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Gavino Tumalad vs Alberta Vicencio and Emilano Simeon

(G.R. No. L-30173; Sept. 30, 1971)

Facts: On September 1, 1955, respondents executed a chattel mortgage in favor of petitioners

over their house of strong materials located in Quezon City, being rented out by the Madrigal &
Company, Inc. The mortgage was executed to guarantee a loan of Php 4,800.00, payable within
one year at 12% per annum.

Respondents defaulted in paying and the mortgage was extrajudically foreclosed. The house was
sold at a public auction on March 27, 1956, with petitioners as the highest bidder. Thereafter, on
petitioners commenced for ejectment and to pay the rent of Php 200.00 monthly from the date of
the sale up to the time the possession is surrendered. The Municipal Court ruled in favor of
petitioner ordering respondents to vacate the premises and to pay the monthly rent of Php

During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January 1957.

On October 7, 1957, the motion of plaintiffs for dismissal of the appeal, execution of the bond
and withdrawal of deposited rentals was denied due to the fact that the liability was disclaimed
and was still being litigated, and under Section 8, Rule 72, rentals deposited had to be held until
final disposition of the appeal.

Upon appeal, respondents 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

Issue: WON the contention of the respondents are tenable.

Held: NO. Fraud or deceit does not render a contract void ab initio, and can only be a ground
for rendering the contract voidable or annullable pursuant to Article 1390 of the New Civil Code,
by a proper action in court.
It is obvious that the inclusion of the building, separate and distinct from the land, in the
enumeration of what may constitute real properties (art. 415, New Civil Code) could only mean
one thingthat 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.

Certain deviations, however, have been allowed for various reasons. In the case of Manarang vs.
Ofilada, No. L-8133, 18 May 1956, 99 Phil. 109, 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. Again, in the case of Luna vs. Encarnacion, No. L-4637, 30 June 1952, 91 Phil.
531, the subject of the contract designated as Chattel Mortgage was a house of mixed materials,
and this Court held 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.
Ruby Tsai vs CA, Ever Textile Mills, and Mamerto Villaluz
(G.R. No. 120098; October 2, 2001)

Facts: On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a Php
3,000,000.00 loan from PBCom. As security for the loan, EVERTEX executed in favor of
PBCom, a deed of Real and Chattel Mortgage over the lot where its factory stands, and the
chattels located therein as enumerated in a schedule attached to the mortgage contract.
Subsequently, a second loan of P3,356,000.00 was granted to EVERTEX. The loan was secured
by a Chattel Mortgage over personal properties enumerated in a list attached thereto. After the
date of the execution of the second mortgage mentioned above, EVERTEX purchased various
machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings. The
CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets
were taken into the custody of the Insolvency Court, including the collateral, real and personal,
securing the two mortgages with PBCom.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX. Public auctions were held
where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its

Eventually, PBCom consolidated its ownership over the lot and all the properties in it by leasing
the entire factory premises to petitioner Ruby L. Tsai for Php 50,000.00 a month. Eventually,
PBCom sold the factory, lock, stock and barrel to Tsai for Php 9,000,000.00, including the
contested machineries.

EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the
Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of
subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights
having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai
acquired no rights over such assets sold to her, and should reconvey the assets. Further, it
EVERTEX averred that PBCom appropriated the contested properties, which were not included
in any of the the Real and Chattel Mortgages.

The RTC found that the lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these
were not included in the schedules attached to the mortgage contracts. The CA affirmed the
Issue: WON the CA erred in holding that the disputed Machineries are not real properties
deemed part of the mortgage.

Held: NO. Petitioners contend that the nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them
ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion,
however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have
to look at the parties intent. While it is true that the controverted properties appear to be
immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein
gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached
the same finding that the true intention of PBCom and the owner, EVERTEX, is to treat
machinery and equipment as chattels.

Too, assuming arguendo that the properties in question are immovable by nature, nothing
detracts the parties from treating it as chattels to secure an obligation under the principle of
estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be
considered a personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as Real Estate Mortgage
and Chattel Mortgage, instead of just Real Estate Mortgage if indeed their intention is to treat
all properties included therein as immovable, and (2) attached to the said contract a separate
LIST OF MACHINERIES & EQUIPMENT. These facts, taken together, evince the
conclusion that the parties intention is to treat these units of machinery as chattels. A fortiori,
the contested after-acquired properties, which are of the same description as the units enumerated
under the title LIST OF MACHINERIES & EQUIPMENT, must also be treated as chattels.