G.R. No.

L-18456 November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married to Gregorio Pineda),
borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6 months after said date or on June 14, 1959.
To secure the indebtedness, Rufino executed a document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES",
whereby Juana Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her, registered with
the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and Rufino G. Pineda, by way of Chattel
Mortgage, mortgaged his two-story residential house, having a floor area of 912 square meters, erected on a lot belonging
to Atty. Vicente Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor
Vehicle Registration Certificate No. A-171806. Both mortgages were contained in one instrument, which was registered in
both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made on them, failed to pay. They,
however, asked and were granted extension up to June 30, 1960, within which to pay. Came June 30, defendants again
failed to pay and, for the second time, asked for another extension, which was given, up to July 30, 1960. In the second
extension, defendant Pineda in a document entitled "Promise", categorically stated that in the remote event he should fail
to make good the obligation on such date (July 30, 1960), the defendant would no longer ask for further extension and
there would be no need for any formal demand, and plaintiff could proceed to take whatever action he might desire to
enforce his rights, under the said mortgage contract. In spite of said promise, defendants, failed and refused to pay the
obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages, which consisted of
liquidated damages in the sum of P500.00 and 12% per annum interest on the principal, effective on the date of maturity,
until fully paid.

Defendants, answering the complaint, among others, stated

Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First Cause of Action which
states that the defendants unreasonably failed and refuse to pay their obligation to the plaintiff the truth being
the defendants are hard up these days and pleaded to the plaintiff to grant them more time within which to pay
their obligation and the plaintiff refused;

WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable Court render judgment
granting the defendants until January 31, 1961, within which to pay their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the Answer failed to tender
any genuine and material issue. The motion was set for hearing, but the record is not clear what ruling the lower court
made on the said motion. On November 11, 1960, however, the parties submitted a Stipulation of Facts, wherein the
defendants admitted the indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that
the indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum as interest was agreed,
upon failure to pay the principal when due and P500.00 as liquidated damages; that the instrument had been registered in
the Registry of Property and Motor Vehicles Office, both of the province of Tarlac; that the only issue in the case is
whether or not the residential house, subject of the mortgage therein, can be considered a Chattel and the propriety of
the attorney's fees.

On February 24, 1961, the lower court held

... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon Reyes, to pay jointly and
severally and within ninety (90) days from the receipt of the copy of this decision to the plaintiff Conrado P.
Navarro the principal sum of P2,550.00 with 12% compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated damages and the costs of this suit, with the
warning that in default of said payment of the properties mentioned in the deed of real estate mortgage and
chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage debt, interests, liquidated
 damages and costs, in accordance with the pertinent provisions of Act 3135, as amended by Act 4118, and Art. 14
of the Chattel Mortgage Law, Act 1508; and

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to the Provincial Sheriff of
Tarlac the personal properties mentioned in said Annex "A", immediately after the lapse of the ninety (90) days
above-mentioned, in default of such payment.

The above judgment was directly appealed to this Court, the defendants therein assigning only a single error, allegedly
committed by the lower court, to wit

In holding that the deed of real estate and chattel mortgages appended to the complaint is valid, notwithstanding
the fact that the house of the defendant Rufino G. Pineda was made the subject of the chattel mortgage, for the
reason that it is erected on a land that belongs to a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable property, makes no
distinction whether the owner of the land is or not the owner of the building; the fact that the land belongs to another is
immaterial, it is enough that the house adheres to the land; that in case of immovables by incorporation, such as houses,
trees, plants, etc; the Code does not require that the attachment or incorporation be made by the owner of the land, the
only criterion being the union or incorporation with the soil. In other words, it is claimed that "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 v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644).
Appellants argue that since only movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the
mortgage in question which is the basis of the present action, cannot give rise to an action for foreclosure, because it is
nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838, May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on the ground that the
house mortgaged was erected on the land which belonged to a third person, but also and principally on the doctrine of
estoppel, in that "the parties have so expressly agreed" in the mortgage to consider the house as chattel "for its smallness
and mixed materials of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to arts.
415 and 416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that under certain
conditions, "a property may have a character different from that imputed to it in said articles. It is undeniable that the
parties to a contract may by agreement, treat as personal property that which by nature would be real property" (Standard
Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any question that a building of mixed materials may be the
subject of a chattel mortgage, in which case, it is considered as between the parties as personal property. ... The matter
depends on the circumstances and the intention of the parties". "Personal property may retain its character as such where
it is so agreed by the parties interested even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in Manarang, et
al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel
mortgagee 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 principles of estoppel ..." (Evangelista v. Alto Surety, No.
L-11139, Apr. 23, 1958). In a case, a mortgage 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 (Evangelista v. Abad
[CA];36 O.G. 2913), for it is now well settled that an object placed on land by one who has only a temporary right to the
same, such as a lessee or usufructuary, does not become immobilized by attachment (Valdez v. Central Altagracia, 222 U.S.
58, cited in Davao Sawmill Co., Inc. v. 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 is so stipulated in the document of
mortgage. (Evangelista v. 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, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these cases is
that although in some instances, a house of mixed materials has been considered as a chattel between them, has been
recognized, it has been a constant criterion nevertheless that, with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is considered as an immovable property (Art. 1431, New Civil
Code).

In the case at bar, the house in question was treated as personal or movable property, by the parties to the contract
themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my
personal properties", a residential house and a truck. The mortgagor himself grouped the house with the truck, which is,
inherently a movable property. The house which was not even declared for taxation purposes was small and made of light
construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-38, supra), refer to a building
or a house of strong materials, permanently adhered to the land, belonging to the owner of the house himself. In the case
of Lopez v. Orosa, (L-10817-18), the subject building was a theatre, built of materials worth more than P62,000, attached
permanently to the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity of the deed of
chattel mortgages; in the present case, it was one of the parties to the contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is hereby affirmed, with costs
against appellants.

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

Property; Immovable Property; House on land belonging to another; General rule and exceptions.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.