LAND SETTLEMENT AND DEVELOPMENT CORPORATION, PLAINTIFF AND APPELLANT, VS. AGUSTIN CARLOS, DEFENDANT AND APPELLEE. TARLAC DEVELOPMENT CORPORATION, THIRD-PARTY CLAIMANT.

Land Settlement and Development Corporation versus Carlos

The Case

This is a case about a tractor, a chattel mortgage, and the reach of a writ of execution. The Land Settlement and Development Corporation, a government corporation already under liquidation, sued Agustin Carlos for the unpaid balance of the purchase price of a tractor it had sold him. Carlos, in turn, had earlier assigned all his rights over that same tractor to two other persons, who later sold it on, until it came into the hands of the Tarlac Development Corporation. When the sheriff levied on the tractor to satisfy the judgment against Carlos, the Tarlac Development Corporation stepped forward and claimed it as its own. The case matters because it teaches who really owns goods sold on credit and secured by a chattel mortgage, and because it teaches the correct remedy of a stranger whose property is seized to answer for another man's debt.

Procedural History

The Land Settlement and Development Corporation filed a complaint for specific performance against Carlos before the Court of First Instance of Manila. Carlos moved to dismiss on the ground that the plaintiff had no capacity to sue; the motion was denied, and he answered with a counterclaim and a third-party complaint against Nicanor Carag and Pio Calica. The third-party defendants failed to answer and were declared in default. After a stipulation of facts between plaintiff and defendant, the trial court rendered judgment ordering Carlos to pay the balance, liquidated damages, and attorney's fees, and requiring the third-party defendants to reimburse him. That judgment became final and executory, and writs of execution issued. The sheriff then levied on the tractor, which he found in the possession of one Agaton Arciaga. The Tarlac Development Corporation filed an ex parte motion to lift the attachment, posting a bond, and the trial court granted it and ordered the tractor returned to that corporation. The Land Settlement and Development Corporation moved for reconsideration, offering to post a bond equal to the value of the tractor, but the motion was denied. Hence this appeal by the Land Settlement and Development Corporation to the Supreme Court.

Facts

On October 11, 1952, Agustin Carlos bought a caterpillar tractor from the Land Settlement and Development Corporation for 9,000 pesos under a contract of sale with chattel mortgage and surety bond. He paid 2,250 pesos down, leaving a balance of 6,750 pesos payable on or before November 10, 1952. He made a second payment of 1,000 pesos, but never paid the remaining 5,750 pesos.

On November 3, 1952, for a consideration of 2,218 pesos and 70 centavos, Carlos assigned and relinquished all his rights under the contract of sale in favor of Nicanor Carag and Pio Calica, who undertook to pay the balance to the corporation. Without Carlos's knowledge or consent, and without first paying the balance, these two sold the tractor to the Central Azucarera de Tarlac. The tractor eventually passed, through the Compania General de Tabacos de Filipinas, to the Tarlac Development Corporation, which had possessed it since April 1958 and was using it in an agricultural project in Paniqui, Tarlac.

When the corporation sued Carlos for the balance and obtained judgment, the sheriff levied on the tractor. The Tarlac Development Corporation then filed a verified motion to lift the attachment, asserting absolute ownership, good faith, and possession, and posting a 10,000 peso bond. The trial court lifted the attachment and ordered the tractor returned to it.

Issues

• Whether or not the trial court erred in recognizing as valid the sale of the tractor by Carlos to the third-party defendants.
• Whether or not the trial court erred in not holding that the judgment against Carlos can be enforced against the tractor.
• Whether or not the trial court erred in granting the motion to lift the attachment and ordering the return of the tractor to the Tarlac Development Corporation.

Applicable Provisions

Article 1505 of the Civil Code, on sales by a person who is not the owner, provides:

Where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell.

The corporation invoked this provision to argue that Carlos could pass no title he did not have, but the Court held it inapplicable because Carlos was in fact the owner when he assigned the tractor.

Ruling

On the first issue, the Court held that the trial court did not err. The contract of sale, although accompanied by a chattel mortgage and surety bond, was a straight sale that transferred ownership from the corporation to Carlos. Although the price was paid in separate sums, it was not a sale on installments, because the balance after the initial payment was to be paid in totality on or before November 10, 1952. Proof of the transfer of ownership was the chattel mortgage itself, for Carlos could not have mortgaged the tractor to the corporation without being its owner. Carlos therefore owned the tractor when he assigned all his rights to the third-party defendants, subject only to the lien of the chattel mortgage, and that assignment, supported by a valid consideration, vested title in them without the corporation's consent. The lien was not extinguished, but it was in effect abandoned when the corporation sued for specific performance and obtained a money judgment against the mortgagor instead of recovering the property.

On the second issue, the Court held that the judgment could not be enforced against the tractor. The tractor no longer belonged to the judgment debtor Carlos, against whom the action for specific performance was brought and the writ of execution directed. The trial court's observation was unassailable: the decision required Carlos to pay his obligation, but not to return or levy on a specific property, and the Tarlac Development Corporation was a purchaser in good faith in a legal transaction.

On the third issue, the Court held that the trial court did not err in lifting the attachment. The corporation argued that the motion was improper because the Tarlac Development Corporation was not a party to the case and should have filed a third-party claim under the Rules of Court. The Court disagreed: the claimant expressly invoked the rule allowing a third person claiming the property to intervene and ask that the writ of attachment be quashed. The Court explained the two modes of redress:

a third person claiming to be the owner of such property may, not only file a third-party claim with the sheriff, but also intervene in the action to ask that the writ of attachment be quashed.

The claimant did precisely this, averring in its verified motion that it was the absolute owner, that it had bought the tractor in good faith, that it had possessed it since April 1958, and that it was in use in its agricultural project when attached. The absence of a supporting affidavit was cured when the claimant tendered in evidence the bill of sale in its favor, which the trial court accepted without objection.

Doctrine

A contract of sale, even one accompanied by a chattel mortgage and surety bond, is a straight sale that transfers ownership to the buyer, and the buyer may validly assign his rights and the property to another even without the seller's consent, subject only to the lien of the mortgage. A chattel mortgage is proof that the mortgagor owns the property, for no one can mortgage what he does not own. A money judgment for specific performance against the debtor binds only the debtor and cannot be enforced against property that has passed to a third person in good faith. And a stranger whose property is levied upon to answer for another's debt may either file a third-party claim with the sheriff or intervene in the action to quash the writ of attachment.

Disposition

The Supreme Court affirmed the orders of the trial court lifting the attachment and returning the tractor to the Tarlac Development Corporation, with no pronouncement as to costs.

Remember This

The one line to memorize: a buyer under a straight sale owns the goods and may pass good title even without the seller's consent, so the judgment creditor of that buyer cannot levy on property that no longer belongs to him. Examiners use this case on sales and chattel mortgage, on the reach of execution against third persons, and on the remedy of intervention to quash an attachment.