Clemente vs. Galvan

A chattel mortgage is void where the mortgagor has no actual or constructive possession of the property and no right to dispose of it, particularly where the property belongs to a partnership and not to the mortgagor individually. A private document cannot vary or alter the terms of a public document such as a deed of mortgage.

Plaintiff Enrique Clemente and defendant Dionisio Galvan organized a civil partnership named "Galvan y Compañia" on June 6, 1931, to engage in the manufacture and sale of paper and other stationery. The partners agreed to invest P100,000 but actually contributed only P10,000 each, covering one-fifth of the agreed capital. The partnership was entrusted with the management of its affairs to defendant Galvan. The intervenor Jose Echevarria is the nephew of plaintiff Clemente.

On June 6, 1931, Enrique Clemente and Dionisio Galvan organized a civil partnership named "Galvan y Compañia" to engage in the manufacture and sale of paper and other stationery. They agreed to invest P100,000 but actually covered only one-fifth thereof, each contributing P10,000. Hardly a year after such organization, Clemente commenced a case in the Court of First Instance of Manila to ask for the dissolution of the partnership and to compel Galvan, to whom the management was entrusted, to submit an accounting of his administration and to deliver his share as partner. In his answer, Galvan expressed conformity to the dissolution and liquidation but filed a counterclaim asking that Clemente reimburse him one-half of the P4,000 deficit he had covered with his own money.

On petition of Clemente, the court appointed Juan D. Mencarini as receiver and liquidator to take charge of the partnership properties. While the receiver was discharging his duties, the court, by virtue of an ex parte petition of Clemente, issued an order on May 24, 1933, requiring the receiver to deliver to Clemente certain machines located at Nos. 705-707 Ylaya Street, Manila, authorizing him to charge their value of P4,500 against the portion eventually due to Clemente. The receiver delivered to Clemente the keys to the place where the machines were found, which was the same place where Galvan had his home. However, before Clemente could take actual possession, upon the strong opposition of Galvan, the court suspended the effects of its order of May 24, 1933.

In the meantime, judgments in cases Nos. 42794 and 43070, entitled "Philippine Education Co., Inc. vs. Enrique Clemente" and "Jose Echevarria vs. Enrique Clemente," respectively, both for the recovery of sums of money, were made executory. To avoid the attachment and subsequent sale of the machines by the sheriff for the satisfaction of these judgments, Clemente agreed with Echevarria, his nephew, to execute a deed of mortgage (Exhibit B) encumbering the machines described therein. The deed stated that the machines "are situated on Singalong Street No. 1163," a place entirely different from the house at Nos. 705-707 Ylaya Street. When the one-year period agreed upon in the deed of mortgage expired, Echevarria commenced case No. 49629 to collect his mortgage credit and obtained judgment in his favor because Clemente did not interpose any defense and admitted being indebted to Echevarria. The machines were then in custodia legis, under the control of the receiver, making it useless for Echevarria to attach them. The court in that case decided nothing could be done because the receiver was not a party. Echevarria then joined the present case as intervenor.

The lower court rendered judgment declaring the mortgage executed by Clemente in favor of Echevarria null and void, dismissing the complaint in intervention and the counterclaim filed by Galvan against Echevarria. The evidence showed that the machines in contention originally belonged to Galvan and were transferred by him to the partnership Galvan y Compañia.

• Error in Finding on Possession: The intervenor-appellant argued that the lower court erred in finding that plaintiff was unable to take possession of the machines subject of the deed of mortgage either before or after the execution thereof.
• Error on Ownership Evidence: The intervenor-appellant argued that the lower court erred in deciding the case against him on the ground that plaintiff had not adduced evidence to show that the machines mortgaged to the intervenor had ever belonged to him, notwithstanding that the intervenor is his close relative.
• Error in Declaring Mortgage Void: The intervenor-appellant argued that the lower court erred in declaring null and void the mortgage executed by plaintiff in his favor and dismissing the complaint in intervention.
• Error in Ordering Delivery: The intervenor-appellant argued that the lower court erred in ordering the receiver to deliver the machines to the defendant upon petition of the plaintiff.

N/A — The decision does not recount the arguments of the defendant-appellee or the plaintiff-appellee in detail.

• Possession of the Machines: Whether plaintiff Clemente had possession of the machines such that he could validly mortgage them to the intervenor.
• Ownership of the Machines: Whether the machines belonged to plaintiff Clemente individually or to the partnership Galvan y Compañia.
• Validity of the Mortgage: Whether the deed of mortgage executed by plaintiff in favor of the intervenor was valid and binding.
• Delivery to Defendant: Whether the lower court erred in ordering the receiver to deliver the machines to the defendant.

• Possession of the Machines: No. Clemente could not obtain possession of the machines. The constructive possession from having the keys was not sufficient because the lower court suspended the effects of the order delivering the keys and later revoked it entirely. When he attempted to take actual possession, defendant opposed him.
• Ownership of the Machines: No. The machines originally belonged to defendant Galvan and were transferred to the partnership Galvan y Compañia. They therefore belonged to the partnership, not to Clemente individually, and would belong to it until partition after liquidation.
• Validity of the Mortgage: No. The mortgage was properly declared null and void. The machines referred to in the deed of mortgage were described as situated on Singalong Street No. 1163, not the machines on Ylaya Street Nos. 705-707. The supplementary private document (Exhibit B-1) could not vary or alter the terms of the public document (Exhibit B).
• Delivery to Defendant: No. This assigned error was disposed of by the considerations set forth above and was baseless.

• Possession of the Machines: The Court reasoned that Clemente could not obtain possession of the machines in question. The constructive possession deducible from the fact that he had the keys to the place where the machines were found did not help him because the lower court suspended the effects of the order whereby the keys were delivered to him a few days after its issuance, and thereafter revoked it entirely in the appealed decision. Furthermore, when he attempted to take actual possession of the machines, the defendant did not allow him to do so. Consequently, if he did not have actual possession of the machines, he could not in any manner mortgage them. While the deed of mortgage Exhibit B was annotated in the registry of property, the machines to which it refers are not the same as those in question because the latter are on Ylaya Street Nos. 705-707 and the former are on Singalong Street No. 1163. Exhibit B-1, allegedly a supplementary contract, being merely a private document, cannot vary or alter the terms of a public document which is Exhibit B or the deed of mortgage.

• Ownership of the Machines: The Court found the second error attributed to the lower court baseless. The evidence of record shows that the machines in contention originally belonged to the defendant and from him were transferred to the partnership Galvan y Compañia. This being the case, said machines belong to the partnership and not to him, and shall belong to it until partition is effected according to the result thereof after the liquidation.

• Validity of the Mortgage: The Court held that the last two errors attributed by the appellant to the lower court were already disposed of by the considerations set forth above and were as baseless as the previous ones. The mortgage was properly declared null and void because Clemente had no possession of the machines and the machines belonged to the partnership.

• Requirement of Possession for Chattel Mortgage — A mortgagor must have actual or constructive possession of the property to validly mortgage it. In this case, Clemente never had actual possession of the machines because the order delivering the keys was suspended and later revoked, and defendant opposed his attempts to take possession. Without possession, he could not mortgage the machines.

• Partnership Property — Property transferred to a partnership by a partner becomes partnership property and belongs to the partnership until partition is effected after liquidation. The machines originally belonged to Galvan and were transferred to the partnership, making them partnership property that Clemente could not individually mortgage.

• Public Document Prevails Over Private Document — A private document cannot vary or alter the terms of a public document. Exhibit B-1, allegedly a supplementary contract, being merely a private document, could not show that the machines referred to in the deed of mortgage are the same as those in dispute because it could not vary the terms of the public deed of mortgage Exhibit B.

• "Consequently, if he did not have actual possession of the machines, he could not in any manner mortgage them, for while it is true that the oft-mentioned deed of mortgage Exhibit B was annotated in the registry of property, it is no less true the machines to which it refers are not the same as those in question because the latter are on Ylaya Street Nos. 705-707 and the former are on Singalong Street No. 1163." — This passage states the core ratio decidendi: possession is a prerequisite for a valid chattel mortgage, and the machines described in the deed were not the same as those in dispute.

• "It can not be said that Exhibit B-1, allegedly a supplementary contract between the plaintiff and the intervenor, shows that the machines referred to in the deed of mortgage are the same as those in dispute and which are found on Ylaya Street because said exhibit being merely a private document, the same cannot vary or alter the terms of a public document which is Exhibit B or the deed of mortgage." — This passage establishes the rule that private documents cannot modify public documents, which was essential to rejecting the intervenor's claim.

• "The evidence of record shows that the machines in contention originally belonged to the defendant and from him were transferred to the partnership Galvan y Compania. This being the case, said machines belong to the partnership and not to him, and shall belong to it until partition is effected according to the result thereof after the liquidation." — This passage defines the nature of partnership property and explains why Clemente could not mortgage machines that belonged to the partnership.

N/A — The decision does not cite any prior cases.

N/A — The decision does not cite specific statutory provisions, though it implicitly applies principles of partnership law and chattel mortgage law under the Civil Code and related statutes.

Avanceña, C. J., Villa-Real, Imperial, Laurel, Concepcion, and Moran, JJ., concurred.

N/A — No dissenting opinions were noted in the decision.