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Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-30173 September 30, 1971 GAVINO A. TUMALAD an G!N!ROSA R. TUMALAD, plaintiffs-appellees, vs. AL"!RTA VI#!N#IO an !MILIANO SIM!ON, defendants-appellants. Castillo & Suck for plaintiffs-appellees. Jose Q. Calingo for defendants-appellants.

R!$!S, %.".L., J.: Case certified to this Court by the Court of Appeals (CA-G.R. No. 2782 -R! for the reason that only "uestions of la# are involved. $his case #as ori%inally co&&enced by defendants-appellants in the &unicipal court of 'anila in Civil Case No. ()7(, for e*ect&ent. +avin% lost therein, defendants-appellants appealed to the court a "uo (Civil Case No. (),,(! #hich also rendered a decision a%ainst the&, the dispositive portion of #hich follo#s.+/R/01R/, the court hereby renders *ud%&ent in favor of the plaintiffs and a%ainst the defendants, orderin% the latter to pay *ointly and severally the for&er a &onthly rent of 22)).)) on the house, sub*ect-&atter of this action, fro& 'arch 27, 3,45, to 6anuary 3 , 3,57, #ith interest at the le%al rate fro& April 38, 3,45, the filin% of the co&plaint, until fully paid, plus attorney7s fees in the su& of 2()).)) and to pay the costs. 8t appears on the records that on 3 9epte&ber 3,44 defendants-appellants e:ecuted a chattel &ort%a%e in favor of plaintiffs-appellees over their house of stron% &aterials located at No. 44) 8nt. (, ;ue<on =oulevard, ;uiapo, 'anila, over >ot Nos. 5-= and 7-=, =loc? No. 244 , #hich #ere bein% rented fro& 'adri%al @ Co&pany, 8nc. $he &ort%a%e #as re%istered in the Re%istry of Aeeds of 'anila on 2 9epte&ber 3,44. $he herein &ort%a%e #as e:ecuted to %uarantee a loan of 2 ,8)).)) received fro& plaintiffs-appellees, payable #ithin one year at 32B per annu&. $he &ode of pay&ent #as 234).)) &onthly, startin% 9epte&ber, 3,44, up to 6uly 3,45, and the lu&p su& of 2(,34) #as payable on or before Au%ust, 3,45. 8t #as also a%reed that default in the pay&ent of any of the a&orti<ations, #ould cause the re&ainin% unpaid balance to beco&ei&&ediately due and 2ayable and C the Chattel 'ort%a%e #ill be enforceable in accordance #ith the provisions of 9pecial Act No. (3(4, and for this purpose, the 9heriff of the City of 'anila or any of his deputies is hereby e&po#ered and authori<ed to sell all the 'ort%a%or7s property after the necessary publication in order to settle the financial debts of 2 ,8)).)), plus 32B yearly & interest, and attorney7s fees...

.hen defendants-appellants defaulted in payin%, the &ort%a%e #as e:tra*udicially foreclosed, and on 27 'arch 3,45, the house #as sold at public auction pursuant to the said contract. As hi%hest bidder, plaintiffs-appellees #ere issued the correspondin% certificate of sale. 3 $hereafter, on 38 April 3,45, plaintiffs-appellant co&&enced Civil Case No. ()7( in the &unicipal court of 'anila, prayin%, a&on% other thin%s, that the house be vacated and its possession surrendered to the&, and for defendantsappellants to pay rent of 22)).)) &onthly fro& 27 'arch 3,45 up to the ti&e the possession is surrendered. ' 1n 23 9epte&ber 3,45, the &unicipal court rendered its decision C ... orderin% the defendants to vacate the pre&ises described in the co&plaintD orderin% further to pay &onthly the a&ount of 22)).)) fro& 'arch 27, 3,45, until such (ti&e that! the pre&ises is (sic! co&pletely vacatedD plus attorney7s fees of 23)).)) and the costs of the suit. (

Aefendants-appellants, in their ans#ers in both the &unicipal court and court a quo i&pu%ned the le%ality of the chattel &ort%a%e, clai&in% that they are still the o#ners of the houseD but they #aived the ri%ht to introduce evidence, oral or docu&entary. 8nstead, they relied on their &e&oranda in support of their &otion to dis&iss, predicated &ainly on the %rounds that- (a! the &unicipal court did not have *urisdiction to try and decide the case because (3! the issue involved, is o#nership, and (2! there #as no alle%ation of prior possessionD and (b! failure to prove prior de&and pursuant to 9ection 2, Rule 72, of the Rules of Court. ) Aurin% the pendency of the appeal to the Court of 0irst 8nstance, defendants-appellants failed to deposit the rent for Nove&ber, 3,45 #ithin the first 3) days of Aece&ber, 3,45 as ordered in the decision of the &unicipal court. As a result, the court %ranted plaintiffs-appellees7 &otion for e:ecution, and it #as actually issued on 2 6anuary 3,47. +o#ever, the *ud%&ent re%ardin% the surrender of possession to plaintiffs-appellees could not be e:ecuted because the sub*ect house had been already de&olished on 3 6anuary 3,47 pursuant to the order of the court in a separate civil case (No. 24835! for e*ect&ent a%ainst the present defendants for non-pay&ent of rentals on the land on #hich the house #as constructed. $he &otion of plaintiffs for dis&issal of the appeal, e:ecution of the supersedeas bond and #ithdra#al of deposited rentals #as denied for the reason that the liability therefor #as disclai&ed and #as still bein% liti%ated, and under 9ection 8, Rule 72, rentals deposited had to be held until final disposition of the appeal. 7 1n 7 1ctober 3,47, the appellate court of 0irst 8nstance rendered its decision, the dispositive portion of #hich is "uoted earlier. $he said decision #as appealed by defendants to the Court of Appeals #hich, in turn, certified the appeal to this Court. 2laintiffs-appellees failed to file a brief and this appeal #as sub&itted for decision #ithout it. Aefendants-appellants sub&itted nu&erous assi%n&ents of error #hich can be condensed into t#o "uestions, na&ely- . (a! .hether the &unicipal court fro& #hich the case ori%inated had *urisdiction to ad*udicate the sa&eD (b! .hether the defendants are, under the la#, le%ally bound to pay rentals to the plaintiffs durin% the period of one (3! year provided by la# for the rede&ption of the e:tra*udicially foreclosed house. .e #ill consider these "uestions seriatim. (a! Aefendants-appellants &ort%a%ors "uestion the *urisdiction of the &unicipal court fro& #hich the case ori%inated, and conse"uently, the appellate *urisdiction of the Court of 0irst 8nstance a quo, on the theory that the chattel &ort%a%e is void ab initioD #hence it #ould follo# that the e:tra*udicial foreclosure, and necessarily the conse"uent auction sale, are also void. $hus, the o#nership of the house still re&ained #ith defendants-appellants #ho are entitled to possession and not plaintiffs-appellees. $herefore, it is ar%ued by defendants-appellants, the issue of o#nership #ill have to be ad*udicated first in order to deter&ine possession. lt is contended further that o#nership bein% in issue, it is the Court of 0irst 8nstance #hich has *urisdiction and not the &unicipal court. Aefendants-appellants predicate their theory of nullity of the chattel &ort%a%e on t#o %rounds, #hich are(a! that, their si%natures on the chattel &ort%a%e #ere obtained throu%h fraud, deceit, or tric?eryD and (b! that the sub*ect &atter of the &ort%a%e is a house of stron% &aterials, and, bein% an i&&ovable, it can only be the sub*ect of a real estate &ort%a%e and not a chattel &ort%a%e. 1n the char%e of fraud, deceit or tric?ery, the Court of 0irst 8nstance found defendants-appellants7 contentions as not supported by evidence and accordin%ly dis&issed the char%e, * confir&in% the earlier

findin% of the &unicipal court that Ethe defense of o#nership as #ell as the alle%ations of fraud and deceit ... are &ere alle%ations.E 9 8t has been held in 9upia and Batiaco vs. Quintero and Ayala 10 that Ethe ans#er is a &ere state&ent of the facts #hich the party filin% it e:pects to prove, but it is not evidenceD 11 and further, that #hen the "uestion to be deter&ined is one of title, the Court is %iven the authority to proceed #ith the hearin% of the cause until this fact is clearly established. 8n the case of Sy vs. alman, 1& #herein the defendant #as also a successful bidder in an auction sale, it #as li?e#ise held by this Court that in detainer cases the ai& of o#nership Eis a &atter of defense and raises an issue of fact #hich should be deter&ined fro& the evidence at the trial.E .hat deter&ines *urisdiction are the alle%ations or aver&ents in the co&plaint and the relief as?ed for. 13 'oreover, even %rantin% that the char%e is true, fraud or deceit does not render a contract void ab initio, and can only be a %round for renderin% the contract voidable or annullable pursuant to Article 3(,) of the Ne# Civil Code, by a proper action in court. 1' $here is nothin% on record to sho# that the &ort%a%e has been annulled. Neither is it disclosed that steps #ere ta?en to nullify the sa&e. +ence, defendantsappellants7 clai& of o#nership on the basis of a voidable contract #hich has not been voided fails. 8t is clai&ed in the alternative by defendants-appellants that even if there #as no fraud, deceit or tric?ery, the chattel &ort%a%e #as still null and void ab initio because only personal properties can be sub*ect of a chattel &ort%a%e. $he rule about the status of buildin%s as i&&ovable property is stated in !ope" vs. #rosa$ Jr. and 2la<a $heatre 8nc., 1( cited in Associated %nsurance Surety Co.$ %nc. vs. %ya$ et al. 1) to the effect that C ... it is obvious that the inclusion of the buildin%, separate and distinct fro& the land, in the enu&eration of #hat &ay constitute real properties (art. 34, Ne# Civil Code! could only &ean one thin% C that a building is by itself an immovable property irrespective of #hether or not said structure and the land on #hich it is adhered to belon% to the sa&e o#ner. Certain deviations, ho#ever, have been allo#ed for various reasons. 8n the case of &anarang and &anarang vs. #filada, 17 this Court stated that Eit is undeniable that the parties to a contract &ay by a%ree&ent treat as personal property that #hich by nature #ould be real propertyE, citin% Standard #il Company of 'e( )ork vs. Jaramillo. 1* 8n the latter case, the &ort%a%or conveyed and transferred to the &ort%a%ee by #ay of &ort%a%e Ethe follo#in% described personal property.E 19 $he Epersonal propertyE consisted of leasehold ri%hts and a buildin%. A%ain, in the case of !una vs. *ncarnacion, &0 the sub*ect of the contract desi%nated as Chattel 'ort%a%e #as a house of &i:ed &aterials, and this Court hold therein that it #as a valid Chattel &ort%a%e because it #as so e+pressly designated and specifically that the property %iven as security Eis a house of &i:ed &aterials, #hich by its very nature is considered personal property.E 8n the later case of 'avarro vs. ,ineda, &1 this Court stated that C $he vie# that parties to a deed of chattel &ort%a%e &ay a%ree to consider a house as personal property for the purposes of said contract, Eis %ood only insofar as the contractin% parties are concerned. 8t is based, partly, upon the principle of estoppelE (/van%elista vs. Alto 9urety, No. >-333(,, 2( April 3,48!. 8n a case, a &ort%a%ed house built on a rented land #as held to be a personal property, not only because the deed of &ort%a%e considered it as such, but also because it did not for& part of the land (/van%elists vs. Abad, FCAGD (5 1.G. 2,3(!, for it is no# settled that an ob*ect placed on land by one #ho had only a te&porary ri%ht to the sa&e, such as the lessee or usufructuary, does not beco&e i&&obili<ed by attach&ent (Halde< vs. Central Alta%racia, 222 I.9. 48, cited in Aavao 9a#&ill Co., 8nc. vs. Castillo, et al., 53 2hil. 7),!. +ence, if a house belon%in% to a person stands on a rented land belon%in% to another person, it &ay be &ort%a%ed as a personal property as so stipulated in the docu&ent of &ort%a%e. (/van%elista vs. Abad, Supra.! %t s-ould be noted$ -o(ever t-at t-e principle is predicated on statements by t-e o(ner declaring -is -ouse to be a c-attel$ a conduct

t-at may conceivably estop -im from subsequently claiming ot-er(ise . (>adera vs. C.N. +od%es, FCAG 8 1.G. 4(7 !- && 8n the contract no# before Is, the house on rented land is not only e:pressly desi%nated as Chattel 'ort%a%eD it specifically provides that Ethe &ort%a%or ... voluntarily C/A/9, 9/>>9 and $RAN90/R9 by (ay of C-attel &ortgage &3 the property to%ether #ith its leasehold ri%hts over the lot on #hich it is constructed and participation ...E &' Althou%h there is no specific state&ent referrin% to the sub*ect house as personal property, yet by cedin%, sellin% or transferrin% a property by (ay of c-attel mortgage defendants-appellants could only have &eant to convey the house as chattel, or at least, intended to treat the sa&e as such, so that they should not no# be allo#ed to &a?e an inconsistent stand by clai&in% other#ise. 'oreover, the sub*ect house stood on a rented lot to #hich defendats-appellants &erely had a te&porary ri%ht as lessee, and althou%h this can not in itself alone deter&ine the status of the property, it does so #hen co&bined #ith other factors to sustain the interpretation that the parties, particularly the &ort%a%ors, intended to treat the house as personalty. 0inally unli?e in the 8ya cases, !ope" vs. #rosa$ Jr. and ,la"a .-eatre$ %nc. &( and !eung )ee vs. /. !. Strong &ac-inery and 0illiamson , &) #herein t-ird persons assailed the validity of the chattel &ort%a%e, &7 it is the defendants-appellants the&selves, as debtors-&ort%a%ors, #ho are attac?in% the validity of the chattel &ort%a%e in this case. $he doctrine of estoppel therefore applies to the herein defendants-appellants, havin% treated the sub*ect house as personalty. (b! $urnin% to the "uestion of possession and rentals of the pre&ises in "uestion. $he Court of 0irst 8nstance noted in its decision that nearly a year after the foreclosure sale the &ort%a%ed house had been de&olished on 3 and 34 6anuary 3,47 by virtue of a decision obtained by the lessor of the land on #hich the house stood. 0or this reason, the said court li&ited itself to sentencin% the erst#hile &ort%a%ors to pay plaintiffs a &onthly rent of 22)).)) fro& 27 'arch 3,45 (#hen the chattel &ort%a%e #as foreclosed and the house sold! until 3 6anuary 3,47 (#hen it #as torn do#n by the 9heriff!, plus 2()).)) attorney7s fees. Appellants &ort%a%ors "uestion this a#ard, clai&in% that they #ere entitled to re&ain in possession #ithout any obli%ation to pay rent durin% the one year rede&ption period after the foreclosure sale, i.e., until 27 'arch 3,47. 1n this issue, .e &ust rule for the appellants. Chattel &ort%a%es are covered and re%ulated by the Chattel 'ort%a%e >a#, Act No. 34)8. &* 9ection 3 of this Act allo#s the &ort%a%ee to have the property &ort%a%ed sold at public auction throu%h a public officer in al&ost the sa&e &anner as that allo#ed by Act No. (3(4, as a&ended by Act No. 338, provided that the re"uire&ents of the la# relative to notice and re%istration are co&plied #ith. &9 8n the instant case, the parties specifically stipulated that Ethe chattel &ort%a%e #ill be enforceable in accordance (it- t-e provisions of Special Act 'o. 1213 ... .E 30 (/&phasis supplied!. 9ection 5 of the Act referred to 31 provides that the debtor-&ort%a%or (defendants-appellants herein! &ay, at any ti&e #ithin one year fro& and after the date of the auction sale, redee& the property sold at the e:tra *udicial foreclosure sale. 9ection 7 of the sa&e Act 3& allo#s the purchaser of the property to obtain fro& the court the possession durin% the period of rede&ption- but the sa&e provision e:pressly re"uires the filin% of a petition #ith the proper Court of 0irst 8nstance and the furnishin% of a bond. 8t is only upon filin% of the proper &otion and the approval of the correspondin% bond that the order for a #rit of possession issues as a &atter of course. No discretion is left to the court. 33 8n the absence of such a co&pliance, as in the instant case, the purchaser can not clai& possession durin% the period of rede&ption as a &atter of ri%ht. 8n such a case, the %overnin% provision is 9ection ( , Rule (,, of the Revised Rules of Court 3' (-ic- also applies to properties purc-ased in e+tra4udicial foreclosure proceedings. 3( Construin% the said section, this Court stated in the aforestated case of 5eyes vs. 6amada. 8n other #ords, before the e:piration of the 3-year period #ithin #hich the *ud%&entdebtor or &ort%a%or &ay redee& the property, the purchaser thereof is not entitled, as a &atter of ri%ht, to possession of the sa&e. $hus, #hile it is true that the Rules of Court

allo# the purchaser to receive the rentals if the purchased property is occupied by tenants, he is, nevertheless, accountable to the *ud%&ent-debtor or mortgagor as t-e case may be, for the a&ount so received and the sa&e #ill be duly credited a%ainst the rede&ption price #hen the said debtor or &ort%a%or effects the rede&ption. ifferently stated$ t-e rentals receivable from tenants$ alt-oug- t-ey may be collected by t-e purc-aser during t-e redemption period$ do not belong to t-e latter but still pertain to t-e debtor of mortgagor. $he rationale for the Rule, it see&s, is to secure for the benefit of the debtor or &ort%a%or, the pay&ent of the rede&ption a&ount and the conse"uent return to hi& of his properties sold at public auction. (/&phasis supplied! $he +a&ada case reiterates the previous rulin% in C-an vs. *spe. 3) 9ince the defendants-appellants #ere occupyin% the house at the ti&e of the auction sale, they are entitled to re&ain in possession durin% the period of rede&ption or #ithin one year fro& and after 27 'arch 3,45, the date of the auction sale, and to collect the rents or profits durin% the said period. 8t #ill be noted further that in the case at bar the period of rede&ption had not yet e:pired #hen action #as instituted in the court of ori%in, and that plaintiffs-appellees did not choose to ta?e possession under 9ection 7, Act No. (3(4, as a&ended, #hich is the la# selected by the parties to %overn the e:tra*udicial foreclosure of the chattel &ort%a%e. Neither #as there an alle%ation to that effect. 9ince plaintiffsappellees7 ri%ht to possess #as not yet born at the filin% of the co&plaint, there could be no violation or breach thereof. .herefore, the ori%inal co&plaint stated no cause of action and #as pre&aturely filed. 0or this reason, the sa&e should be ordered dis&issed, even if there #as no assi%n&ent of error to that effect. $he 9upre&e Court is clothed #ith a&ple authority to revie# palpable errors not assi%ned as such if it finds that their consideration is necessary in arrivin% at a *ust decision of the cases. 37 8t follo#s that the court belo# erred in re"uirin% the &ort%a%ors to pay rents for the year follo#in% the foreclosure sale, as #ell as attorney7s fees. 01R $+/ 01R/G18NG R/A91N9, the decision appealed fro& is reversed and another one entered, dis&issin% the co&plaint. .ith costs a%ainst plaintiffs-appellees.


Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs umalad over their house! "hich "as being rented b# Madrigal and compan#$ his "as executed to guarantee a loan! pa#able in one #ear "ith a %&' per annum interest$ he mortgage "as extra(udiciall# foreclosed upon failure to pa# the loan$ he house "as sold at a public auction and the plaintiffs "ere the highest bidder$ A corresponding certificate of sale "as issued$ hereafter! the plaintiffs filed an action for e(ectment against the defendants! pra#ing that the latter vacate the house as the# "ere the proper o"ners$


Certain deviations have been allo"ed from the general doctrine that buildings are immovable propert# such as "hen through stipulation! parties ma# agree to treat as personal propert# those b# their nature "ould be real propert#$ his is partl# based on the principle of estoppel "herein the principle is predicated on statements b# the o"ner declaring his house as chattel! a conduct that ma# conceivabl# stop him from subse)uentl# claiming other"ise$ *n the case at bar! though there be no specific statement referring to the sub(ect house as personal propert#! #et b# ceding! selling or transferring a propert# through chattel mortgage could onl# have meant that defendant conve#s the house as chattel! or at least! intended to treat the same as such! so that the# should not no" be allo"ed to ma+e an inconsistent stand b# claiming other"ise$