G.R. No. 93640 - Tay Chun Suy vs. Court of Appeals

Plaintiff-Appellant: Gonzalo Chua Guan
Defendants-Appellees: Samahang Magsasaka, Inc., a corporation duly organized under Philippine laws with principal office in Cabanatuan, Nueva Ecija, and its officers Simplicio Ocampo (President), Adriano G. Sotto (Secretary), and Emilio Vergara (Treasurer).
Gonzalo H. Co Toco was the owner of 5,894 shares in the corporation, represented by nine certificates with a par value of P5 per share.

On June 18, 1931, Gonzalo H. Co Toco mortgaged his 5,894 shares to Chua Chiu to secure a P20,000 debt due on or before June 19, 1932.
The mortgage, along with the stock certificates, was delivered to the mortgagee and duly registered at the Manila Register of Deeds on June 23, 1931, and at the corporation’s office on September 30, 1931.
On November 28, 1931, Chua Chiu assigned all his rights under the mortgage to the plaintiff. The assignment was also registered in the Register of Deeds and the corporation's office by January 1932.

After the debtor defaulted on payment at maturity, the plaintiff foreclosed the mortgage and delivered the certificates and relevant papers to the Manila sheriff for public auction.
The sheriff auctioned the shares on December 22, 1932; the plaintiff was the highest bidder at P14,390 and received a certificate of sale.
Plaintiff tendered the original certificates for cancellation and demanded new ones be issued in his name from the corporation, but defendants refused to do so.

Defendants claimed refusal was due to nine writs of attachment served and noted on the corporation’s books prior to the plaintiff's demand (February 4, 1933), against the shares of Gonzalo H. Co Toco.
The attachments covered various amounts and court cases, some involving the Samahang Magsasaka, Inc. itself or other creditors, with notes duly received by the corporation’s secretary.
Notably, eight attachments were served and noted on the corporation’s records before the mortgage to Chua Chiu was registered at the Manila Register of Deeds (June 23, 1931).

No question was raised on validity of the mortgage or the attachments themselves.
The central issue: Whether the chattel mortgage, registered at the Register of Deeds, takes priority over the attachments noted on the corporation's books.
The query reduces to whether registration of the chattel mortgage gave constructive notice to prior attaching creditors who had no actual notice.

Whether a chattel mortgage on shares of stock, registered only at the Register of Deeds and not accompanied by possession delivery to the mortgagee, is valid and effective against third parties, specifically prior attaching creditors.
Whether registration of a chattel mortgage on corporate shares at the Register of Deeds provides constructive notice to third parties who had attachments noted on the corporate books before mortgage registration.
What is the proper locus for registration of a chattel mortgage on shares of stock in relation to the mortgagor’s domicile and the corporation’s principal place of business.
Whether shares of stock can be hypothecated effectively by chattel mortgage under Philippine law.