Manarang vs. Ofilada

A house that is the subject of a chattel mortgage and considered personal property as between the parties retains its character as real property for purposes of execution-sale proceedings, such that the sheriff must comply with the rules on publication of notice applicable to real property, because execution sales affect the public and third persons and the regulations governing them are suited to the property's general character, not to any private characterization agreed upon by the parties.

Lucia D. Manarang was the owner of a house of mixed materials erected on a lot on Alvarado Street, Manila. On September 8, 1951, she obtained a loan of ₱200 from Ernesto Esteban, securing its payment with a chattel mortgage over that house. Macario M. Ofilada was the Sheriff of the City of Manila tasked with executing the judgment rendered in Esteban's collection suit. The dispute centered on whether the procedural requirements for selling real property on execution — specifically, newspaper publication of the notice of sale — applied to a house that the mortgage parties had treated as personal property under a chattel mortgage.

On September 8, 1951, Lucia D. Manarang obtained a loan of ₱200 from Ernesto Esteban. To secure its repayment, she executed a chattel mortgage over a house of mixed materials erected on a lot on Alvarado Street, Manila. When Manarang failed to pay the loan as agreed, Esteban filed an action against her in the municipal court of Manila for recovery of the amount, alleging that the loan was secured by a chattel mortgage on the property. A copy of the chattel mortgage was attached to the complaint, its registration was mentioned, and the prayer requested that the mortgaged house be sold at public auction to satisfy the debt. Judgment was rendered in Esteban's favor, and execution was issued against the same property that had been mortgaged. The house was levied upon at the plaintiff's request, as evidenced by Exhibit "E."

Before the property could be sold at public auction, Manarang offered to pay the sum of ₱277, representing the judgment amount of ₱250, the interest thereon, the costs, and the sheriff's fees. The sheriff, Macario M. Ofilada, refused to accept the tender unless an additional ₱260 — representing the cost of publishing the notice of sale in two newspapers — was also paid. Manarang and her husband thereupon brought the present suit to compel the sheriff to accept ₱277 as full payment of the judgment and to annul the published notice of sale.

Counsel for Manarang contended in the court below that the house should be considered personal property, rendering publication of the notice of sale unnecessary. The Court of First Instance held that although real property may sometimes be considered personal property, the sheriff was duty-bound to cause publication of the notice of sale in order to make the sale valid or to prevent its being declared void or voidable, and thus did not err in causing such publication. The petition was denied.

• Classification of Property for Execution: Petitioner argued that the house in question should be considered as personal property, since it was the subject of a chattel mortgage, and therefore the publication of the notice of its sale at public auction in execution was unnecessary.
• Tender of Payment: Petitioner maintained that the tender of ₱277 — representing the judgment amount, interest, costs, and sheriff's fees — constituted full satisfaction of the judgment, and the sheriff should have been compelled to accept it without requiring the additional ₱260 for newspaper publication.

• Classification for Execution Purposes: Whether the fact that the parties to a chattel mortgage treated a house as personal property binds the sheriff, in advertising the property's sale at public auction on execution, to treat it as personal property and dispense with the requirement of publication of notice.

• Classification for Execution Purposes: No. The sheriff was not bound by the parties' private characterization of the house as personal property; the house, being a permanent fixture on the land, is real property within the purview of Rule 39, Section 16 of the Rules of Court, and publication of the notice of sale was required.

• Classification for Execution Purposes: While a building of mixed materials may be the subject of a chattel mortgage and considered personal property as between the parties — as held in Luna vs. Encarnacion, Standard Oil Co. of New York vs. Jaranillo, and De Jesus vs. Guan Dee Co. — such private characterization does not control the procedural requirements for execution sales. The rules on execution affect the public and third persons, and the regulations governing sales on execution are prescribed for public officials to follow. The form of proceedings is suited to the general character of the property, not to the character the parties may have privately given it. When the rules speak of personal property, they mean property ordinarily so considered; when they speak of real property, they mean property generally known as real property. Enforcement of the regulations would be difficult if the private agreement or convenience of the parties were allowed to determine the nature of the proceedings. The house of mixed materials levied upon, although subject of a chattel mortgage, is real property within the purview of Rule 39, Section 16, because it has become a permanent fixture on the land, which is real property. This ruling was deemed necessary for definite, orderly, and well-defined regulation for official and public guidance, preventing confusion and misunderstanding.

• Doctrine of Party Stipulation on Property Character vs. Execution-Sale Regulations — Parties to a contract may agree to treat a building as personal property (e.g., through a chattel mortgage), and such characterization binds them as between themselves. However, this private characterization does not bind the sheriff or govern the procedural requirements for execution sales, which affect the public and third persons. The regulations on execution are suited to the general character of the property — real or personal — not to any special character the parties may have privately agreed upon. In this case, although the house was subject of a chattel mortgage and treated as personal property between Manarang and Esteban, the sheriff correctly applied the rules for real property because the house was a permanent fixture on the land.

• Permanent Fixture as Real Property — A building permanently fixed to the land becomes part of the realty and is prima facie real estate, belonging to the owner of the land on which it stands. The general rule is otherwise where the improvement is made with the consent of the landowner and pursuant to an understanding that it shall remain personal property. For purposes of execution-sale proceedings, however, the permanent-fixture character of a building governs, regardless of any chattel-mortgage characterization agreed upon by private parties.

• "The rules on execution do not allow, and we should not interpret them in such a way as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for example, as personal property, when they are not ordinarily so. Sales on execution affect the public and third persons." — This passage articulates the ratio decidendi: execution-sale regulations are designed for public guidance and cannot be altered by private party agreements on property characterization.

• "The regulation governing sales on execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to the character which the parties have given to it or desire to give it." — This defines the controlling principle that procedural requirements for execution sales are tied to the property's general character, not the parties' private characterization.

• "The mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale at public auction." — This is the direct holding applied to the facts, frequently cited for the proposition that chattel-mortgage characterization does not control execution-sale procedure.

• Luna vs. Encarnacion, 48 Off. Gaz., No. 7, p. 2664 (91 Phil., 531) — Followed for the proposition that a building of mixed materials may be the subject of a chattel mortgage and considered personal property as between the parties, depending on the circumstances and intention of the parties.
• Standard Oil Co. of New York vs. Jaranillo, 44 Phil., 630 — Followed for the same proposition regarding chattel mortgage over buildings and inter-parties characterization as personal property.
• De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464 — Followed for the same proposition.
• Leung Yee vs. Strong Machinery Co., 37 Phil., 644 — Cited in support of the ruling that the house levied upon is real property as a permanent fixture on the land.
• Republic vs. Ceniza, 90 Phil., 544 — Cited in support of the ruling that the house is real property for execution-sale purposes.
• Ladera vs. Hodges, 48 Off. Gaz., 5374 (C.A.) — Cited in support of the ruling that the house is real property as a permanent fixture.

• Rule 39, Section 16, Rules of Court — Governs execution sales of real property, including the requirement of publication of notice of sale. The Court held that the house of mixed materials levied upon on execution, though subject of a chattel mortgage, falls within the purview of this provision because it is a permanent fixture on the land and therefore real property. The sheriff was correct in requiring newspaper publication of the notice of sale as mandated by the rules for real property.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, Reyes, J.B.L., and Endencia, JJ., concurred. No separate concurring opinions were noted.