LEUNG YEE V. STRONG MACHINERY

In 1913, Compania Agricola Filipina (CAF) was indebted to two personalities: Leung Yee and Frank

L. Strong Machinery Co. CAF purchased some rice cleaning machines from Strong Machinery. 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 Strong Machinery, hence the latter foreclosed the mortgage – the same was

registered in the chattel mortgage registry.

CAF also sold the land (where the building was standing) to Strong Machinery. Strong

Machinery took possession of the building and the land.

On the other hand, Yee, another creditor of CAF who engaged in the construction of the building,

being the highest bidder in an auction conducted by the sheriff, purchased the same building where

the machines were installed. Apparently CAF also executed a chattel mortgage in favor Yee. Yee

registered the sale in the registry of land. Yee was however aware that prior to his buying, the

property has been sold in favor of Strong Machinery – evidence is the chattel mortgage already

registered by Strong Machinery (constructive notice).

ISSUE: Who is the owner of the building?

HELD: The SC ruled that Strong Machinery has a better right to the contested property. Yee cannot

be regarded as a buyer in good faith as he was already aware of the fact that there was a prior sale

of the same property to Strong Machinery.

The SC also noted that the Chattel Mortgage Law expressly contemplates provisions for chattel

mortgages which only deal with personal properties. The fact that the parties dealt the building as if

it’s a personal property does not change the nature of the thing. It is still a real property. Its

inscription in the Chattel Mortgage registry does not modify its inscription the registry of real

property.

NAVARRO V. PINEDA

FACTS:Pineda and his mother executed real estate and chattel mortgages in favor of Navarro, to secure a loan they got from the latter.  The REM covered a parcel of land owned by the mother while the chattel mortgage covered a residential  house.   

Due  to  the  failure  to  pay  the  loan,  they  asked  for extensions to pay for the loan.  On the second extension, Pineda executed a PROMISE wherein in case of default in payment, he wouldn’t ask for any additional extension and there would be no need for any formal demand.  In spite of this, they still failed to pay.

Navarro then filed for the foreclosure of the mortgages.  The court decided in his favor.  ISSUE:W/N the deed of real estate mortgage and chattel mortgage appended to the complaint is valid notwithstanding the fact that the house was made subject of chattel mortgage for the reason that it is erected on a land that belongs to a third person.

HELD:

Where  a  house  stands  on  a  rented  land  belonging  to  another  person,  it may be the subject matter of a chattel mortgage as personal property if so stipulated in the document of mortgage, and in an action by the mortgagee for the foreclosure, the validity of the chattel mortgage cannot be assailed by one of the parties to the contract of mortgage.

Furthermore, although in some instances, a house of mixed materials has been considered as a chattel between the parties and that the validity of the  contract  between  them,  has  been  recognized,  it  has  been  a  constant criterion  that  with  respect  to  third  persons,  who  are  not  parties  to  the contract, and specially in execution proceedings, the house is considered as immovable property. 

DAVAO SAW MILL CO V CASTILLO

FACTS

Davao Sawmill Co., operated a sawmill. The land upon which the business was conducted was

leased from another person. On the land, Davao Sawmill erected a building which housed the

machinery it used. Some of the machines were mounted and placed on foundations of cement. In

the contract of lease, Davo Sawmill agreed to turn over free of charge all improvements and

buildings erected by it on the premises with the exception of machineries, which shall remain with

the Davao Sawmill. In an action brought by the Davao Light and Power Co., judgment was rendered

against Davao Sawmill. A writ of execution was issued and the machineries placed on the sawmill

were levied upon as personalty by the sheriff. Davao Light and Power Co., proceeded to purchase

the machinery and other properties auctioned by the sheriff.

ISSUE: Are the machineries real or personal property?

HELD:

Art.415 of the New Civil Code provides that Real Property consists of:

(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;

(5) Machinery, receptacles, instruments or implements intended by the owner pf the tenement for

an industry ot works which may be carried on in a building or on a piece of land, and which tend

directly to meet the needs of the said industry or works;

Appellant should have registered its protest before or at the time of the sale of the property. While

not conclusive, the appellant's characterization of the property as chattels is indicative of intention

and impresses upon the property the character determined by the parties. Machinery is naturally

movable. However, machinery may be immobilized by destination or purpose under the following

conditions:

General Rule: The machinery only becomes immobilized if placed in a plant by the owner of the

property or plant.

Immobilization cannot be made by a tenant, a usufructuary, or any person having only

a temporary right.

Exception: The tenant, usufructuary, or temporary possessor acted as agent of the owner of the

premises; or he intended to permanently give away the property in favor of the owner. As a rule,

therefore, the machinery should be considered as Personal Property, since it was not placed on the

land by the owner of the said land.

PIANSAY V. DAVID

FACTS:David secured a loan from Vda. De Uy Kim, and to secure the payment, he executed a chattel mortgage over a house in favor of Kim. Due to failure to pay, the CM was foreclosed and Kim was the highest bidder in the public auction. Kim then sold the house to Mangubat. The latter then filed charges against David for the collection of loan and praying that the deed of sale issued by Kim in favor of Piansay be declared null and void. The trial court held David liable to Mangubat but dismissed the complaint with regard Kim and Piansay. 

Kim and Piansay then filed charges against David and Mangubat. Due to the civil case, David demanded from Piansay the payment of rentals for the use of the house, which the latter claims to be his property. 

ISSUE:W/N the chattel mortgage constituted in favor of Mrs. Uy Kim is valid.

HELD:Regardless of the validity of a contract constituting a chattel mortgage on a house, as between the parties to the said contract, the same cannot and doesn’t bind third persons who aren’t parties to the aforementioned contract or their privies. As a consequence, the sale of the house in question in the proceedings for the sale of the house in question in the proceedings for the extrajudicial foreclosure of said chattel mortgage, is null and void insofar as Mangubat is concerned and didn’t confer upon Kim as buyer in said sale, any dominical right in and to said house.

TUMALAD V. VICENCIO

FACTS:

Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over their house, which was being rented by Madrigal and company. This was executed to guarantee a loan, payable in one year with a 12% per annum interest. 

The mortgage was extrajudicially foreclosed upon failure to pay the loan. The house was sold at a public auction and the plaintiffs were the highest bidder. A corresponding certificate of sale was issued. Thereafter, the plaintiffs filed an action for ejectment against the defendants, praying that the latter vacate the house as they were the proper owners.

ISSUE:

W/N the chattel mortgage was null and void ab initio because only personal properties can be subject of a chattel mortgage.

HELD:

Certain deviations have been allowed from the general doctrine that buildings are immovable property such as when through stipulation, parties may agree to treat as personal property those by their nature would be real property. This is partly based on the principle of estoppel wherein the principle is predicated on statements by the owner declaring his house as chattel, a conduct that may conceivably stop him from subsequently claiming otherwise.

In the case at bar, though there be no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property through chattel mortgage could only have meant that defendant conveys 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.

CERNA V. CA

FACTS:

-Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note. worded as follows:

-On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him. And acting as the attorney-in-fact, Manolo P. Cerna, he also mortgage a "Taunus' car owned by the latter.

-The period lapsed without Delgado paying the loan. This prompted Leviste to a file a collection suit against Delgado and Cerna as solidary debtors.

-Cerna filed a Motion to Dismiss on the ground of lack of cause of action against Cerna and the death of Delgado. Anent the latter, Cerna claimed that the claim should be filed in the proceedings for the settlement of Delgado's estate as the action did not survive Delgado's death. Moreover, he also stated that since Leviste already opted to collect on the note, he could no longer foreclose the mortgage.

ISSUES:

-Whether or not a third party, who is not a debtor under the note but mortgaged his property to secure the payment of the loan of another is solidarily liable with the principal debtor.Whether or not a mortgagee who opted to collect may still foreclose the mortgage.

HELD:

- There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is, to pay the loan. The signatory to the principal contract — loan — remains to be primarily bound. It is only upon the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditors has recourse on the principal debtor.

- The Special Power of Attorney did not make petitioner a mortgagor. All it did was to authorized Delgado to mortgage certain properties belonging to petitioner

-Hence, Leviste, having chosen to file the collection suit, could not now run after petitioner for the satisfaction of the debt. This is even more true in this case because of the death of the principal debtor, Delgado. Leviste was pursuing a money claim against a deceased person.

BA FIANCE CORP V. CA

FACTS:

-Spouses Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a credit, which amount covered the cost of one unit of Ford Escort 1300, four-door sedan. Said obligation was evidenced by a promissory note executed by Sps. Cuady in favor of Supercars, Inc., obligating themselves to pay the latter or order.

-To secure the faithful and prompt compliance of the obligation under the said promissory note, the Cuady spouses constituted a chattel mortgage on the aforementioned motor vehicle. -Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to B.A. Finance Corporation. The Cuadys made partial payment leaving an un paid balance.In addition thereto, the Cuadys owe B.A. Finance .

-Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the renewal of the insurance coverage over the aforementioned motor vehicle for the with Zenith Insurance Corporation, when the Cuadys failed to renew said insurance coverage themselves. Under the terms and conditions of the said insurance coverage, any loss under the policy shall be payable to the B.A. Finance Corporation.

-The motor vehicle figured in an accident and was badly damaged. The unfortunate happening was reported to the B.A. Finance Corporation and to the insurer, Zenith Insurance Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a total loss, and to claim from the insurer the face value of the car insurance policy and apply the same to the payment of their remaining account and give them the surplus thereof, if any. But instead of heeding the request of the Cuadys, B.A. Finance Corporation prevailed upon the former to just have the car repaired. Not long thereafter, however, the car bogged down.

-The Cuadys wrote B.A. Finance Corporation requesting the latter to pursue their prior instruction of enforcing the total loss provision in the insurance coverage. When B.A. Finance Corporation did not respond favorably to their request, the Cuadys stopped paying their monthly installments on the promissory note. In view of the failure of the Cuadys to pay the remaining installments on the note, B.A. Finance Corporation sued them.

ISSUE:

-Whether or not the mortgagor has waived its rights to collect the unpaid balance of the mortgage on the promissory note for failure of the former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the chattel mortgage.

BA FINANCE’S CONTENTION:

- It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision in the insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not operate to extinguish the unpaid balance on the promissory note, considering that the circumstances obtaining in the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment of obligations.

HELD:

-Under the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full power and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign execute and deliver the corresponding papers, receipts and documents to the Insurance Company as may be necessary to prove the claim, and to collect from the latter the proceeds of insurance to the extent of its interests, in the event that the mortgaged car suffers any loss or damage. In granting B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency, and is liable for damages which, through its non-performance, the Cuadys, the principal in the case at bar, may suffer; in such case, the assignee of the mortgage agreement is bound by the same stipulation and if the assignee failed to file and prosecute the insurance claim when the car was damaged totally, the mortgagor is relieved from his obligation to pay as he suffered a loss because of the failure of the mortgagee to file the claim.

LEE V. TORCINO

Disclaimer: Execution pending appeal yung doctrine niya talaga.

FACTS:1. Pea filed a complaint for recovery of agents compensation, expenses, damages and atty’s

fees against Urban Bank wherein Lee was a board of director. Judgment was rendered in favor of Pea.

2. Pea moved for execution pending appeal and was granted eventually by the court. 3. Pea caused the levy and sale of some of Urban Bank and its co-defendant’s properties,

including the shares of stock of Lee in EQL Properties. Pea filed a complaint to compel ELQ to transfer said shares of stock specifically with respect to Lees Manila Polo Club

4. RTC Court ordered the cancellation and issuance to one Sylvia Ting, who appears to be the successful bidder in the execution sale of sad Manila Golf Share.

5. Subsequently, CA rendered a judgment dismissing the cases in RTC finding that PEA has no cause of action against Urban and therefore lifting the writ of execution.

ISSUE: WON Trial court should annul the whole execution process?

HELD: No.1. Stay of execution proceeds only from December 8, 2000, which is the date of the appellate

courts approval of the P40 million supersedeas bond posted by Lee and his co-petitioners. Prior thereto, all executions, garnishments and levies of Lees properties proceeding from the Special Order and the Writ of Execution are presumed regular, for they have not been legally stayed, except for a brief ninety (90) day period during which the TRO remained in force, and at which point in time the record does not demonstrate that execution, levy, garnishment or sale of his properties were made.

2. There is good ground to order execution pending appeal. Urban Bank declared a bank holiday, and BSP ordered its closure. Meaning, Urban Bank is in danger of Insolvency.

ESGUERRA V. CA

FACTS:

-GA Machineries Inc. sold a Ford-trader cargo to Hilario Lagmay and Bonifacio Masilungan.-Subsequently, Montelibano Esguerra bought the right to the cargo truck and assumed paying the unpaid purchase price.-In so doing, Esguerra executed in favor of GAMI a promissory note and chattel mortgage over the truck.-Esguerra defaulted in his obligations.-Gami took the truck from Esguerra who gave his consent on the condition that he be allowed to recover its possession upon payment of its account.-Esguerra tried to repossess the truck by sending his wife to Gami to partially settle his account.-Still, Gami refused to deliver the truck, compelling Esguerra to file a complaint.

ISSUE:

-Whether or not the mortgagee-vendor of the personal property sold on installments is legally obligated to foreclose the chattel mortgage and sell the chattel subject thereof at public auction in case the mortgagor-vendee defaults in the payment of the agreed installments.

HELD:

- While the mortgagee can take possession of the chattel, such taking did not amount to the foreclosure of the mortgage. Otherwise stated, the taking of Esguerra's truck without proceeding to the sale of the same at public auction, but instead, appropriating the same in payment of Esguerra's indebtedness, is not lawful.

-As clearly stated in the chattel mortgage contract, the express purpose of the taking of the mortgaged property is to sell the same and/or foreclose the mortgage constituted thereon either judicially or extrajudicially and thereby, liquidate the indebtedness in accordance with law.

-More than that, even if such automatic appropriation of the cargo truck in question can be inferred from or be contemplated under the aforesaid mortgage contract, such stipulation would be pactum commissorium which is expressly prohibited by Article 2088 of the Civil Code and therefore, null and void.

-Having opted to foreclose the chattel mortgage, respondent GAMI can no longer cancel the sale. The three remedies of the vendor in case the vendee defaults, in a contract of sale of personal property the price of which is payable in installment under Article 1484 of the Civil Code, are alternative and cannot be exercised simultaneously or cumulatively by the vendor-creditor.

CABRAL V. EVANGELISTA

DOCTRINE: The rights of a mortgage creditor over the mortgaged properties are superior to those of a subsequent attaching creditor.

FACTS:

Defendant George L. Tunaya had executed in favor of Alberta and Renato Cabral a chattel mortgage covering an English piano, and an electric Stove as security for payment to the Spouses Cabral of a promissory note executed on the same date by said defendant Tunaya with his wife. The chattel mortgage deed was duly inscribed in the Chattel Mortgage Register of Rizal province.

Meanwhile, the Evangelista spouses, obtained in a civil case, a final money judgment against defendant Tunaya, They caused the levy in execution on personal properties of said defendant Tunaya, including the piano and stove mortgaged to plaintiffs. The said mortgaged chattels, together with other personal properties of the judgment debtor, were sold at public to the Evangelista spouses.

Eight months after the maturity of Tunaya's promissory note and his having defaulted in the payment thereof, Cabral spouses filed their complaint against Tunaya and the Evangelista spouses, alleging that the Evangelista spouses had refused their demands to pay the amount due on Tunaya's promissory note or to exercise their right of redemption and praying for judgment, ordering the defendants, jointly and solidarity, to pay them.

The City Court decided in favor of the Cabral spouses against the mortgage debtor, Tunaya, on confession of the latter, but granted the motion to dismiss of the defendants Evangelista spouses. The court upheld the superior rights of Cabral spouses as mortgage creditors to the personal properties in question, holding the the Evangelista spouses, "being subsequent judgment creditors in another case, have only the right of redemption."

ISSUE:

Who has the better right over the personal properties? SPOUSES CABRAL

HELD:

The prescription period for recovery of movables for foreclosure purposes such as in the present case is eight years as provided in Article 1140 of the Civil Code, and here Spouses Cabral had timely filed their action within 8 months from the mortgage debtor's default.

Spouses Evangelista purchase of the mortgaged chattels at the public sheriff's sale and the delivery of the chattels to them with a certificate of sale did not give them a superior right to the chattels as against plaintiffs-mortgagees. It has long been settled by this Court that The right of those who so acquire said properties should not and cannot be superior to that of the creditor who has in his favor an instrument of mortgage executed with the formalities of the law, in good faith, and without the least indication of fraud.

TOLENTINO V BALTAZAR

FACTS: 1. Baltazar filed a homestead application which was approved by Director of Lands on April

14, 1940. On April 1, 1941, he mortgaged the present and future improvements on said land to Tolentino for the sum of 1500.

2. Stipulated that in case of default, Tolentino could elect, either to foreclose the mortgage or to compel the debtor to execute deed of absolute sale.

3. Baltazar died and his son Basilio took his place for the application of homestead, which was soon granted and was issued Original Certificate of Title No. P-790.

4. Tolentino filed an action against Basilio for the cancellation of the OCT upon the ground that Basilio had secured it by fraud.

5. CFI: Basilio had not been guilty of fraud in securing the homestead patent and certificate of title in his own name and DIR of lands is estopped from saying there is fraud since it is its duty to know if there is fraud in the first place. And that Tolentino has merely a money claim that should be filed against the estate of the deceased.

ISSUE: WON Tolentino can still foreclose the mortgage?

HELD: Yes.1. A land acquired by homestead patent may neither be encumbered or alienated from the

date of the approval of the corresponding homestead application and for a period of five (5) years after the issuance of the patent, nor be held liable for any debt contract within such period of time However, said section 118 explicitly permits the encumbrance, by mortgage or pledge of the improvements and crops on the land, without limitation in point of time.

2. Even if Basilio had not been guilty of fraud in securing the homestead patent, it has been established that when plaintiff saw the children of Baltazar, they promised to pay his debt. Therefore, Basilio had knowledge of the obligation and hence, he must be deemed to have secured such patent and title subject to a subsisting trust.