digest cases in property

8/12/2019 Digest Cases in Property

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G.R. Nos. L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner,vs.VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay forrespondent Plaza Theatre, Inc.

FELIX, J . :

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province,dropped at Lopez' house and invited him to make an investment in the theatre business. It wasintimated that Orosa, his family and close friends were organizing a corporation to be known asPlaza Theatre, Inc., that would engage in such venture. Although Lopez expressed his unwillingnessto invest of the same, he agreed to supply the lumber necessary for the construction of the proposed

theatre, and at Orosa's behest and assurance that the latter would be personally liable for anyaccount that the said construction might incur, Lopez further agreed that payment therefor would beon demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered thelumber which was used for the construction of the Plaza Theatre on May 17, 1946, up to December4 of the same year. But of the total cost of the materials amounting to P62,255.85, Lopez was paidonly P20,848.50, thus leaving a balance of P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation onSeptember 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of the remaining unpaidobligation, the latter and Belarmino Rustia, the president of the corporation, promised to obtain abank loan by mortgaging the properties of the Plaza Theatre., out of which said amount ofP41,771.35 would be satisfied, to which assurance Lopez had to accede. Unknown to him, however,as early as November, 1946, the corporation already got a loan for P30,000 from the PhilippineNational Bank with the Luzon Surety Company as surety, and the corporation in turn executed amortgage on the land and building in favor of said company as counter-security. As the land at thattime was not yet brought under the operation of the Torrens System, the mortgage on the same wasregistered on November 16, 1946, under Act No. 3344. Subsequently, when the corporation appliedfor the registration of the land under Act 496, such mortgage was not revealed and thus OriginalCertificate of Title No. O-391 was correspondingly issued on October 25, 1947, without anyencumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. toexecute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the PlazaTheater, Inc., at P100 per share or with a total value of P42,000 in favor of the creditor, and as the

obligation still remained unsettled, Lopez filed on November 12, 1947, a complaint with the Court ofFirst Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente Orosa, Jr.and Plaza Theater, Inc., praying that defendants be sentenced to pay him jointly and severally thesum of P41,771.35, with legal interest from the firing of the action; that in case defendants fail to paythe same, that the building and the land covered by OCT No. O-391 owned by the corporation besold at public auction and the proceeds thereof be applied to said indebtedness; or that the 420shares of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiffbe sold at public auction for the same purpose; and for such other remedies as may be warranted by


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the circumstances. Plaintiff also caused the annotation of a notice of lis pendens on said propertieswith the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying thatthe materials were delivered to him as a promoter and later treasurer of the corporation, because hehad purchased and received the same on his personal account; that the land on which the movie

house was constructed was not charged with a lien to secure the payment of the aforementionedunpaid obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not assigned toplaintiff as collaterals but as direct security for the payment of his indebtedness. As special defense,this defendant contended that as the 420 shares of stock assigned and conveyed by the assignorand accepted by Lopez as direct security for the payment of the amount of P41,771.35 werepersonal properties, plaintiff was barred from recovering any deficiency if the proceeds of the salethereof at public auction would not be sufficient to cover and satisfy the obligation. It was thusprayed that he be declared exempted from the payment of any deficiency in case the proceeds fromthe sale of said personal properties would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense byalleging that the building materials delivered to Orosa were on the latter's personal account; and thatthere was no understanding that said materials would be paid jointly and severally by Orosa and thecorporation, nor was a lien charged on the properties of the latter to secure payment of the sameobligation. As special defense, defendant corporation averred that while it was true that the materialspurchased by Orosa were sold by the latter to the corporation, such transactions were in good faithand for valuable consideration thus when plaintiff failed to claim said materials within 30 days fromthe time of removal thereof from Orosa, lumber became a different and distinct specie and plaintifflost whatever rights he might have in the same and consequently had no recourse against the PlazaTheatre, Inc., that the claim could not have been refectionary credit, for such kind of obligationreferred to an indebtedness incurred in the repair or reconstruction of something already existingand this concept did not include an entirely new work; and that the Plaza Theatre, Inc., having beenincorporated on October 14, 1946, it could not have contracted any obligation prior to said date. Itwas, therefore, prayed that the complaint be dismissed; that said defendant be awarded the sum P5,000 for damages, and such other relief as may be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered underthe Torrens System and that there was a notice of lis pendens thereon, filed on August 17, 1948, orwithin the 1-year period after the issuance of the certificate of title, a petition for review of the decreeof the land registration court dated October 18, 1947, which was made the basis of OCT No. O-319,in order to annotate the rights and interests of the surety company over said properties (LandRegistration Case No. 17 GLRO Rec. No. 296). Opposition thereto was offered by Enrique Lopez,asserting that the amount demanded by him constituted a preferred lien over the properties of theobligors; that the surety company was guilty of negligence when it failed to present an opposition tothe application for registration of the property; and that if any violation of the rights and interest ofsaid surety would ever be made, same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, aftermaking an exhaustive and detailed analysis of the respective stands of the parties and the evidenceadduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc.,were jointly liable for the unpaid balance of the cost of lumber used in the construction ofthe building and the plaintiff thus acquired the materialman's lien over the same. In making thepronouncement that the lien was merely confined to the building and did not extend to the land onwhich the construction was made, the trial judge took into consideration the fact that when plaintiffstarted the delivery of lumber in May, 1946, the land was not yet owned by the corporation; that themortgage in favor of Luzon Surety Company was previously registered under Act No. 3344; that thecodal provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits are


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preferred could refer only to buildings which are also classified as real properties, upon which saidrefection was made. It was, however, declared that plaintiff's lien on the building was superior to theright of the surety company. And finding that the Plaza Theatre, Inc., had no objection to the reviewof the decree issued in its favor by the land registration court and the inclusion in the title of theencumbrance in favor of the surety company, the court a quo granted the petition filed by the lattercompany. Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay jointly the

amount of P41,771.35 with legal interest and costs within 90 days from notice of said decision; thatin case of default, the 420 shares of stock assigned by Orosa to plaintiff be sold at public auctionand the proceeds thereof be applied to the payment of the amount due the plaintiff, plus interest andcosts; and that the encumbrance in favor of the surety company be endorsed at the back of OCT No.O-391, with notation I that with respect to the building, said mortgage was subject to thematerialman's lien in favor of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation oftherein defendants was joint instead of solidary, and that the lien did not extend to the land, butsame was denied by order the court of December 23, 1952. The matter was thus appealed to theCourt of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this instance,plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the materials usedin the construction of a building attaches to said structure alone and does not extend to the land onwhich the building is adhered to; and (2) whether the lower court and the Court of Appeals erred innot providing that the material mans liens is superior to the mortgage executed in favor suretycompany not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of thedecision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35,so We will not take up or consider anything on that point. Appellant, however, contends that the liencreated in favor of the furnisher of the materials used for the construction, repair or refection of abuilding, is also extended to the land which the construction was made, and in support thereof herelies on Article 1923 of the Spanish Civil Code, pertinent law on the matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the

following are preferred:

x x x x x x x x x

5. Credits for refection, not entered or recorded, with respect to the estate upon which therefection was made , and only with respect to other credits different from those mentioned infour preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property, andinasmuch as said provision does not contain any specification delimiting the lien to the building, saidarticle must be construed as to embrace both the land and the building or structure adhering thereto.We cannot subscribe to this view, for 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 distinctfrom the land, in the enumeration of what may constitute real properties 1 could mean only one thing that a building is by itself an immovable property, a doctrine already pronounced by this Court inthe case of Leung Yee vs. Strong Machinery Co. , 37 Phil., 644. Moreover, and in view of theabsence of any specific provision of law 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 thesame owner.


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A close examination of the provision of the Civil Code invoked by appellant reveals that the law givespreference to unregistered refectionary credits only with respect to the real estate upon which therefection or work was made. This being so, the inevitable conclusion must be that the lien so createdattaches merely to the immovable property for the construction or repair of which the obligation wasincurred. Evidently, therefore, the lien in favor of appellant for the unpaid value of the lumber used inthe construction of the building attaches only to said structure and to no other property of the

obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only tothe building for which the credit was made or which received the benefit of refection, the lower courtwas right in, holding at the interest of the mortgagee over the land is superior and cannot be madesubject to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed from ishereby affirmed, with costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,Reyes, J.B.L. and Endencia, JJ., concur.

Footnotes

1 Article 415 of the new Civil Code (Art. 334 of the old) enumerates what are consideredimmovable property, among which are land, buildings, roads and constructions of all kindsadhered to the soil.

LOPEZ V. OROSA ANDPLAZA THEATRE

103 SCRA 98FACTS:

1. Lopez was engaged in business under the name Lopez-Castelo Sawmill.

2. Orosa, who lived in the same province as Lopez, one dayapproached Lopez and invited the latter to

make an investment inthe theatre business.

3. Orosa, his family and close friends apparently were forming acorporation named Plaza Theatre.


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Appelant invoked Article 1923 of the Spanish Civil Code, which provides With respect to determinate

real property and real rights of the debtor, the following are preferred: xxx Credits for reflection, not

entered or recorded, and only with respect to other credits different from those mentioned in four next

pr eceding paragraphs. Close examination of the abovementioned provision reveals that the law gives

preference to unregistered refectionary credits only with respect to the real estate upon which therefectionary or work was made. This being so, the inevitable conclusion must be that the lien so created

attaches merely to the immovable property for the construction or repair of which the obligation was

incurred. Therefore, the lien in favor of appellant for the unpaid value of the lumber used in the

construction of the building attaches only to said structure and to no other property of the obligors.

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 houseof strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision inCaloocan, 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 fileda bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insuranceand Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed analleged 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 iserected was still registered in the name of the Philippine Realty Corporation. Having completedpayment on the purchase price of the lot, the Valinos were able to secure on October 18, 1958 , acertificate 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 realestate mortgage over the lot and the house in favor of Isabel Iya, which was duly registered andannotated at the back of the certificate of title.


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On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the suretycompany was compelled to pay the same pursuant to the undertaking of the bond. In turn, the suretycompany demanded reimbursement from the spouses Valino, and as the latter likewise failed to doso, the company foreclosed the chattel mortgage over the house. As a result thereof, a public salewas conducted by the Provincial Sheriff of Rizal on December 26, 1952 , wherein the property wasawarded 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 DeclarationNo. 25128).

Sometime in July, 1953 , the surety company learned of the existence of the real estate mortgageover the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said suretycompany instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano andLucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusionof the residential house from the real estate mortgage in favor of defendant Iya and the declarationand recognition of plaintiff's right to ownership over the same in virtue of the award given by theProvincial Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewiseasked 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 amongother things, that in virtue of the real estate mortgage executed by her co-defendants, she acquireda real right over the lot and the house constructed thereon; that the auction sale allegedly conductedby the Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the housewas null and void for non-compliance with the form required by law. She, therefore, prayed for thedismissal of the complaint and anullment of the sale made by the Provincial Sheriff. She alsodemanded the amount of P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from herco-defendants as crossclaim, for attorney's fees and costs.

Defendants spouses in their answer admitted some of the averments of the complaint and deniedthe others. They, however, prayed for the dismissal of the action for lack of cause of action, it beingalleged that plaintiff was already the owner of the house in question, and as said defendantsadmitted 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 ofmortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan ofP12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in4 years, extendible for only one year; that to secure payment thereof, said defendants mortgagedthe house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace ParkSubdivision, Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as aparty defendant because it claimed to have an interest on the residential house also covered by saidmortgage; that it was stipulated in the aforesaid real estate mortgage that default in the payment ofthe interest agreed upon would entitle the mortgagee to foreclose the same even before the lapse ofthe 4-year period; and as defendant spouses had allegedly failed to pay the interest for more than 6months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 withinterest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sumequivalent to 20% of the total obligation as damages, and for costs. As an alternative in case suchdemand may not be met and satisfied plaintiff prayed for a decree of foreclosure of the land, buildingand other improvements thereon to be sold at public auction and the proceeds thereof applied tosatisfy the demands of plaintiff; that the Valinos, the surety company and any other person claiminginterest on the mortgaged properties be barred and foreclosed of all rights, claims or equity ofredemption in said properties; and for deficiency judgment in case the proceeds of the sale of themortgaged property would be insufficient to satisfy the claim of plaintiff.


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Defendant surety company, in answer to this complaint insisted on its right over the building, arguingthat as the lot on which the house was constructed did not belong to the spouses at the time thechattel mortgage was executed, the house might be considered only as a personal property and thatthe encumbrance thereof and the subsequent foreclosure proceedings made pursuant to theprovisions of the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that saidbuilding 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 themortgage upon the land but assailed the allegation that the building was included thereon, it beingcontended that it was already encumbered in favor of the surety company before the real estatemortgage was executed, a fact made known to plaintiff during the preparation of said contract and towhich the latter offered no objection. As a special defense, it was asserted that the action waspremature 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 astipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that thechattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred andsuperior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled thatas the Valinos were not yet the registered owner of the land on which the building in question wasconstructed at the time the first encumbrance was made, the building then was still a personality anda chattel mortgage over the same was proper. However, as the mortgagors were already the ownerof the land at the time the contract with Isabel Iya was entered into, the building was transformedinto a real property and the real estate mortgage created thereon was likewise adjudged as proper. Itis to be noted in this connection that there is no evidence on record to sustain the allegation of thespouses Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was toldor knew that part of the mortgaged property, i.e., the house , had previously been mortgaged to thesurety company.

The residential building was, therefore, ordered excluded from the foreclosure prayed for by IsabelIya, 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 landsubject 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 ariseas to which of these encumbrances should receive preference over the other. The decisive factor inresolving the issue presented by this appeal is the determination of the nature of the structurelitigated upon, for where it be considered a personality, the foreclosure of the chattel mortgage andthe subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Lawwould be valid and the right acquired by the surety company therefrom would certainly deserve priorrecognition; otherwise, appellant's claim for preference must be granted. The lower Court, decidingin favor of the surety company, based its ruling on the premise that as the mortgagors were not theowners of the land on which the building is erected at the time the first encumbrance was made, saidstructure partook of the nature of a personal property and could properly be the subject of a chattelmortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of abuilding, has said:

. . . while it is true that generally, real estate connotes the land and the building constructedthereon, it is obvious that the inclusion of the building, separate and distinct from the land, inthe enumeration of what may constitute real properties (Art. 415, new Civil Code) could onlymean one thing that a building is by itself an immovable property . . . Moreover, and in


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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 tobelong 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 itis 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 theownership of the land, would create a situation where a permanent fixture changes its nature orcharacter as the ownership of the land changes hands. In the case at bar, as personal propertiescould only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structurein question is not one, the execution of the chattel mortgage covering said building is clearly invalidand a nullity. While it is true that said document was correspondingly registered in the ChattelMortgage Register of Rizal, this act produced no effect whatsoever for where the interest conveyedis in the nature of a real property, the registration of the document in the registry of chattels is merelya futile act. Thus, the registration of the chattel mortgage of a building of strong materials produce noeffect as far as the building is concerned (Leung Yee vs . Strong Machinery Co., 37 Phil., 644). Norcan we give any consideration to the contention of the surety that it has acquired ownership over theproperty in question by reason of the sale conducted by the Provincial Sheriff of Rizal, for as thisCourt has aptly pronounced:

A mortgage creditor who purchases real properties at an extrajudicial foreclosure salethereof by virtue of a chattel mortgage constituted in his favor, which mortgage has beendeclared null and void with respect to said real properties, acquires no right thereto by virtueof 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 holdingthe rights of the surety company, over the building superior to that of Isabel Iya and excluding thebuilding from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right toforeclose not only the land but also the building erected thereon is hereby recognized, and theproceeds of the sale thereof at public auction (if the land has not yet been sold), shall be applied tothe 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 andLucia Valino on account of the mortgage of said building they executed in favor of said suretycompany. Without pronouncement as to costs. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,J.B.L., and Endencia, JJ., concur.

ASSOCIATED INSURANCE AND SURETY COMPANY V. IYA, ET. AL

103 SCRA 972

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

FACTS:

Spouses Valino were the owners of a house, payable on installments from Philippine Realty Corporation.To be able to purchase on credit rice from NARIC, they filed a surety bond subscribed by petitioner andtherefor, they executed an alleged chattel mortgage on the house in favor of the surety company. The


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spouses didnt own yet the land on which the house was constructed on at the time of the undertaking.After being able to purchase the land, to be able to secure payment for indebtedness, the spousesexecuted a real estate mortgage in favor of Iya.

The spouses were not able to satisfy obligation with NARIC, petitioner was compelled to pay. Thespouses werent able to pay the surety company despite demands and thus, the company foreclosed thechattel mortgage. It later learned of the real estate mortgage over the house and lot secured by thespouses. This prompted the company to file an action against the spouses. Also, Iya filed another civilaction against the spouses, asserting that she has a better right over the property. The trial court heardthe two cases jointly and it held that the surety company had a preferred right over the building as sincewhen the chattel mortgage was secured, the land wasnt owned yet by the spouses making the buildingthen a chattel and not a real property.

ISSUE:

WON the auction sale was null and void

WON the house can be considered as personal property.

HELD:

A building certainly cannot be divested of its character of a realty by the fact that the land on which it isconstructed belongs to another. To hold it the other way, the possibility is not remote that it wouldresult in confusion, for to cloak the building with an uncertain status made dependent on ownership ofthe land, would create a situation where a permanent fixture changes its nature or character as theownership of the land changes hands. In the case at bar, as personal properties may be the only subjectsof a chattel mortgage, the execution of the chattel mortgage covering said building is null and void.

G.R. No. L-16218 November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO BICERRA,LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA , plaintiffs-appellants,vs.TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.

Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.Ernesto Parol for defendants-appellees.

MAKALINTAL, J .:

This case is before us on appeal from the order of the Court of First Instance of Abra dismissing thecomplaint filed by appellants, upon motion of defendants-appellate on the ground that the action waswithin the exclude (original) jurisdiction of the Justice of the Peace Court of Lagangilang, of the sameprovince.


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The complaint alleges in substance that appellants were the owners of the house, worth P200.00,built on and owned by them and situated in the said municipality Lagangilang; that sometime inJanuary 1957 appealed forcibly demolished the house, claiming to be the owners thereof; that thematerials of the house, after it was dismantled, were placed in the custody of the barrio lieutenant ofthe place; and that as a result of appellate's refusal to restore the house or to deliver the materialappellants the latter have suffered actual damages the amount of P200.00, plus moral and

consequential damages in the amount of P600.00. The relief prayed for is that "the plaintiffs bedeclared the owners of the house in question and/or the materials that resulted in (sic) itsdismantling; (and) that the defendants be orders pay the sum of P200.00, plus P600.00 as damages,the costs."

The issue posed by the parties in this appeal is whether the action involves title to real property, asappellants contend, and therefore is cognizable by the Court of First Instance (Sec. 44, par. [b], R.A.296, as amended), whether it pertains to the jurisdiction of the Justice of the Peace Court, as statedin the order appealed from, since there is no real property litigated, the house having ceased toexist, and the amount of the demand does exceed P2,000.00 (Sec. 88, id .)1

The dismissal of the complaint was proper. A house is classified as immovable property by reason ofits adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds trueregardless of the fact that the house may be situated on land belonging to a different owner. Butonce the house is demolished, as in this case, it ceases to exist as such and hence its character asan immovable likewise ceases. It should be noted that the complaint here is for recovery ofdamages. This is the only positive relief prayed for by appellants. To be sure, they also asked thatthey be declared owners of the dismantled house and/or of the materials. However, such declarationin no wise constitutes the relief itself which if granted by final judgment could be enforceable byexecution, but is only incidental to the real cause of action to recover damages.

The order appealed from is affirmed. The appeal having been admitted in forma pauperis , no costsare adjudged.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes,Dizon and Regala, JJ., concur.

BICERRA V. TENEZAFACTS:

The Bicerras are supposedly the owners of the house (PhP 20,000) built on a lot owned by them in

Lagangilang, Abra; which the Tenezas forcibly demolished in January 1957, claiming to be the owners

thereof. The materials of the house were placed in the custody of the barrio lieutenant. The Bicerras filed

a complaint claiming actual damages of P200, moral and consequential damages amounting to P600,


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and the costs. The CFI Abra dismissed the complaint claiming that the action was within the exclusive

(original) jurisdiction of the Justice of the Peace Court of Lagangilang, Abra.

The Supreme Court affirmed the order appealed. Having been admitted in forma pauperis, no costs were

adjudged.

ISSUE:

Whether or not the house is immovable property even if it is on the land of another

RULING:

Yes.

House is immovable property even if situated on land belonging to a different owner; Exception, when

demolished.

A house is classified as immovable property by reason of its adherence to the soil on which it is built

(Article 415, paragraph 1, Civil Code). This classification holds true regardless of the fact that the house

may be situated on land belonging to a different owner. But once the house is demolished, as in this

case, it ceases to exist as such and hence its character as an immovable likewise ceases.

G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,vs.FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.

Booram and Mahoney for appellant.Williams, Ferrier and SyCip for appellees.

CARSON, J . :

The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery from thedefendant machinery company, and executed a chattel mortgage thereon to secure payment of the


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purchase price. It included in the mortgage deed the building of strong materials in which themachinery was installed, without any reference to the land on which it stood. The indebtednesssecured by this instrument not having been paid when it fell due, the mortgaged property was soldby the sheriff, in pursuance of the terms of the mortgage instrument, and was bought in by themachinery company. The mortgage was registered in the chattel mortgage registry, and the sale ofthe property to the machinery company in satisfaction of the mortgage was annotated in the same

registry on December 29, 1913.

A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina"executed a deed of sale of the land upon which the building stood to the machinery company, butthis deed of sale, although executed in a public document, was not registered. This deed makes noreference to the building erected on the land and would appear to have been executed for thepurpose of curing any defects which might be found to exist in the machinery company's title to thebuilding under the sheriff's certificate of sale. The machinery company went into possession of thebuilding at or about the time when this sale took place, that is to say, the month of December, 1913,and it has continued in possession ever since.

At or about the time when the chattel mortgage was executed in favor of the machinery company,the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon thebuilding, separate and apart from the land on which it stood, to secure payment of the balance of itsindebtedness to the plaintiff under a contract for the construction of the building. Upon the failure ofthe mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured

judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on orabout the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in theland registry of the Province of Cavite.

At the time when the execution was levied upon the building, the defendant machinery company,which was in possession, filed with the sheriff a sworn statement setting up its claim of title anddemanding the release of the property from the levy. Thereafter, upon demand of the sheriff, theplaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance uponwhich the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the

sheriff's sale.

This action was instituted by the plaintiff to recover possession of the building from the machinerycompany.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of themachinery company, on the ground that the company had its title to the building registered prior tothe date of registry of the plaintiff's certificate.

Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer

to the person who may have the first taken possession thereof in good faith, if it should bepersonal property.

Should it be real property, it shall belong to the person acquiring it who first recorded it in theregistry.

Should there be no entry, the property shall belong to the person who first took possession ofit in good faith, and, in the absence thereof, to the person who presents the oldest title,provided there is good faith.


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The registry here referred to is of course the registry of real property, and it must be apparent thatthe annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannotbe given the legal effect of an inscription in the registry of real property. By its express terms, theChattel Mortgage Law contemplates and makes provision for mortgages of personal property; andthe sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattelmortgages," that is to say, mortgages of personal property executed in the manner and form

prescribed in the statute. The building of strong materials in which the rice-cleaning machinery wasinstalled by the "Compaia Agricola Filipina" was real property, and the mere fact that the partiesseem to have dealt with it separate and apart from the land on which it stood in no wise changed itscharacter as real property. It follows that neither the original registry in the chattel mortgage of thebuilding and the machinery installed therein, not the annotation in that registry of the sale of themortgaged property, had any effect whatever so far as the building was concerned.

We conclude that the ruling in favor of the machinery company cannot be sustained on the groundassigned by the trial judge. We are of opinion, however, that the judgment must be sustained on theground that the agreed statement of facts in the court below discloses that neither the purchase ofthe building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was madein good faith, and that the machinery company must be held to be the owner of the property underthe third paragraph of the above cited article of the code, it appearing that the company first tookpossession of the property; and further, that the building and the land were sold to the machinerycompany long prior to the date of the sheriff's sale to the plaintiff.

It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith,"in express terms, in relation to "possession" and "title," but contain no express requirement as to"good faith" in relation to the "inscription" of the property on the registry, it must be presumed thatgood faith is not an essential requisite of registration in order that it may have the effectcontemplated in this article. We cannot agree with this contention. It could not have been theintention of the legislator to base the preferential right secured under this article of the code upon aninscription of title in bad faith. Such an interpretation placed upon the language of this section wouldopen wide the door to fraud and collusion. The public records cannot be converted into instrumentsof fraud and oppression by one who secures an inscription therein in bad faith. The force and effect

given by law to an inscription in a public record presupposes the good faith of him who enters suchinscription; and rights created by statute, which are predicated upon an inscription in a publicregistry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person whothus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain held in itssentencia of the 13th of May, 1908, that:

This rule is always to be understood on the basis of the good faith mentioned in the firstparagraph; therefore, it having been found that the second purchasers who record theirpurchase had knowledge of the previous sale, the question is to be decided in accordancewith the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]edition.)

Although article 1473, in its second paragraph, provides that the title of conveyance ofownership of the real property that is first recorded in the registry shall have preference, thisprovision must always be understood on the basis of the good faith mentioned in the firstparagraph; the legislator could not have wished to strike it out and to sanction bad faith , justto comply with a mere formality which, in given cases, does not obtain even in real disputesbetween third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the LaRevista de los Tribunales , 13th edition.)


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The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at thesheriff's sale and inscribed his title in the land registry, was duly notified that the machinery companyhad bought the building from plaintiff's judgment debtor; that it had gone into possession long prior tothe sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. Theexecution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery companyhad filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the

building at the sheriff's sale with full knowledge that at the time of the levy and sale the building hadalready been sold to the machinery company by the judgment debtor, the plaintiff cannot be said tohave been a purchaser in good faith; and of course, the subsequent inscription of the sheriff'scertificate of title must be held to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of saleto the plaintiff was not made in good faith, we should not be understood as questioning, in any way,the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." Thetruth is that both the plaintiff and the defendant company appear to have had just and righteousclaims against their common debtor. No criticism can properly be made of the exercise of the utmostdiligence by the plaintiff in asserting and exercising his right to recover the amount of his claim fromthe estate of the common debtor. We are strongly inclined to believe that in procuring the levy ofexecution upon the factory building and in buying it at the sheriff's sale, he considered that he wasdoing no more than he had a right to do under all the circumstances, and it is highly possible andeven probable that he thought at that time that he would be able to maintain his position in a contestwith the machinery company. There was no collusion on his part with the common debtor, and nothought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word.He may have hoped, and doubtless he did hope, that the title of the machinery company would notstand the test of an action in a court of law; and if later developments had confirmed his unfoundedhopes, no one could question the legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of ownership when heexecuted the indemnity bond and bought in the property at the sheriff's sale, and it appearing furtherthat the machinery company's claim of ownership was well founded, he cannot be said to have beenan innocent purchaser for value. He took the risk and must stand by the consequences; and it is in

this sense that we find that he was not a purchaser in good faith.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claimthat he has acquired title thereto in good faith as against the true owner of the land or of an interesttherein; and the same rule must be applied to one who has knowledge of facts which should haveput him upon such inquiry and investigation as might be necessary to acquaint him with the defectsin the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonableman upon his guard, and then claim that he acted in good faith under the belief that there was nodefect in the title of the vendor. His mere refusal to believe that such defect exists, or his willfulclosing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make himan innocent purchaser for value, if afterwards develops that the title was in fact defective, and itappears that he had such notice of the defects as would have led to its discovery had he acted withthat measure of precaution which may reasonably be acquired of a prudent man in a like situation.Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining the intention bywhich one is actuated on a given occasion, we are necessarily controlled by the evidence as to theconduct and outward acts by which alone the inward motive may, with safety, be determined. So it isthat "the honesty of intention," "the honest lawful intent," which constitutes good faith implies a"freedom from knowledge and circumstances which ought to put a person on inquiry," and so it isthat proof of such knowledge overcomes the presumption of good faith in which the courts alwaysindulge in the absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangiblefact that can be seen or touched, but rather a state or condition of mind which can only be judged of


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by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas LumberCo. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the decision and judgmententered in the court below should be affirmed with costs of this instance against the appellant. Soordered.

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.Torres, Avancea and Fisher, JJ., took no part.

G.R. No. L-11658: Leung Yee vs Strong Machinery Co.

MultipleSale to Different Vendees Real vs Personal Property

In 1913, Compania Agricola Filipina was indebted to two personalities: Leung Yeeand Strong Machinery Co. CAF purchased some rice cleaning machines fromSMCo. CAF installed the machines in a building. As security for the purchase

price, CAF executed a chattel mortgage on the rice cleaning machines including the building where the machines were installed. CAF failed to pay SMCo, hence thelatter foreclosed the mortgage the same was registered in the chattel mortgageregistry.

CAF also sold the land (where the building was standing) to SMCo. SMCo took possession of the building and the land.

On the other hand, Yee, another creditor of CAF who actually engaged in theconstruction of the building, being the highest bidder in an auction conducted bythe sheriff, purchased the same building where the machines were installed.Apparently CAF was also executed a chattel mortgage in favor Yee. Yee registeredthe sale in the registry of land. Yee was however aware that prior to his buying, the

property has been sold in favor of SMCo evidence is the chattel mortgage alreadyregistered by SMCo.

ISSUE: Who is the owner of the building?

HELD: The SC ruled that SMCo has a better right tothe contested property. Yeecannot be regarded as a buyer in good faith as he was already aware of the fact thatthere was a prior sale of the same property to SMCo.

The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for chattel mortgages which only deal with personal properties. The factthat the parties dealt the building as if its a personal property does not change thenature of the thing. It is still a real property. Its inscription in the Chattel Mortgage


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registry does not modify its inscription the registry of real property.

March 16, 1923

G.R. No. L-20329THE 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 ofdeeds of the City of Manila, to an original petition of the Standard Oil Company of New York, seekinga peremptory mandamus to compel the respondent to record in the proper register a documentpurporting to be a chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. deVera, 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 thelessee of a parcel of land situated in the City of Manila and owner of the house of strong materialsbuilt 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 andthe building which stands thereon.

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

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

(1) All of the right, title, and interest of the mortgagor in and to the contract of lease hereinabovereferred 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 tobe presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, for thepurpose of having the same recorded in the book of record of chattel mortgages. Upon examination


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of the instrument, the respondent was of the opinion that it was not a chattel mortgage, for thereason that the interest therein mortgaged did not appear to be personal property, within themeaning 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 inrespect to the registration of chattel mortgage are of a purely ministerial character; and no provisionof law can be cited which confers upon him any judicial or quasi-judicial power to determine thenature 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 provisionsconferring upon the register of deeds any authority whatever in respect to the qualification, as theterm is used in Spanish law, of chattel mortgage. His duties in respect to such instruments areministerial 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 contractmust be discovered in the instrument itself in relation with the fact of notice. Registration addsnothing to the instrument, considered as a source of title, and affects nobody s rights except as aspecifies of notice.

Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between realproperty and personal property for purpose of the application of the Chattel Mortgage Law. Thosearticles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must notbe forgotten that under given conditions property may have character different from that imputed to itin said articles. It is undeniable that the parties to a contract may by agreement treat as personalproperty 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 consideredpersonal property. Other situations are constantly arising, and from time to time are presented to thiscourt, in which the proper classification of one thing or another as real or personal property may besaid to be doubtful.

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

It is unnecessary here to determine whether or not the property described in the document inquestion is real or personal; the discussion may be confined to the point as to whether a register ofdeeds has authority to deny the registration of a document purporting to be a chattel mortgage andexecuted 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:


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Based principally upon the provisions of section quoted the Attorney-General of the PhilippineIslands, in an opinion dated August 11, 1909, held that a register of deeds has no authority to passupon the capacity of the parties to a chattel mortgage which is presented to him for record. A fortioria register of deeds can have no authority to pass upon the character of the property sought to beencumbered 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 questionto 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 thatwhere the interest conveyed is of the nature of real, property, the placing of the document on recordin the chattel mortgage register is a futile act; but that decision is not decisive of the question nowbefore us, which has reference to the function of the register of deeds in placing the document onrecord.

In the light of what has been said it becomes unnecessary for us to pass upon the point whether theinterests 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 andto 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 notificationhereof, the respondent shall interpose a sufficient answer to the petition, the writ of mandamus willbe issued, as prayed, but without costs. So ordered.

Araullo, C.J., Malcolm, Avancea, Ostrand, Johns, and Romualdez, JJ., concur.

Standard Oil Co. of New York vs Jaramillo

44 Phil 630

Date

FACTS: Gervasia dela Rosa executed a document in the form of a Chattel Mortgage purportingto convey to Standard Oil Co. by way of mortgage both the leasehold interest of theland she leases in Manila and the building which stands thereon.

The clauses in said document describe the property as personal including the right,title and interest of the mortgagor in and to the contract of lease and also thebuilding of the said premises therein.
http://legallypinoy.blogspot.com/2008/09/standard-oil-co-of-new-york-vs.htmlhttp://legallypinoy.blogspot.com/2008/09/standard-oil-co-of-new-york-vs.html


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After said document had been duly acknowledge and delivered, the petitionerpresented it to Joaquin Jaramillo, as register of deeds of the City of Manila, for thepurpose of having the same recorded. The respondent opined that it was not a chattelmortgage for the interests mortgaged did not appear to be personal property within

the meaning of the Chattel Mortgage Law and registration was refused on this groundonly.

ISSUE: 1. Whether or not said property could be a subject for mortgage.2. Whether the respondent is clothe with authority to determine such..RULING:

The duties of a register of deeds in respect to the registration of chattel mortgages

are of purely ministerial character and no provision of law can be cited which confersupon him any judicial or quasi-judicial power to determine the nature of anydocument of which registration is sought as a chattel mortgage. The efficacy of theact of recording a chattel mortgage consists in the fact that it operates asconstructive notice of the existence of the contract, and the legal effects of thecontract must be discovered in the instrument itself in relation with the fact ofnotice. Registration adds nothing to the instrument, considered as a source of title,and affects nobodys rights except as a species of notice.

The parties to a contract may by agreement treat as personal property that which bynature would be real property and it is a familiar phenomenon to see things classed asreal property for purposes of taxation which on general principle might be consideredpersonal property.

It is unnecessary to determine whether or not the property described in the documentis real or personal. The issue is to be determined by the Court and not by the registerof deeds.

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


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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 indenying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. deLacsamana 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 landconsisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said landto 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 thehighest bidder in said foreclosure proceedings. However, the bank secured title thereto only onDecember 14, 1977.

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and withthe alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from theMunicipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared saidwarehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner thenleased 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) andrespondent Lacsamana over the property. This contract was amended on July 31, 1978, particularlyto 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 asseparate 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 embodiedin the Amended Deed of Sale. In this connection, petitioner alleged:

xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager ... byvirtue of the request of defendant ... executed a document dated July 31, 1978,entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank asVendor sold to defendant Lacsamana the building owned by the plaintiff under TaxDeclaration No. 5619, notwithstanding the fact that said building is not owned by thebank either by virtue of the public auction sale conducted by the Sheriff and sold to


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the Philippine National Bank or by virtue of the Deed of Sale executed by the bankitself in its favor on September 21, 1977 ...;

23. That said defendant bank fraudulently mentioned ... that the sale in its favorshould likewise have included the building, notwithstanding no legal basis for thesame 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 neverbecame the property of defendant, they have violated the principle against 'pactumcommisorium'.

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

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

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue wasimproperly laid considering that the building was real property under article 415 (1) of the New CivilCode 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 salewith damages is in the nature of a personal action, which seeks to recover not the title norpossession of the property but to compel payment of damages, which is not an action affecting titleto 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 theplaintiff's complaint for improper venue considering that the plaintiff's complaint whichseeks for the declaration as null and void, the amendment to Deed of Absolute Saleexecuted by the defendant Philippine National Bank in favor of the defendant RemediosT. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly owned andconstructed by the plaintiff on the land of the defendant Philippine National Bank situatedin the Municipality of Bamban, Province of Tarlac, which warehouse is an immovableproperty pursuant to Article 415, No. 1 of the New Civil Code; and, as such the action ofthe plaintiff is a real action affecting title to real property which, under Section 2, Rule 4 ofthe New Rules of Court, must be tried in the province where the property or any partthereof lies. 5

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

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


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Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana wasconcerned, 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 asthe 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 inarticle 415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A buildingtreated separately from the land on which it stood is immovable property and the mere fact that theparties to a contract seem to have dealt with it separate and apart from the land on which it stood inno 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 propertyin 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, therecovery of which is petitioner's primary objective. The prevalent doctrine is that an action for theannulment or rescission of a sale of real property does not operate to efface the fundamental andprime 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 isconcerned 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 asthe 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.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.


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PUNSALAN, JR. V. VDA. DE

LACSAMANA121 SCRA 331

FACTS: Punsalan was the owner of a piece of land, which he mortgaged in favor of PNB. Due to his failure to

pay, the mortgage was foreclosed and the land was sold in a public auction to which PNB was the highestbidder.

On a relevant date, while Punsalan was still the possessor of the land, it secured a permit for the

construction of a warehouse.

A deed of sale was executed between PNB and Punsalan. This contract was amended to include the

warehouse and the improvement thereon. By virtue of these instruments, respondent Lacsamana

secured title over the property in her name.

Petitioner then sought for the annulment of the deed of sale. Among his allegations was that the bank did

not own the building and thus, it should not be included in the said deed.

Petitioners complaint was dismissed for improper venue. The trial court held that the action

being filed in actuality by petitioner is a real action involving his right over a real property.

HELD: Warehouse claimed to be owned by petitioner is an immovable or real property. Buildings arealways immovable under the Code. A building treated separately from the land on which it is stood isimmovable property and the mere fact that the parties to a contract seem to have dealt with itseparate and apart from the land on which it stood in no wise changed its character as immovableproperty.


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EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindricalmonuments of the Bureau of Lands as visible limits. (Exhibit "A, " also Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the aforestateddeed of mortgage, there appears a rider typed at the bottom of thereverse side of the document under the lists of the propertiesmortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event theSales Patent on the lot applied for by the Mortgagorsas herein stated is released or issued by the Bureauof Lands, the Mortgagors hereby authorize theRegister of Deeds to hold the Registration of same

until this Mortgage is cancelled, or to annotate thisencumbrance on the Title upon authority from theSecretary of Agriculture and Natural Resources,which title with annotation, shall be released in favorof the herein Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee(defendant Prudential Bank) was at the outset aware of the fact thatthe mortgagors (plaintiffs) have already filed a Miscellaneous Sales

Application over the lot, possessory rights over which, weremortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under theProvisions of Act 3344 with the Registry of Deeds of Zambales onNovember 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from defendantPrudential Bank in the sum of P20,000.00. To secure payment of thisadditional loan, plaintiffs executed in favor of the said defendantanother deed of Real Estate Mortgage over the same propertiespreviously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" fordefendant). This second deed of Real Estate Mortgage was likewiseregistered with the Registry of Deeds, this time in Olongapo City, onMay 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales PatentNo. 4776 over the parcel of land, possessory rights over which were mortgaged todefendant Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid Patent,and upon its transcription in the Registration Book of the Province of Zambales,Original Certificate of Title No. P-2554 was issued in the name of Plaintiff FernandoMagcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due,and upon application of said defendant, the deeds of Real Estate Mortgage (Exhibits


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"A" and "B") were extrajudicially foreclosed. Consequent to the foreclosure was thesale of the properties therein mortgaged to defendant as the highest bidder in apublic auction sale conducted by the defendant City Sheriff on April 12, 1978 (Exhibit"E"). The auction sale aforesaid was held despite written request from plaintiffsthrough counsel dated March 29, 1978, for the defendant City Sheriff to desist fromgoing with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No.

2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real EstateMortgage as null and void ( Ibid. , p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration ( Ibid. , pp. 41-53), opposed byprivate respondents on January 5, 1979 ( Ibid. , pp. 54-62), and in an Order dated January 10, 1979(Ibid. , p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition(Ibid. , pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require therespondents to comment ( Ibid. , p. 65), which order was complied with the Resolution dated May

18,1979, ( Ibid. , p. 100), petitioner filed its Reply on June 2,1979 ( Ibid. , pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the partieswere required to submit simultaneously their respective memoranda. ( Ibid. , p. 114).

On July 18, 1979, petitioner filed its Memorandum ( Ibid. , pp. 116-144), while private respondentsfiled their Memorandum on August 1, 1979 ( Ibid. , pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision ( Ibid. , P.158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATERESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER

ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE.(Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the

building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Courtruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in saidprovision of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa,Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38,May 30,1958).


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Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of theimprovements thereon, buildings, still a building by itself may be mortgaged apart from the land onwhich it has been built. Such a mortgage would be still a real estate mortgage for the building wouldstill be considered immovable property even if dealt with separately and apart from the land (LeungYee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also establishedthat possessory rights over said properties before title is vested on the grantee, may be validly

transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438[1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed onthe 2-storey semi-concrete residential building with warehouse and on the right of occupancy on thelot where the building was erected, was executed on November 19, 1971 and registered under theprovisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971.Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis ofwhich OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15,1972. It is therefore without question that the original mortgage was executed before the issuance ofthe final patent and before the government was divested of its title to the land, an event which takeseffect only on the issuance of the sales patent and its subsequent registration in the Office of theRegister of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p.49). Under the foregoing considerations, it is evident that the mortgage executed by privaterespondent on his own building which was erected on the land belonging to the government is to allintents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be notedthat Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under thePublic Land Act, or any improvement thereon and therefore have no application to the assailedmortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 ofRepublic Act No. 730, also a restriction appearing on the face of private respondent's title haslikewise no application in the instant case, despite its reference to encumbrance or alienation beforethe patent is issued because it refers specifically to encumbrance or alienation on the land itself and

does not mention anything regarding the improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties onMay 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds ofOlongapo City on the same date. Relative thereto, it is evident that such mortgage executed afterthe issuance of the sales patent and of the Original Certificate of Title, falls squarely under theprohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic

Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years,voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated,without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand,thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120,122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in paridelicto may not be invoked to defeat the policy of the State neither may the doctrineof estoppel give a validating effect to a void contract. Indeed, it is generallyconsidered that as between parties to a contract, validity cannot be given to it by


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estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is notwithin the competence of any citizen to barter away what public policy by law was topreserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra ). ... (Arsenalvs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon

any new contract between the parties ( Ibid ), as in the case at bar. It should not preclude newcontracts that may be entered into between petitioner bank and private respondents that are inaccordance with the requirements of the law. After all, private respondents themselves declare thatthey are not denying the legitimacy of their debts and appear to be open to new negotiations underthe law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whateversteps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo Cityis hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid butruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void,without prejudice to any appropriate action the Government may take against private respondents.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

Footnotes

* Penned by Judge Domingo D. Panis.

PRUDENTIAL BANK V.PANIS

153 SCRA 390

FACTS: Spouses Magcale secured a loan from Prudential Bank. To secure payment, they executed a real

estate mortgage over a residential building. The mortgage included also the right to occupy the lot and


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the information about the sales patent applied for by the spouses for the lot to which the building stood.

After securing the first loan, the spouses secured another from the same bank. To secure payment,

another real estate mortgage was executed over the same properties.

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land which was later onmortgaged to the bank.

The spouses then failed to pay for the loan and the REM was extrajudicially foreclosed and sold in public

auction despite opposition from the spouses. The respondent court held that the REM was null and void.

HELD:

A real estate mortgage can be constituted on the building erected on the land belonging to another.

The inclusion of building distinct and separate from the land in the Civil Code can only mean thatthe building itself is an immovable property.

While it is true that a mortgage of land necessarily includes in the absence of stipulation of theimprovements thereon, buildings, still a building in itself may be mortgaged by itself apart from theland on which it is built. Such a mortgage would still be considered as a REM for the building wouldstill be considered as immovable property even if dealt with separately and apart from the land.

The original mortgage on the building and right to occupancy of the land was executed before the

issuance of the sales patent and before the government was divested of title to the land.Under the foregoing, it is evident that the mortgage executed by private respondent on his ownbuilding was a valid mortgage.

As to the second mortgage, it was done after the sales patent was issued and thus prohibits pertinentprovisions of the Public Land Act.

G.R. No. L-18456 November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,vs.RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Taedo, Jr. for plaintiff-appellee.Renato A. Santos for defendants-appellants.


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PAREDES, J .:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married toGregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed adocument captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana

Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, andRufino G. Pineda, by way of Chattel Mortgage , mortgaged his two-story residential house, having afloor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo.San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor VehicleRegistration Certificate No. A-171806. Both mortgages were contained in one instrument, which wasregistered in both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made on them,failed to pay. They, however, asked and were granted extension up to June 30, 1960, within which topay. Came June 30, defendants again failed to pay and, for the second time, asked for anotherextension, which was given, up to July 30, 1960. In the second extension, defendant Pineda in adocument entitled "Promise", categorically stated that in the remote event he should fail to makegood the obligation on such date (July 30, 1960), the defendant would no longer ask for furtherextension and there would be no need for any formal demand, and plaintiff could proceed to takewhatever action he might desire to enforce his rights, under the said mortgage contract. In spite ofsaid promise, defendants, failed and refused to pay the obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on theprincipal, effective on the date of maturity, until fully paid.

Defendants, answering the complaint, among others, stated

Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the FirstCause of Action which states that the defendants unreasonably failed and refuse to pay theirobligation to the plaintiff the truth being the

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