A.M. No.
99-10-05-0 December 14, 1999
(Amended by A.M. 99-10-05-0, August 7, 2001)
PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE
In line with the responsibility of an Executive Judge under Administrative
Order No. 6, dated June 30, 1975, for the management of courts within his
administrative area, included in which is the task of supervising directly the
work of the Clerk of Court, who is also the Ex Officio Sheriff, and his staff,
and the issuance of commissions to notaries public and enforcement of their
duties under the law, the following procedures are hereby prescribed in
extrajudicial foreclosure of mortgages:
1. All applications for extra-judicial foreclosure of mortgage whether
under the direction of the sheriff or a notary public, pursuant to Act
3135, as amended by Act 4118, and Act 1508, as amended, shall be
filed with the Executive Judge, through the Clerk of Court who is
also the Ex-Officio Sheriff.
2. Upon receipt of an application for extra-judicial foreclosure of
mortgage, it shall be the duty of the Clerk of Court to:
a) receive and docket said application and to stamp thereon
the corresponding file number, date and time of filing;
b) collect the filing fees therefor and issue the
corresponding official receipt;
c) examine, in case of real estate mortgage foreclosure,
whether the applicant has complied with all the
requirements before the public auction is conducted under
the direction of the sheriff or a notary public, pursuant to
Sec. 4 of Act 3135, as amended;
d) sign and issue the certificate of sale, subject to the
approval of the Executive Judge, or in his absence, the Vice-
Executive Judge; and
e) after the certificate of sale has been issued to the highest
bidder, keep the complete records, while awaiting any
redemption within a period of one (1) year from date of
registration of the certificate of sale with the Register of
Deeds concerned, after which the records shall be archived.
Where the application concerns the extrajudicial foreclosure of
mortgages of real estates and/or chattels in different locations
covering one indebtedness, only one filing fee corresponding to
such indebtedness shall be collected. The collecting Clerk of Court
shall, apart from the official receipt of the fees, issue a certificate of
payment indicating the :
1. amount of indebtedness, the 2. filing fees collected, the 3.
mortgages sought to be foreclosed, the 4. real estates and/or
chattels mortgaged and their 5. respective locations, which
certificate shall serve the purpose of having the application
docketed with the Clerks of Court of the places where other
properties are located and of allowing the extrajudicial foreclosures
to proceed thereat.
3. The notices of auction sale in extrajudicial foreclosure for
publication by the sheriff or by a notary public shall be published in
a newspaper of general circulation pursuant to Section 1,
Presidential Decree No. 1709, dated January 26, 1977, and non-
compliance therewith shall constitute a violation of Section 6
thereof.
PRESIDENTIAL DECREE NO 1079
REVISING AND CONSOLIDATING ALL LAWS AND DECREES REGULATING
PUBLICATION OF JUDICIAL NOTICES, ADVERTISEMENTS FOR PUBLIC
BIDDINGS, NOTICES OF AUCTION SALES AND OTHER SIMILAR NOTICES
Section 1. All notices of auction sales in extra- judicial foreclosure of real
estate mortgage under Act No. 3135 as amended, judicial notices such as
notices of sale on execution of real properties, notices in special
proceedings, court orders and summonses and all similar announcements
arising from court litigation required by law to be published in a newspaper This Resolution amends or modifies accordingly Administrative Order No. 3
or periodical of general circulation in particular provinces and/or cities shall issued by then Chief Justice Enrique M. Fernando on 19 October 1984 and
be published in newspapers or publications published, edited and circulated Administrative Circular No. 3-98 issued by the Chief Justice Andres R.
in the same city and/or province where the requirement of general Narvasa on 5 February 1998.
circulation applies: Provided, That the province or city where the
publication's principal office is located shall be considered the place where it The Court Administrator may issue the necessary guidelines for the effective
is edited and published: Provided, further, That in the event there is no enforcement of this Resolution.
newspaper or periodical published in the locality, the same may be
published in the newspaper or periodical published, edited and circulated in The Clerk of Court shall cause the publication of this Resolution in a
the nearest city or province: Provided, finally, That no newspaper or newspaper of general circulation not later than 27 December 1999 and
periodical which has not been authorized by law to publish and which has furnish copies thereof to the Integrated Bar of the Philippines.
not been regularly published for at least one year before the date of
publication of the notices or announcements which may be assigned to it This Resolution shall take effect on the fifteenth day of January year 2000.
shall be qualified to publish the said notices.
Enacted this 14th day of December 1999 in the City of Manila.
Section 6. Violation of any provision of this Decree shall be punished by a
fine or not less than five thousand pesos (5,000.00) nor more than twenty
thousand pesos (P20,000.00) and imprisonment for not less than (6) months
nor more than two (2) years. The offending executive judge or court
personnel shall be perpetually disqualified from holding any public office in
the government.

4. The Executive Judge shall, with the assistance of the Clerk of

Court, raffle application for extrajudicial foreclosure of mortgage
under the direction of the sheriff among all sheriffs, including those
assigned to the Office of the Clerk of Court and Sheriffs IV assigned
in the branches.

5. No auction sale shall be held unless there are at least two (2)
participating bidders, otherwise the sale shall be postponed to
another date. If on the new date set for the sale there shall not be at
least two bidders, the sale shall then proceed. The names of the
bidders shall be reported by the sheriff or the notary public who
conducted the sale to the Clerk of Court before the issuance of the
certificate of sale.

G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R.
No. SP-12731, setting aside certain Orders later specified herein, of Judge
Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal
Branch VI, issued in Civil Case No. 36040, as when as the resolution dated
September 22, 1981 of the said appellate court, denying petitioner's motion
for reconsideration.
It appears that in order to obtain financial accommodations from herein
petitioner Makati Leasing and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned several receivables
with the former under a Receivable Purchase Agreement. To secure the
collection of the receivables assigned, private respondent executed a Chattel
Mortgage over certain raw materials inventory as well as a machinery
described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into private
respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial
foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as
Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ
of seizure, the enforcement of which was however subsequently restrained
upon private respondent's filing of a motion for reconsideration. After
several incidents, the lower court finally issued on February 11, 1981, an
order lifting the restraining order for the enforcement of the writ of seizure
and an order to break open the premises of private respondent to enforce
said writ. The lower court reaffirmed its stand upon private respondent's
filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the
subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently
filed by herein private respondent, set aside the Orders of the lower court
and ordered the return of the drive motor seized by the sheriff pursuant to
said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property
pursuant to Article 415 of the new Civil Code, the same being attached to
the ground by means of bolts and the only way to remove it from
respondent's plant would be to drill out or destroy the concrete floor, the
reason why all that the sheriff could do to enfore the writ was to take the
main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming
that the machine is real property by constituting a chattel mortgage
thereon.
A motion for reconsideration of this decision of the Court of Appeals having
been denied, petitioner has brought the case to this Court for review by writ
of certiorari. It is contended by private respondent, however, that the
instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court
of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner
returned the subject motor drive, it made itself unequivocably clear that
said action was without prejudice to a motion for reconsideration of the
Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its
right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by such
return may not be sustained.
The next and the more crucial question to be resolved in this Petition is
whether the machinery in suit is real or personal property from the point of
view of the parties, with petitioner arguing that it is a personality, while the
respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null
and void, as contended by said respondent.
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 defendants-
appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to
exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason
why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad
doctrine, the Court of Appeals lays stress on the fact that the house involved
therein was built on a land that did not belong to the owner of such house.
But the law makes no distinction with respect to the ownership of the land
on which the house is built and We should not lay down distinctions not
contemplated by law.
It must be pointed out that the characterization of the subject machinery as
chattel by the private respondent is indicative of intention and impresses
upon the property the character determined by the parties. As stated
in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, 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.
Private respondent contends that estoppel cannot apply against it because it
had never represented nor agreed that the machinery in suit be considered
as personal property but was merely required and dictated on by herein
petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of
the subject machinery as movable or immovable was never placed in issue
before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court.
Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. On the other hand, as pointed out by petitioner
and again not refuted by respondent, the latter has indubitably benefited
from said contract. Equity dictates that one should not benefit at the
expense of another. Private respondent could not now therefore, be allowed
to impugn the efficacy of the chattel mortgage after it has benefited
therefrom,
From what has been said above, the error of the appellate court in ruling
that the questioned machinery is real, not personal property, becomes very
apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v.
CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case
at bar, the nature of the machinery and equipment involved therein as real
properties never having been disputed nor in issue, and they were not the
subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more
nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of
Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
SO ORDERED.
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R)
for the reason that only questions of law are involved.
This case was originally commenced by defendants-appellants in the
municipal court of Manila in Civil Case No. 43073, for ejectment. Having lost
therein, defendants-appellants appealed to the court a quo (Civil Case No.
30993) which also rendered a decision against them, the dispositive portion
of which follows:
WHEREFORE, the court hereby renders judgment in favor of
the plaintiffs and against the defendants, ordering the latter
to pay jointly and severally the former a monthly rent of
P200.00 on the house, subject-matter of this action, from
March 27, 1956, to January 14, 1967, with interest at the
legal rate from April 18, 1956, the filing of the complaint,
until fully paid, plus attorney's fees in the sum of P300.00
and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants
executed a chattel mortgage in favor of plaintiffs-appellees over their house
of strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo,
Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented
from Madrigal & Company, Inc. The mortgage was registered in the Registry
of Deeds of Manila on 2 September 1955. The herein mortgage was
executed to guarantee a loan of P4,800.00 received from plaintiffs-
appellees, payable within one year at 12% per annum. The mode of
payment was P150.00 monthly, starting September, 1955, up to July 1956,
and the lump sum of P3,150 was payable on or before August, 1956. It was
also agreed that default in the payment of any of the amortizations, would
cause the remaining unpaid balance to becomeimmediately due and
Payable and —
the Chattel Mortgage will be enforceable in accordance with
the provisions of Special Act No. 3135, and for this purpose,
the Sheriff of the City of Manila or any of his deputies is
hereby empowered and authorized to sell all the
Mortgagor's property after the necessary publication in
order to settle the financial debts of P4,800.00, plus 12%
yearly interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage was
extrajudicially foreclosed, and on 27 March 1956, the house was sold at
public auction pursuant to the said contract. As highest bidder, plaintiffs-
appellees were issued the corresponding certificate of sale. 3 Thereafter, on
18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the
municipal court of Manila, praying, among other things, that the house be
vacated and its possession surrendered to them, and for defendants-
appellants to pay rent of P200.00 monthly from 27 March 1956 up to the
time the possession is surrendered.4 On 21 September 1956, the municipal
court rendered its decision —
... ordering the defendants to vacate the premises described
in the complaint; ordering further to pay monthly the
amount of P200.00 from March 27, 1956, until such (time
 that) the premises is (sic) completely vacated; plus
attorney's fees of P100.00 and the costs of the suit. 5
Defendants-appellants, in their answers in both the municipal court and
court a quo impugned the legality of the chattel mortgage, claiming that
they are still the owners of the house; but they waived the right to introduce
evidence, oral or documentary. Instead, they relied on their memoranda in
support of their motion to dismiss, predicated mainly on the grounds that:
(a) the municipal court did not have jurisdiction to try and decide the case
because (1) the issue involved, is ownership, and (2) there was no allegation
of prior possession; and (b) failure to prove prior demand pursuant to
Section 2, Rule 72, of the Rules of Court. 6
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. However, the
judgment regarding the surrender of possession to plaintiffs-appellees could
not be executed because the subject house had been already demolished on
14 January 1957 pursuant to the order of the court in a separate civil case
(No. 25816) for ejectment against the present defendants for non-payment
of rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the
supersedeas bond and withdrawal of deposited rentals was denied for the
reason that the liability therefor 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.7
On 7 October 1957, the appellate court of First Instance rendered its
decision, the dispositive portion of which is quoted earlier. The said decision
was appealed by defendants to the Court of Appeals which, in turn, certified
the appeal to this Court. Plaintiffs-appellees failed to file a brief and this
appeal was submitted for decision without it.
Defendants-appellants submitted numerous assignments of error which can
be condensed into two questions, namely: .
(a) Whether the municipal court from which the case
originated had jurisdiction to adjudicate the same;
(b) Whether the defendants are, under the law, legally
bound to pay rentals to the plaintiffs during the period of
one (1) year provided by law for the redemption of the
extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the
municipal court from which the case originated, and consequently, the
appellate jurisdiction of the Court of First Instance a quo, on the theory that
the chattel mortgage is void ab initio; whence it would follow that the
extrajudicial foreclosure, and necessarily the consequent auction sale, are
also void. Thus, the ownership of the house still remained with defendants-
appellants who are entitled to possession and not plaintiffs-appellees.
Therefore, it is argued by defendants-appellants, the issue of ownership will
have to be adjudicated first in order to determine possession. lt is
contended further that ownership being in issue, it is the Court of First
Instance which has jurisdiction and not the municipal court.
Defendants-appellants 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.
On the charge of fraud, deceit or trickery, the Court of First Instance found
defendants-appellants' contentions as not supported by evidence and
accordingly dismissed the charge, 8 confirming the earlier finding of the
municipal court that "the defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala 10 that "the
answer is a mere statement of the facts which the party filing it expects to
prove, but it is not evidence;11 and further, that when the question to be
determined is one of title, the Court is given the authority to proceed with
the hearing of the cause until this fact is clearly established. In the case of Sy
vs. Dalman,12 wherein the defendant was also a successful bidder in an
auction sale, it was likewise held by this Court that in detainer cases the aim
of ownership "is a matter of defense and raises an issue of fact which should
be determined from the evidence at the trial." What determines jurisdiction
are the allegations or averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, 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. 14 There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. Hence, defendants-appellants' claim of ownership
on the basis of a voidable contract which has not been voided fails.
It is claimed in the alternative by defendants-appellants that even if there
was no fraud, deceit or trickery, the chattel mortgage was still null and
void ab initio because only personal properties can be subject of a chattel
mortgage. The rule about the status of buildings as immovable property is
stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc., 15cited in Associated
Insurance Surety Co., Inc. vs. Iya, et al. 16 to the effect that —
... 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 thing — that 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 and Manarang vs. Ofilada,17 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",
citing Standard Oil Company of New York vs. Jaramillo. 18 In the latter case,
the mortgagor conveyed and transferred to the mortgagee by way of
mortgage "the following described personal property." 19 The "personal
property" consisted of leasehold rights and a building. Again, in the case
of Luna vs. Encarnacion,20 the subject of the contract designated as Chattel
Mortgage was a house of mixed materials, and this Court hold 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." In the
later case of Navarro vs. Pineda,21 this Court stated that —
The view that parties to a deed of chattel mortgage 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 principle of estoppel" (Evangelista vs. Alto Surety, No. L-
11139, 23 April 1958). In a case, a mortgaged 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 (Evangelists vs.
Abad, [CA]; 36 O.G. 2913), for it is now settled that an object
placed on land by one who had only a temporary right to
the same, such as the lessee or usufructuary, does not
become immobilized by attachment (Valdez vs. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. vs.
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 as so
stipulated in the document of mortgage. (Evangelista vs.
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 vs. C.N.
Hodges, [CA] 48 O.G. 5374): 22
In the contract now before Us, the house on rented land is not only
expressly designated as Chattel Mortgage; it specifically provides that "the
mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by way of Chattel
Mortgage23 the property together with its leasehold rights over the lot on
which it is constructed and participation ..." 24 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 defendats-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 personalty. Finally unlike in the
Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L.
Strong Machinery and Williamson, 26 wherein third persons assailed the
validity of the chattel mortgage, 27 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 defendants-appellants, having treated the subject house as
personalty.
(b) Turning to the question of possession and rentals of the premises in
question. The Court of First Instance noted in its decision that nearly a year
after the foreclosure sale the mortgaged house had been demolished on 14
and 15 January 1957 by virtue of a decision obtained by the lessor of the
land on which the house stood. For this reason, the said court limited itself
to sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of
P200.00 from 27 March 1956 (when the chattel mortgage was foreclosed
and the house sold) until 14 January 1957 (when it was torn down by the
Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled
to remain in possession without any obligation to pay rent during the one
year redemption period after the foreclosure sale, i.e., until 27 March 1957.
On this issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law,
Act No. 1508.28 Section 14 of this Act allows the mortgagee to have the
property mortgaged sold at public auction through a public officer in almost
the same manner as that allowed by Act No. 3135, as amended by Act No.
4118, provided that the requirements of the law relative to notice and
registration are complied with. 29 In the instant case, the parties specifically
stipulated that "the chattel mortgage will be enforceable in accordance with
the provisions of Special Act No. 3135 ... ." 30(Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-mortgagor
(defendants-appellants herein) may, at any time within one year from and
after the date of the auction sale, redeem the property sold at the extra
judicial foreclosure sale. Section 7 of the same Act 32 allows the purchaser of
the property to obtain from the court the possession during the period of
redemption: but the same provision expressly requires the filing of a
petition with the proper Court of First Instance and the furnishing of a bond.
It is only upon filing of the proper motion and the approval of the
corresponding bond that the order for a writ of possession issues as a
matter of course. No discretion is left to the court. 33 In the absence of such
a compliance, as in the instant case, the purchaser can not claim possession
during the period of redemption as a matter of right. In such a case, the
governing provision is Section 34, Rule 39, of the Revised Rules of
Court 34 which also applies to properties purchased in extrajudicial
foreclosure proceedings.35 Construing the said section, this Court stated in
the aforestated case of Reyes vs. Hamada.
In other words, before the expiration of the 1-year period
within which the judgment-debtor or mortgagor may
redeem the property, the purchaser thereof is not entitled,
as a matter of right, to possession of the same. Thus, while
it is true that the Rules of Court allow the purchaser to
receive the rentals if the purchased property is occupied by
tenants, he is, nevertheless, accountable to the judgment-
debtor or mortgagor as the case may be, for the amount so
received and the same will be duly credited against the
redemption price when the said debtor or mortgagor effects
the redemption. Differently stated, the rentals receivable
from tenants, although they may be collected by the
purchaser during the redemption period, do not belong to
the latter but still pertain to the debtor of mortgagor. The
rationale for the Rule, it seems, is to secure for the benefit
of the debtor or mortgagor, the payment of the redemption
amount and the consequent return to him of his properties
sold at public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe.36
Since the defendants-appellants were occupying the house at the time of
the auction sale, they are entitled to remain in possession during the period
of redemption or within one year from and after 27 March 1956, the date of
the auction sale, and to collect the rents or profits during the said period.
It will be noted further that in the case at bar the period of redemption had
not yet expired when action was instituted in the court of origin, and that
plaintiffs-appellees did not choose to take possession under Section 7, Act
No. 3135, as amended, which is the law selected by the parties to govern
the extrajudicial foreclosure of the chattel mortgage. Neither was there an
allegation to that effect. Since plaintiffs-appellees' right to possess was not
yet born at the filing of the complaint, there could be no violation or breach
thereof. Wherefore, the original complaint stated no cause of action and
was prematurely filed. For this reason, the same should be ordered
dismissed, even if there was no assignment of error to that effect. The
Supreme Court is clothed with ample authority to review palpable errors not
assigned as such if it finds that their consideration is necessary in arriving at
a just decision of the cases. 37

It follows that the court below erred in requiring the mortgagors to pay
rents for the year following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and
another one entered, dismissing the complaint. With costs against plaintiffs-
appellees.
 enforce said writ. The sheriff enforcing the seizure order, repaired to the
premises of private respondent and removed the main drive motor of the
subject machinery.

DIGEST Court of Appeals

G.R. No. L-58469 May 16, 1983 In certiorari and prohibition proceedings filed by respondent, set aside the
Orders of the lower court and ordered the return of the drive motor seized
MAKATI LEASING and FINANCE CORPORATION, petitioner, by the sheriff, after ruling that the machinery in suit cannot be the subject of
vs. replevin, much less of a chattel mortgage, because it is a real property
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF pursuant to Article 415 of the new Civil Code, the same being attached to
APPEALS, respondents. the ground by means of bolts and the only way to remove it from
respondent's plant would be to drill out or destroy the concrete floor. The
FACTS: appellate court rejected petitioner's argument that private respondent is
estopped from claiming that the machine is real property by constituting a
It appears that in order to obtain financial accommodations from herein chattel mortgage thereon.
petitioner Makati Leasing and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned several receivables Petitioner’s motion for reconsideration has been denied and has brought the
with the former under a Receivable Purchase Agreement. To secure the case to this Court for review by writ of certiorari. Respondent contended
collection of the receivables assigned, private respondent executed a Chattel that the petition was rendered moot and academic by petitioner's act of
Mortgage over certain raw materials inventory as well as a machinery returning the subject motor drive of respondent's machinery after the Court
described as an Artos Aero Dryer Stentering Range. of Appeals' decision was promulgated.

Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into private
respondent's premises and was not able to effect the seizure of the said
property. Petitioner thereafter filed a complaint for judicial foreclosure with
the Court of First Instance of Rizal.
RTC
Acting on petitioner's application for replevin, the lower court issued a writ
of seizure, the enforcement of it was subsequently restrained upon private
respondent's filing of a motion for reconsideration. The lower court then
issued an order lifting the restraining order for the enforcement of the writ
of seizure and an order to break open the premises of private respondent to
Issue
Whether or not the machinery in suit is a real or personal property
Ruling
In Tumalad v. Vicencio, it was ruled that 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. If a house of strong
materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason
why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
It must be pointed out that the characterization of the subject machinery as
chattel by the private respondent is indicative of intention and impresses
upon the property the character determined by the parties. As stated
in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, 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.
Private respondent contends that estoppel cannot apply because it had
never represented nor agreed that the machinery be considered as personal
property but was merely required and dictated on by petitioner to sign a
printed form of chattel mortgage which was in a blank form at the time of
signing. This contention lacks persuasiveness. Even granting that the charge
is true, such fact alone does not render a contract void ab initio, but can
only be a ground for rendering said contract voidable, or annullable. There is
nothing on record to show that the mortgage has been annulled. Neither is
it disclosed that steps were taken to nullify the same.
On the other hand, respondent has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of
another. Private respondent could not now therefore, be allowed to impugn
the efficacy of the chattel mortgage after it has benefited therefrom.
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
FACTS:
Defendants-appellants executed a chattel mortgage in favor of plaintiffs-
appellees over their house of strong materials located at Quiapo, Manila,
over Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented from
Madrigal & Company, Inc. The mortgage was registered in the Registry of
Deeds of Manila and was executed to guarantee a loan of P4,800.00
received from plaintiffs-appellees, payable within one year at 12% per
annum.
When defendants-appellants defaulted in paying, the mortgage was
extrajudicially foreclosed, and sold at public auction. As highest bidder,
plaintiffs-appellees were issued the certificate of sale. 3 Thereafter, plaintiffs-
appellant commenced an action praying that the house be vacated and its
possession surrendered to them, and for defendants-appellants to pay rent.
The Municipal Court granted its petition.
During the pendency of the appeal to the Court of First Instance,
defendants-appellants failed to deposit the rent as ordered in the decision
of the municipal court. As a result, the court granted plaintiffs-appellees'
motion for execution. However, the judgment regarding the surrender of
possession to plaintiffs-appellees could not be executed because the subject
house had been already demolished pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants
for non-payment of rentals on the land on which the house was constructed.

ISSUES:
(a) Whether the chattel mortgage is void ab initio and ;
(b) Whether the defendants are, under the law, legally bound to pay rentals
to the plaintiffs during the period of one (1) year provided by law for the
redemption of the extrajudicially foreclosed house.
RULING:
1st Issue:
Defendants-appellants 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.
Even granting that the charge is true, 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. 14 There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to
nullify the same.
It is claimed in the alternative by defendants-appellants that even if there
was no fraud, deceit or trickery, the chattel mortgage was still null and
void ab initio because only personal properties can be subject of a chattel
mortgage. In the case of Manarang and Manarang vs. Ofilada,17 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",
citing Standard Oil Company of New York vs. Jaramillo.
In the later case of Navarro vs. Pineda the court ruled that the view that
parties to a deed of chattel mortgage 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 principle
of estoppel". In a case, a mortgaged 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; for it is now
settled that an object placed on land by one who had only a temporary right
to the same, such as the lessee or usufructuary, does not become
immobilized by attachment.
In this case, the house on rented land is not only expressly designated as
Chattel Mortgage; it specifically provides under their contact that "the
mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by way of Chattel
Mortgage” . 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. Doctrine of estoppels therefore applies to the
defendant-appellants.
2nd Issue:
Turning to the question of possession and rentals of the premises in
question, appellants mortgagors question this award, claiming that they
were entitled to remain in possession without any obligation to pay rent
during the one year redemption period after the foreclosure sale, i.e., until
27 March 1957.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law,
Act No. 1508.28 Section 14 of this Act allows the mortgagee to have the
property mortgaged sold at public auction through a public officer in almost
the same manner as that allowed by Act No. 3135, as amended by Act No.
4118, provided that the requirements of the law relative to notice and
registration are complied with. 29 In the instant case, the parties specifically
stipulated that "the chattel mortgage will be enforceable in accordance with
the provisions of Special Act No. 3135 ... ."
Section 6 of the Act referred to provides that the debtor-mortgagor
(defendants-appellants herein) may, at any time within one year from and
after the date of the auction sale, redeem the property sold at the extra
judicial foreclosure sale. Section 7 of the same Act allows the purchaser of
the property to obtain from the court the possession during the period of
redemption. But it is only upon filing of the proper motion and the approval
of the corresponding bond that the order for a writ of possession issues as a
matter of course. No discretion is left to the court. 33
No. 3135, as amended, which is the law selected by the parties to govern
the extrajudicial foreclosure of the chattel mortgage. Since plaintiffs-
appellees' right to possess was not yet born at the filing of the complaint,
there could be no violation or breach thereof. Wherefore, the original
complaint stated no cause of action and was prematurely filed. For this
reason, the same should be ordered dismissed, even if there was no
assignment of error to that effect.
It follows that the court below erred in requiring the mortgagors to pay
rents for the year following the foreclosure sale, as well as attorney's fees.

In the absence of such a compliance, as in the instant case, the purchaser

can not claim possession during the period of redemption as a matter of
right. The governing provision is Section 34, Rule 39, of the Revised Rules of
Court 34 which also applies to properties purchased in extrajudicial
foreclosure proceedings.35 The Court stated in the aforestated case of Reyes
vs. Hamada:

In other words, before the expiration of the 1-year period

within which the judgment-debtor or mortgagor may
redeem the property, the purchaser thereof is not entitled,
as a matter of right, to possession of the same. Differently
stated, the rentals receivable from tenants, although they
may be collected by the purchaser during the redemption
period, do not belong to the latter but still pertain to the
debtor of mortgagor. The rationale for the Rule, it seems, is
to secure for the benefit of the debtor or mortgagor, the
payment of the redemption amount and the consequent
return to him of his properties sold at public auction.

Since the defendants-appellants were occupying the house at the time of

the auction sale, they are entitled to remain in possession during the period
of redemption or within one year from and after 27 March 1956, the date of
the auction sale, and to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had
not yet expired when action was instituted in the court of origin, and that
plaintiffs-appellees did not choose to take possession under Section 7, Act