. and subsequently sold in execution were included among the chattels covered by the mortgage Exhibit A. This finding was supported by a large preponderance of the evidence presented during the trial. The Court found no error in the lower court's determination of the facts concerning the identity of the mortgaged property and the attached property.
Main Doctrine
A stipulation in a chattel mortgage authorizing the mortgagor to sell the mortgaged goods and replace them with similar goods subsequently acquired is valid and binding. The rights of a mortgagee under a valid chattel mortgage, properly recorded, are superior to those of a subsequent attaching creditor.