Case Digest (G.R. No. L-10837-38)
Facts:
Associated Insurance & Surety Company, Inc. v. Isabel Iya, G.R. Nos. L-10837-38, May 30, 1958, the Supreme Court En Banc, Felix, J., writing for the Court.Adriano and Lucia Valino (husband and wife) purchased Lot No. 3, Block No. 80, Grace Park Subdivision, Caloocan, and erected a house of strong materials thereon. On November 6, 1951, Lucia Valino executed a bond (P11,000) to obtain credit from NARIC; the bond was subscribed by Associated Insurance & Surety Company, Inc. (the surety). As counter-guaranty the Valinos executed what was styled a chattel mortgage over the house in favor of the surety, and this instrument was registered in the Chattel Mortgage Register of Rizal on December 6, 1951. At that time the lot itself remained registered in the name of the Philippine Realty Corporation.
Subsequently the Valinos obtained registration of the lot in their names (T.C.T. No. 27884, dated in the record as October 18, 1958). On October 24, 1952 the Valinos executed a real estate mortgage over the lot and the improvements in favor of Isabel Iya to secure P12,000, which was duly registered and annotated on the certificate of title. When Lucia Valino defaulted on her obligation to NARIC, the surety paid the indebtedness and demanded reimbursement from the Valinos; upon their failure to reimburse, the surety foreclosed the chattel mortgage. A public sale by the Provincial Sheriff of Rizal on December 26, 1952 resulted in an award of the property (the house) to the surety for P8,000, and the surety thereafter listed the house in its name for tax purposes.
In July 1953 the surety filed Civil Case No. 2162 in the Court of First Instance of Manila against the Valinos and Iya, seeking exclusion of the house from Iya’s real estate mortgage and recognition of the surety’s ownership by virtue of the sheriff’s award, plus damages and costs. Iya answered, asserting that the house formed part of her real estate mortgage and that the sheriff’s sale under the chattel mortgage was void for noncompliance with law; she sought annulment of the sale and counterclaimed damages. The Valinos filed their answer admitting certain averments and asserting that plaintiff (the surety) already owned the house.
On October 29, 1953 Iya filed Civil Case No. 2504 in the same court to foreclose her real estate mortgage and to have the land, building and improvements sold; the surety was impleaded as a defendant because it claimed an interest in the building. The surety answered, insisting the building had been validly mortgaged as a chattel and foreclosed under the Chattel Mortgage Law and therefore should be excluded from Iya’s foreclosure. The Valinos generally sided with the surety and contended Iya had been aware of the earlier encumbrance.
By stipulation the two cases were consolidated for trial and submitted on stipulated facts. The Court of First Instance rendered judgment on March 8, 1956, holding that the earlier chattel mortgage was preferred and superior as to the building because, it found, the structure was a personalty at the time the chattel mortgage was executed (the land then belonging to Philippine Realty Corporation), and therefore the chattel foreclosure and sheriff’s sale were valid as to the building; the trial court excluded the building from Iya’s foreclosure, leaving Iya a junior encumbrancer on the structure. Iya appealed to the Supreme Court.
Issues:
- Was the trial court correct in treating the house as personal property, thereby validating the chattel mortgage and foreclosure and giving the surety priority over Isabel Iya’s later real estate mortgage?
- If the chattel mortgage and sheriff’s sale were invalid as to the building, does the real estate mortgagee (Iya) have the right to foreclose both land and building?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)