1

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and as set forth by counsel for the parties on appeal, involves the determination of
the nature of the properties described in the complaint. The trial judge found that those properties were personal in nature, and as a consequence absolved the defendants from
the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land upon which the business was conducted belonged to another person. On the land the sawmill company erected a
building which housed the machinery used by it. Some of the implements thus used were clearly personal property, the conflict concerning machines which were placed and
mounted on foundations of cement. In the contract of lease between the sawmill company and the owner of the land there appeared the following provision:
That on the expiration of the period agreed upon, all the improvements and buildings introduced and erected by the party of the second part shall pass to the
exclusive ownership of the party of the first part without any obligation on its part to pay any amount for said improvements and buildings; also, in the event the
party of the second part should leave or abandon the land leased before the time herein stipulated, the improvements and buil dings shall likewise pass to the
ownership of the party of the first part as though the time agreed upon had expired: Provided, however, That the machineries and accessories are not included in the
improvements which will pass to the party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the
plaintiff in that action against the defendant in that action; a writ of execution issued thereon, and the properties now in question were levied upon as personalty by the sheriff.
No third party claim was filed for such properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having consummated the sale, proceeded to take possession of the machinery and other properties described in the
corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of such persons is the appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
x x x x x x x x x
5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being
carried on therein and which are expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no doubt that the trial judge and appellees are right in their appreciation of
the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest before or at the time of the sale of this property. It must further be pointed
out that while not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined
by the parties. In this connection the decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not,
furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It is machinery which is involved; moreover, machinery not intended by
the owner of any building or land for use in connection therewith, but intended by a lessee for use in a building erected on the l and by the latter to be returned to the lessee on
the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right,
unless such person acted as the agent of the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the property from the point of view of the rights of Valdes and its nature and character from
the point of view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived by them from the execution levied on the machinery
placed by the corporation in the plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not only land and buildings, but also
attributes immovability in some cases to property of a movable nature, that is, personal property, because of the destination to which it is applied. "Things," says
section 334 of the Porto Rican Code, "may be immovable either by their own nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery, vessels, instruments or implements intended by the owner of the
tenements for the industrial or works that they may carry on in any building or upon any land and which tend directly to meet the needs of the said industry or
works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in themselves movable, may be
immobilized.) So far as the subject-matter with which we are dealing machinery placed in the plant it is plain, both under the provisions of the Porto Rican Law
and of the Code Napoleon, that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant.
Such result would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a usufructuary or any person having only a temporary right.
(Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzi er-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as pointed out by Demolombe, upon the fact that one only having a temporary right to the possession or enjoyment of
property is not presumed by the law to have applied movable property belonging to him so as to deprive him of i t by causing it by an act of immobilization to become
the property of another. It follows that abstractly speaking the machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its character
of movable property and become immovable by destination. But in the concrete immobilization took place because of the express provisions of the lease under which
the Altagracia held, since the lease in substance required the putting in of improved machinery, deprived the tenant of any right to charge against the lessor the cost
such machinery, and it was expressly stipulated that the machinery so put in should become a part of the plant belonging to the owner without compensation to the
lessee. Under such conditions the tenant in putting in the machinery was acting but as the agent of the owner in compliance with the obligations resting upon him,
and the immobilization of the machinery which resulted arose in legal effect from the act of the owner in giving by contract a permanent destination to the
machinery.
2

x x x x x x x x x
The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the Altagracia Company, being, as regards Nevers & Callaghan,
movable property, it follows that they had the right to levy on it under the execution upon the judgment in their favor, and the exercise of that right did not in a legal
sense conflict with the claim of Valdes, since as to him the property was a part of the realty which, as the result of his obligations under the lease, he could not, for
the purpose of collecting his debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this instance to be paid by the appellant.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF
PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e
Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its decision in question which will be discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the lower court erred in declaring that the additional
machinery and equipment, as improvement incorporated with the central are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained from the defendants,
Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements, sugar-cane mill, steel railway, telephone line,
apparatus, utensils and whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said
lots."
On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by buying additional
machinery and equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of said additional machinery and equipment was approximately
P100,000. In order to carry out this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the
purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e
Hijos. Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to
B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit
of P22,000 against said corporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery
and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the additional
machinery and equipment acquired by said B.A. Green and installed in the sugar central after the execution of the original mortgage deed, on April 27, 1927, together with
whatever additional equipment acquired with said loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not collected when the obligation falls due, and the amount of any
indemnities paid or due the owner by the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate continues in the possession of the person who mortgaged it or whether it passes into the hands
of a third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with approval in the case ofCea vs. Villanueva (18 Phil., 538), this court laid shown the
following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES. It is a rule, established by the Civil Code and also by the Mortgage Law, with
which the decisions of the courts of the United States are in accord, that in a mortgage of real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land, although they may have been placed there after the mortgage was constituted, are also included.
(Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator,
and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may be understood that the machinery and other objects placed upon and used in
connection with a mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that the improvements, buildings, and machinery that
existed thereon were also comprehended, it is indispensable that the exclusion thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in
character inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear in the letter, Exhibit E, that in case B.A. Green should fail
to obtain an additional loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said B.A. Green binding himself not to
mortgage nor encumber them to anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as loan from the plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc.,
the latter became owner of said machinery and equipment, otherwise B.A. Green, as such president, could not have offered them to the plaintiff as security for the payment of
his credit.
3

Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid containers, instruments or implements intended by the owner of any building
or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar
industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in character because, as essential
and principal elements of a sugar central, without them the sugar central would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as
the central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be
permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said machinery and equipment as security for the payment of the latter's credit and
to refrain from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is not incompatible with the permanent character of the
incorporation of said machinery and equipment with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as security at least
under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been permanently incorporated with sugar central of the Mabalacat Sugar
Co., Inc., and while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor Mabalacat Sugar Co., Inc.,
in the sugar central with which said machinery and equipment had been incorporated, was transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos under
the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of
less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar central and
subjects said machinery and equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the new machinery and equipment
has bound himself to the person supplying him the purchase money to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or otherwise
encumbering them does not alter the permanent character of the incorporation of said machinery and equipment with the central; and (3) that the sale of the machinery and
equipment in question by the purchaser who was supplied the purchase money, as a loan, to the person who supplied the money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor with ownership of said machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.
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 for respondent 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 was intimated that Orosa, his family and close friends were
organizing a corporation to be known as Plaza Theatre, Inc., that would engage in such venture. Although Lopez expressed his unwillingness to 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 any account that the
said construction might incur, Lopez further agreed that payment therefor would be on demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez
delivered the lumber which was used for the construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total cost of the materials
amounting to P62,255.85, Lopez was paid only 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 of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was
acquired by the corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of the remaining unpai d obligation, the latter and Belarmino Rustia,
the president of the corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza Theatre., out of which said amount of P41,771.35 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 Philippine National
Bank with the Luzon Surety Company as surety, and the corporation in turn executed a mortgage on the land and building in favor of said company as counter-security. As the
land at that time was not yet brought under the operation of the Torrens System, the mortgage on the same was registered on November 16, 1946, under Act No. 3344.
Subsequently, when the corporation applied for the registration of the land under Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420
shares of stock of the Plaza Theater, 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 of First 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 the sum of P41,771.35, with legal interest from the firing of the action; that in case defendants fail to pay
the same, that the building and the land covered by OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be applied to said indebtedness;
or that the 420 shares of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for the same purpose; and for such
other remedies as may be warranted by the circumstances. Plaintiff also caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that the materials were delivered to him as a promoter and later treasurer of the
corporation, because he had 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 aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not assigned to plaintiff 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 assignor and accepted
by Lopez as direct security for the payment of the amount of P41,771.35 were personal properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale
thereof at public auction would not be sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted from the payment of any deficiency in case
the proceeds from the 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 by alleging that the building materials delivered to Orosa were on the latter's
personal account; and that there was no understanding that said materials would be paid jointly and severally by Orosa and the corporation, nor was a lien charged on the
properties of the latter to secure payment of the same obligation. As special defense, defendant corporation averred that while it was true that the materials purchased by Orosa
were sold by the latter to the corporation, such transactions were in good faith and for valuable consideration thus when plaintiff failed to claim said materials within 30 days
from the time of removal thereof from Orosa, lumber became a different and distinct specie and plaintiff lost whatever rights he might have in the same and consequently had no
recourse against the Plaza Theatre, Inc., that the claim could not have been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the repair or
reconstruction of something already existing and this concept did not include an entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14,
1946, it could not have contracted any obligation prior to said date. It was, therefore, prayed that the complaint be dismissed; that said defendant be awarded the sum P 5,000
for damages, and such other relief as may be just and proper in the premises.
4

The surety company, in the meantime, upon discovery that the land was already registered under the Torrens System and that there was a notice of lis pendens thereon, filed on
August 17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for review of the decree of 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 (Land Registration 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 the obligors; that the
surety company was guilty of negligence when it failed to present an opposition to the application for registration of the property; and that if any violation of the rights and
interest of said 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, after making an exhaustive and detailed analysis of the respective stands of the
parties and the evidence adduced 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 of the building and the plaintiff thus acquired the materialman's lien over the same. In making the pronouncement that the lien was merely confined to
the building and did not extend to the land on which the construction was made, the trial judge took into consideration the fact that when plaintiff started the delivery of lumber
in May, 1946, the land was not yet owned by the corporation; that the mortgage in favor of Luzon Surety Company was previousl y registered under Act No. 3344; that the codal
provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings which are also classified as real properties, upon
which said refection was made. It was, however, declared that plaintiff's lien on the building was superior to the right of the surety company. And finding that the Plaza Theatre,
Inc., had no objection to the review of the decree issued in its favor by the land registration court and the inclusion in the title of the encumbrance in favor of the surety
company, the court a quo granted the petition filed by the latter company. 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; that in case of default, the 420 shares of stock assigned by Orosa to plaintiff be sold at
public auction and the proceeds thereof be applied to the payment of the amount due the plaintiff, plus interest and costs; 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 the materialman'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 of therein defendants was joint instead of solidary, and that the lien did not
extend to the land, but same was denied by order the court of December 23, 1952. The matter was thus appealed to the Court 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 used in the construction of a
building attaches to said structure alone and does not extend to the land on which the building is adhered to; and (2) whether the lower court and the Court of Appeals erred in
not providing that the material mans liens is superior to the mortgage executed in favor surety company 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 the decision 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 lien created in favor of the furnisher of the
materials used for the construction, repair or refection of a building, is also extended to the land which the construction was made, and in support thereof he relies 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 the refection was made, and only with respect to other credits different from
those mentioned in four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or immovable property, and inasmuch as said provision does not contain any specification delimiting the
lien to the building, said article 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 distinct from 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
in the case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence 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 the same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals that the law gives preference to unregistered refectionary credits only with respect to the real
estate upon which the refection 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. Evidently, 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.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only to the building for which the credit was made or which received the benefit of
refection, the lower court was right in, holding at the interest of the mortgagee over the land is superior and cannot be made subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision appealed from is hereby 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 considered immovable property, among which are land, buildings, roads and
constructions of all kinds adhered to the soil.
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.:
5

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 voidab 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.
6

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 inAssociated 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
whereinthird 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 beenforceable 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.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
7


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 allegedchattel 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 whi ch 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
8

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.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia, JJ.,concur.
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 aforedescri bed 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.
9

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.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.
Abad Santos, J., concurs in the result.