Full text: https://www.lawphil.net/judjuris/juri1971/sep1971/gr_30173_1971.html
Facts:
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. 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. 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. 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.
Defendants-appellants submitted numerous assignments of error which can be condensed into two questions, namely: .
(a) Whether the municipal court from which the case originated had jurisdiction to adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay rentals to the plaintiffs during the period of one (1) year provided by law for the redemption of the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which the case originated, and consequently, the appellate jurisdiction of the Court of First Instance a quo, on the theory that the chattel mortgage is void ab initio; whence it would follow that the extrajudicial foreclosure, and necessarily the consequent auction sale, are also void. Thus, the ownership of the house still remained with defendants-appellants who are entitled to possession and not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of ownership will have to be adjudicated first in order to determine possession. lt is contended further that ownership being in issue, it is the Court of First Instance which has jurisdiction and not the municipal court. Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds, which are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery; and (b) that the subject matter of the mortgage is a house of strong materials, and, being an immovable, it can only be the subject of a real estate mortgage and not a chattel mortgage. On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants' contentions as not supported by evidence and accordingly dismissed the charge, 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."
Issue:
WON the house of strong materials can be subject to chattel mortgage?
Held:
Yes, the house of strong materials can be subject to chattel mortgage.
The court used a ruling in the case of Lopez vs. Orosa, Jr. and Plaza Theatre Inc., cited in Associated Insurance Surety Co., Inc. vs. Iya, et al. in which that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties 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. The court also used the ruling in the case of Manarang and Manarang vs. Ofilada in which 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. In the latter case, the mortgagor conveyed and transferred to the mortgagee by way of mortgage "the following described personal property." The "personal property" consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion, 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, 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"
In this case, 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 the property together with its leasehold rights over the lot on which it is constructed and participation ..." 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. 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.
Hence, the house of strong materials can be subject to chattel mortgage.
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