Associated Insurance and Surety Co.

vs Isabel Iya, Adriano Valino and Lucia Valino

Isabel Iya vs Adriano Valino, Lucia Valino and Associated Insurance and Surety Co.
(Consolidated case)

Facts:
Sps. Valino were the owners of a house of strong materials constructed somewhere in Caloocan, which
they bought in installment basis from Philippines Realty Co. (PRC). Sps Valino later on executed a chattel
mortgage on the house in favor of Associated Insurance and Surety Co. (AISC), which was registered
with the Chattel Mortgage Register. When the chattel mortgage took place, the title of the house was still
under the name of PRC. Eventually after completing payment, the house was registered in the name of
the Sps. Subsequently, a second mortgage was executed now a real estate mortgage over the same
house in favor of Isabel Iya.
After sometime, the chattel mortgage over the house was foreclosed and was subject to public auction, in
which AISC was awarded the property. PRC learned of the existence of the real estate mortgage over the
property; thus, PRC instituted a civil case wherein the Sps. Valino and Iya were impleaded as defendant,
praying before the court the exclusion of the residential house from the real estate mortgage in favor of
the defendant and the declaration and recognition of PRCs right over the property by virtue of the public
auction where PRC was awarded with the property. However, Iya defended that in virtue of the real estate
mortgage executed by the Sps. Valino, she acquired a real right over the property. Hence, the prior chattel
mortgage was null and void for non-compliance with form required by law.
Iya filed another civil action against Sps. Valino and AISC, praying before the court that the defendants
and any other person claiming interest on the mortgaged property be barred of all rights over the same.
PRC contends that the house and lot must be deemed as personal property, since at the time of the
execution of the chattel mortgage the property did not belong to the Sps. Hence, the chattel mortgage
was valid.
Issue: W/N the property in which was subject to a chattel and real estate mortgage is a personal property.
Held: No. A building certainly cannot be divested of its character of realty by the fact that the land on
which it is constructed belongs to another. To hold it otherwise, the possibility is not remote that it would
result in confusion, for to cloak the building with an uncertain status made dependent on the ownership of
the land, would create a situation where a permanent fixture changes its nature or character as the
ownership of the land changes hands.
Hence, as personal properties could only be the subject of chattel mortgage, the chattel mortgage
executed before the real estate mortgage in favor of Iya is null and void.

Board of Assessment Appeals vs. Manila Electric Company (MERALCO)

Facts:
Meralco was awarded the franchise to construct, maintain and operate an electric street railway and
electric light, heat and power system in the City of Manila by virtue of Act No. 484 enacted by the
Philippine Commission. Meralco constructed 40 steel towers to convey electricity from its main plant in
Laguna to Metro Manila.
Petitioner, City Assessor of Quezon City declared the aforesaid steel towers for real property tax. Meralco
appealed to the Boardof Assessment Appeals but was to no avail and even ordered to pay the real
property tax imposed upon them. Meralco paid the amount under protest and elevated the case before
the CTA, in which the same ordered the cancellations of the said tax declarations.

Issue:
Whether or not the steel towers are personal properties and are not subject to real property tax.
Whether or not the steel towers come within the term poles which are declared exempt from taxes under
Meralcos franchise.

Held: Both yes.

It must be noted, that the concept of the poles for which exemption is granted, is not determined by their
place or location, nor by the character of the electric current it carries, nor the material or form of which it
is made, but the use to which they are dedicated. And the steel towers sole function is to support or carry
such wires, as very akin to what the term poles pertain in their franchise which is exempted from tax.
Art. 415 states that the following are immovable property:

Land, buildings, roads, and constructions of all kinds adhered to the soil;
Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the object;
Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried in a building or on a piece of land, and which tends
directly to meet the needs of the said industry works;

The steel towers do not constitute buildings or constructions adhered to the soil nor are they in a way
analogous to each other since they are removable and merely attached to the ground by bolts. They are
not also attached to an immovable in a fixed manner, and they can be separated without breaking the
material or causing deterioration upon the object to which they are attached. Lastly, they are not
machineries, receptacles, instruments or implements, and even if they were, they are not intended for
industry or works on the land. Hence, they are not immovable properties, which cannot be subjected to
real property tax.

Makati Leasing and Finance Corporation vs. Wearever Textile Mills

Facts:
Wearever Textile Mills executed a chattel mortgage over a machinery described as an Artos Aero Dryer
Stentering Range in favor of the petitioner Makati Leasing and Finance Corporation. Upon WTMs default
the machinery was foreclosed extra judicially. However, the Sheriff failed to gain entry into WTMs
premises and was not able to effect the seizure of the aforesaid machinery. MLFC filed a complaint for
judicial foreclosure before the lower court, which was granted, ordering a writ of seizure over the
machinery. The sheriff enforcing the seizure order, repaired to the premises of WTM and removed the
main drive motor of the subject machinery.
The case was elevated to the CA and the Orders of the lower court was set aside on the ground that the
machinery cannot be subject of a replevin, much less of a chattel mortgage, because it is a real property,
the same being attached to the ground by means of bolts.
Issue:
W/N the machinery in suit is real or personal.
Held: The machinery is personal.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal property, yet by ceding,
selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant
to convey 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. Moreover, the subject house stood
on a rented lot to which defendants-appellants merely had a temporary right as lessee, and although this
can not in itself alone determine the status of the property, it does so when combined with other factors to
sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs.
F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it
is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendantsappellants, having treated the subject house as personality.
Jurisprudence provides 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, as long as no interest of third parties would
be prejudiced thereby.