G.R. No. L-5577
G.R. No. L-5577
J. W. MEYERS, plaintiff-appellant,
vs.
WILLIAM THEIN, ET AL., defendants-appellees.
ARELLANO, C.J.:
William Thein is indebted to J. W. Meyers for a loan in the sum of P1,000. As security for payment of
the loan, William Thein mortgaged to J. W. Meyers certain furniture owned by him which constitutes
the fittings of a saloon situated in Calle Real, No. 124, in the district of Intramuros, Manila, to which
effect a public instrument was executed on the 20th of June, 1908.
The premises at No. 124 Calle Real, district of intramuros, are owned by Flora Broto, who leased the
place to William Thein. The latter opened a saloon therein, of which the said furniture formed a part.
William Thein, as lessee, was indebted to the lessor, Flora Broto in the sum of P215, for rent due for
the months of June and July, 1908.
In the months of June and July, 1908, the furniture in questions was in the place leased by William
Thein, and, at the request of J.W. Meyers, was removed therefrom by the sheriff, notwithstanding
the protest of Flora Broto, the lessor.
The said furniture was sold by the sheriff, and the proceeds of the sale amounted to P972.30.
Preference with respect to payments to be made from the above sum is claimed on the one hand by
J.W. Meyers, as mortgage creditor, or rather as pledgee under contract, and on the other by Flora
Broto, as mortgage creditor by operation of the law.
The contract of mortgage, or rather of pledge, invoke by J.W. Meyers, appears in the record. The
mortgage or legal pledge invoked by Flora Broto arises under article 1922 of the Civil Code, which
provides:
With regard to specified personal property of the debtor, the following are preferred:
1. . . .
x x x x x x x x x
7. Credits rents and leases for one year with regard to the personal property of the lessee
existing on the estate leased and on the fruits therefore.
Were this contest as to preference to be based only on the provisions of article 1922, paragraph 7, in
favor of the lessor who is a defendant herein, and on paragraph 2 in favor of the creditor-pledgee
who is the plaintiff, it would have to be decided in favor of the lessor, for the reason that, in order that
the creditor-pledgee may enjoy the preference over the thing pledged to him, it is a necessary
condition that the same shall be in his possession. As in this case, however, the furniture in question
was not in the possession of the creditor Meyers, but in that of the debtor, William Thein, it follows
that the creditor Meyers can not claim the preference prescribed by paragraph 2 of article 1922 of
the Civil Code; while the lessor Broto, on the other hand should have the preference specified in
paragraph 7 over such personal property existing on the premises leased and in possession of the
debtor Thein.
But the present contention as to preference does not rest upon the above-mentioned paragraphs 2
and 7 of article 1922 of the Civil Code; on the part of the lessor it is based upon said paragraph 7 of
article 1922 of the Civil Code, and, on the part of the creditor-pledgee, upon Act No. 1508 of the
Philippine Commission, enacted July 2, 1906, under the provisions of which a chattel mortgage was
executed by Thein in favor of Meyers.
Between the said Act and paragraph 2 of article 1922 already cited, as well as article 1863 of the
Civil Code, there is now radical difference.
While according to the Civil Code it is an essential requisite, in constituting a contract of pledge, that
the creditor, or a third person named by common accord, be placed in possession of the pledge,
under Act No. 1508 of the Philippine Commission this is not necessary in order to make the pledge
valid and efficient as against the debtor; it is only necessary, to constitute a valid pledge as against
third persons; notwithstanding this exception, the registration of the contract of pledge or mortgage
of the personal property so given as security, in the registry of titles of the province, is equivalent to
the actual delivery of possession to the creditor-pledgee.
The instrument of pledge or chattel mortgage executed by Thein in favor of Meyers is recorded in
the registry of mortgages of its proper class (B. of E., 7).
Taking into consideration the different legal grounds on which each party bases his claim for
preference over the other with respect to the personal property of the common debtor, it becomes
necessary to determine in whose favor the contention should be decided, inasmuch as the proceeds
of the sale of the said personal furniture is not sufficient to pay both claims.
The Court of First Instance of the city of Manila decided the question in favor of the lessor, granting
to the defendant, Flora Broto, preference in the payment of her claim; the judgment "sentences
William Thein, the other defendant, to pay the said Flora Broto the sum of P200, which sum must, as
far as possible, be paid to the said defendant out of the proceeds of the sale of the furniture made by
the sheriff on the petition of the plaintiff, Meyers, to which end the latter is ordered to deliver to the
said defendant out of the proceeds of said sale the above-mentioned sum of P200, being the
amount of the aforesaid rent. And the plaintiff is further ordered to pay the cost of the action."
Against the foregoing judgment the plaintiff, Meyers, has appealed and, among other assignments of
error, alleges the fact that preference was granted in favor of the claim for rent by the defendant,
Flora Broto, over a credit secured by pledge executed and registered in accordance with the
provisions of Act No. 1508 of the Philippine Commission. This is the only question to be resolved in
this instance, for the reason that it was the only one decided by the court below. The grounds upon
which the trial court has based its opinion are the following:
1. That Act No. 1508 does not repeal the provisions of the Civil Code with respect to this
matter, because it does not mention such repeal.
3. That said privilege or right of retention on the part of the lessor would be vain and illusory
if preference were given to a credit secured by a pledge for the mere reason that it was
registered, and such registration would be contrary to the "right of possession," arising by
operation of law and in favor of the lessor, over the furniture existing upon the premises
leased.
4. That it being unnecessary that a legal mortgage, such as that of the lessor, be entered in
the registry for the reason that it is created by the law itself, a contractual mortgage can not
take preference over it for the mere reason that it is registered.
5. That as the debt of the lessee Thein in favor of the lessor Broto bears a date prior to that
of the debtor Thein in favor of the creditor-pledgee Meyers, the mortgage created by law in
favor of the former became effective before the contractual mortgage; so that, when the latter
was registered, the former was already a lien upon the furniture pledged in favor of another.
It becomes necessary to pass upon the nature of the contract of mortgage or pledge of personal
property, in accordance with the provisions of section 3 of the said Act No. 1508 which prescribes
that "a chattel mortgage is a conditional sale of personal property as security for the payment of a
debt, or the performance of some other obligation specified therein, the condition being that the sale
shall be void upon the seller paying to the purchaser a sum of money or doing some other act
named. If the condition is performed according to its terms the mortgage and sale immediately
become void, and the mortgage is thereby divested of his title."
From the language of the law it now appears: (1) That by the operation of Act No. 1508 the actual
contract of pledge of the Civil Code degenerates into one of sale by mutual consent; (2) that, under
Act No. 1508, a chattel mortgage is a sale with pacto de retro, almost equivalent to that under the
same name in the Civil Code; (3) that as in a contract of sale with pacto de retro where the juridical
dominion and possession of the thing sold pass to the purchaser as soon as the sale is
consummated, so also in a chattel mortgage the dominion and possession of the mortgaged
personal property pass to the creditor-pledgee, because, as the law provides, it is nothing more than
a conditional sale; (4) that, in the same manner that a contract of sale is consummated by the
delivery, either actual or symbolic, of the thing sold, which symbol of the delivery may be the
inscription of the instrument in the registry, so also a chattel mortgage is consummated by a similar
delivery, actual or symbolic, by means of an analogous inscription in the registry.
Therefore, so long as the mortgage exists, the dominion, with respect to the mortgage personal
property, rest with the creditor-pledgee from the time of the inscription of the mortgage in the
registry, and the furniture ceases to be the property of the debtor for the reason that it has become
the property of the creditor, in like manner as the dominion of a thing sold is transferred to the
purchaser and ceases to belong to the vendor from the moment of the delivery thereof, as a result of
the sale. According to the Civil Code, a thing given in pledge never becomes the property of the
creditor-pledgee; the debtor continues to be the owner thereof (art. 1869); the creditor does not
become the owner; he is nothing more than a creditor with a real right over the thing in his
possession as a pledge, which he can dispose of through a notary at a public sale according to the
Civil Code, the same as the creditor-pledgee may now, under the provisions of Act No. 1508, sell the
pledge through the sheriff. (Civil Code, 1872; Act No. 1508, sec. 14.)
In view of the above it must be conclude: (1) That from June 20, 1908, the furniture belonging to
Thein, which existed in the house leased by Flora Broto, ceased to be the property of the first named
and passed to the dominion and juridical possession of J.W. Meyers, the material possession alone
continuing in the hands of Thein, and the property actually remaining in the leased building; (2) that
when the lessor tried to collect the rent due for the months of June and July, 1908, the furniture that
existed in the building was to longer the property of the lessee but belonged to the third person who
had acquired it as a pledge which, under the law, is a sale, and as such the ownership is
transferable, although conditionally and depending upon whether the debtor (the conditional seller)
fulfills the condition subsequent, and is similar to a sale with pacto de retro; (3) the preference in the
payment of rents due for one year, granted by paragraph 7 of article 1922, refers to "personal
property of the lessee;" hence, as the furniture existing in the house leased no longer belongs to
Thein but to J.W. Meyers, according to the public instrument recorded in the public registry, the said
right of preference has not existed since the 20th of June, 1908; (4) the registration of a chattel
mortgage, executed in accordance with Act No. 1508, is not in violation of the right of possession,
supposed to have been acquired ex lege by the lessor over the furniture existing upon the leased
premises, because no such right of possession is granted by the law to the lessor over the personal
property of the lessee upon the estate leased; it is subject only to the payment of rent for one year, a
condition which may become vain and illusory by a transaction like the one now in question, to wit,
when the lessee executes a mortgage upon such personal property in favor of a third person, in the
same manner as he could have previously performed these or other acts of disposal in respect
thereto, inasmuch as his right to dispose of the same was not then, and is not now limited by reason
of their being in a leased building; against this contingency the lessor should take proper precautions
in order to ensure the payment of rent by means of an express lien thereon, since the personality is
merely affected by a tacit lien under the circumstances presumed by the law, to wit, that it belongs to
the lessor and continues upon the premises and is liable only for the rent for one year.
The mortgage executed by Thein in favor of Meyers being a valid one, and considering the latter
merely as a mortgage creditor (passing over the juridical effects of a sale with which the law has
compared a chattel mortgage), he is entitled to have the property sold, as he did, through the sheriff,
and to pay himself from the proceeds thereof in preference to subsequent mortgages, in accordance
with said section 14 of Act No. 1508. Against this preference, that claimed in this case under
paragraph 7 of article 1922 of the Civil Code can not prevail from the moment that it is admitted that,
over and above the claim for rent, that described in paragraph 2 of the same article has the superior
preference, whenever, in accordance with its provisions, the pledge is in the possession of the
creditor. The case at bar falls within the circumstances prescribed by section 4 of Act No. 1508
which reads as follows:
A chattel mortgage shall not be valid against any persons except the mortgagor, his
executors or adiministrators, unless the possession of the property is delivered to and
retained by the mortgagee or unless the mortgage is recorded in the office of the register of
deeds of the province. . . .
The above provisions does not, in this respect, repeal paragraph 2 of the said article 1922, but
extends the provisions thereof by providing that the property pledged is to be considered as being
delivered to the mortgage creditor and to be in his possession, if the mortgage is recorded in the
office of the register of deeds of the province. The code only refers to the actual delivery of the
pledge; Act No. 1508 provides both for the actual and for the symbolic delivery thereof by means of
the registration of the title.
The judgment appealed from is reversed, without any special rulings as to the costs of both
instances.
It is hereby decided and decreed that, from the proceeds of the sale, preferential payment shall be
made to the plaintiff J. W. Meyers; provided, however, that the debtor William Thein alone is
adjudged to pay the claim of the latter as prated for in the complaint. So ordered.