#preferential lien

Leung Yee vs FL Strong Machinery

Facts:

Compania Agricola Filipina bought rice cleaning machinery from L Strong Machinery secured by a chattel mortgage on the machinery and on the building to which it was installed. They failed to pay, thus the chattel mortgage was foreclosed. Almost at the same time as when the chattel mortgage was constituted, the Compania executed a real estate mortgage, separate and distinct from the chattel mortgage, over the lot on which the building was erected in favor of Leung Yee to secure a loan. Compania also failed to pay, and thus, the real estate mortgage was foreclosed; Leung Yee securing in his favor a judgment levying execution upon the building. FL Strong Machinery then filed a case for it to be declared the rightful owner of the building which was granted by the trial court on the ground that it had a title prior to the date of registry of Leung Yee’s certificate.

Issue:

WON the registration of the building in the Registry of Chattel Mortgages affected the character of the building and the machineries installed thereon.

Held:

No.

The Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel mortgages," mortgages of personal property executed in the manner and form prescribed in the statute. The building of strong materials in which the machinery was installed was real property, and the mere fact that the parties seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as real property. It follows that neither the original registry in the chattel mortgage registry of the instrument purporting to be a chattel mortgage of the building and the machinery installed therein, nor the annotation in that registry of the sale of the mortgaged property, had any effect whatever so far as the building was concerned.

            Cerna vs CA & Leviste

Facts:

Delgado obtained a loan from Leviste secured by a chattel mortgage over his jeep as well as by a car owned by Cerna (by virtue of a special power of atty given by Cerna). Delgado failed to pay. Thus, Leviste filed a collction suit against Delgado & Cerna, alleging that they are solidarily liable.

Issue:

WON Cerna, as co-mortgagor, can be held solidarily liable to pay the obligation.

Held:

No.

There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is, to pay the loan. The signatory to the principal contract — loan — remains to be primarily bound. It is only upon the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditors has recourse on the principal debtor.

Granting, however, that petitioner was obligated under the mortgage contract to answer for Delgado's indebtedness, under the circumstances, petitioner could not be held liable because the complaint was for recovery of a sum of money, and not for the foreclosure of the security. Thus:

"A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to recover in the said collection suit."

                Navarro vs Pineda

Facts:

Pineda and his mother obtained a loan secured by real estate mortgage over a lot and a chattel mortgage over a house owned by a third person and a truck. They failed to pay despite several extensions. Thus, Navarro moved to foreclose the mortgages. Pineda et al now claims that the mortgage over the house cannot give rise to an action for foreclosure considering that only movable property can be the subject of a chattel mortgage, thus, the house, being an immovable, cannot be the subject of a chattel mortgage, the same being a nullity.

Issue:

WON a movable property (in this case, the house) can be the subject of a chattel mortgage.

Held:

Yes.

"A property may have a character different from that imputed to it in said articles. It is undeniable that the parties to a contract may by agreement, treat as personal property that which by nature would be real property…"

But although in some instances, a house of mixed materials has been considered as a chattel between them, has been recognized, it has been a constant criterion nevertheless that, with respect to third persons, who are not parties to the contract, and specially in execution proceedings, the house is considered as an immovable property (Art. 1431, New Civil Code).

In the case at bar, the house in question was treated as personal or movable property, by the parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a truck. The mortgagor himself grouped the house with the truck, which is, inherently a movable property. The house which was not even declared for taxation purposes was small and made of light construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to another.

                      Jan-Dec Construction Corp vs CA & Food Terminal Inc.

  Facts:

Intermodal contracted with Jan-Dec for the construction of a bus terminal on a lot leased by the former from Food Terminal, Inc. Jan-Dec, however, failed to pay the whole amount for such construction. Thus, with the knowledge that Food Terminal Inc would takeover the bus terminal, Jan-Dec filed a case for enforcement of its contractor’s lien, among others, against Food Terminal, contending that the latter should assume the unpaid obligations of Intermodal in view of its (Jan-Dec) preferential lien over the bus terminal under Art 2242(3)&(4), NCC.

Issue:

WON Art 2242 is applicable in this case; or, WON Jan-Dec has a preferential lien over the bus terminal under Art 2242 (3)&(4), NCC.

Held:

No, Art 2242 is not applicable. Thus, Jan-Dec has no preferential lien. The article shall apply only to cases where there are several creditors carrying on a legal action against an insolvent debtor. Respondent is not a debtor of the petitioner. Respondent is not a party to the Construction Agreement between petitioner and Intermodal.

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Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real property of the debtor. Specifically, the contractor's lien claimed by the petitioners is granted under the third paragraph of Article 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other immovable property constructed.

However, Article 2242 only finds application when there is a concurrence of credits, i.e., when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others. Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency proceedings."

                  Carried Lumber Company vs. Agricultural Credit and Cooperative Financing Administration (ACCFA)

  Facts:

Sta. Barbara Farmer's Cooperative Marketing Association, Inc. (Facoma) purchased on credit from the lumber company materials used in the construction of its warehouse. Facoma made partial payments but was unable to pay the whole amount due. Thus, a suit for recovery of the amount was filed by the lumber comp against Facoma and obtained a writ of execution over the warehouse and ricemill bldg.

However, here comes ACCFA alleging that said a mortgage over the same warehouse plus the improvements on a certain parcel of lot was already extrajudicially foreclosed for Facoma’s failure to pay the loan contracted by it from ACCFA.

Trial court rendered a decision in favor of the lumber company ruling that it had a preferential lien over the warehouse and ricemill of Facoma than ACCFA. ACCFA, contends, however, that the company waived its lien when it filed an ordinary action to recover its claim instead of enforcing its lien.

Issue:

Whether the materialman’s/mechanic’s lien (lumber company’s lien) is superior to that of the mortgage lien (ACCFA’s lien)

Held:

The materialman’s lien is not superior to that of a mortgage lien.

It is not correct to say that the materialman's (mechanic's) lien or refectionary credit of the lumber company, being listed as No. 4 in article 2242, is superior to the ACCFA's mortgage credit which is listed as No. 5. The enumeration in article 2242 is not an order of preference. That article lists the credits which may concur with respect to specific real properties and which would be satisfied pro rata according to article 2249. It is just and proper that the two creditors should have pro rata shares in that warehouse.

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