GR L 10837 38; (May, 1958) (Digest)
G.R. No. 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.
FACTS
Spouses Adriano and Lucia Valino owned a house of strong materials on a lot they were purchasing on installment from Philippine Realty Corporation. On November 6, 1951, to enable Lucia to purchase rice on credit from NARIC, the spouses executed a chattel mortgage on the house in favor of Associated Insurance and Surety Co., Inc. (the surety company) as counter-guaranty for a bond. This chattel mortgage was registered on December 6, 1951. At that time, the lot was still registered in the name of Philippine Realty Corporation. The Valinos completed payment and obtained a certificate of title (T.C.T. No. 27884) on October 18, 1952. Subsequently, on October 24, 1952, they executed a real estate mortgage over the lot and the house in favor of Isabel Iya to secure a P12,000 loan, which was duly annotated on the title.
When Lucia Valino failed to pay her obligation to NARIC, the surety company paid it and demanded reimbursement from the spouses. Upon their failure to pay, the surety company foreclosed the chattel mortgage. The house was sold at public auction on December 26, 1952, and awarded to the surety company. The surety company later learned of the real estate mortgage in favor of Iya and filed an action (Civil Case No. 2162) seeking exclusion of the house from Iya’s mortgage and recognition of its ownership. Isabel Iya filed a separate foreclosure action (Civil Case No. 2504) against the Valinos and the surety company. The cases were jointly heard.
ISSUE
Which encumbrance has preference over the residential building: the earlier chattel mortgage in favor of the surety company or the subsequent real estate mortgage in favor of Isabel Iya?
RULING
The Supreme Court ruled in favor of Isabel Iya. The real estate mortgage in favor of Iya is superior and preferred over the chattel mortgage in favor of the surety company. The Court held that the building, being a permanent structure attached to the land, is immovable or real property by nature, regardless of the parties’ intention to treat it as chattel. Since the Valinos were already the registered owners of the land at the time they executed the real estate mortgage in favor of Iya, the building was part of the realty. The earlier registration of the chattel mortgage was a “futile act” and produced no effect as to the building, as registration in the chattel mortgage registry does not apply to real property. Consequently, the foreclosure and auction sale of the building under the Chattel Mortgage Law were null and void with respect to the building. Iya’s right to foreclose both the land and the building was recognized. The surety company’s rights, if any, are limited to a personal action against the Valino spouses.