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 its 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 wouldnt 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 doesnt bind third
persons who arent 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 didnt
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 FINANCES 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 attys 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-defendants
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.