ASSOCIATED INSURANCE vs. ISABEL IYA, et.

al
G.R. Nos. L-10837-38, 103 Phil 972
May 30, 1958

Facts:
Spouses Valino were owners and possessors of a house which they purchased on installment basis from the Philippine Realty Corporation.
To purchase on credit rice from the NARIC, Mrs. Valino filed a bond subscribed by the plaintiff (Associated Insurance and Surety Co., Inc).
As counter-guaranty, spouses Valino executed an alleged chattel mortgage on the house in favor of the surety company. At the time of
this undertaking, the spouses did not yet own the lot on which the house was constructed on. After having been able to fully purchase the
lot, the Valinos, to secure payment of an indebtedness of P12,000.00, executed a real estate mortgage over the house and lot in favor of
Isabel Iya.

Mrs. Valino failed to pay her obligation to the NARIC, so the surety company paid the same pursuant to the surety bond. The spouses
failed to reimburse the surety company, so the latter foreclosed the chattel mortgage over the house thru a public sale conducted by the
provincial sheriff. Subsequently, the surety company learned of the real estate mortgage over the lot together with the improvements
thereon and filed a civil case against the Valino spouses and Isabel Iya, with a prayer for declaration of plaintiff's ownership over the
house. Iya also filed a civil action against the Valinos and the surety company asserting that she has a better right over the house and lot.
The trial court jointly heard the two cases and ruled that the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc.,
was preferred and superior over the real estate mortgage subsequently executed in favor of Isabel Iya for the reason that since the
Valinos were not yet the registered owners of the lot on which the house was constructed on at the time of the first encumbrance, the
house was still a personality over which a chattel mortgage was proper.

ISSUES:
1. Which of the two encumbrances should receive preference over the other?
2. Whether or not the Associated Insurance and Surety Co., Inc. acquired ownership over the property in question by reason of the sale
conducted by the provincial sheriff of Rizal.

HELD:
1. The real estate mortgage in favor of Isabel Iya is preferred over the chattel mortgage in favor of the Associated Insurance and Surety
Co., Inc, without prejudice to any right that the surety company may have against the Valino spouses. 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. Absence of any specific provision to the contrary, a building is an
immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner . As
personal properties could only be the subject of a chattel mortgage (Section 1, Act 3952), and the structure in question is not one, the
execution of the chattel mortgage covering said building is clearly invalid and a nullity.
2. The registration of the document in the Chattel Mortgage Register of Rizal produced no effect whatsoever, for where the interest
conveyed is in the nature of a real property, the registration of the document in the registry of chattels is merely a futile act. A mortgage
creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor,
which mortgage has been declared null and void with respect to said real properties, acquires no right thereto by virtue of said sale.