JOSE MOVIDO, PLAINTIFF AND APPELLANT, VS. REHABILITATION FINANCE CORPORATION AND THE PROVINCIAL SHERIFF OF SAMAR, DEFENDANTS AND APPELLEES.

Movido versus Rehabilitation Finance Corporation

The Case

This is an action for damages brought by Jose Movido against the Rehabilitation Finance Corporation and the Provincial Sheriff of Samar, arising from the extrajudicial foreclosure and public auction sale of sawmill machinery and equipment over which Movido claimed a prior chattel mortgage lien. Movido had registered his mortgage years ahead of the Rehabilitation Finance Corporation's, yet the sheriff sold the chattels on the strength of the later mortgage and turned the proceeds over to the Rehabilitation Finance Corporation. The case matters because it fixes a rule every reviewee must know: a mortgagee who sues and obtains a personal judgment against his mortgagor on the credit itself waives his right to enforce the mortgage securing it, and the lien is thereby abandoned.

Procedural History

Movido filed the complaint for damages in the Court of First Instance of Leyte. The defendants answered separately, the Rehabilitation Finance Corporation setting up waiver and abandonment of the mortgage lien, and the sheriff justifying his refusal to require an indemnity bond. After trial, the Court of First Instance rendered judgment on 8 September 1955, holding that the compromise agreement in the earlier collection case novated Movido's credit secured by the chattel mortgage, so that when the chattels were later mortgaged to the Rehabilitation Finance Corporation his lien no longer existed. The court dismissed his complaint, without awarding damages to the defendants. His motion and amended motion for new trial and his motion for reconsideration were denied. He appealed, originally to the Court of Appeals, but that court certified the appeal to the Supreme Court on the ground that only questions of law are involved.

Facts

On 1 July 1946, Vet Brothers and Company, Incorporated mortgaged to Jose Movido its rights, title, interest and participation in a complete sawmill in barrio Mauo, Allen, Samar, with all its machineries, tools and equipment in good running condition, to secure a loan of 15,000 pesos with interest at twelve percent per annum. The chattel mortgage was registered in the Office of the Registrar of Deeds of Samar on 28 February 1947.

On 28 July 1948, Movido sued Vet Brothers and Company in the Court of First Instance of Leyte to recover the sum of 13,494 pesos and 35 centavos with interest, plus damages and litigation expenses. On 7 February 1949, the parties submitted a compromise agreement, which the court approved, and judgment was rendered in accordance therewith. Later, on 3 March 1949, Vet Brothers and Company and the spouses Simeon Toribio and Maximiana Escobar de Toribio mortgaged the real estate and chattels enumerated in favor of the Rehabilitation Finance Corporation to secure a loan of 46,000 pesos, and on 17 May 1949 an addendum to the chattel mortgage described the sawmill building and the machinery and logging equipment purchased out of the loan proceeds. These chattel mortgages were registered in Rizal in March and May 1949, and in Samar on 12 March 1949 and 10 June 1949.

On 14 April 1953, upon petition of the Rehabilitation Finance Corporation, the Provincial Sheriff of Samar advertised a public auction sale of the chattels for 14 May 1953 under Act Number 3135, as amended by Act Number 4118. On 24 April 1953, Movido filed a third party claim with the sheriff, asserting a prior and superior right by virtue of his earlier recorded chattel mortgage and the judgment in his favor in the collection case. Despite the claim, the sheriff proceeded with the sale, and on 11 June 1953, after successive postponements, sold the chattels to the successful bidders and turned over the proceeds of 10,794 pesos to the Rehabilitation Finance Corporation. Only on 26 June 1953, fifteen days after the auction sale, was a writ of execution issued in the collection case.

Issues

• Whether or not Movido, by suing and obtaining a personal judgment against the mortgagor upon his credit, waived his right to enforce the chattel mortgage securing it and thereby abandoned his mortgage lien.
• Whether or not the chattels were validly sold at public auction free of Movido's claimed lien, so that the Rehabilitation Finance Corporation and the sheriff are not liable for damages.

Applicable Provisions

The decision turns on the settled rule on waiver of a mortgage lien by suing on the credit, which the Court states as follows:

A mortgagee who sues and obtains a personal judgment against a mortgagor upon his credit waives thereby his right to enforce the mortgage securing it.

This rule is the pivot of the case: it determines whether Movido still held a lien when the chattels were later mortgaged and sold.

Ruling

On the first issue, the Court held that by instituting the collection case on 28 July 1948 to recover the sum of 13,494 pesos and 35 centavos from Vet Brothers and Company, and by securing a judgment in his favor upon the compromise agreement of 7 February 1949, Movido abandoned his mortgage lien on the chattels in question. Consequently, when the mortgagor and the spouses Toribio mortgaged the chattels to the Rehabilitation Finance Corporation in March and May 1949, Movido no longer had any lien on them. The Court noted that the earlier rulings in Tizon versus Valdez and Matienzo versus San Jose, relied upon by the appellant, had been abandoned in Bachrach Motor Company versus Icarangal. It also stressed that Movido secured a writ of execution of the judgment in the collection case only on 26 June 1953, fifteen days after the public auction sale had already been carried out.

On the second issue, it follows that the sale was not wrongful as against Movido, since he had no subsisting lien to protect, and the trial court correctly dismissed his complaint for damages against the Rehabilitation Finance Corporation and the sheriff.

Doctrine

A mortgagee who sues and obtains a personal judgment against the mortgagor upon the credit secured by the mortgage waives his right to enforce the mortgage, and the lien is deemed abandoned. Once abandoned, the mortgagee can claim no preference over subsequent mortgagees of the same chattels. The doctrine is tied to the rule quoted above, and it carries a practical corollary: a mortgagee who sleeps on his remedy and secures a writ of execution only after the chattels have been sold at public auction cannot complain of the sale.

Disposition

The Supreme Court affirmed the judgment appealed from, with costs against the appellant, Jose Movido.

Remember This

Memorize the line: a mortgagee who sues and obtains a personal judgment against the mortgagor upon his credit waives his right to enforce the mortgage securing it. Examiners use this case to test waiver and abandonment of a mortgage lien, and the priority contest between an earlier mortgagee who sued on the credit and a later mortgagee who foreclosed.