Facts:
Union Bank of the Philippines filed, on September 3, 1992, a complaint with the
Regional Trial Court (RTC) of Makati, Branch 57, seeking ex-parte writs of
preliminary attachment and
replevin against
Alain Juniat and the corporations
Winwood Apparel, Inc. and
Wingyan Apparel, Inc., and against the person in possession of the alleged mortgaged motorized sewing machines and equipment. The bank alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a
promissory note dated April 11, 1992 and a
Chattel Mortgage dated March 27, 1992 over several motorized sewing machines and allied equipment to secure their obligation arising from export bills in the amount of
P1,131,134.35, and that Juniat also executed a
Continuing Surety Agreement dated April 11, 1992 as additional security. On September 10, 1992, the RTC issued the writs of attachment and replevin, and the sheriff served them upon
Nonwoven Fabric Philippines, Inc. (Nonwoven) because it was in possession of the machines and equipment, and the RTC likewise served summons upon Nonwoven though it was not impleaded in the complaint. Nonwoven filed an Answer on September 28, 1992, arguing that the unnotarized chattel mortgage had no binding effect on it and that it had a better title by virtue of an
Agreement dated May 9, 1992 with Juniat. Petitioner then moved on November 23, 1992 to sell the chattels seized by replevin, but on May 18, 1993 it sold the attached properties for
P1,350,000.00 before the RTC could resolve the motion; Nonwoven sought to cite the bank’s officers in contempt, but the RTC denied the motion on the ground that Union Bank acted in good faith. The RTC later rendered, on May 20, 1999, a decision in favor of petitioner, declaring that both the bank’s unnotarized chattel mortgage and Nonwoven’s May 9, 1992 agreement had no obligatory effect on third persons due to lack of notarization, yet awarding petitioner a better right over the machines under the doctrine of
“first in time, stronger in right” because its chattel mortgage was executed earlier, and granting petitioner the proceeds of the sale and the corresponding liabilities of defendants for any deficiency. Nonwoven’s motion for reconsideration was denied on July 14, 1999. On appeal, the Court of Appeals reversed and set aside the RTC ruling, holding that the contract under which Juniat “pledged” the machines to Nonwoven was valid and that the machines were ceded to Nonwoven by way of
dacion en pago, thus entitling Nonwoven to the sale proceeds. Petitioner’s motion for reconsideration was denied by resolution dated February 9, 2006, prompting the present petition for review under Rule 45.
Issues:
Whether the Court of Appeals erred in holding that Nonwoven had a valid superior claim over the attached motorized sewing machines and equipment, and therefore over the proceeds of their sale, despite the lack of a binding effect of the underlying pledge or transfer instrument against third parties.
Ruling:
Ratio:
Doctrine: