SECOND DIVISION [G.R. No. L-40018. August 29, 1975.] NORTHERN MOTORS, INC., petitioner, vs.

THE HONORABLE JORGE R. COQUIA, Executive Judge of the Court of First Instance of Manila, HONESTO ONG, THE SHERIFF OF MANILA, DOMINADOR Q. CACPAL, The Acting Executive Sheriff of Manila, and/or his duly authorized deputy sheriff or representative, FILINVEST CREDIT CORPORATION, intervenor. SYNOPSIS To satisfy the judgment obtained by Tropical Commercial Co., Inc. against the Manila Yellow Taxicab Co., Inc., the sheriff levied upon and sold at public auction 20 taxicabs, 8 of which were mortgaged to Northern Motors Inc. Hence, the latter filed a third-party complaint. Tropical Commercial posted indemnity bonds which the court, later canceled without notice to third-party claimant. An addition levy on 35 taxicabs, 7 of which were likewise mortgaged to Northern Motors, Inc. were made and the auction sale was scheduled. By reason of the refusal of the lower court to reinstate the indemnity bonds, Northern Motor filed a petition for certiorari. The Supreme Court denied the petition ruling that the mortgagee's remedy is to vindicate its claim in a proper action. Hence, this motion for reconsideration, petitioner raising anew the issue of whether its chattel mortgage lien levied by mortgagor's unsecured creditor could be asserted in the case where the judgment was rendered. The Supreme Court set aside and reconsidered its original and ruled that petitioner, as a chattel mortgagee and unpaid vendor, should not be required to vindicate in a separate action its claim. Petition has a superior, preferential and paramount right to have possession of the mortgaged taxicabs and to claim the proceeds of the execution sale over the levy of the mortgagor's unsecured creditor. Decision reconsidered and set aside. SYLLABUS 1. MORTGAGE; CHATTEL MORTGAGE; PREFERENTIAL RIGHT OF MORTGAGE. Where the condition of the chattel mortgage had already been broken by the mortgagor by reason of which the mortgagee instituted an action for replevin to take possession of the mortgaged chattel, the mortgagee has a superior, preferential and paramount right to have possession of the mortgaged chattel over the levy by the mortgagor's unsecured judgment creditor. 2. ID.; ID.; LEVY UPON MORTGAGED CHATTEL REFERS ONLY TO THE RIGHT OR EQUITY OF REDEMPTION. The sheriff cannot levy upon and take possession of the mortgaged chattel. He could levy only upon the right or equity of redemption of the chattel mortgagor and judgment debtor, because that is the only leviable or attachable property right of the chattel mortgagor. After a chattel mortgage is executed, there remains in the mortgagor a mere right of redemption. 3. ID.; ID.; ID.; PHYSICAL POSSESSION NOT NECESSARY. To levy upon the mortgagor's incorporeal right or equity of redemption, it is not necessary for the sheriff to take physical possession of the mortgaged chattel. It is sufficient if he furnished the chattel mortgagor with a copy of the writ of execution and served upon it a notice that its right or equity of redemption in the mortgaged chattel is

being levied upon pursuant to that writ (Sec. 15, 2nd par., Rule 30 and Sec. 7(e), Rule 57 of the Rules of Court). Levying upon the property itself is distinguishable from levying on the judgment debtor's interest in it. 4. ID.; ID.; ID.; REGISTRATION AMOUNTS TO SYMBOLICAL POSSESSION. The sheriff and the judgment creditor are deemed to have constructive notice of the registered chattel mortgages. As a consequence of the registration of the mortgages, the mortgagee has the symbolical possession of the mortgaged chattel. 5. ID.; ID.; ID.; JUDGMENT CREDITOR WHO BUYS MORTGAGOR'S EQUITY OF REDEMPTION AT AUCTION SALE STEPS INTO THE SHOES OF MORTGAGOR. If the judgment creditor or assignee buys the mortgagor's equity of redemption at the auction sale, then it would step into the shoes of the mortgagor and be able to redeem the mortgaged chattel from the mortgagee, by paying the mortgage debt. The equity of redemption of the mortgagor passes to the purchaser at an execution sale. 6. ID.; ID.; ID.; RIGHT OF ATTACHING CREDITOR IS SUBORDINATE TO THE LIEN OF MORTGAGEE. Inasmuch as what remains to the mortgagor is only the equity of redemption, it follows that the right of the judgment or attaching creditor, who purchased the mortgaged chattel at an execution sale, is subordinate to the lien of the mortgagee who has in his favor a valid chattel mortgage. 7. ID.; ID.; ID.; SOLIDARY LIABILITY OF JUDGMENT. The unsecured judgment creditor (of the chattel mortgagor) who bought the mortgaged chattels at the execution sale should be held solidarily liable with the mortgagor to the chattel mortgagee for the mortgage obligation. 8. ID.; ID.; PURPOSE. The purpose of the Chattel Mortgage Law is to promote business and trade and to give impetus to the country's economic development. In the business world the chattel mortgage has greatly facilitated sales of goods and merchandise. Dealers of cars, trucks, appliances and machinery who resort to installment sales, have relied on the chattel mortgage as an effective security. Sales of merchandise would be sluggish and insubstantial if the Chattel Mortgage Law could not protect dealers against the defaults and delinquencies of their customers and if the mortgagee's lien could be nullified by the maneuvers of an unsecured judgment creditor of the chattel mortgagor. It is no right nor just that the lien of a secured creditor should be rendered nugatory by a wrongful execution engineered by an unsecured creditor. 9, ID.; ID.; MORTGAGEE'S RIGHT TO NOTICE OF CANCELLATION OF INDEMNITY BOND. It is grave abuse of discretion to cancel the indemnity bonds without notice to the third party claimant. A chattel mortgagee, as a third party claimant, comes within the purview of the provision of Rule 39, Sec. 17, of the Rules of Court. 10. ID.; ID.; CHATTEL MORTGAGEE IS A PROPER THIRD PARTY CLAIMANT. The chattel mortgagee may file a third-party claim even before there is a breach of the mortgage because the recording of the mortgage gives him the symbolical possession of the mortgaged chattel which was construed as "equivalent to the actual delivery of possession to the creditor" and because what a judgment creditor of the chattel mortgagor can attach is only the equity or right of redemption and, to effectuate the attachment or levy, it is not requisite that the mortgaged chattel itself be seized by the sheriff. RESOLUTION

AQUINO, J p: Northern Motors, Inc., in its motion for the reconsideration of this Court's decision promulgated on March 21, 1975, raised anew the issue of whether its chattel mortgage lien over certain taxicabs, which were levied upon by the mortgagor's unsecured judgment creditor, could be asserted in the case where the judgment was rendered or should be ventilated in an independent action, as held in that decision. It invoked the additional ground that it has an unpaid vendor's lien on the mortgaged taxicabs. As set forth in the decision, the factual background of that issue is as follows: Manila Yellow Taxicab Co., Inc. in May and June, 1974 purchased on the installment plan from Northern Motors, Inc. two hundred Holden Torana cars at the price of P28,250 for each car. It made a downpayment of P1,000 on each car. It executed chattel mortgages on the cars in favor of Northern Motors, Inc. as security for the promissory notes covering the balance of the price. The notes and the chattel mortgages for 112 cars were assigned to Filinvest Credit Corporation. Tropical Commercial Co., Inc. obtained a judgment for P167,311.27 against Manila Yellow Taxicab Co., Inc. in Civil Case No. 71584 of the Court of First Instance of Manila. Part of that judgment or the sum of P110,000 was eventually assigned to Honesto Ong for an unspecified valuable consideration. To satisfy the judgment credit, the sheriff on December 12, 1974 levied upon twenty taxicabs of which eight were mortgaged to Northern Motors, Inc. and twelve to Filinvest Credit Corporation under the assignment already mentioned. Northern Motors, Inc. and Filinvest Credit Corporation filed the corresponding thirdparty claims with the sheriff. On December 18, 1974 Tropical Commercial Co., Inc. posted indemnity bonds. On that same day, at two-thirty in the afternoon, the cars were sold at public auction although there was an alleged agreement that the cars would be sold at four o'clock. Later, the lower court cancelled the indemnity bonds without notice to the third-party claimants. The sheriff made an additional levy on thirty-five mortgaged taxicabs to satisfy the unpaid balance of the judgment. Of those thirty-five taxicabs, seven were mortgaged to Northern Motors, Inc. while twenty-eight were mortgaged to Filinvest Credit Corporation. Again, Northern Motors, Inc. and Filinvest Credit Corporation filed third-party claims. The auction sale was scheduled on January 23, 1975. The lower court in its resolution of January 17, 1975 refused to reinstate the indemnity bonds. It ruled that the chattel mortgagee was not entitled to the possession of the mortgaged taxicabs by the mere fact of the execution of the mortgage and that the mortgage lien followed the chattel whoever might be its actual possessor. On January 23, 1975 Northern Motors, Inc. filed its certiorari petition in this case to annul the resolution of January 17, 1975 and to stop the second auction sale. This Court issued a restraining order against the scheduled auction sale, the writ of execution and the disposition of the proceeds of the first execution sale. Filinvest Credit Corporation was allowed to intervene in the action. In the decision sought to be reconsidered, the petition was denied and the restraining order was dissolved. We ruled that the mortgagee's remedy is to vindicate its claim in a proper action as provided in section 17, Rule 39 of the Rules

of Court, and that its mortgage lien attached to the taxicabs wherever they might be. Upon motion of Northern Motors, Inc. on the ground that the decision had not yet become final, the restraining order was maintained. (Filinvest Credit Corporation did not file any motion for reconsideration because it had entered into a compromise with Ong. It agreed to pay Ong, through his counsel, P145,000 for the release of twenty-eight taxicabs. It realized that an independent action would be illusory). Northern Motors, Inc. contends in its motion for reconsideration that as chattel mortgagee and unpaid vendor it has the better right to the possession of the mortgaged taxicabs and that its claims should be resolved in the case where the writ of execution was issued and not in a separate action which allegedly would be an ineffective remedy. It further contends that the lower court gravely abused its discretion in cancelling the indemnity bonds posted by the judgment creditor of the chattel mortgagor. It insists that it is entitled to the possession of the taxicabs because the condition of the chattel mortgages had already been broken and, for that reason, the Serra ruling (infra) does not apply to this case. It alleges that some of the buyers at the auction sale were fictitious and that the cars valued at P28,250 each were sold for less than P3,000 each. The judgment creditor and the sheriff, in their opposition to the motion for reconsideration, reiterate their contention that the chattel mortgagee's remedy is in an independent action, as held in Serra vs. Rodriguez, L-25546, April 22, 1974, 56 SCRA 538, per Makasiar, J. It was ruled in the Serra case that a chattel mortgagee could not be regarded as a third-party claimant within the meaning of section 14, Rule 57 of the Rules of Court (similar to section 17, Rule 39, the rule involved in the instant case) "because a chattel mortgage is merely a security for a loan and does not transfer title of the property mortgaged to the chattel mortgagee". As a corollary, the judgment creditor and the sheriff argue that, since Northern Motors, Inc., the chattel mortgagee, was not a proper third-party claimant, there was no necessity for an indemnity bond. We hold, under the facts of this case, that Northern Motors, Inc., as chattel mortgagee and unpaid vendor, should not be required to vindicate in a separate action its claims for the seven mortgaged taxicabs and for the proceeds of the execution sale of the other eight mortgaged taxicabs. Inasmuch as the condition of the chattel mortgages had already been broken and Northern Motors, Inc. had in fact instituted an action for replevin so that it could take possession of the mortgaged taxicabs (Civil Case No. 20536, Rizal CFI), it has a superior, preferential and paramount right to have possession of the mortgaged taxicabs and to claim the proceeds of the execution sale (See Bachrach Motor Co. vs. Summers, 42 Phil. 3; Northern Motors, Inc. vs. Herrera, L-32674, February 22, 1973, 49 SCRA 392).

Respondent sheriff wrongfully levied upon the mortgaged taxicabs and erroneously took possession of them. He could have levied only upon the right or equity of redemption pertaining to the Manila Yellow Taxicab Co., Inc. as chattel mortgagor and judgment debtor, because that was the only leviable or attachable property right of the company in the mortgaged taxicabs (Manila Mercantile Co. vs. Flores,

50 Phil. 759; Levy Hermanos, Inc. vs. Ramirez and Casimiro, 60 Phil. 978, 981). "After a chattel mortgage is executed, there remains in the mortgagor a mere right of redemption" (Tizon vs. Valdez and Morales, 48 Phil. 910, 916). To levy upon the mortgagor's incorporeal right or equity of redemption, it was not necessary for the sheriff to have taken physical possession of the mortgaged taxicabs. It would have sufficed if he furnished the chattel mortgagor, Manila Yellow Taxicab Co., Inc., with a copy of the writ of execution and served upon it a notice that its right or equity of redemption in the mortgaged taxicabs was being levied upon pursuant to that writ (Sec. 15, 2nd par., Rule 39 and sec. 7[e] Rule 57 of the Rules of Court). Levying upon the property itself is distinguishable from levying on the judgment debtor's interest in it (McCullough & Co. vs. Taylor, 25 Phil. 110, 115). Justice Imperial, in a concurring opinion, noted that if the only attachable interest of a chattel mortgagor in a mortgaged car was his right of redemption and if the purchaser at the execution sale could not acquire anything except such right of redemption, then the purchaser was "not entitled to the actual possession and delivery of the automobile without first paying" the mortgage debt (Levy Hermanos, Inc. vs. Ramirez and Casimiro, 60 Phil. 978, 984, 985). In this case what the sheriff could have sold at public auction was merely the mortgagor's right or equity of redemption. The sheriff and the judgment creditor are deemed to have constructive notice of the chattel mortgages on the taxicabs (Ong Liong Tiak vs. Luneta Motor Co., 66 Phil. 459). As a consequence of the registration of the mortgages, Northern Motors, Inc. had the symbolical possession of the taxicabs (Meyers vs. Thein, 15 Phil. 303). If the judgment creditor, Tropical Commercial Co., Inc., or the assignee, Ong, bought the mortgagor's equity of redemption at the auction sale, then it would step into the shoes of the mortgagor, Manila Yellow Taxicab Co., Inc. and be able to redeem the vehicles from Northern Motors, Inc., the mortgagee, by paying the mortgage debt. 1 Act No. 1508 provides: "SEC. 13. When the condition of a chattel mortgage is broken a mortgagor or person holding a subsequent mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition before the sale thereof. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it by the terms of this Act." "The equity of redemption of the mortgagor will pass to the purchaser at an execution sale" (Tizon vs. Valdez and Morales, 48 Phil. 910, 914). Inasmuch as what remains to the mortgagor is only the equity of redemption, it follows that the right of the judgment or attaching creditor, who purchased the mortgaged chattel at an execution sale, is subordinate to the lien of the mortgagee who has in his favor a valid chattel mortgage (Cabral vs. Evangelista, L-26860, July 30, 1969, 28 SCRA 1000, 1006; Ong Liong Tiak vs. Luneta Motor Co., 66 Phil. 459 462. In the Cabral case the unsecured judgment creditor (of the chattel mortgagor) who bought the mortgaged chattels at the execution sale was held solidarily liable with the mortgagor to the chattel mortgagee for the mortgage obligation. 2

Our ruling in this case is in consonance with the purpose of the Chattel Mortgage Law to promote business and trade and to give impetus to the country's economic development (Torres vs. Limjap, 56 Phil. 141, 145). In the business world the chattel mortgage has greatly facilitated sales of goods and merchandise. Dealers of cars, trucks, appliances and machinery, who resort to installment sales, have relied on the chattel mortgage as an effective security. Sales of merchandise would be sluggish and insubstantial if the Chattel Mortgage Law could not protect dealers against the defaults and delinquencies of their customers and if the mortgagee's lien could be nullified by the maneuvers of an unsecured judgment creditor of the chattel mortgagor. It is not right nor just that the lien of a secured a creditor should be rendered nugatory by a wrongful execution engineered by an unsecured creditor. Northern Motors, Inc. prayed in its motion that the two indemnity bonds for P480,000 filed on December 18, 1974 by Filriters Guaranty Assurance Corporation for Tropical Commercial Co., Inc. be reinstated. The lower court cancelled ex parte said bonds in its order of January 3, 1975 and reaffirmed the cancellation in its order of January 17, 1975. We hold that there was grave abuse of discretion in cancelling the said bonds without notice to Northern Motors, Inc. and Filinvest Credit Corporation. A chattel mortgagee, as a third-party claimant, comes within the purview of the following provisions of Rule 39: "SEC. 17. Proceedings where property claimed by third person. If property levied on be claimed by any other person than the judgment debtor or his agent, and such person make an affidavit of his title thereto or right to the possession thereof, stating the grounds of such right or title, and serve the same upon the officer making the levy, and a copy thereof upon the judgment creditor, the officer shall not be bound to keep the property, unless such judgment creditor or his agent, on demand of the officer, indemnify the officer against such claim by a bond in a sum not greater than the value of the property levied on. In case of disagreement as to such value, the same shall be determined by the court issuing the writ of execution. "The officer is not liable for damages, for the taking or keeping of the property, to any third-party claimant unless a claim is made by the latter and unless an action for damages is brought by him against the officer within one hundred twenty (120) days from the date of the filing of the bond. But nothing herein contained shall prevent such claimant or any third person from vindicating his claim to the property by any proper action . . ." The chattel mortgagee may file a third-party claim, even before there is a breach of the mortgage because, as already noted, the recording of the mortgage gives him the symbolical possession of the mortgaged chattel which was construed as "equivalent to the actual delivery of possession to the creditor" (Meyers vs. Thein, supra on page 306), and because what a judgment creditor of the chattel mortgagor can attach is only the equity or right of redemption and, to effectuate the attachment levy, it is not requisite that the mortgaged chattel itself be seized by the sheriff. The Chattel Mortgage Law, in relation to article 319 of the Revised Penal Code, contemplates that the mortgagor should always have the physical possession of the mortgaged chattel until there is a breach, in which case the mortgagee become entitled to take possession of the chattel so that the mortgage can be foreclosed.

However, inasmuch as the one hundred twenty-day period for filing an action against the sheriff had already expired, and since Tropical Commercial Co., Inc. and the surety have not been impleaded in this case, the propriety and justice of ordering them to re-file the indemnity bonds appear to be doubtful. Northern Motors, Inc. is entitled to bring the appropriate action to recover the damages which it might have suffered in consequence of the wrongful execution. WHEREFORE, the decision of March 21, 1975 is reconsidered and set aside. Respondent Sheriff is directed to deliver to Northern Motors, Inc. (a) the proceeds of the execution sale held on December 18, 1974 for the eight taxicabs mortgaged to it less the expenses of execution an (b) the seven taxicabs which were levied upon by him and which are also mortgaged to the corporation. Following the ruling the Cabral case, respondent Honesto Ong is held solidarily liable with Manila Yellow Taxicab Co., Inc. for the mortgage obligations secured by the eight mortgaged taxicabs which were sold at the execution sale, less the net proceeds of the sale. Costs against respondent Ong. SO ORDERED. Makalintal, C.J., Castro, Teehankee, Makasiar, Esguerra, Muoz Palma, Concepcion Jr., and Martin, JJ., concur. Fernando, J., in the result. Barredo, J., did not take part. Antonio, J., is on leave. Footnotes 1. Originally, the chattel mortgage was regarded as a conditional sale of personal property (Sec. 3, Act No. 1508). As such, it was similar to a pacto de retro sale of personality. As clarified in Bachrach Motor Co. vs. Summers, 42 Phil. 3, "there is no real analogy between the chattel mortgage contract and a conditional sale as understood in the civil law". The prevailing equitable conception of the chattel mortgage is that it is merely a security. To regard it as a conditional sale is to rattle "the bones of an antiquated skeleton from which all semblance of animate life has long since departed". Article 2140 of the Civil Code, in defining a chattel mortgage as the recording of personal property in the Chattel Mortgage Register as a security for the performance of an obligation, has adhered to the equitable conception of that contract. At the same time, article 2140 has preserved the distinction between pledge and chattel mortgage which was blurred by section 4 of the Chattel Mortgage Law when it provided that in a chattel mortgage "the possession of the property is delivered to and retained by the mortgagee" or, if no such possession is delivered, the mortgage should be recorded in the proper registry of deeds. Historically, it is not proper that the contract of pledge ( pignus), as one of the four real contracts of the jus civile (the others being mutuum, commodatum, and depositum, should be absorbed by the chattel mortgage contract.

Under section 4 of the Chattel Mortgage Law, it was held that the registration of the chattel mortgage was tantamount to the symbolical delivery of the possession of the mortgaged chattel to the mortgagee, a symbolical delivery which was equivalent to actual delivery (Meyers vs. Thein, 15 Phil. 303, 306, per Arellano, C.J.) Justice Moreland, in his concurring opinion in the case of In re Du Tec Chuan, 34 Phil. 488, observed that "no one can take the title away from the mortgagee except the mortgagor and he only in the manner prescribed by the mortgage itself" and that "the general statement is therefore correct that after the execution of a chattel mortgage and its registry as required by law, nobody can obtain an interest in that property adverse to that of the mortgagee". That the chattel mortgagee has the symbolical possession and that he has the preferential right to have physical possession is inferable from article 319 of the Revised Penal Code which penalizes any person who knowingly removes the mortgaged chattel to any province or city, other than the one in which it was located at the time of the execution of the mortgage, without the written consent of the mortgagee or his executors, administrators or assigns. It penalizes also any mortgagor who sells or pledges the mortgaged chattel without the consent of the mortgagee written on the back of the register of deeds of the province where such chattel is located. (Article 319 was taken from sections 9 to 12 of the Chattel Mortgage. 2. "A third person with actual or constructive notice who wrongfully interferes with a mortgaged chattel may be liable for damages or for a conversion. A seizure and sale of the mortgaged property under a writ of attachment or execution in derogation of the mortgagee's rights constitutes a conversion." (14 C.J.S. 822-824).

FIRST DIVISION [G.R. No. 17393. July 21, 1921.] BACHRACH MOTOR COMPANY, INC., plaintiff, vs. RICARDO SUMMERS, defendant. Gibbs, McDonough & Johnson and Benedicto M. Javier for plaintiff. Claro M Recto and Jose M. Casal for defendant. SYLLABUS 1. CHATTEL MORTGAGE; DEFAULT IN PERFORMANCE OF CONDITIONS OF MORTGAGE; MORTGAGEE'S RIGHT TO POSSESSION. Upon default by the mortgagor in the performance of the conditions mentioned in the contract of mortgage, the mortgagee is entitled to possession, because possession is necessary in order to enable him to have the property publicly sold, as provided in section 14 of the Chattel Mortgage Law. 2. ID.; ID.; ID.; REFUSAL OF MORTGAGOR TO YIELD POSSESSION; ACTION BY MORTGAGEE If, however, the mortgagor refuses to surrender possession, the creditor must institute an action either to effect a judicial foreclosure directly or to secure possession as a preliminary to the sale contemplated in the section cite. He cannot lawfully take the property by force against the will of the mortgagor. 3. ID.; ID.; ID.; ID.; SHERIFF ACTING AS AGENT OF MORTGAGEE. Nor can the sheriff, acting at the instance of the mortgagee, do that which the latter could not do himself. In such case the sheriff is the mere agent of the mortgagee, and the statute imposes no specific duty upon him to seize the mortgaged property over the opposition of the mortgagor.

4. ID.; DEFINITION AND LEGAL EFFECTS OF CHATTEL MORTGAGE; DIFFERENT FROM CONDITIONAL SALE PROPER. The definition of the chattel mortgage found in section 3 of the Chattel Mortgage Law (Act No. 1508) is a description of the form in which the contract used to be commonly drafted in common-law countries rather than a statement of its legal effects; and while it is true that the contract has been customarily written in the form of an out and out sale, conditioned to be void upon performance of some condition subsequent, as for instance, the payment of the secured debt, nevertheless the equitable conception of the mortgage, now generally dominant, treats the mortgage merely as a security. There is no real analogy between the chattel mortgage contract and a conditional sale as understood in the civil law. DECISION STREET, J p: On March 9, 1920, Elias Aboitiz executed a chattel mortgage upon a Nash automobile, bearing the Factory No. 143643, in favor of the Bachrach Motor Company, Inc., to secure a debt for P3,675, payable in twelve installments. In the month of November of the same year, the mortgagor defaulted in the payment of the installment for that month; and as a consequence the Motor Company determined to have the car sold for the purpose of foreclosing the mortgage, in the manner prescribed in section 14 of the Chattel Mortgage Law (Act No. 1508). It accordingly requested Ricardo Summers, as sheriff of the city of Manila, to take the car from the debtor and to expose it to public sale, as provided in said section. Acting in pursuance of this authority the sheriff applied to the mortgagor for the automobile; but the mortgagor refused to surrender possession; and the Motor Company instituted an action of replevin to recover the car. However, its efforts to get possession were again destined to be temporarily baffled, as Aboitiz gave bond for the retention of the automobile pendente lite. The Motor Company thereupon filed the present petition in this court for the writ of mandamus to compel the sheriff to seize the car from the mortgagor and sell it. To this petition the sheriff demurred, and the cause is now before us for the determination of the issues thus presented. The question to which we shall first address ourselves and which is really the vital point in the case is whether, after default by the mortgagor in the performance of the conditions of a chattel mortgage, the sheriff is unconditionally bound to seize the mortgaged property, at the instance of the creditor, and sell it to satisfy the debt. The petitioner supposes that the sheriff must so proceed and that, upon failure to do so, he can be compelled thereto by the writ of mandamus. In commercial usage the property which is the subject of a chattel mortgage is, as is well known, almost invariably left in the possession of the mortgagor, and this possession is not disturbed until the mortgagor defaults in the payment of the secured debt or otherwise fails to comply with the conditions of the mortgage. When default occurs and the creditor desires to foreclose, he must necessarily take the mortgaged property into his hands; and his right to do this is clearly implied in the provision which gives the right to sell. Says the statute: "The mortgagee . . . may, after thirty days from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides," etc. (Sec. 14, Act No. 1508.) As will be seen, this provision supposes that the creditor has possession of the mortgaged property, for the power to sell imports a power to make delivery of the thing sold to the purchaser; and without actual possession delivery would be

impossible. The right of the mortgagee to have possession after condition broken must therefore be taken to be unquestionable; and to this effect is the great weight of American authority. (11 C. J., 560; 28 Am. & Eng. Encyc. of Law, 2d ed., 782; 5 R. C. L., 462; St. Mary's Machine Co. vs. National Supply Co., 96 Am. St. Rep., 677, 684, note.) Where, however, the debtor refuses to yield up the property, the creditor must institute an action, either to effect a judicial foreclosure directly, or to secure possession as a preliminary to the sale contemplated in the provision above quoted. He cannot lawfully take the property by force against the will of the debtor. Upon this point the American authorities are even more harmonious than they are upon the point that the creditor is entitled to possession. As was said many years ago by the writer of this opinion in a monographic article contributed to an encyclopedic legal treatise, "if possession cannot be peaceably obtained the mortgagee must bring an action." (Trust Deeds and Power of Sale Mortgages, 28 Am. & Eng. Encyc. of Law, 2d ed., 783.) In the article on Chattel Mortgages, in Corpus Juris, we find the following statement of the law on the same point: "The only restriction on the mode by which the mortgagee shall secure possession of the mortgaged property after breach of condition is that he must act in an orderly manner and without creating a breach of the peace, subjecting himself to an action for trespass." (11 C. J., 560; see also 5 R. C. L., 462.) The reason why the law does not allow the creditor to possess himself of the mortgaged property with violence and against the will of the debtor is to be found in the fact that the creditor's right of possession is conditioned upon the fact of default, and the existence of this fact may naturally be the subject of controversy. The debtor, for instance, may claim in good faith, and rightly or wrongly, that the debt is paid, or that for some other reason the alleged default is nonexistent. His possession in this situation is as fully entitled to protection as that of any other person, and in the language of article 446 of the Civil Code he must be respected therein. To allow the creditor to seize the property against the will of the debtor would make the former to a certain extent both judge and executioner in his own cause a thing which is inadmissible in the absence of unequivocal agreement in the contract itself or express provision to that effect in the statute. It will be observed that the law places the responsibility of conducting the sale upon "a public officer;" and it might be supposed that an officer, such as the sheriff, can seize the property where the creditor could not. This suggestion is, we think, without force, as it is manifest that the sheriff or other officer proceeding under the authority of the language already quoted from section 14 of the Chattel Mortgage Law, becomes pro hac vice the mere agent of the creditor. There is nothing in this provision which creates a specific duty on the part of the officer to seize the mortgaged property; and no intention on the part of the law-making body to impose such a duty can be implied. The conclusion is clear that for the recovery of possession, where the right is disputed, the creditor must proceed along the usual channels by action in court. Whether the sheriff, upon being indemnified by the creditor, could safely proceed to take the property from the debtor, is a point upon which we express no opinion. In the brief of counsel attention is directed to the circumstance that in section 3 of Act No. 1508, the chattel mortgage is said to be-a conditional sale; and an inference is drawn therefrom supposedly favorable to the contention of the petitioner. It is undeniable that the language there used supports the view that the mortgagee is the owner of the mortgaged property and therefore entitled to possession after condition broken, but that provision is in no wise concerned with the problem as to

how possession may be acquired if the mortgagor refuses to yield it up. In this connection a few words of comment exhibiting the true import of that provision will not be out of place. The language referred to is as follows: "SEC. 3. 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 mortgagee is thereby divested of his title." The use of the term conditional sale in connection with the chattel mortgage is apt to be misleading to a person unacquainted with the common-law history of the contract of mortgage; and it is unfortunate that such an expression should have been incorporated in a statute intended to operate in the Philippine Islands. As will be readily seen, the idea is totally foreign to the conception of the mortgage which is entertained by the civil law. What is worse it does not even reflect with fidelity the actual state of the American and English law on the same subject. Rightly understood, in connection with the common-law history of the mortgage, the meaning of the section quoted may be exhibited in some such proposition as the following: A chattel mortgage is a contract which purports to be, and in form is, a sale of personal property, intended as security for the payment of a debt, or the performance of some other obligation specified therein, upon the condition subsequent that such sale shall be void upon payment of the debt or performance of the specified obligation according to the terms of the contract. Now, while the proposition which we have here formulated contains a true description of the external features of the chattel mortgage, it does not by any means embody a correct statement of its juridical effects. A visit to any recorder's office in a common-law State will supply abundant proof that chattel mortgages are commonly drawn in the form of a straight sale, to which a clause of defeasance is added, declaring that in case the debt is paid or other obligation performed the contract will be void. But the form of the contract is merely a heritage from the remote past, and does not by any means reveal the exact import of the transaction. Every person, however superficially versed in American and English law, knows that in equity the mortgage, however drawn, is to be treated as a mere security. The contract in fact merely imposes on the mortgaged property a subsidiary obligation by which it is bound for the debt or other principal obligation of the mortgagor. This is the equitable conception of the mortgage; and ever since the English Court of Chancery attained to supremacy in this department of jurisprudence, mortgages have been dealt with in this sense in every land where English law has taken root. The old formulas may, it is true, remain, but a new spirit has been breathed into them. And of course sooner or later the ancient forms are discarded. Look, for instance, at the form of a chattel mortgage given in section 5 of Act No. 1508, where it is said that the mortgagor "conveys and mortgages." This means "conveys by way of mortgage ;" and the word "mortgages" alone would of course be equally effective. In fact we note that in the contract executed in the present case, it is merely said that Elias Aboitiz "mortgages" the automobile to which the contract relates. In describing the chattel mortgage as a conditional sale we are merely rattling the bones of an antiquated skeleton from which all semblance of animate life has long since departed. The author of section 3 of the Chattel Mortgage Law

was most unhappy in his effort to elucidate to civilian jurists the American conception of the contract of mortgage. But whatever conclusion may be drawn in the premises with respect to the true nature of a chattel mortgage, the result must in this case be the same; for whether the mortgagee becomes the real owner of the mortgaged property as some suppose or acquires only certain rights therein, it is none the less clear that he has after default the right of possession; though it cannot be admitted that he may take the law into his own hands and wrest the property violently from the possession of the mortgagor. Neither can he do through the medium of a public officer that which he cannot directly do himself. The consequence is that in such case the creditor must either resort to a civil action to recover possession as a preliminary to a sale, or preferably he may bring an action to obtain a judicial foreclosure in conformity, so far as practicable, with the provisions of the Chattel Mortgage Law. Only a few words will be added with reference to the question whether this court has jurisdiction to entertain the present proceeding. In this connection it is insisted by the attorneys for the respondent that the sheriff is an officer of the Court of First Instance and the petitioner should, so it is insisted, address himself to that court as the proper court to control the activities of the sheriff. While this criticism would be valid if the purpose were to control the sheriff in the matter of carrying into effect any judgment, order, or writ of a Court of First Instance, it is not applicable in a case like the present where the act to be done is defined by general law and has no relation to the office of sheriff as the executive officer of the Court of First Instance. AS to such activities this court must be considered to have concurrent jurisdiction with the Court of First Instance under section 515 of the Code of Civil Procedure. The demurrer must be sustained, and the writ prayed for will be denied. It is so ordered, with costs against the petitioner. Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.

SECOND DIVISION [G.R. No. 5577. February 21, 1910.] J. W. MEYERS, plaintiff-appellant, vs. WILLIAM THEIN ET AL., defendants-appellees. O' Brien & De Witt, for appellant. Hartigan & Rohde, and Roman Lacson, for appellees. SYLLABUS 1. PLEDGE UNDER CIVIL CODE; CREDITORS; PREFERENCES. The preference of a creditor secured by a pledge with respect to the thing pledged, to the extent of the value of the same, is established by article 1992, par. 2, of the Civil Code, provided that the thing pledged is in the possession of the creditor. 2. LANDLORD AND TENANT; PREFERENCE WITH RESPECT TO RENTS DUE. The preference of the lessor with respect to the personal property of the lessee existing on the estate leased, by reason of rents due him, is established by par. 7, art. 1992, Civil Code.

3. PREFERENCE OF CREDIT SECURED BY PLEDGE OVER CLAIM FOR RENTS. A credit secured by a pledge obtains preference over a credit for rents by reason of the order in which credits are classified article of the Civil Code. 4. PLEDGE; CHATTEL MORTGAGE; DELIVERY AND CHANGE OF POSSESSION. According to the Civil Code it is absolutely necessary for such preference, that the pledge shall really be in the possession of the creditor-pledge, as it is essential in the contract-pledgee, as it is essential in the contract of pledge that the property shall be placed in the possession of the pledgee (art. 1863, Civil Code); but under Act No. 1508 of the Philippine Commission, enacted July 2, 1906, although it is true 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," the Act, however, provides for another kind of delivery in addition to the actual delivery, adding: "or unless the mortgage is recorded in the office of the register of deeds of the province . . .."This last provision of Act No. 1508 of the Philippine Commission extends the sense of paragraph 2 of article 1922, in so far as it permits the symbolical delivery of the mortgaged thing, considering the same as in the possession of the creditor if the contract is recorded in the office of the register of deeds of the province. As to whether or not Act No. 1508 has repealed the articles of the Civil Code, which provide or assume that it is an essential requisite of the contract of pledge that there be actual delivery and change of possession of the thing pledged, outside of the relationship of third parties, quaere. DECISION ARELLANO, C. J p: 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 P215, for rent due for the months of June and July, 1908. In the months of June July, 1908, the furniture in question 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, invoked 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. ...

"7. Credits for rents and leases for one year with regard to the personal property of the lessee existing on the estate leased and on the fruits thereof." Paragraph 2 of said article also contains the following: "Credits secured by a pledge which may be in the possession of the creditor, with regard to the thing pledged and to the extent of its value." 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 debtor, William Thein, if 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 abovementioned 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 a 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 creditorpledgee. 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 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 abovementioned sum of P200, being the amount of the aforesaid rent. And the plaintiff is further ordered to pay the costs 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. 2. That although the registration of a mortgage or pledge of personal property prejudices a third party, a prevailed creditor, such as a lessor claiming the rent for his leased property, who, in law, has a mortgage upon the furniture of the lessee existing upon the premises, can not be considered as such third party, but any other third party by any other title different from that derived from the lease, recognizing no superior claim except one of pledge of personal property, and this only when the property is in the possession of the creditor-pledgee. 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 of 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 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 mortgagee 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 mortgaged personal property, rests 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 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 concluded:(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 no longer the property of the lessee but belonged to a 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 payments of rent by means of an express lien thereon, since the personalty 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 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 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 . . ." The above provision 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 during 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 prayed for in the complaint. So ordered. Torres, Mapa, Johnson, Carson, and Moreland, JJ., concur.

SECOND DIVISION [G.R. No. 11156. March 28, 1916.] In the matter of the voluntary of DU TEC CHUAN. M. G. VELOSO and M. F. DE SOUZA, plaintiffs-appellants. Wolfson & Wolfson, for plaintiff and appellant. SYLLABUS APPEAL; REVERSAL. The Supreme Court will not reverse a trial court on question of fact or of law unless prejudicial error is clearly shown.

DECISION PER CURIAM, p: This appeal involves two claims presented to the assignee in the bankruptcy proceedings of Du Tec Chuan; on by M. F de Souza for services rendered to Du Tec Chuan before going into bankruptcy; and the other by M. G. Veloso who asks to be declared a preferred creditor and entitled to have his claim paid out of the fire of certain personal property on which the said Veloso held a chattel mortgage. The fact that claimant held the chattel mortgage is the reason why the preference is claimed. After a careful examination of the record we have reached the conclusion that the trial court was correct in its decision with respect to both claims; and on the opinions written in these two cases we affirm the judgment appealed from, with costs against the appellants. So ordered. Torres, Johnson, Trent and Araullo, JJ. Separate Opinions MORELAND, J., concurring: This appeal involve two claims presented by to the assignee in the bankruptcy proceedings of Du Tec Chuan; one is presented by M. F. de Souza for services rendered to Du Tec Chuan before going into bankruptcy, and the other by M. G. Veloso who asks to be declared a preferred creditor and entitled to have his claim paid out of the insurance money collected as a result of the destruction by fire of certain personal property on which the said Veloso held a chattel mortgage. The fact that claimant held the chattel mortgage is the reason why the preference is claimed. With regard to the claim of De Souza the trial court said: "M. F. de Souza has filed a claim against the insolvent estate of Du Tec Chuan for the sum of P1,374.34 being 10 per cent of the amount collected on two fire insurance policies. Mr. de Souza bases his claim principally on the document marked 'M. F. de Souza's Exhibit 1,' which evidences an agreement between Du Tec Chuan and his creditor's and M. F. de Souza for a liquidation of the affairs of the firm La Fama. The proposed liquidation appears to have been in the nature of an extrajudicial insolvency proceeding in which Mr. de Souza would act as assignee. The agreement is silent in regard to Mr. de Souza's compensation but provides that he should have a bond in the sum of P20,000 for the faithful performance of his duties. "Mr. de Souza never gave the bond mentioned and it is self-evident that having failed to fulfill one of its essential conditions he cannot recover under the agreement. Nor has he in the motion of the court, established his right to recover upon any other basis. The evidence in regard to the services he alleges to have rendered is so vague and unsatisfactory as to leave the court in doubt as to whether they were of any value whatever. The claim is therefore denied." After an examination of the record with respect to this claim I cannot but agree with the decision of the lower court and particularly with that portion where the court says that "the evidence in regard to the services he alleges to have rendered is so vague and unsatisfactory as to leave the court in doubt as to whether they were of any value whatever."

With respect to the other claim the trial court said: "Mariano G. Veloso has presented a claim against the insolvent estate of Du Tec Chuan for P5,000 with interest at the rate of 12 per cent per annum from July 21, 1912, and maintains that said claim is entitled to preference. Only the alleged right to preference and not the claim it self is opposed by the assignee. "The claim to preference rests upon the alleged pledge of a fire insurance policy, under which policy the insolvent recovered from the Assurance Company the sum of P7,174.45, which sum is now in the hands of the assignee. No documentary evidence has been presented and the court is not aware of any legal provision under which an oral assignment or pledge of a chose in action can be held effective as against third parties. The reference in the chattel mortgage Exhibit 3 to payment of insurance premium is not a sufficient assignment. "The court therefore holds that the insolvent estate of Du Tec Chuan is indebted to Mariano G. Veloso in the sum of P5,000 with interest at the rate of 12 per cent per annum from July 21, 1912, but that the credit is not entitled to preference." 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 the sum of money or doing some other act named. The execution of a chattel mortgage transfers the title to the purchaser who receives it subject to a defeasance by the happening of the event named in the mortgage. In strict sense, a chattel mortgage is not a pledge of personal property as that term is defined in the titled remains in the pledgor and does not pass to the pledgee. Moreover, where there is a pledge is liable for any debts which the pledgor may create in favor of the pledgee during the existence thereof. This is not the case with a chattel mortgage. Furthermore, in case of pledge the property pledged must be delivered to the pledgee or to some third person in his behalf; in case of a chattel mortgage such delivery is not necessary. Finally, the act of pledging creates a preference in favor of the creditor which gives him certain advantages over the creditors of the pledgor. Such is not the case in a chattel mortgage. A chattel mortgage creates no preference in favor of the mortgagor, as the word preference is used in the Civil Code. It is rather a sale of property by which the vendor divests himself of the title in favor of the vendee subject to the possibility of such title being defeated by the payment of the money or the performance of the act required by the terms of the mortgage. A chattel mortgage relates to specific personal property. A preference does not refer to specific property but is simply a right to share in advance of some other person in the assets of the debtor after they have been marshalled and converted into money. A chattel mortgage has nothing to do with the marshalling of the assets of the debtor or with the money into which those assets are converted. It deals exclusively with the specific property described in the mortgage and for that reason is on entirely different footing from a right of preference. No one can take the title away from the mortgagee except the mortgagor and he only in the manner prescribed by the mortgage itself. No other person has or can have an interest in the property, except those persons who have under the law special liens resulting from repairs to the mortgaged property necessary to preserve it and the housing thereof for the same purpose. But mortgagee as they are to the mortgagor and without which the property would be lost to both. The general statement is therefore correct that, after the execution of a chattel mortgage and its registry as required by law, nobody can obtain an interest in that property adverse to that of the mortgagee. As a necessary result it is clear, as we have already stated, that a chattel mortgage cannot be considered a pledge of the property which it covers.

Nor does it give a preference with regard to the general property of the debtor as that word is defined in the Civil Code. It would be contradictory, if not absurd, to say that a mortgagee has a preference with regard to property which he himself owns. A preference can exist only with respect to property which is owned by the debtor. The case of Meyers vs. Thein (15 Phil. Rep., 303), cited by the appellant, is not in conflict with the observations herein made as that case related to the right of a person with respect to mortgaged property which he had housed and preserved, such act being for the benefit of the mortgagee as well as the mortgagor, giving him a lien on the property superior to that of the mortgagee. The reason why charges for repairs and for other acts which go directly to the preservation of the property are prior liens even upon mortgaged property is that they operate directly in benefit of the mortgagee as well as the mortgagor. While the mortgage in question was given on a stock of goods in a store it does not appear whether sales were made from the stock or not; and therefore we do not have before us the question whether such a mortgage is in violation of the last part of section 7 of Act No. 1508. The question whether the chattel mortgage, being transfer of the titled of the property to the mortgagee, did not subrogate the mortgagee to or place him in such a position in equity as would entitled him to exercise all of the rights which the mortgagor had in property, including the insurance policy in case of loss, is one which has not been raised on this appeal or argued in any way and we therefore do not feel called upon to discuss or to decide it. I am in accord with the finding of the trial court that there is no substantial evidence to the effect that the policy of insurance was assigned to the mortgagee and that, apart from the theory of subrogation, he had any interest in the insurance policy. All of the acts of the claimant are contrary to his contention that the insurance policy was assigned. After the property insured had burnt an action on the policy was begun by Du Tec Chuan in his own name with the knowledge of the mortgagee. He obtained judgment for P7,174.45 which, with the knowledge and consent of the mortgagee, was turned over to the assignee as property belonging to Du Tec Chuan. Not only this, but the claimant, in addition, presented his claim to the assignee asking that it be paid out of the P7,174.45 obtained on the insurance policy. This it would seem was in effect an admission that the P7,174.45 was the property of Du Tec Chuan, as the claim could not be paid out of property belonging to any one else. Upon the whole case I am convinced that the decision of the trial court is correct.