G.R. No. L-55729March 28, 1983

ANTONIO PUNSALAN, JR., petitioner, vs.REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A. ORTIZ, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:

The sole issue presented by petitioner for resolution is whether or not respondent Court erred in denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de Lacsamana as the case had been dismissed on the ground of improper venue upon motion of co-respondent Philippine National Bank (PNB).

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount, the property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the highest bidder in said foreclosure proceedings. However, the bank secured title thereto only on December 14, 1977.

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from the Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then leased the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975.

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly to include in the sale, the building and improvement thereon. By virtue of said instruments, respondent - Lacsamana secured title over the property in her name (TCT No. 173744) as well as separate tax declarations for the land and building. 1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages" against herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal, Branch XXXI, Quezon City, essentially impugning the validity of the sale of the building as embodied in the Amended Deed of Sale. In this connection, petitioner alleged:

xxx xxxxxx

22.That defendant, Philippine National Bank, through its Branch Manager ... by virtue of the request of defendant ... executed a document dated July 31, 1978, entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank as Vendor sold to defendant Lacsamana the building owned by the plaintiff under Tax Declaration No. 5619, notwithstanding the fact that said building is not owned by the bank either by virtue of the public auction sale conducted by the Sheriff and sold to the Philippine National Bank or by virtue of the Deed of Sale executed by the bank itself in its favor on September 21, 1977 ...;

23.That said defendant bank fraudulently mentioned ... that the sale in its favor should likewise have included the building, notwithstanding no legal basis for the same and despite full knowledge that the Certificate of Sale executed by the sheriff in its favor ... only limited the sale to the land, hence, by selling the building which never became the property of defendant, they have violated the principle against 'pactum commisorium'.

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared null and void and that damages in the total sum of P230,000.00, more or less, be awarded to him. 2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of lack of cause of action in that she was a purchaser for value and invoked the principle in Civil Law that the "accessory follows the principal". 3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was improperly laid considering that the building was real property under article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should apply. 4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale with damages is in the nature of a personal action, which seeks to recover not the title nor possession of the property but to compel payment of damages, which is not an action affecting title to real property.

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows:

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated March 13, 1980, considered against the plaintiff's opposition thereto dated April 1, 1980, including the reply therewith of said defendant, this Court resolves to DISMISS the plaintiff's complaint for improper venue considering that the plaintiff's complaint which seeks for the declaration as null and void, the amendment to Deed of Absolute Sale executed by the defendant Philippine National Bank in favor of the defendant Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly owned and constructed by the plaintiff on the land of the defendant Philippine National Bank situated in the Municipality of Bamban, Province of Tarlac, which warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil Code; and, as such the action of the plaintiff is a real action affecting title to real property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in the province where the property or any part thereof lies. 5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the action to annul does not involve ownership or title to property but is limited to the validity of the deed of sale and emphasized that the case should proceed with or without respondent PNB as respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had been raised by the latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was concerned, as the issues had already been joined with the filing of respondent Lacsamana's Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as the case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in article 415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A building treated separately from the land on which it stood is immovable property and the mere fact that the parties to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner's primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue (Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is concerned as she had already filed an Answer, which did not allege improper venue and, therefore, issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in issue. It would, indeed, be futile to proceed with the case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.

G.R. Nos. L-10837-38 May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff, vs.ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.

ISABEL IYA, plaintiff, vs.ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY. INC., defendants.

Jovita L. de Dios for defendant Isabel Iya.M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co., Inc.

FELIX, J.:

Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan, Rizal, which they purchased on installment basis from the Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insurance and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed an alleged chattel mortgage on the aforementioned house in favor of the surety company, which encumbrance was duly registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time said undertaking took place, the parcel of land on which the house is erected was still registered in the name of the Philippine Realty Corporation. Having completed payment on the purchase price of the lot, the Valinos were able to secure on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot and the house in favor of Isabel Iya, which was duly registered and annotated at the back of the certificate of title.

On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety company demanded reimbursement from the spouses Valino, and as the latter likewise failed to do so, the company foreclosed the chattel mortgage over the house. As a result thereof, a public sale was conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the property was awarded to the surety company for P8,000.00, the highest bid received therefor. The surety company then caused the said house to be declared in its name for tax purposes (Tax Declaration No. 25128).

Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage over the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said surety company instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of the residential house from the real estate mortgage in favor of defendant Iya and the declaration and recognition of plaintiff's right to ownership over the same in virtue of the award given by the Provincial Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the Court to sentence the spouses Valino to pay said surety moral and exemplary damages, attorney's fees and costs. Defendant Isabel Iya filed her answer to the complaint alleging among other things, that in virtue of the real estate mortgage executed by her co-defendants, she acquired a real right over the lot and the house constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house was null and void for non-compliance with the form required by law. She, therefore, prayed for the dismissal of the complaint and anullment of the sale made by the Provincial Sheriff. She also demanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.

Defendants spouses in their answer admitted some of the averments of the complaint and denied the others. They, however, prayed for the dismissal of the action for lack of cause of action, it being alleged that plaintiff was already the owner of the house in question, and as said defendants admitted this fact, the claim of the former was already satisfied.

On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the contract of mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in 4 years, extendible for only one year; that to secure payment thereof, said defendants mortgaged the house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party defendant because it claimed to have an interest on the residential house also covered by said mortgage; that it was stipulated in the aforesaid real estate mortgage that default in the payment of the interest agreed upon would entitle the mortgagee to foreclose the same even before the lapse of the 4-year period; and as defendant spouses had allegedly failed to pay the interest for more than 6 months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with interest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the total obligation as damages, and for costs. As an alternative in case such demand may not be met and satisfied plaintiff prayed for a decree of foreclosure of the land, building and other improvements thereon to be sold at public auction and the proceeds thereof applied to satisfy the demands of plaintiff; that the Valinos, the surety company and any other person claiming interest on the mortgaged properties be barred and foreclosed of all rights, claims or equity of redemption in said properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged property would be insufficient to satisfy the claim of plaintiff.

Defendant surety company, in answer to this complaint insisted on its right over the building, arguing that as the lot on which the house was constructed did not belong to the spouses at the time the chattel mortgage was executed, the house might be considered only as a personal property and that the encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the provisions of the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that said building be excluded from the real estate mortgage and its right over the same be declared superior to that of plaintiff, for damages, attorney's fees and costs.

Taking side with the surety company, defendant spouses admitted the due execution of the mortgage upon the land but assailed the allegation that the building was included thereon, it being contended that it was already encumbered in favor of the surety company before the real estate mortgage was executed, a fact made known to plaintiff during the preparation of said contract and to which the latter offered no objection. As a special defense, it was asserted that the action was premature because the contract was for a period of 4 years, which had not yet elapsed.

The two cases were jointly heard upon agreement of the parties, who submitted the same on a stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled that as the Valinos were not yet the registered owner of the land on which the building in question was constructed at the time the first encumbrance was made, the building then was still a personality and a chattel mortgage over the same was proper. However, as the mortgagors were already the owner of the land at the time the contract with Isabel Iya was entered into, the building was transformed into a real property and the real estate mortgage created thereon was likewise adjudged as proper. It is to be noted in this connection that there is no evidence on record to sustain the allegation of the spouses Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or knew that part of the mortgaged property, i.e., the house, had previously been mortgaged to the surety company.

The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel Iya, although the latter could exercise the right of a junior encumbrance. So the spouses Valino were ordered to pay the amount demanded by said mortgagee or in their default to have the parcel of land subject of the mortgage sold at public auction for the satisfaction of Iya's claim.

There is no question as to appellant's right over the land covered by the real estate mortgage; however, as the building constructed thereon has been the subject of 2 mortgages; controversy arise as to which of these encumbrances should receive preference over the other. The decisive factor in resolving the issue presented by this appeal is the determination of the nature of the structure litigated upon, for where it be considered a personality, the foreclosure of the chattel mortgage and the subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Law would be valid and the right acquired by the surety company therefrom would certainly deserve prior recognition; otherwise, appellant's claim for preference must be granted. The lower Court, deciding in favor of the surety company, based its ruling on the premise that as the mortgagors were not the owners of the land on which the building is erected at the time the first encumbrance was made, said structure partook of the nature of a personal property and could properly be the subject of a chattel mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a building, has said:

. . . while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties (Art. 415, new Civil Code) could only mean one thing that a building is by itself an immovable property . . . Moreover, and in view of the absence of any specific provision to the contrary, a building is an immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).

A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed belongs to another. To hold it the other way, the possibility is not remote that it would result in confusion, for to cloak the building with an uncertain status made dependent on the ownership of the land, would create a situation where a permanent fixture changes its nature or character as the ownership of the land changes hands. In the case at bar, as personal properties could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in question is not one, the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it is true that said document was correspondingly registered in the Chattel Mortgage Register of Rizal, this act produced no effect whatsoever for where the interest conveyed is in the nature of a real property, the registration of the document in the registry of chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of strong materials produce no effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we give any consideration to the contention of the surety that it has acquired ownership over the property in question by reason of the sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:

A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been declared null and void with respect to said real properties, acquires no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).

Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the rights of the surety company, over the building superior to that of Isabel Iya and excluding the building from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to foreclose not only the land but also the building erected thereon is hereby recognized, and the proceeds of the sale thereof at public auction (if the land has not yet been sold), shall be applied to the unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice to any right that the Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino on account of the mortgage of said building they executed in favor of said surety company. Without pronouncement as to costs. It is so ordered.

G.R. No. L-20329 March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner, vs.JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.

Ross, Lawrence and Selph for petitioner.City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

STREET, J.:

This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of deeds of the City of Manila, to an original petition of the Standard Oil Company of New York, seeking a peremptory mandamus to compel the respondent to record in the proper register a document purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.

It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the City of Manila and owner of the house of strong materials built thereon, upon which date she executed a document in the form of a chattel mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold interest in said lot and the building which stands thereon.

The clauses in said document describing the property intended to be thus mortgage are expressed in the following words:

Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of mortgage, the following described personal property, situated in the City of Manila, and now in possession of the mortgagor, to wit:

(1) All of the right, title, and interest of the mortgagor in and to the contract of lease hereinabove referred to, and in and to the premises the subject of the said lease;

(2) The building, property of the mortgagor, situated on the aforesaid leased premises.

After said document had been duly acknowledge and delivered, the petitioner caused the same to be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, for the purpose of having the same recorded in the book of record of chattel mortgages. Upon examination of the instrument, the respondent was of the opinion that it was not a chattel mortgage, for the reason that the interest therein mortgaged did not appear to be personal property, within the meaning of the Chattel Mortgage Law, and registration was refused on this ground only.

We are of the opinion that the position taken by the respondent is untenable; and it is his duty to accept the proper fee and place the instrument on record. The duties of a register of deeds in respect to the registration of chattel mortgage are of a purely ministerial character; and no provision of law can be cited which confers upon him any judicial or quasi-judicial power to determine the nature of any document of which registration is sought as a chattel mortgage.

The original provisions touching this matter are contained in section 15 of the Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred to section 198 of the Administrative Code, where they are now found. There is nothing in any of these provisions conferring upon the register of deeds any authority whatever in respect to the "qualification," as the term is used in Spanish law, of chattel mortgage. His duties in respect to such instruments are ministerial only. The efficacy of the act of recording a chattel mortgage consists in the fact that it operates as constructive notice of the existence of the contract, and the legal effects of the contract must be discovered in the instrument itself in relation with the fact of notice. Registration adds nothing to the instrument, considered as a source of title, and affects nobody's rights except as a specifies of notice.

Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between real property and personal property for purpose of the application of the Chattel Mortgage Law. Those articles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must not be forgotten that under given conditions property may have 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; and it is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property. Other situations are constantly arising, and from time to time are presented to this court, in which the proper classification of one thing or another as real or personal property may be said to be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth Judicial District, in the City of Manila; and little of value can be here added to the observations contained in said ruling. We accordingly quote therefrom as follows:

It is unnecessary here to determine whether or not the property described in the document in question is real or personal; the discussion may be confined to the point as to whether a register of deeds has authority to deny the registration of a document purporting to be a chattel mortgage and executed in the manner and form prescribed by the Chattel Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:

Based principally upon the provisions of section quoted the Attorney-General of the Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds has no authority to pass upon the capacity of the parties to a chattel mortgage which is presented to him for record. A fortiori a register of deeds can have no authority to pass upon the character of the property sought to be encumbered by a chattel mortgage. Of course, if the mortgaged property is real instead of personal the chattel mortgage would no doubt be held ineffective as against third parties, but this is a question to be determined by the courts of justice and not by the register of deeds.

In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held that where the interest conveyed is of the nature of real, property, the placing of the document on record in the chattel mortgage register is a futile act; but that decision is not decisive of the question now before us, which has reference to the function of the register of deeds in placing the document on record.

In the light of what has been said it becomes unnecessary for us to pass upon the point whether the interests conveyed in the instrument now in question are real or personal; and we declare it to be the duty of the register of deeds to accept the estimate placed upon the document by the petitioner and to register it, upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date of the notification hereof, the respondent shall interpose a sufficient answer to the petition, the writ of mandamus will be issued, as prayed, but without costs. So ordered.

G.R. No. L-4637JOSE A. LUNA, petitioner, vs.DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES and THE PROVINCIAL SHERIFF OF RIZAL, respondents.

Jose S. Fineza for petitioner.

BAUTISTA ANGELO, J.:

On September 25, 1948, a deed designated as chattel mortgage was executed by Jose A. Luna in favor of Trinidad Reyes whereby the former conveyed by way of first mortgage to the latter a certain house of mixed materials stated in barrio San Nicolas, municipality of Pasig, Province of Rizal, to secure the payment of a promissory note in the amount of P1,500, with interest at 12 per cent per annum. The document was registered in the office of the register of deeds for the Province of Rizal. The mortgagor having filed to pay the promissory note when it fell due, the mortgage requested the sheriff of said province to sell the house at public auction so that with its proceeds the amount indebted may be paid notifying the mortgagor in writing of the time and place of the sale as required by law. The sheriff acceded to the request and sold the property to the mortgagee for the amount covering the whole indebtedness with interest and costs. The certificate of sale was issued by the sheriff on May 28, 1949. After the period for the redemption of the property had expired without the mortgagor having exercised his right to repurchase, the mortgagee demanded from the mortgagor the surrender of the possession of the property, but the later refused and so on October 13, 1950, she filed a petition in the Court of First Instance of Rizal praying that the provincial sheriff be authorized to place her in possession of the property invoking in her favor the provisions of Act No. 3135, as amended by Act No. 4118.

When the petition came up for hearing before the court on October 25, 1950, Jose A. Luna, the mortgagor, opposed the petition on the following grounds: (1) that Act No. 3135 as amended by Act No. 4118 is applicable only to a real estate mortgage; (2) that the mortgage involved herein is a chattel mortgage; and (3) that even if the mortgage executed by the parties herein be considered as real estate mortgage, the extra-judicial sale made by the sheriff of the property in question was valid because the mortgage does not contain an express stipulation authorizing the extra-judicial sale of the property. After hearing, at which both parties have expressed their views in support of their respective contentions, respondent judge, then presiding the court, overruled the opposition and granted the petition ordering the provincial sheriff of Rizal, or any of this disputives, to immediately place petitioner in possession of the property in question while at the same time directing the mortgagor Jose A. Luna to vacate it and relinquish it in favor of petitioner. It is from this order that Jose A. Luna desires now to obtain relief by filing this petition for certiorari contending that the respondent judge has acted in excess of his jurisdiction.

The first question which petitioner poses in his petition for certiorari is that which relates to the validity of the extra-judicial sale made by the provincial sheriff of Rizal of the property in question in line with the request of the mortgagee Trinidad Reyes. It is contended that said extra-judicial sale having been conducted under the provisions of Act No. 3135, as amended by Act No. 4118, is invalid because the mortgage in question is not a real estate mortgage and, besides, it does not contain an express stipulation authorizing the mortgagee to foreclose the mortgage extra-judicially.

There is merit in this claim. As may be gleaned from a perusal of the deed signed by the parties (Annex "C"), the understanding executed by them is a chattel mortgage, as the parties have so expressly designated, and not a real estate mortgage, specially when it is considered that the property given as security is a house of mixed materials which by its very nature is considered as personal property. Such being the case, it is indeed a mistake for the mortgagee to consider this transaction in the light of Act No. 3135, as amended by Act No. 4118, as was so considered by her when she requested to provincial sheriff to sell it extra-judicially in order to secure full satisfaction of the indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as amended, only covers real estate mortgages and is intended merely to regulate the extra-judicial sale of the property mortgaged if and when the mortgagee is given a special power or express authority to do so in the deed itself, or in a document annexed thereto. These conditions do not here obtain. The mortgage before us is not a real estate mortgage nor does it contain an express authority or power to sell the property extra-judicially.

But regardless of what we have heretofore stated, we find that the validity of the sale in question may be maintained, it appearing that the mortgage in question is a chattel mortgage and as such it is covered and regulated by the Chattel Mortgage Law, Act No. 1508. Section 14 of this Act allows the mortgagee through a public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No. 4118, provided that the requirements of the law relative to notice and registration are complied with. We are not prepared to state if these requirements of the law had been complied with in the case for the record before us is not complete and there is no showing to that effect. At any rate, this issue is not how important because the same can be treshed out when the opportunity comes for its determination, nor is it necessary for us to consider it in reaching a decision in the present case. Suffice it to state that for the present we are not expressing any opinion on this matter which concerns the validity of the sale in question for the reason that this opinion will only be limited to a matter of procedure relative to the step taken by the mortgagee in securing the possession of the property involved.

In the supposition that the sale of the property made by the sheriff has been made in accordance with law, and the question he is confronted is how to deliver the possession of the property to the purchaser in case of refusal to surrender its possession on the part of the debtor or mortgagor, the remedy of the purchaser according to the authorities, is to bring an ordinary action for recovery of possession (Continental Gin Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14 C.J.S., pp. 1027, 1028). The purchaser cannot take possession of the property by force either directly or through the sheriff. And the reason for this is "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" (Bachrah Motor Co. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file a petition for a writ of possession as was done by Trinidad Reyes in this case. Her remedy is to file an ordinary action for recovery of possession in ordered that the debtor may be given an opportunity to be heard not only in regarding possession but also regarding the obligation covered by the mortgage. The petition she has filed in the lower court, which was not even docketed, is therefore improper and should be regarded.

Wherefore, the order subject of the present petition for certiorari is hereby set aside, with costs against respondent Trinidad Reyes.

[G.R. No. L-11139. April 23, 1958.]

SANTOS EVANGELISTA, Petitioner, v. ALTO SURETY & INSURANCE CO., INC., Respondent.

Gonzalo D. David for Petitioner.

Raul A. Aristorenas and Benjamin Relova for Respondent.

SYNOPSIS

1. PROPERTY; HOUSE IS NOT PERSONAL BUT REAL PROPERTY FOR PURPOSES OF ATTACHMENT. A house is not personal property, much less a debt, credit or other personal property capable of manual delivery, but immovable property "A true building (not merely superimposed on the soil), is immovable or real property, whether it is erected by the owner of the land or by a usufructuary or lessee" (Laddera v. Hodges, 48 Off. Gaz., 5374.) and the attachment of such building is subject to the provisions of subsection (a) of section 7, Rule 59 of the Rules of Court.

D E C I S I O N

CONCEPCION, J.:

This is an appeal by certiorari from a decision of the Court of Appeals.

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No. 8235 of the Court of First Instance of Manila, entitled "Santos Evangelista v. Ricardo Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which was levied upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista, who, on October 8, 1951, bought the house at public auction held in compliance with the writ of execution issued in said case. The corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of the period of redemption. When Evangelista sought to take possession of the house, Rivera refused to surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance Co., Inc. respondent herein and that the latter is now the true owner of said property. It appears that on May 10, 1952, a definite deed of sale of the same house had been issued to respondent, as the highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co., Inc. v. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in favor of respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said house, and securing possession thereof, apart from recovering damages.

In its answer, respondent alleged, in substance, that it has a better right to the house, because the sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter. Rivera, in effect, joined forces with Respondent. After due trial, the Court of First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent to deliver the house in question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952, until said delivery, plus costs.

On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved said respondent from the complaint, upon the ground that, although the writ of attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were immovable property, although, in the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of Appeals held, "the order of attachment . . . should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:jgc:chanrobles.com.ph

"The property of the defendant shall be attached by the officer executing the order in the following manner:chanrob1es virtual 1aw library

. . .

"(e)Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or having in his possession or under his control, such credits or other personal property, or with his agent, a copy of the order, and a notice that the debts owing by him to the defendant, and the credits and other personal property in his possession, or under his control, belonging to the defendant, are attached in pursuance of such order." (Emphasis ours.)

However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera should have been attached in accordance with subsection (c) of said section 7, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelista could not have . . . validly purchased Ricardo Riveras house from the sheriff as the latter was not in possession thereof at the time he sold it at a public auction."cralaw virtua1aw library

Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this connection, it is not disputed that although the sale to the respondent preceded that made to Evangelista, the latter would have a better right if the writ of attachment, issued in his favor before the sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is real property or not. In the affirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the attachment should be made "by filing with the registrar of deeds a copy of the order, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any there be.

Respondent maintains, however, and the Court of Appeals held, that Riveras house is personal property, the levy upon which must be made in conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue before us is whether a house, constructed by the lessee of the land on which it is built, should be dealt with, for purposes of attachment, as immovable property, or as personal property.

It is our considered opinion that said house is not personal property, much less a debt, credit or other personal property not capable of manual delivery, but immovable property. As explicitly held, in Laddera v. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on the soil) is immovable or real property, whether it is erected by the owner of the land or by a usufructuary or lessee. This is the doctrine of our Supreme Court in Leung Yee v. Strong Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court . . . ."cralaw virtua1aw library

It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract (Luna v. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New York v. Jaramillo, 44 Phil., 630; De Jesus v. Juan Dee Co., Inc., 72 Phil., 464). However, this view is good only insofar as the contracting parties are concerned. It is based, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable to strangers to said contract. Much less is it in point where there has been no contract whatsoever, with respect to the status of the house involved, as in the case at bar. Apart from this, in Manarang v. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:jgc:chanrobles.com.ph

"The question now before us, however, is: Does the fact that the parties entering into a contract regarding a house gave said property the consideration of personal property in their contract, bind the sheriff in advertising the propertys sale at public auction as personal property? It is to be remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is also to be remembered that in practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy upon in execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house had conveyed it by way of chattel mortgage and, therefore, knew its consideration as personal property.

"These considerations notwithstanding, we hold that the rules on execution do not allow, and we should not interpret them in such a way as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for example, as personal property, when they are not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales on execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to the character which the parties have given to it or desire to give it. When the rules speak of personal property, property which is ordinarily so considered is meant; and when real property is spoken of, it means property which is generally known as real property. The regulations were never intended to suit the consideration that parties may have privately given to the property levied upon. Enforcement of regulations would be difficult were the convenience or agreement of private parties to determine or govern the nature of the proceedings. We, therefore, hold that the mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale at public auction. This ruling is demanded by the need for a definite, orderly and well-defined regulation for official and public guidance and which would prevent confusion and misunderstanding.

"We, therefore, declare that the house of mixed materials levied upon on execution, although subject of a contract of chattel mortgage between the owner and a third person, is real property within the purview of Rule 39, section 16, of the Rules of Court as it has become a permanent fixture of the land, which is real property. (42 Am. Jur. 199-200; Leung Yee v. Strong Machinery Co., 37 Phil., 644; Republic v. Ceniza, Et Al., 90 Phil., 544; Ladera, Et. Al. v. Hodges, Et Al., [C.A. ], 48 Off. Gaz., 5374.)" (Emphasis ours.)

The foregoing considerations apply, with equal force, to the conditions for the levy of attachment, for it similarly affects the public and third persons.

It is argued, however, that, even if the house in question were immovable property, its attachment by Evangelista was void or ineffective, because, in the language of the Court of Appeals, "after presenting a copy of the order of attachment in the Office of the Register of Deeds, the person who might then be in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or other copies thereof ." This finding of the Court of Appeals is neither conclusive upon us, nor accurate.

The Record on Appeal, annexed to the petition for certiorari, shows that petitioner alleged, in paragraph 3 of the complaint, that he acquired the house in question "as a consequence of the levy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment and execution of judgment. He alleged, however, by way of special defense, that the title of respondent "is superior to that of plaintiff because it is based on a public instrument," whereas Evangelista relied upon a "promissory note" which "is only a private instrument" ; that said public instrument in favor of respondent "is superior also to the judgment in Civil Case No. 8235" ; and that plaintiffs claim against Rivera amounted only to P866, "which is much below the real value" of said house, for which reason it would be "grossly unjust to allow plaintiff to acquire the property for such an inadequate consideration." Thus, Rivera impliedly admitted that his house had been attached, that the house had been sold to Evangelista in accordance with the requisite formalities, and that said attachment was valid, although allegedly inferior to the rights of respondent, and the consideration for the sale to Evangelista was claimed to be inadequate.

Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only "for the reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the final deed executed by the sheriff in favor of respondent, the same became the "legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and for value" ; (3) that respondent "took possession and control of said house" ; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as neither took actual or constructive possession or control of the property at any time" ; and (5) "that the alleged registration of plaintiffs attachment, certificate of sale and final deed in the Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is no registry of transactions covering houses erected on land belonging to or leased from another." In this manner, respondent claimed a better right, merely under the theory that, in case of double sale of immovable property, the purchaser who first obtains possession in good faith, acquires title, if the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the writ of attachment and the notice of attachment in favor of Evangelista should be considered unregistered, "as there is no registry of transactions covering houses erected on land belonging to or leased from another." In fact, said article 1544 of the Civil Code of the Philippines, governing double sales, was quoted on page 15 of the brief for respondent in the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it "has preference or priority over the sale of the same property" to Evangelista.

In other words, there was no issue on whether copy of the writ and notice of attachment had been served on Rivera. No evidence whatsoever, to the effect that Rivera had not been served with copies of said writ and notice, was introduced in the Court of First Instance. In its brief in the Court of Appeals, respondent did not aver, or even intimate, that no such copies were served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly admitted by the defendants, in their respective answers, and by their behaviour throughout the proceedings in the Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein (p. 26) that copies of said writ and notice were delivered to Rivera, simultaneously with copy of the complaint, upon service of summons, prior to the filing of copies of said writ and notice with the register of deeds, and the truth of this assertion has not been directly and positively challenged or denied in the brief filed before us by respondent herein. The latter did not dare therein to go beyond making a statement for the first time in the course of these proceedings, begun almost five (5) years ago (June 18, 1953) reproducing substantially the aforementioned finding of the Court of Appeals and then quoting the same.

Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an issue on whether or not copies of the writ of attachment and notice of attachment had been served upon Rivera; that the defendants had impliedly admitted in said pleadings and briefs, as well as by their conduct during the entire proceedings, prior to the rendition of the decision of the Court of Appeals that Rivera had received copies of said documents; and that, for this reason, evidently, no proof was introduced thereon, we are of the opinion, and so hold that the finding of the Court of Appeals to the effect that said copies had not been served upon Rivera is based upon a misapprehension of the specific issues involved therein and goes beyond the range of such issues, apart from being contrary to the aforementioned admission by the parties, and that, accordingly, a grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate.

Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered affirming that of the Court of First Instance of Manila, with the costs of this instance against respondent, the Alto Surety & Insurance Co., Inc. It is so ordered.

Chua Peng Hian v. CA [G.R. No. 60015. December 19, 1984.]Second Division, Aquino (J): 4 concur, 1 took no part.

Facts: Miguel C. Veneracion owned a 2,194 sq.m. lot located at 787 Melencio Street, Cabanatuan City. He leased it in 1948 to Patrick Chua Peng Hian for 10 years. The lease was renewed for another 10 years. Chua constructed on that lot a 2-storey building, the ground floor being the sawmill and the second floor as residence. On 25 May 1968, after the second lease agreement had expired, Veneracion leased to Chua 1,850 square meters of the lot for 3 years or from 1 May 1968 to 1 May 1971 at the monthly rental of P1,500. The new lease contract stipulates that the lease shall terminate automatically without extension and the lessee shall vacate and surrender the premises without any obstruction thereon; that in the event that the Lessee fails to surrender and vacate the leased premises at the expiration of this lease on May 1, 1971, and/or to remove his buildings and improvements, same shall automatically remain as property of the Lessor without the necessity of executing a Deed of Transfer or conveyance of the aforementioned properties; that this document will serve as Deed of Transfer and Conveyance of the above mentioned buildings and improvements in favor of the Lessor; and that the Lessee shall pay the Lessor compensatory damages of P20,000 plus attorneys fee of P2,000 should the Lessor seek judicial relief by reason of Lessees non-fulfillment or violation of the terms of the lease. On 6 February 1969 Veneracion died. After the third lease contract expired or on 1 May 1971, Veneracions heirs demanded that Chua vacate the premises and pay the accrued rentals. Chua did not comply with their demand.

On 11 April 1972, the Veneracions filed in the CFI Nueva Ecija an action for specific performance against Chua. The trial court rendered a decision from which both parties appealed. On 30 October 1980, the Appellate Court rendered judgment ordering Chua and his family to vacate the land in question; to convey the buildings and improvements existing on the land to the Veneracion heirs and to pay the monthly rental of P1,500 from June, 1971 until he delivers possession thereof and the amount of P20,000 as compensatory damages plus P2,000 as attorneys fee. Chua appealed to the Supreme Court.

The Supreme Court affirmed the judgment of the Court of Appeals; with costs against the petitioner.

1. CFI has jurisdiction over issue on rights of parties to a building constructed on land Where the issues raised before the inferior court do not only involve possession of the lot but also the rights of the parties to the building constructed thereon, the Court of First Instance and not the municipal or city court has jurisdiction over the case (Ortigas and Co., Ltd. Partnership vs. Court of Appeals, G.R. No. 52488, July 25, 1981, 106 SCRA 121).

2. CFI has jurisdiction as action for specific performance is not capable of pecuniary. The action sought was for specific performance of the stipulations of a lease contract. It was not capable of pecuniary estimation. It was within the exclusive original jurisdiction of the Court of First Instance (De Jesusvs. Garcia, 125 Phil. 965; Lapitan vs. Scandia, Inc., L-24668, July 31, 1968, 24 SCRA 479).

3. Building and improvements on leased land treated as personal property. The building and improvements on the leased land may be treated as personal properties (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630; Luna vs. Encarnacion, 91 Phil. 531; Manarang vs. Ofilada, 99 Phil. 108; Tumalad vs. Vicencio, L-30173, September 30, 1971, 41 SCRA 143, 152-3). Alienation in the contract of lease of the Lessees improvements is not a disposition of conjugal realty without the wifes consent.

4. Stipulation that Lessor would become owner of improvements is valid. The validity of a stipulation that the lessor would become the owner of the improvements constructed by the lessee on the leased land has been sustained (Lao Chit vs. Security Bank & Trust Co. and Consolidated Investment, Inc., 105 Phil. 490; Co Bun Kin vs. Liongson, 100 Phil. 1091).

5. Contract is the law between the parties. The case is governed by the lease contract which is the law between the parties. The four-year extension of the lease made by the trial court and the amount of damages do not merit any serious consideration.

G.R. No. L-30173September 30, 1971

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees, vs.ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

REYES, J.B.L., J.:

Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that only questions of law are involved.

This case was originally commenced by defendants-appellants in the municipal court of Manila in Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to the court a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive portion of which follows:

WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and against the defendants, ordering the latter to pay jointly and severally the former a monthly rent of P200.00 on the house, subject-matter of this action, from March 27, 1956, to January 14, 1967, with interest at the legal rate from April 18, 1956, the filing of the complaint, until fully paid, plus attorney's fees in the sum of P300.00 and to pay the costs.

It appears on the records that on 1 September 1955 defendants-appellants executed a chattel mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a loan of P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per annum. The mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150 was payable on or before August, 1956. It was also agreed that default in the payment of any of the amortizations, would cause the remaining unpaid balance to becomeimmediately due and Payable and

the Chattel Mortgage will be enforceable in accordance with the provisions of Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or any of his deputies is hereby empowered and authorized to sell all the Mortgagor's property after the necessary publication in order to settle the financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees... 2

When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and on 27 March 1956, the house was sold at public auction pursuant to the said contract. As highest bidder, plaintiffs-appellees were issued the corresponding certificate of sale. 3 Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila, praying, among other things, that the house be vacated and its possession surrendered to them, and for defendants-appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time the possession is surrendered. 4 On 21 September 1956, the municipal court rendered its decision

... ordering the defendants to vacate the premises described in the complaint; ordering further to pay monthly the amount of P200.00 from March 27, 1956, until such (time that) the premises is (sic) completely vacated; plus attorney's fees of P100.00 and the costs of the suit. 5

Defendants-appellants, in their answers in both the municipal court and court a quo impugned the legality of the chattel mortgage, claiming that they are still the owners of the house; but they waived the right to introduce evidence, oral or documentary. Instead, they relied on their memoranda in support of their motion to dismiss, predicated mainly on the grounds that: (a) the municipal court did not have jurisdiction to try and decide the case because (1) the issue involved, is ownership, and (2) there was no allegation of prior possession; and (b) failure to prove prior demand pursuant to Section 2, Rule 72, of the Rules of Court. 6

During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for execution, and it was actually issued on 24 January 1957. However, the judgment regarding the surrender of possession to plaintiffs-appellees could not be executed because the subject house had been already demolished on 14 January 1957 pursuant to the order of the court in a separate civil case (No. 25816) for ejectment against the present defendants for non-payment of rentals on the land on which the house was constructed.

The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and withdrawal of deposited rentals was denied for the reason that the liability therefor was disclaimed and was still being litigated, and under Section 8, Rule 72, rentals deposited had to be held until final disposition of the appeal. 7

On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive portion of which is quoted earlier. The said decision was appealed by defendants to the Court of Appeals which, in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief and this appeal was submitted for decision without it.

Defendants-appellants submitted numerous assignments of error which can be condensed into two questions, namely: .

(a)Whether the municipal court from which the case originated had jurisdiction to adjudicate the same;

(b)Whether the defendants are, under the law, legally bound to pay rentals to the plaintiffs during the period of one (1) year provided by law for the redemption of the extrajudicially foreclosed house.

We will consider these questions seriatim.

(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which the case originated, and consequently, the appellate jurisdiction of the Court of First Instance a quo, on the theory that the chattel mortgage is void ab initio; whence it would follow that the extrajudicial foreclosure, and necessarily the consequent auction sale, are also void. Thus, the ownership of the house still remained with defendants-appellants who are entitled to possession and not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of ownership will have to be adjudicated first in order to determine possession. lt is contended further that ownership being in issue, it is the Court of First Instance which has jurisdiction and not the municipal court.

Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds, which are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery; and (b) that the subject matter of the mortgage is a house of strong materials, and, being an immovable, it can only be the subject of a real estate mortgage and not a chattel mortgage.

On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants' contentions as not supported by evidence and accordingly dismissed the charge, 8 confirming the earlier finding of the municipal court that "the defense of ownership as well as the allegations of fraud and deceit ... are mere allegations." 9

It has been held in Supia and Batiaco vs. Quintero and Ayala 10 that "the answer is a mere statement of the facts which the party filing it expects to prove, but it is not evidence; 11 and further, that when the question to be determined is one of title, the Court is given the authority to proceed with the hearing of the cause until this fact is clearly established. In the case of Sy vs. Dalman, 12 wherein the defendant was also a successful bidder in an auction sale, it was likewise held by this Court that in detainer cases the aim of ownership "is a matter of defense and raises an issue of fact which should be determined from the evidence at the trial." What determines jurisdiction are the allegations or averments in the complaint and the relief asked for. 13

Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab initio, and can only be a ground for rendering the contract voidable or annullable pursuant to Article 1390 of the New Civil Code, by a proper action in court. 14 There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. Hence, defendants-appellants' claim of ownership on the basis of a voidable contract which has not been voided fails.

It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or trickery, the chattel mortgage was still null and void ab initio because only personal properties can be subject of a chattel mortgage. The rule about the status of buildings as immovable property is stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc., 15 cited in Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the effect that

... it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties (art. 415, New Civil Code) could only mean one thing that a building is by itself an immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner.

Certain deviations, however, have been allowed for various reasons. In the case of Manarang and Manarang vs. Ofilada, 17 this Court stated that "it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property", citing Standard Oil Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred to the mortgagee by way of mortgage "the following described personal property." 19 The "personal property" consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion, 20 the subject of the contract designated as Chattel Mortgage was a house of mixed materials, and this Court hold therein that it was a valid Chattel mortgage because it was so expressly designated and specifically that the property given as security "is a house of mixed materials, which by its very nature is considered personal property." In the later case of Navarro vs. Pineda, 21 this Court stated that

The view that parties to a deed of chattel mortgage may agree to consider a house as personal property for the purposes of said contract, "is good only insofar as the contracting parties are concerned. It is based, partly, upon the principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case, a mortgaged house built on a rented land was held to be a personal property, not only because the deed of mortgage considered it as such, but also because it did not form part of the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an object placed on land by one who had only a temporary right to the same, such as the lessee or usufructuary, does not become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a rented land belonging to another person, it may be mortgaged as a personal property as so stipulated in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted, however that the principle is predicated on statements by the owner declaring his house to be a chattel, a conduct that may conceivably estop him from subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G. 5374): 22

In the contract now before Us, the house on rented land is not only expressly designated as Chattel Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage 23 the property together with its leasehold rights over the lot on which it is constructed and participation ..." 24 Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendats-appellants merely had a temporary right as lessee, and although this can not in itself alone determine the status of the property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and Williamson, 26 wherein third persons assailed the validity of the chattel mortgage, 27 it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the subject house as personalty.

(b)Turning to the question of possession and rentals of the premises in question. The Court of First Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged house had been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the lessor of the land on which the house stood. For this reason, the said court limited itself to sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when the chattel mortgage was foreclosed and the house sold) until 14 January 1957 (when it was torn down by the Sheriff), plus P300.00 attorney's fees.

Appellants mortgagors question this award, claiming that they were entitled to remain in possession without any obligation to pay rent during the one year redemption period after the foreclosure sale, i.e., until 27 March 1957. On this issue, We must rule for the appellants.

Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508. 28 Section 14 of this Act allows the mortgagee to have the property mortgaged sold at public auction through a public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No. 4118, provided that the requirements of the law relative to notice and registration are complied with. 29 In the instant case, the parties specifically stipulated that "the chattel mortgage will be enforceable in accordance with the provisions of Special Act No. 3135 ... ." 30 (Emphasis supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein) may, at any time within one year from and after the date of the auction sale, redeem the property sold at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the purchaser of the property to obtain from the court the possession during the period of redemption: but the same provision expressly requires the filing of a petition with the proper Court of First Instance and the furnishing of a bond. It is only upon filing of the proper motion and the approval of the corresponding bond that the order for a writ of possession issues as a matter of course. No discretion is left to the court. 33 In the absence of such a compliance, as in the instant case, the purchaser can not claim possession during the period of redemption as a matter of right. In such a case, the governing provision is Section 34, Rule 39, of the Revised Rules of Court 34 which also applies to properties purchased in extrajudicial foreclosure proceedings. 35 Construing the said section, this Court stated in the aforestated case of Reyes vs. Hamada.

In other words, before the expiration of the 1-year period within which the judgment-debtor or mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of right, to possession of the same. Thus, while it is true that the Rules of Court allow the purchaser to receive the rentals if the purchased property is occupied by tenants, he is, nevertheless, accountable to the judgment-debtor or mortgagor as the case may be, for the amount so received and the same will be duly credited against the redemption price when the said debtor or mortgagor effects the redemption. Differently stated, the rentals receivable from tenants, although they may be collected by the purchaser during the redemption period, do not belong to the latter but still pertain to the debtor of mortgagor. The rationale for the Rule, it seems, is to secure for the benefit of the debtor or mortgagor, the payment of the redemption amount and the consequent return to him of his properties sold at public auction. (Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs. Espe. 36

Since the defendants-appellants were occupying the house at the time of the auction sale, they are entitled to remain in possession during the period of redemption or within one year from and after 27 March 1956, the date of the auction sale, and to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had not yet expired when action was instituted in the court of origin, and that plaintiffs-appellees did not choose to take possession under Section 7, Act No. 3135, as amended, which is the law selected by the parties to govern the extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation to that effect. Since plaintiffs-appellees' right to possess was not yet born at the filing of the complaint, there could be no violation or breach thereof. Wherefore, the original complaint stated no cause of action and was prematurely filed. For this reason, the same should be ordered dismissed, even if there was no assignment of error to that effect. The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision of the cases. 37

It follows that the court below erred in requiring the mortgagors to pay rents for the year following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one entered, dismissing the complaint. With costs against plaintiffs-appellees.

G.R. No. L-58469May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner, vs.WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.Loreto C. Baduan for petitioner.Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.Jose V. Mancella for respondent.DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that the machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the case to this Court for review by writ of certiorari. It is contended by private respondent, however, that the instant petition was rendered moot and academic by petitioner's act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by respondent's representative. 1 Considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a personality, while the respondent claiming the contrary, and was sustained by the appellate court, which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a temporary right as lessee, and although this can not in itself alone determine the status of the property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the subject house as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate court did, the present case from the application of the abovequoted pronouncement. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and impresses upon the property the character determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the nature of the machinery and equipment involved therein as real properties never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent.

SO ORDERED.

G.R. No. L-64261December 26, 1984

JOSE BURGOS, SR., JOSE BURGOS, JR., BAYANI SORIANO and J. BURGOS MEDIA SERVICES, INC., petitioners, vs.THE CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, THE CHIEF, PHILIPPINE CONSTABULARY, THE CHIEF LEGAL OFFICER, PRESIDENTIAL SECURITY COMMAND, THE JUDGE ADVOCATE GENERAL, ET AL., respondents.

Lorenzo M. Taada, Wigberto E. Taada, Martiniano Vivo, Augusto Sanchez, Joker P. Arroyo, Jejomar Binay and Rene Saguisag for petitioners.

The Solicitor General for respondents.

ESCOLIN, J.:

Assailed in this petition for certiorari prohibition and mandamus with preliminary mandatory and prohibitory injunction is the validity of two [2] search warrants issued on December 7, 1982 by respondent Judge Ernani Cruz-Pano, Executive Judge of the then Court of First Instance of Rizal [Quezon City], under which the premises known as No. 19, Road 3, Project 6, Quezon City, and 784 Units C & D, RMS Building, Quezon Avenue, Quezon City, business addresses of the "Metropolitan Mail" and "We Forum" newspapers, respectively, were searched, and office and printing machines, equipment, paraphernalia, motor vehicles and other articles used in the printing, publication and distribution of the said newspapers, as well as numerous papers, documents, books and other written literature alleged to be in the possession and control of petitioner Jose Burgos, Jr. publisher-editor of the "We Forum" newspaper, were seized.

Petitioners further pray that a writ of preliminary mandatory and prohibitory injunction be issued for the return of the seize