ASSOCIATED INSURANCE AND SURETY COMPANY V. IYA, ET. AL
103 SCRA 972
Spouses Valino were the owners of a house, payable on installments from Philippine Realty Corporation. To be able to purchase on credit rice from NARIC, they filed a surety bond subscribed by petitioner and therefor, they executed an alleged chattel mortgage on the house in favor of the surety company. The spouses didn’t own yet the land on which the house was constructed on at the time of the undertaking. After being able to purchase the land, to be able to secure payment for indebtedness, the spouses executed a real estate mortgage in favor of Iya.
The spouses were not able to satisfy obligation with NARIC, petitioner was compelled to pay. The spouses weren’t able to pay the surety company despite demands and thus, the company foreclosed the chattel mortgage. It later learned of the real estate mortgage over the house and lot secured
by the spouses. This prompted the company to file an action against the spouses. Also, Iya filed another civil action against the spouses, asserting that she has a better right over the property. The trial court heard the two cases jointly and it held that the surety company had a preferred right over the building as since when the chattel mortgage was secured, the land wasn’t owned yet by the spouses making the building then a chattel and not a real property.
A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed belongs to another. To hold it the other way, the possibility is not remote that it would result in confusion, for to cloak the building with an uncertain status made dependent on ownership of the land, would create a situation where apermanent fixture changes its nature or character as the ownership of the land changes hands. In the case at bar, as personal properties may be the only subjects of a chattel mortgage, the execution of the chattel mortgage covering said building is null and void.