EC. MCCULLOUGH & CO., INC., PLAINTIFF AND APPELLANT, VS. PEDRO G. ZOBOLI, DEFENDANT AND APPELLEE. ENRIQUE AYLLON, INTERVENER.

The plaintiff in this case is a duly organized and registered corporation,
having its principal place of business in the city of Manila. The defendant,
Pedro G. Zoboli, prior to the 3d day of April, 1912, was a merchant and resident
of this city, and was the owner of a shop known as the “Centro Postal
Filatelico,” and at that time he owed the plaintiff a balance for goods
purchased in the sum of P705.62. On the 21st day of March, 1912, the plaintiff
instituted a civil action for the purpose of collecting this amount. On the same
day the defendant confessed judgment and at the same time consented to the
issuance of an execution thereon. The execution was issued and sale thereunder
was made on the 3d day of April, 1912, the goods levied upon being purchased by
the plaintiff. On the 29th of April one Enrique Ayllon intervened, alleging that
the goods which had been levied upon had been mortgaged to him by Zoboli to
secure the payment of the sum of P2,500. This chattel mortgage, although dated
January 12, 1912, was not presented for registry until the 29th of March of that
year, and was not registered until the 3d day of the following month. The goods
were levied upon and possession thereof was taken several days prior to the 29th
of March.

After the property was sold and purchased by the plaintiff, the plaintiff
employed Zoboli as manager in charge of the business, with the understanding
that as soon as the judgment, together with the interest and costs, had been
settled, he (Zoboli) could again take possession of the business as owner.
Zoboli failed to carry out this agreement and, upon being requested to do so,
refused to turn over the store to the plaintiff. The plaintiff thereupon
instituted on the 5th of October, 1912, this action, praying for the possession
of the business, with all of its stock, merchandise, fixtures, etc., or its
equivalent in cash, and asking for a writ of replevin to take possession of the
stock and merchandise. Zoboli answered denying the allegations contained in the
complaint and setting up a counterclaim for damages in the sum of P5,000. On the
18th day of October, Enrique Ayllon intervened, by permission of the court, and
asked for judgment against the plaintiff for the sum of P3,000.

After trial judgment was rendered in favor of the intervener and against the
plaintiff for the sum of P1,732, with interest thereon at the rate of 24 per
cent per annum from October 5, 1912. The plaintiff alone appealed, and now
insists that the trial court erred in holding that the intervener had a
preferred right over the plaintiff to the delivery and possession of the goods
in question.

Section 4 of Act No. 1508 reads: “A chattel mortgage shall not be valid
against any person except the mortgagor, his executors or administrators, 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 in which the mortgagor resides at the time of making the same, or, if
he resides without the Philippine Islands, in the province in which property is
situated: Provided, however, That if the property is situated in a different
province from that in which the mortgagor resides, the mortgage shall be
recorded in the office of the register of deeds of both the province in which
the mortgagor resides and that in which the property is situated, and for the
purposes of this Act the city of Manila shall be deemed to be a province.”

In the case of Meyers vs. Thein (15 Phil. Rep., 303), this court said: “The
above provision (sec. 4 of Act No. 1508) does not, in this respect, repeal
paragraph 2 of the said article 1922, but extends the provisions thereof by
providing that the property pledge 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.”

And in the case of Williams vs. McMicking (17 Phil. Rep., 408), we said: “It
will be noted that this section (sec. 4 of Act No. 1508) provides two ways for
executing a valid chattel mortgage which shall operate against third persons;
first, the property mortgaged must be delivered to and retained by the
mortgagee; or, second, the mortgage must be recorded in the office of the
register of deeds.”

The plaintiff’s title to the property in question depended upon the validity
and effect of the levy and sale by virtue of the execution issued upon the
judgment recovered against the defendant Zoboli. At the time the intervener’s
mortgage was presented to the registrar and inscribed upon the registry books,
the property was in the hands of the sheriff by virtue of the levy made under
the execution. Therefore, the mortgagor could not have at that time delivered
the possession of the property to the mortgagee. If there could not have been an
actual delivery, there could not have been a valid symbolic delivery. Section 4
of Act No. 1508 (supra), provides that a chattel mortgage “shall not be valid
against any person except the mortgagor, his executors or administrators, 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 in which the mortgagor resides at the time of making the same.” It will
thus be seen that the statute makes a chattel mortgage void, if the same is not
registered or if the property is not actually delivered to the mortgagee,
against all persons except the mortgagor, his executors or administrators. The
effect of the delay in recording a mortgage, in those cases where the property
has not been actually delivered to the mortgagee, is to render it void as
against intervening purchasers or creditors claiming liens by attachment,
judgment, or execution.

While the mortgage in question was valid as between the defendant and
intervener,, it was invalid as to the plaintiff. The effect of section 4 (supra)
is simply that as between the intervener and plaintiff the mortgage had no force
or operation whatever, and the case must be decided as if the mortgage had never
existed.

For the foregoing reasons the judgment appealed from is reversed, without
costs in this instance.

Arellano, C. J., Torres, Carson, and Araullo, JJ., concur.

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CONCURRING

MORELAND., J.

Generally speaking, I concur with the decision in this case. I regard it,
however, as an opportune time and place to refer particularly to the method of
foreclosing a chattel mortgage. From the number of cases that have come to this
court in which chattel mortgages have been foreclosed by action, there seems to
be an impression that a chattel mortgage cannot be foreclosed in any other
manner. Such an impression, if it exists, is erroneous. It is not necessary to
begin an” fiction in order to foreclose a chattel mortgage. The mortgagee can
foreclose by causing the property therein described to be seized by virtue of
the mortgage itself and sold at public auction in the manner described by
section 14 of Act No. 1508, the Chattel Mortgage Law. It is not necessary to go
to the expense and suffer the delay of a judicial proceeding. The property is
taken by a public officer armed with a copy of the mortgage and sold by him as
agent of the mortgagee.