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Recommended Book: Commentaries and Jurisprudence on the

Civil Code of the


Philippines, Vol. II, Arturo M. Tolentino
I. Preliminary Provisions (Art 414)
II. Classification of Property (Arts 415-418)
a. Immovable Property (Art 415)
i. By nature 415 (1) & (8)
ii.By incorporation 415 (2), (3), & (7)
By destination 415 (4), (5), (6), and (9)
iii.
By analogy 415 (10)
iv.
b. Movable Property (Art 416-418)

5. Taxation
ii.Differences between real rights and personal rights

Leung Yee v. Strong Machinery Company


37 Phil. 644
Facts:
The Compaia Agricola Filipina bought a
considerable quantity of rice-cleaning machinery company from
the defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchaseprice. It
included in the mortgage deed the building of strong materials in
which the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured by this
Cases
instrument not having been paid when it fell due, the mortgaged
1. Leung Yee vs. Strong Machinery 37 Phil 644
property was sold by the sheriff, in pursuance of the terms of the
2. Davao Sawmill vs. Castillo 61 Phil 709
mortgage instrument. A few weeks thereafter, on or about the
3. Machinery & Engineering Supplies vs. CA 96 Phil 70
14th of January, 1914, the Compaia Agricola Filipina executed
4. Associated Insurance vs. Isabeliya 103 Phil 972
a deed of sale of the land upon which the building stood to
5. Mindanao Bus Company vs. City Assessor 6 S 197
themachinery company, but this deed of sale, although executed
6. Bd. Of Assessment Appeals vs. Meralco 10 S 68
in a public document, was not registered. The machinery
7. Tumalad vs. Vicencio 41 S 143
company went into possession of the building at or about the
8. Punsalan vs. Lacsamana 121 S 331
time when this sale took place, that is to say, the month of
9. Makati Leasing vs. Wearever 122 S 296
December, 1913, and it has continued in possession ever since.
10. Meralco Securities vs. Central Bd. Of Assessment Appeals 114 At or about the time when the chattel mortgage was executed in
S 260
favor of themachinery company, the mortgagor, the
11. Meralco Securities vs. Bd. Of Assessment Appeals 114 S 273
Compaia Agricola Filipina executed another mortgage to the
12. Caltex vs. Bd. Of Assessment Appeals 114 S 296
plaintiff upon the building, separate and apart from the land on
13. Prudential Bank vs. Panis 153 S 390
which it stood. Upon the failure of the mortgagor to pay the
14. Benguet Corp. vs. Central Bd. Of Assessment Appeals 218 S
amount of the indebtedness secured by the mortgage, the
271
plaintiff secured judgment for that amount, levied execution
15. Sergs Products Inc vs. PCI Leasing and Finance Inc. 338 S
upon the building, boughtit in at the sheriffs sale on or about the
499
18th of December, 1914.This action was instituted by the plaintiff
16. Tsai vs. CA 366 S 324
to recover possession of the building from themachinery
company. The trial judge gave judgment in favor of
c. Importance and Significance of Classification
the machinery company. Hence, this appeal.
i. From the point of view of
Issue:
1. Criminal law
Whether or not the trial judge erred in sustaining the machinery
2. Forms of contracts involving movable or immovables
company on the ground that it had its title to the building
3. Prescription
registered prior to the date of registry of plaintiffs certificate.
4. Venue
Held:

We conclude that the ruling in favor of the machinery


company cannot be sustained on the ground assigned by the trial
judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the
court below discloses that neither the purchase of the building by
the plaintiff nor his inscription of the sheriffs certificate of sale in
his favor was made in good faith, and that the machinery
company must be held to be the owner of the property Article
1544 of the New Civil Code, it appearing that the company first
took possession of the property; and further, that the building
and the land were sold to the machinery companylong prior
to the date of the sheriffs sale to the plaintiff. But it appearing
that he had full knowledge of the machinery companys claim of
ownership when he executed the indemnity bond and bought in
the property at the sheriffs sale, and it appearing further that
the machinery companys claim of ownership was well founded,
he cannot be said to have been an innocentpurchaser for value.
He took the risk and must stand by the consequences; and it is in
this sense that we find that he was not a purchaser in good faith.
The decision of the trial court is hereby affirmed.
Davao Sawmill Co. v. Castillo
61 Phil. 709
Facts:
The Davao Saw Mill Co., Inc., is the holder of a lumber concession
from the Government of the PhilippineIslands. It has operated a
sawmill in thesi tio of Maa, barrio of Tigatu, municipality of
Davao, Province ofDavao. However, the land upon which the
business was conducted belonged to another person. On theland
the sawmill company erected a building which housed the
machinery used by it. Some of theimplements thus used were
clearly personal property, the conflict concerning machines which
were placedand mounted on foundations of cement. In the
contract of lease between the sawmill company and theowner of
the land there appeared the following provision:
That on the expiration of the period agreed upon, all the
improvements and buildings introduced anderected by the party
of the second part shall pass to the exclusive ownership of the
party of the first partwithout any obligation on its part to pay any
amount for said improvements and buildings; also, in theevent
the party of the second part should leave or abandon the land
leased before the time hereinstipulated, the improvements and

buildings shall likewise pass to the ownership of the party of the


firstpart as though the time agreed upon had expired: Provided,
however, That the machineries andaccessories are not included
in the improvements which will pass to the party of the first part
on theexpiration or abandonment of the land leased.
The trial judge found that those properties were personal in
nature and as a consequence absolved the
defendants from the complaint.
Issue:
Whether or not the trial judge erred in finding that the subject
properties are personal in nature.
Held:
As connecting up with the facts, it should further be explained
that the Davao Saw Mill Co., Inc., has on anumber of occasions
treated the machinery as personal property by executing chattel
mortgages in favorof third persons. One of such persons is the
appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the [Old]Civil Code, is in point.
According to the Code, real property
consists of
1. Land, buildings, roads and constructions of all kinds adhering
to the soil;
5. Machinery, liquid containers, instruments or implements
intended by the owner of any building or landfor use in
connection with any industry or trade being carried on therein
and which are expressly adaptedto meet the requirements of
such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last
mentioned paragraph. We entertain nodoubt that the trial judge
and appellees are right in their appreciation of the legal doctrines
flowing fromthe facts.
As a rule, the machinery should be considered as personal, since
it was not placed on the land by theowner of the land
immobilization by destination on purpose cannot generally be
made by a person, whosepossession of the property is only
temporary, otherwise was will be forced to presume that be
intended togive the property permanently to the owner of the
land. In this case, they had stipulated that the land inthe end
thereby be acted as an agent for the owner of the land. In this
sense the property (machines foruse in the sawmill) became real
property.
The judgment appealed from is hereby affirmed.

Engineering and Machinery Corporation v. CA


Facts:
Pursuant to a contract, petitioner undertook to install air
conditioning system in private respondents building. The
building was later sold to the National Investment and
Development Corporation which took possession of it. Upon
NIDCs failure to comply with certain conditions, the sale was
rescinded. NIDC reported to respondent that there were certain
defects in the air conditioning system. Respondent filed a
complaint against petitioner for non-compliance with the agreed
plans and specifications. Petitioner moved to dismiss the
complaint on the ground of the 6-month prescription of warranty
against hidden defects. Private respondent averred that the
contract was not of sale but for a piece of work, the action for
damages of which prescribes after 10 years.

Clearly, the contract in question is one for a piece of work. It is


not petitioner's line of business to manufacture air-conditioning
systems to be sold "off-the-shelf." Its business and particular field
of expertise is the fabrication and installation of such systems as
ordered by customers and in accordance with the particular plans
and specifications provided by the customers. Naturally, the price
or compensation for the system manufactured and installed will
depend greatly on the particular plans and specifications agreed
upon with the customers. The remedy against violations of the
warranty against hidden defects is either to withdraw from the
contract (redhibitory action) or to demand a proportionate
reduction of the price (accion quanti manoris), with damages in
either case.

While it is true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action, a
cursory reading of the ten preceding articles to which it refers
will reveal that said rule may be applied only in case of implied
warranties; and where there is an express warranty in the
contract, as in the case at bench, the prescriptive period is the
Issue:
one specified in the express warranty, and in the absence of such
period, "the general rule on rescission of contract, which is four
Is a contract for the fabrication and installation of a central airyears (Article 1389, Civil Code) shall apply". It would appear that
conditioning system in a building, one of "sale" or "for a piece of
this suit is barred by prescription because the complaint was filed
work"?
more than four years after the execution of the contract and the
Held:
completion of the air-conditioning system. However, a close
scrutiny of the complaint filed in the trial court reveals that the
A contract for a piece of work, labor and materials may be
original action is not really for enforcement of the warranties
distinguished from a contract of sale by the inquiry as to whether against hidden defects, but one for breach of the contract itself.
the thing transferred is one not in existence and which would
The governing law is Article 1715. However, inasmuch as this
never have existed but for the order, of the person desiring it. In
provision does not contain a specific prescriptive period, the
such case, the contract is one for a piece of work, not a sale. On
general law on prescription, which is Article 1144 of the Civil
the other hand, if the thing subject of the contract would have
Code, will apply. Said provision states, inter alia, that actions
existed and been the subject of a sale to some other person even "upon a written contract" prescribe in ten (10) years. Since the
if the order had not been given, then the contract is one of sale.
governing contract was executed on September 10, 1962 and the
The distinction between the two contracts depends on the
complaint was filed on May 8, 1971, it is clear that the action has
intention of the parties. Thus, if the parties intended that at some not prescribed. The mere fact that the private respondent
future date an object has to be delivered, without considering the accepted the work does not, ipso facto, relieve the petitioner
work or labor of the party bound to deliver, the contract is one of from liability for deviations from and violations of the written
sale. But if one of the parties accepts the undertaking on the
contract, as the law gives him ten (10) years within which to file
basis of some plan, taking into account the work he will employ
an action based on breach thereof.
personally or through another, there is a contract for a piece of
work.

Associated Insurance & Surety v. Iya


[G.R. Nos. L-10837-38. May 30, 1958.]
En Banc, Felix (J): 9 concur
Facts: Spouses Adriano and Lucia A. Valino were the owners and
possessors of a house of strong materials constructed on Lot 3,
Block 80 of the Grace Park Subdivision in Caloocan, Rizal, which
they purchased on installment basis from the Philippine Realty
Corporation. On 6 November 1951, to enable her to purchase on
credit rice from the NARIC, Lucia Valino filed a bond (P11,000.00;
AISCO Bond 971) subscribed by the Associated Insurance &
Surety Co. and as counter-guaranty therefor, the Valinos
executed an alleged chattel mortgage on the aforementioned
house in favor of the surety company, which encumbrance was
duly registered with the Chattel Mortgage Register of Rizal on 6
December 1951. It is admitted that at the time said undertaking
took place, the parcel of land on which the house is erected was
still registered in the name of the Philippine Realty Corporation.
Having completed payment on the purchase price of the lot, the
Valinos were able to secure on 18 October 1958, a certificate of
title in their name (TCT 27884). Subsequently, however, or on 24
October 1952, the Valinos, to secure payment of an indebtedness
in the amount of P12,000.00, executed a real estate mortgage
over the lot and the house in favor of Isabel Iya, which was duly
registered and annotated at the back of the certificate of title.
Later, Lucia A. Valino failed to satisfy her obligation to the NARIC,
the surety company was compelled to pay the same pursuant to
the undertaking of the bond. The surety company demanded
reimbursement from the Valinos, who failed to do so. The
company foreclosed the chattel mortgage over the house as a
consequence. A public sale was conducted thereafter by the
Provincial Sheriff of Rizal on 26 December 1952, wherein the
property was awarded to the surety company for P8,000.00, the
highest bid received therefor. The surety company then caused
the said house to be declared in its name for tax purposes (Tax
Declaration 25128).
Sometime in July 1953, the surety company learned of the
existence of the real estate mortgage over the lot covered by
TTC 26884 together with the improvements thereon; thus, said
surety company instituted Civil Case 2162 with the CFI Manila
naming Adriano and Lucia Valino and Isabel Iya, the mortgagee,

as defendants. On the other hand, on 29 October 1953, Isabel Iya


filed a civil action against the Valinos and the surety company
(Civil Case 2504 with CFI Manila) praying for a decree of
foreclosure of the land, building and improvements thereon to be
sold at public auction and the proceeds applied to satisfy the
demands; this pursuant to the contract of mortgage as the
Valinos have failed to pay interest for more than 6 months
already; the surety company included as it claims to have an
interest on the residential house covered by said mortgage.
The two cases were jointly heard upon agreement of the parties,
who submitted the same on a stipulation of facts, after which the
Court rendered judgment dated 8 March 1956, holding that the
chattel mortgage in favor of the Associated Insurance & Surety
was preferred and superior over the real estate mortgage
subsequently executed in favor of Isabel Iya. It was ruled that as
the Valinos were not yet the registered owner of the land on
which the building in question was constructed at the time the
first encumbrance was made, the building then was still a
personalty and a chattel mortgage over the same was proper.
However, as the mortgagors were already the owners of the lot
at the time the contract with Isabel Iya was entered into, the
building was transformed into a real property and the real estate
mortgage created thereon was likewise adjudged as proper. The
residential building was, therefore, ordered excluded from the
foreclosure prayed for by Isabel Iya, although the latter could
exercise the right of a junior encumbrancer. The spouses Valino
were ordered to pay the amount demanded by said mortgagee or
in their default to have the parcel of land subject of the mortgage
sold at public auction for the satisfaction of Iya's claim.
The Supreme Court reversed the decision of the lower court,
recognized Isabel Iya's right to foreclose not only the land but
also the building erected thereon, and ordered that the proceeds
of the sale thereof at public auction (if the land has not yet been
sold), be applied to the unsatisfied judgment in favor of Isabel
Iya. The decision however is without prejudice to any right that
the Associated Insurance & Surety may have against the Valinos
on account of the mortgage of said building they executed in
favor of said surety company. Without pronouncement as to
costs.

1. Nature of property encumbered is the decisive factor in


determination of preferential right
The decisive factor in resolving the issue as to which of these
encumbrances should receive preference over the other is the
determination of the nature of the structure litigated upon, for
where it be considered a personalty, the foreclosure of the
chattel mortgage and the subsequent sale thereof at public
auction, made in accordance with the Chattel Mortgage Law
would be valid and the right acquired by the surety company
therefrom would certainly deserve prior recognition; otherwise,
appellant's claim for preference must be granted.
2. Building always immovable
While it is true that generally, real estate connotes the land and
the building constructed thereon, 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. Moreover, and in view of the
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." (Lopez vs. Orosa).

registry of chattels is merely a futile act. Thus, the registration of


the chattel mortgage of a building of strong materials produce no
effect as far as the building is concerned (Leung Yee vs. Strong
Machinery Co., 37 Phil., 644).
5. No right acquired by chattel mortgage creditor who
purchases real properties in an extrajudicial foreclosure
sale
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 (De la Riva vs. Ah
Keo, 60 Phil., 899).
MINDANAO BUS CO. vs. CITY ASSESSOR
FACTS:

Mindanao Bus Company is a public utility engaged in transporting


passengers and cargoes by motor trucks in Mindanao has its
main offices in Cagayan de Oro. The company is also owner to
the land where it maintains and operates a garage, a repair shop,
blacksmith and carpentry shops; the machineries are place on
3. Building cannot be divested of character as realty when wooden and cement platforms.
constructed on land belonging to another
A building certainly cannot be divested of its character of a realty The City Assessor of Cagayan de Oro City assessed at P4,400
by the fact that the land on which it is constructed belongs to
said maintenance and repair equipment. The company appealed
another. To hold it the other way, the possibility is not remote
the assessment to the Board of Tax Appeals on the ground that
that it would result in confusion, for to cloak the building with an
the same are not realty. The Board of Tax Appeals of the City
uncertain status made dependent on the ownership of the land,
sustained the city assessor, so the company filed with the Court
would create a situation where a permanent fixture changes its
of Tax Appeals a petition for the review of the assessment. The
nature or character as the ownership of the land changes hands. CTA held that the Company was liable to the payment of the
realty tax on its maintenance and repair equipment. Hence, the
4. Execution of a chattel mortgage over a building invalid company filed a petition for review with the Supreme Court.
and a nullity
As personal properties could only be the subject of a chattel
ISSUE:
mortgage (Section 1, Act 3952), the execution of the chattel
mortgage covering a building is clearly invalid and a nullity.
Whether or not the machineries assessed by the respondent are
While it is true that said document was correspondingly
real properties?
registered in the Chattel Mortgage Register, this act produced no
effect whatsoever for where the interest conveyed is in the
HELD:
nature of a real property, the registration of the document in the

Paragraph 5 of Article 415 of the New Civil which provides


machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works are
immovable properties. Movable equipments to be immobilized in
contemplation of the law must first be "essential and principal
elements" of an industry or works without which such industry or
works would be "unable to function or carry on the industrial
purpose for which it was established."
The tools and equipments in question in this instant case are, by
their nature, not essential and principal elements of petitioner's
business of transporting passengers and cargoes by motor
trucks. They are merely incidentals-acquired as movables and
used only for expediency to facilitate and/or improve its service.
Even without such tools and equipments, its business may he
carried on.
the equipments in question are destined only to repair or service
the transportation business, which is not carried On in a building
or permanently on a piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed real property.
BOARD OF ASSESSMENT APPEALS V. MANILA
ELECTRIC COMPANY
10 SCRA 68
FACTS:
City Assessor of QC declared the steel towers for real property
tax under Tax Declarations. After denying the respondents
petition to cancel these declarations, an appeal was taken with
the CTA which held that the steel towers come under the
exception of poles under the franchise given to MERALCO;
the steel towers are personal properties; and the City Treasurer
is liable for the refund of the amount paid.
HELD:

The steel towers of an electric company dont constitute real


property for the purposes of real property tax.
Tumalad v. Vicencio
[G.R. No. L-30173. September 30, 1971.]
En Banc, Reyes JBL (J): 10 concur
Facts: On 1 September 1955 Vicencio and Simeon, defendantsappellants, executed a chattel mortgage in favor of the
Tumalads, plaintiff-appellees over their house of strong materials
located at 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot
6-B and 7-B, Block 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 mortgage was
executed to guarantee a loan of P4,800.00 received from the
Tumalads, 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 become immediately due and payable, the
Chattel Mortgage enforceable, and the Sheriff of Manila
authorized the Mortgagors property after necessary publication.
When Vicencio and Simeon 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, the Tumalads were issued the corresponding
certificate of sale.
On 18 April 1956, the Tumalads commenced Civil Case 43073 in
the municipal court of Manila, praying, among other things, that
the house be vacated and its possession surrendered to them,
and for Vicencio and Simeon to pay rent of P200.00 monthly from
27 March 1956 up to the time the possession is surrendered. On
21 September 1956, the municipal court rendered its decision in
favor of the Tumalads. Having lost therein, appealed to the court
a quo (Civil Case 30993) which also rendered a decision against
them. On appeal, the case was certified to the Supreme Court by
the Court of Appeals (CA-G.R. No. 27824-R) for the reason that
only questions of law are involved. Plaintiffs-appellees failed to
file a brief and this appeal was submitted for decision without it.

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.
The Supreme Court reversed the decision appealed from and
entered another dismissing the complaint, with costs against
plaintiffs-appellees.
1. Answer a mere statement and not evidence;
Allegations or averments determines jurisdiction
It has been held in Supia and Batiaco vs. Quintero and Ayala that
"the answer is a mere statement of the facts which the party
filing it expects to prove, but it is not evidence; 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,
wherein the defendant was also a successful bidder in an auction
sale, it was likewise held by the Court that in detainer cases the
claim 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.
2. Fraud and deceit renders a contract voidable or
annullable, and not void ab initio; Claim of ownership by
virtue of voidable contract fails without evidence that
steps were made to annul the same
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. In the present case, the charge of fraud,
deceit or trickery, the conterntions are not supported by
evidence. Further, 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.
3. Buildings as immovable
The rule about the status of buildings as immovable property is
stated in Lopez vs. Orosa, Jr. and Plaza Theatre, Inc., cited in
Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the

effect 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.
4. Deviations allowed, parties treatment of real property
as personal property; cases
Certain deviations, however, have been allowed for various
reasons. In the case of Manarang and Manarang vs. Ofilada, it
was held 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 latter case, the mortgagor conveyed and
transferred to the mortgagee by way of mortgage "the following
described personal property." The "personal property" consisted
of leasehold rights and a building. In the case of Luna vs.
Encarnacion, the subject of the contract designated as Chattel
Mortgage was a house of mixed materials, and the Court held
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 Navarro vs. Pineda, the 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). 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 (Valdez vs. Central
Altagracia, cited in Davao Sawmill vs. Castillo). 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. 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).

8. Mortgagors entitled to remain in possession without


rent within redemption period
Nearly a year after the foreclosure sale the mortgaged house had
5. House treated by parties as chattel; factors to
been demolished on 14 and 15 January 1957 by virtue of a
determine
decision obtained by the lessor of the land on which the house
In the contract, the house on rented land is not only expressly
stood. The CFI sentenced the mortgagors to pay a monthly rent
designated as Chattel Mortgage; it specifically provides that "the of P200.00 from the time the chattel mortgage was foreclosed
mortgagor voluntarily cedes, sells and transfers by way of Chattel until when it was torn down by the sheriff. The Court ruled that
Mortgage the property together with its leasehold rights over the the mortgagors were entitled to remain in possession without
lot on which it is constructed and participation;" whcih could only any obligation to pay rent during the one year redemption period
have meant to convey the house as chattel, or at least, intended after the foreclosure sale. Section 6 of Act 3135 provides that the
to treat the same as such, so that they should not now be
debtor-mortgagor may, at any time within one year from and
allowed to make an inconsistent stand by claiming otherwise.
after the date of the auction sale, redeem the property sold at
Moreover, the subject house stood on a rented lot to which
the extra judicial foreclosure sale. Section 7 of the same Act
defendants-appellants merely had a temporary right as lessee,
allows the purchaser of the property to obtain from the court the
and although this can not in itself alone determine the status of
possession during the period of redemption: but the same
the property, it does so when combined with other factors to
provision expressly requires the filing of a petition with the
sustain the interpretation that the parties, particularly the
proper CFI and the furnishing of a bond. It is only upon filing of
mortgagors, intended to treat the house as personality.
the proper motion and the approval of the corresponding bond
that the order for a writ of possession issues as a matter of
6. Estoppel; Party in chattel mortgage cannot question
course. No discretion is left to the court. In the absence of such a
validity of chattel mortgage entered into
compliance, as in the instant case, the purchaser can not claim
Inlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatreand
possession during the period of redemption as a matter of right.
Leung Yee vs. F. L. Strong Machinery and Williamson, wherein
In such a case, the governing provision is Section 34, Rule 39, of
third persons assailed the validity of the chattel mortgage, it is
the Revised Rules of Court which also applies to properties
the defendants-appellants themselves, as debtors-mortgagors,
purchased in extrajudicial foreclosure proceedings.
who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein
9. Rentals received during redemption period credited to
defendants-appellants, having treated the subject house as
redemption price
personalty.
Before the expiration of the 1-year period within which the
judgment-debtor or mortgagor may redeem the property, the
7. Chattel mortgage covered by Act 1508, Chattel
purchaser thereof is not entitled, as a matter of right, to
Mortgage Law
possession of the same. Thus, while it is true that the Rules of
Chattel mortgages are covered and regulated by the Chattel
Court allow the purchaser to receive the rentals if the purchased
Mortgage Law, Act 1508. Section 14 of this Act allows the
property is occupied by tenants, he is, nevertheless, accountable
mortgagee to have the property mortgaged sold at public auction
to the judgment-debtor or mortgagor as the case may be, for the
through a public officer in almost the same manner as that
amount so received and the same will be duly credited against
allowed by Act 3135, as amended by Act 4118, provided that the
the redemption price when the said debtor or mortgagor effects
requirements of the law relative to notice and registration are
the redemption. Differently stated, the rentals receivable from
complied with. In the present case, the parties specifically
tenants, although they may be collected by the purchaser during
stipulated that "the chattel mortgage will be enforceable in
the redemption period, do not belong to the latter but still pertain
accordance with the provisions of Special Act 3135.
to the debtor of mortgagor. The rationale for the Rule, it seems,

is to secure for the benefit of the debtor or mortgagor, the


lieu of the said sale secured a title over the property involving
payment of the redemption amount and the consequent return to the warehouse allegedly owned and constructed by the plaintiff.
him of his properties sold at public auction. (Reyes vs. Hamada,
reiterating Chan v. Espe)
Punzalan filed a suit for annulment of the Deed of Sale with
10. Case prematurely filed
damages against PNB and Lacsamana before the Court of First
The period of redemption had not yet expired when action was
Instance of Rizal, Branch 31, impugning the validity of the sale of
instituted in the court of origin, and that plaintiffs-appellees did
the building, requesting the same to be declared null and void
not choose to take possession under Section 7, Act 3135, as
and that damages in the total sum of P23, 200 more or less be
amended, which is the law selected by the parties to govern the
awarded to him.
extrajudicial foreclosure of the chattel mortgage. Neither was
there an allegation to that effect. Since plaintiffs-appellees' right
Respondent Lacsamana in his answer averred the affirmative
to possess was not yet born at the filing of the complaint, there
defense of lack of cause of action contending that she was a
could be no violation or breach thereof. Wherefore, the original
purchaser for value, while, PNB filed a Motion to Dismiss on the
complaint stated no cause of action and was prematurely filed.
ground of improper venue, invoking that the building was a real
11. Courts authority to review errors not assigned
property under Article 415 of the Civil Code, and therefore,
Even if there was no assignment of error to that effect, the
Section 4 (a) of the Rules of Court should apply.
Supreme Court is clothed with ample authority to review palpable
errors not assigned as such if it finds that their consideration is
Punzalan filed a Motion for Reconsideration asserting that the
necessary in arriving at a just decision of the case.
action he filed is limited to the annulment of sale and that, it
PUNZALAN V. LACSAMANA
does not involved ownership of or title to property but denied by
the court for lack of merit. A motion for pre-trial was also set by
Buildings are always treated as immovable or real
Punzalan but was also denied by the court invoking that the case
property under the Code even if it was dealt with
was already dismissed.
separately from the land upon which it stood
Hence, a petition for certiorari was filed by the petitioner.
FACTS:
Some land belonging to Antonio Punzalan was foreclosed by
the Philippine National Bank Tarlac, Branch in failure of the
former to pay the mortgaged fee amounting to P10 grand Since
PNB was the highest bidder, the land went to PNB.

ISSUE:

Sometime 1974, while the property was still in the possession of


Punzalan, Punzalan constructed awarehouse on the said land by
virtue of the permit secured from the Municipal Mayor of
Bamban, Tarlac. Subsequently, in 1978, a contract of sale was
entered into by PNB and Remedios Vda. De Lacsamana, whom in

HELD:

Whether or not the judgment rendered by the court is proper.

While it is true that the petitioner does not directly seek the
recovery of the title or possession of the property in question, his
action for annulment of sale and his claim for damages are
closely intertwined with the issue of ownership of the building,

which, under the law, is considered immovable property, the


recovery of which is petitioners primary objective. The prevalent
doctrine is that an action for the annulment or rescission of a sale
of real property does not operate to efface the objective and
nature of the case, which is to recover said property. It is a real
action. Respondent Court did not err in dismissing the case on
the ground of improper venue under Section 12 Rule 4 which was
timely raised under Section 1 Rule 16 of the Rules of Court.

finally issued on 11 February 1981, an order to break open the


premisesof Wearever to enforce said writ.

Makati Leasing vs. Wearever Textile

Held:

The sheriff enforcing the seizure order, repaired to the premises


of Wearever and removed the main
drive motor of the subject machinery.

CA set aside the orders of the RTC and ordered the return of the
drive motor seized by the sheriffafter ruling that the machinery in
suit cannot be the subject of replevin, much less of a
Personal Observation: The venue was improperly laid by the
chattelmortgage, because it is a real property pursuant to Article
petitioner in the case at bar. Such ground was sufficient to render
415 of the new Civil Code. CA also rejectedthe argument that
dismissal of the case, as the same is one of the grounds provided
Wearever is estopped from claiming that the machine is real
for under Rule 16 (c) of the Rules of Court.
property byconstituting a chattel mortgage thereon. A motion for
reconsideration was filed by Makati Leasing, butit was denied.
Hence this petition.
The Denial of Motion to Dismiss rendered by the court in the
instant case is appealable. If such denial constitute grave abuse
Issue:
of discretion on the part of the court , Punzalan may file either
Prohibition or Certiorari under Rule 65 of the Rules of Court
Whether the machinery in suit is real or personal property?

Facts:

If a house of strong materials, like what was involved in the


above Tumalad case, may be consideredas personal property for
Wearever Textile in order to obtain a financial accommodation
purposes of executing a chattel mortgage thereon as long as the
from Makati Leasing, discounted andassigned several receivables
parties tothe contract so agree and no innocent third party will
with the former under a Receivable Purchase Agreement. To
be prejudiced thereby, there is absolutely noreason why a
secure thecollection of the receivables assigned, Waerever
machinery, which is movable in its nature and becomes
executed a Chattel Mortgage over certain rawmaterials inventory
immobilized only by destinationor purpose, may not be likewise
as well as a machinery described as an Artos Aero Dryer
treated as such. This is really because one who has so agreed
Stentering Range.
isestopped from denying the existence of the chattel mortgage.
Upon Wearever's default, Makati Leasing filed a petition for
It must be pointed out that the characterization of the subject
extrajudicial foreclosure of the propertiesmortgage to it.
machinery as chattel by the privaterespondent is indicative of
However, the Deputy Sheriff assigned to implement the
intention and impresses upon the property the character
foreclosure failed to gain entryinto Wearever's premises and was
determined by theparties. As stated in Standard Oil Co. of New
not able to effect the seizure of the machinery. Makati
York vs. Jaramillo, 44 Phil. 630, it is undeniable that theparties to
Leasingthereafter filed a complaint for judicial foreclosure with
a contract may by agreement treat as personal property that
the CFI Rizal.
which by nature would be realproperty, as long as no interest of
third parties would be prejudiced thereby.
RTC then issued a writ of seizure, the enforcement of which was
restrained upon Wearever's filing ofa motion for reconsideration.
Meralco Securities v. Central Board of Assessment Appeals

G.R. No. L-46245 May 31, 1982


[Aquino, J.:]

FACTS:-There are two oil storage tanks installed in 1969 by


Meralco on a lot in San Pascual, Batangaswhich it leased in 1968
from Caltex (Phil.), Inc. The tanks are within the Caltex refinery
Facts: Petitioner questions the decision of the respondent which
compound.They have a total capacity of 566,000 barrels. They
held that petitioners pipeline is subject to realty tax. Pursuant to are used for storing fuel oil for Meralco's power plants.-The
a concession, petitioner installed a pipeline system from Manila
storage tanks are made of steel plates welded and assembled on
to Batangas. Meanwhile, the provincial assessor of Laguna
the spot. Their bottoms
treated the pipeline as real property. So, petitioner appealed the reston a foundation consisting of compacted earth as the
assessments to the Board of Assessment Appeals of Laguna. The outermost layer, a sand pad as theintermediate layer and a twoboard upheld the assessments and the decision became final and inch thick bituminous asphalt stratum as the top layer. The
executory after the lapse of fifteen days from the date of receipt bottom of each tank is in contact with the asphalt layer. The steel
of a copy of the decision by the appellant. Meralco Securities
sides of the tank are directly supportedunderneath by a circular
contends that the Court of Tax Appeals has no jurisdiction to
wall made of concrete, eighteen inches thick, to prevent the tank
review the decision of the Central Board of Assessment Appeals
fromsliding. Hence, according to Meralco, the tank is not
and no judicial review of the Board's decision is provided for in
attached to its foundation. It is not anchored or welded to the
the Real Property Tax Code. Hence, the petitioners recourse to
concrete circular wall. Its bottom plate is not attached to any part
file a petition for certiorari.
of the foundation bybolts, screws or similar devices. The tank
merely sits on its foundation. Each empty tank can befloated by
Held: it was held that certiorari was properly availed of in this
flooding its dike-inclosed location with water four feet deep.-The
case. It is a writ issued by a superior court to an inferior court,
Board concludes that while the tanks rest or sit on their
board or officer exercising judicial or quasi-judicial functions
foundation, the foundation itself andthe walls, dikes and steps,
whereby the record of a particular case is ordered to be elevated which are integral parts of the tanks, are affixed to the land while
for review and correction in matters of law.
thepipelines are attached to the tanks. In 1970, the municipal
treasurer of Bauan, Batangas, on thebasis of an assessment
The rule is that as to administrative agencies exercising quasimade by the provincial assessor, required Meralco to pay realty
judicial power there is an underlying power in the courts to
taxes onthe two tanks. For the five-year period from 1970 to
scrutinize the acts of such agencies on questions of law and
1974, the tax and penalties amounted toP431,703.96.
jurisdiction even though no right of review is given by the
The Board required Meralco to pay the
statute. The purpose of judicial review is to keep the
tax and penalties as a condition for entertaining its appeal from
administrative agency within its jurisdiction and protect
the adverse decision of the Batangas board of assessment
substantial rights of parties affected by its decisions. The review
appeals.-The Central Board of Assessment Appeals ruled that the
is a part of the system of checks and balances which is a
tanks together with the foundation,
limitation on the separation of powers and which forestalls
walls,dikes, steps, pipelines and other appurtenances constitute t
arbitrary and unjust adjudications. Judicial review of the decision axable improvements. Meralcocontends that the said oil storage
of an official or administrative agency exercising quasi-judicial
tanks do not fall within any of the kinds of real
functions is proper in cases of lack of jurisdiction, error of law,
propertyenumerated in article 415 of the Civil Code and,
grave abuse of discretion, fraud or collusion or in case the
therefore, they cannot be categorized as realty bynature, by
administrative decision is corrupt, arbitrary or capricious
incorporation, by destination nor by analogy. Stress is laid on the
fact that the tanks arenot attached to the land and that they
MERALCO V BOARD OF ASSESSMENT
were placed on leased land, not on the land owned byMeralco.
ISSUE:W/N the oil tanks are considered as real property

HELD: YES.-While the two storage tanks are not embedded in the
land, they may, nevertheless, be consideredas improvements on
the land, enhancing its utility and rendering it useful to the oil
industry. It isundeniable that the two tanks have been installed
with some degree of permanence as receptaclesfor the
considerable quantities of oil needed by Meralco for its
operations.-For purposes of taxation, the term "real property"
may include things which should generally beregarded as
personal property. It is a familiar phenomenon to see things
classed as real propertyfor purposes of taxation which on general
principle might be considered personal property.
ADDITIONAL: baka lang ipa-compare: The case of Board of
Assessment Appeals vs. ManilaElectric Company, 119 Phil. 328,
wherein Meralco's steel towers were held not to be subject
torealty tax, is not in point because in that case the steel towers
were regarded as poles and under its franchise Meralco's poles
are exempt from taxation. Moreover, the steel towers
were notattached to any land or building. They were removable
from their metal frames.
CALTEX PHILS. V. CENTRAL
ASSESSMENT APPEALS

BOARD

OF

114 SCRA 296


FACTS:
The City Assessor characterized the items in gas stations of
petitioner as taxable realty. These items included
underground tanks, elevated tank, elevated water tanks, water
tanks, gasoline pumps,computing pumps, etc. These items are
not owned by the lessor of the land wherein the
equipment are installed. Upon expiration of the lease
agreement, the equipment should be returned in good
condition.
HELD:
The equipment and machinery as appurtenances to the gas
station building or shed owned by Caltex and which fixtures are
necessary to the operation of the gas station, for without them
the gas station would be useless, and which have been attached

and fixed permanently to the gas station site or embedded


therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax Code.
Prudential Bank v. Panis
[G.R. No. L-50008. August 31, 1987.]
First Division, Paras (J): 4 concur.
Facts: On 19 November 1971, Fernando A. Magcale and Teodula
Baluyut Magcale secured a loan of P70,000.00 from Prudential
Bank. To secure payment of this loan, the Magcales executed in
favor of Prudential Bank a deed of Real Estate Mortgage over a 2storey, semi-concrete residential building with warehouse space
(total area of 263 sq.m.); and granting upon the mortgagee the
right of occupancy on the lot where the property is erected. A
rider is also included in the deed that in the event the Sales
Patent on the lot is issued of Bureau of Lands, the Register of
Deeds is authorized to hold the Registration until the mortgage is
cancelled or annotate the encumbrance on the title upon
authority from the Secretary of Agriculture and Natural
Resources, which title with annotation release in favor of the
mortgage. The Real Estate Mortgage was registered under the
Provisions of Act 3344 with the Registry of Deeds of Zambales on
23 November 1971. Subsequently, the Magcales secured an
additional loan from Prudential Bank, secured by another deed of
Real Estate Mortgage registeed with the Registry of Deeds in
Olongapo City, on 2 May 1973.
On 24 April 1973, the Secretary of Agriculture issued
Miscellaneous Sales Patent 4776 over the parcel of land,
possessory rights over which were mortgaged to rudential Bank,
in favor of the Magcales. On the basis of the Patent, and upon its
transcription in the Registration Book of the Province of
Zambales, OCT P-2554 was issued in the name of Fernando
Magcale, by the Ex-Oficio Register of Deeds of Zambales, on 15
May 1972.
For failure of the Magcales to pay their obligation to the Bank
after it became due, the deeds of Real Estate Mortgage were
extrajudicially foreclosed. Consequent to the foreclosure was the
sale of the properties mortgaged to the bank as the highest
bidder in a public auction sale conducted by the City Sheriff on
12 April 1978. The auction sale was held despite written request

from the Magcales through counsel, dated 29 March 1978, for the
City Sheriff to desist from going with the scheduled public
auction sale. The issue was raised to the CF Zambales and
Olongapo City which, on 3 November 1978, declared the deeds of
Real Estate Mortgage as null and void. The bank filed a motion
for reconsideration on 14 December 1978, which the court
denied on 10 January 1979 for lack of merit. Hence, the petition.
The Supreme Court modified the decision of the CFI Zambales &
Olongapo, declaring that the Deed of Real Estate Mortgage for
P70,000.00 is valid but ruling that the Deed of Real Estate
Mortgage for an additional loan of P20,000.00 is null and void,
without prejudice to any appropriate action the Government may
take against private respondents.
1. Building separate and distinct from the land
In the enumeration of properties under Article 415 of the Civil
Code of the Philippines, it is obvious that the inclusion of
'building' separate and distinct from the land, in said provision of
law can only mean that a building is by itself an immovable
property. (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958;
Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38,
May 30, 1958).
2. Building can be mortgaged apart from the land it is
built; possessory rights may be validly transferred in a
deed of mortgage
While a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings; still a
building by itself may be mortgaged apart from the land on which
it has been built. Such a mortgage would be still a real estate
mortgage for the building would still be considered immovable
property even if dealt with separately and apart from the land
(Leung Yee vs. Strong Machinery Co., 37 Phil. 644). Possessory
rights over said properties before title is vested on the grantee,
may be validly transferred or conveyed as in a deed of mortgage
(Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
3. A valid real estate mortgage may be constituted on the
building erected on the land belonging to another
The original mortgage was executed (19 November 1971) before
the issuance of the final patent (24 April 1972) and before the
government was divested of its title to the land (15 May 1972),

an event which takes effect only on the issuance of the sales


patent and its subsequent registration in the Office of the
Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515;
Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs.
Jurado, L-14702, May 23, 1961; Pea, "Law on Natural
Resources", p. 49). In the case at bar, it is evident that the
mortgage executed by Magcale on his own building which was
erected on the land belonging to the government is to all intents
and purposes a valid mortgage.
4. Public land act and RA 730 not violated in first
mortgage
As to restrictions appearing to the Magcales title; Sections 121,
122 and 124 of the Public Land Act refer to land already acquired
under the Public Land Act or any improvement thereon. Section 2
of RA 730 refers to encumbrance or alienation before the patent
is issued because it refers specifically to encumbrance or
alienation on the land itself and does not mention anything
regarding the improvements existing thereon. Both have no
application to the assailed mortgage in the case at bar; as the
former, the mortgage was executed before such eventuality, and
the latter, it does not encumber nor alienate the land.
5. Mortgage made after issuance of Sales Patent an OCT
prohibited; Estoppel does not give validating effect to a
void contract
As regards the second mortgage executed, such mortgage
executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions
stated in Sections 121, 122 and 124 of the Public Land Act and
Section 2 of RA 730, and is therefore null and void. Even if the
title was voluntary surrendered to the bank for the mortgage to
be annotated without the prior approval of the Ministry of Natural
Resources; in pari delicto may not be invoked to defeat the policy
of the State neither may the doctrine of estoppel give a
validating effect to a void contract. Indeed, it is generally
considered that as between parties to a contract, validity cannot
be given to it by estoppel if it is prohibited by law or is against
public policy (19 Am. Jur. 802). It is not within the competence of
any citizen to barter away what public policy by law seeks to
preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino,
supra; Arsenal vs. IAC, 143 SCRA 54 [1986]). Such does not,

however, preclude new contracts that may be entered into in


accordance with the requirements of the law. Any new
transaction, however, would be subject to whatever steps the
Government may take for the reversion of the land in its favor.
G.R. No. 106041 January 29, 1993
BENGUET CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL
ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and
MUNICIPALITY OF SAN MARCELINO, respondents.

breaking the material or causing destruction on the land upon


which it is attached. The immovable nature of the dam as an
improvement determines its character as real property, hence
taxable under Section 38 of the Real Property Tax Code. (P.D.
464).
Although the dam is partly used as an anti-pollution device, this
Board cannot accede to the request for tax exemption in the
absence of a law authorizing the same.
xxx xxx xxx

We find the appraisal on the land submerged as a result of the


construction of the tailings dam, covered by Tax Declaration Nos.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
002-0260 and 002-0266, to be in accordance with the Schedule
petitioner.
of Market Values for Zambales which was reviewed and allowed
for use by the Ministry (Department) of Finance in the 1981-1982
general revision. No serious attempt was made by PetitionerAppellant Benguet Corporation to impugn its reasonableness, i.e.,
CRUZ, J.:
that the P50.00 per square meter applied by RespondentAppellee Provincial Assessor is indeed excessive and
The realty tax assessment involved in this case amounts to
unconscionable. Hence, we find no cause to disturb the market
P11,319,304.00. It has been imposed on the petitioner's tailings
value applied by Respondent Appellee Provincial Assessor of
dam and the land thereunder over its protest.
Zambales on the properties of Petitioner-Appellant Benguet
Corporation covered by Tax Declaration Nos. 002-0260 and 002The controversy arose in 1985 when the Provincial Assessor of
Zambales assessed the said properties as taxable improvements. 0266.
The assessment was appealed to the Board of Assessment
This petition for certiorari now seeks to reverse the above ruling.
Appeals of the Province of Zambales. On August 24, 1988, the
appeal was dismissed mainly on the ground of the petitioner's
The principal contention of the petitioner is that the tailings dam
"failure to pay the realty taxes that fell due during the pendency
is not subject to realty tax because it is not an "improvement"
of the appeal."
upon the land within the meaning of the Real Property Tax Code.
More particularly, it is claimed
The petitioner seasonably elevated the matter to the Central
Board of Assessment Appeals, 1 one of the herein respondents. In
its decision dated March 22, 1990, the Board reversed the
dismissal of the appeal but, on the merits, agreed that "the
tailings dam and the lands submerged thereunder (were) subject
to realty tax."

(1) as regards the tailings dam as an "improvement":


(a) that the tailings dam has no value separate from and
independent of the mine; hence, by itself it cannot be considered
an improvement separately assessable;

For purposes of taxation the dam is considered as real property


(b) that it is an integral part of the mine;
as it comes within the object mentioned in paragraphs (a) and (b)
of Article 415 of the New Civil Code. It is a construction adhered
to the soil which cannot be separated or detached without

(c) that at the end of the mining operation of the petitioner


corporation in the area, the tailings dam will benefit the local
community by serving as an irrigation facility;
(d) that the building of the dam has stripped the property of any
commercial value as the property is submerged under water
wastes from the mine;
(e) that the tailings dam is an environmental pollution control
device for which petitioner must be commended rather than
penalized with a realty tax assessment;
(f) that the installation and utilization of the tailings dam as a
pollution control device is a requirement imposed by law;
(2) as regards the valuation of the tailings dam and the
submerged lands:
(a) that the subject properties have no market value as they
cannot be sold independently of the mine;
(b) that the valuation of the tailings dam should be based on its
incidental use by petitioner as a water reservoir and not on the
alleged cost of construction of the dam and the annual build-up
expense;
(c) that the "residual value formula" used by the Provincial
Assessor and adopted by respondent CBAA is arbitrary and
erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for
realty tax purposes:
(a) that where a tax is not paid in an honest belief that it is not
due, no penalty shall be collected in addition to the basic tax;
(b) that no other mining companies in the Philippines operating a
tailings dam have been made to declare the dam for realty tax
purposes.
The petitioner does not dispute that the tailings dam may be
considered realty within the meaning of Article 415. It insists,
however, that the dam cannot be subjected to realty tax as a

separate and independent property because it does not


constitute an "assessable improvement" on the mine although a
considerable sum may have been spent in constructing and
maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this
Court considered the dikes and gates constructed by the
taxpayer in connection with a fishpond operation as integral
parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao
(100 Phil. 303), involving a road constructed by the timber
concessionaire in the area, where this Court did not impose a
realty tax on the road primarily for two reasons:
In the first place, it cannot be disputed that the ownership of the
road that was constructed by appellee belongs to the
government by right of accession not only because it is
inherently incorporated or attached to the timber land . . . but
also because upon the expiration of the concession said road
would ultimately pass to the national government. . . . In the
second place, while the road was constructed by appellee
primarily for its use and benefit, the privilege is not exclusive,
for . . . appellee cannot prevent the use of portions of the
concession for homesteading purposes. It is also duty bound to
allow the free use of forest products within the concession for the
personal use of individuals residing in or within the vicinity of the
land. . . . In other words, the government has practically reserved
the rights to use the road to promote its varied activities. Since,
as above shown, the road in question cannot be considered as an
improvement which belongs to appellee, although in part is for its
benefit, it is clear that the same cannot be the subject of
assessment within the meaning of Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road
was an integral part of the lumber concession but because the
government had the right to use the road to promote its varied
activities.

3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an


American case, where it was declared that the reservoir dam
went with and formed part of the reservoir and that the dam
would be "worthless and useless except in connection with the
outlet canal, and the water rights in the reservoir represent and
include whatever utility or value there is in the dam and
headgates."

for the considerable quantities of oil needed by MERALCO for its


operations. (Manila Electric Co. v. CBAA, 114 SCRA 273).
The pipeline system in question is indubitably a construction
adhering to the soil. It is attached to the land in such a way that
it cannot be separated therefrom without dismantling the steel
pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from
The tax upon the dam was properly assessed to the plaintiff as a
the United States. This case involved drain tunnels constructed
tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E.
by plaintiff when it expanded its mining operations downward,
resulting in a constantly increasing flow of water in the said mine. 742).
It was held that:
The oil tanks are structures within the statute, that they are
designed and used by the owner as permanent improvement of
Whatever value they have is connected with and in fact is an
the free hold, and that for such reasons they were properly
integral part of the mine itself. Just as much so as any shaft
which descends into the earth or an underground incline, tunnel, assessed by the respondent taxing district as improvements.
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)
or drift would be which was used in connection with the mine.
On the other hand, the Solicitor General argues that the dam is
an assessable improvement because it enhances the value and
utility of the mine. The primary function of the dam is to receive,
retain and hold the water coming from the operations of the
mine, and it also enables the petitioner to impound water, which
is then recycled for use in the plant.

The Real Property Tax Code does not carry a definition of "real
property" and simply says that the realty tax is imposed on "real
property, such as lands, buildings, machinery and other
improvements affixed or attached to real property." In the
absence of such a definition, we apply Article 415 of the Civil
Code, the pertinent portions of which state:

There is also ample jurisprudence to support this view, thus:

Art. 415. The following are immovable property.

. . . The said equipment and machinery, as appurtenances to the


gas station building or shed owned by Caltex (as to which it is
subject to realty tax) and which fixtures are necessary to the
operation of the gas station, for without them the gas station
would be useless and which have been attached or affixed
permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code. (Caltex [Phil.]
Inc. v. CBAA, 114 SCRA 296).

(1) Lands, buildings and constructions of all kinds adhered to the


soil;

We hold that while the two storage tanks are not embedded in
the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it
useful to the oil industry. It is undeniable that the two tanks have
been installed with some degree of permanence as receptacles

xxx xxx xxx


(3) 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.
Section 2 of C.A. No. 470, otherwise known as the Assessment
Law, provides that the realty tax is due "on the real property,
including land, buildings, machinery and other improvements"
not specifically exempted in Section 3 thereof. A reading of that
section shows that the tailings dam of the petitioner does not fall
under any of the classes of exempt real properties therein
enumerated.

Is the tailings dam an improvement on the mine? Section 3(k) of


the Real Property Tax Code defines improvement as follows:

From the definitions and the cases cited above, it would appear
that whether a structure constitutes an improvement so as to
partake of the status of realty would depend upon the degree
(k) Improvements is a valuable addition made to property or
of permanence intended in its construction and use. The
an amelioration in its condition, amounting to more than mere
expression "permanent" as applied to an improvement does not
repairs or replacement of waste, costing labor or capital and
imply that the improvement must be used perpetually but only
intended to enhance its value, beauty or utility or to adopt it for
until the purpose to which the principal realty is devoted has
new or further purposes.
been accomplished. It is sufficient that the improvement is
intended to remain as long as the land to which it is annexed is
The term has also been interpreted as "artificial alterations of the
still used for the said purpose.
physical condition of the ground that arereasonably permanent
in character." 2
The Court is convinced that the subject dam falls within the
definition of an "improvement" because it is permanent in
The Court notes that in the Ontario case the plaintiff admitted
character and it enhances both the value and utility of
that the mine involved therein could not be operated without the
petitioner's mine. Moreover, the immovable nature of the dam
aid of the drain tunnels, which were indispensable to the
defines its character as real property under Article 415 of the
successful development and extraction of the minerals therein.
Civil Code and thus makes it taxable under Section 38 of the Real
This is not true in the present case.
Property Tax Code.
Even without the tailings dam, the petitioner's mining operation
can still be carried out because the primary function of the dam
is merely to receive and retain the wastes and water coming
from the mine. There is no allegation that the water coming from
the dam is the sole source of water for the mining operation so
as to make the dam an integral part of the mine. In fact, as a
result of the construction of the dam, the petitioner can now
impound and recycle water without having to spend for the
building of a water reservoir. And as the petitioner itself points
out, even if the petitioner's mine is shut down or ceases
operation, the dam may still be used for irrigation of the
surrounding areas, again unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not
applicable because it involved water reservoir dams used for
different purposes and for the benefit of the surrounding areas.
By contrast, the tailings dam in question is being
used exclusively for the benefit of the petitioner.

The Court will also reject the contention that the appraisal at
P50.00 per square meter made by the Provincial Assessor is
excessive and that his use of the "residual value formula" is
arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the
"residual value formula" as follows:
A 50% residual value is applied in the computation because,
while it is true that when slime fills the dike, it will then be
covered by another dike or stage, the stage covered is still there
and still exists and since only one face of the dike is filled, 50% or
the other face is unutilized.
In sustaining this formula, the CBAA gave the following
justification:

We find the appraisal on the land submerged as a result of the


construction of the tailings dam, covered by Tax Declaration Nos.
Curiously, the petitioner, while vigorously arguing that the
002-0260 and 002-0266, to be in accordance with the Schedule
tailings dam has no separate existence, just as vigorously
of Market Values for San Marcelino, Zambales, which is fifty
contends that at the end of the mining operation the tailings dam (50.00) pesos per square meter for third class industrial land
will serve the local community as an irrigation facility, thereby
(TSN, page 17, July 5, 1989) and Schedule of Market Values for
implying that it can exist independently of the mine.
Zambales which was reviewed and allowed for use by the

Ministry (Department) of Finance in the 1981-1982 general


revision. No serious attempt was made by Petitioner-Appellant
Benguet Corporation to impugn its reasonableness, i.e, that the
P50.00 per square meter applied by Respondent-Appellee
Provincial Assessor is indeed excessive and unconscionable.
Hence, we find no cause to disturb the market value applied by
Respondent-Appellee Provincial Assessor of Zambales on the
properties of Petitioner-Appellant Benguet Corporation covered
by Tax Declaration Nos. 002-0260 and 002-0266.
It has been the long-standing policy of this Court to respect the
conclusions of quasi-judicial agencies like the CBAA, which,
because of the nature of its functions and its frequent exercise
thereof, has developed expertise in the resolution of assessment
problems. The only exception to this rule is where it is clearly
shown that the administrative body has committed grave abuse
of discretion calling for the intervention of this Court in the
exercise of its own powers of review. There is no such showing in
the case at bar.
We disagree, however, with the ruling of respondent CBAA that it
cannot take cognizance of the issue of the propriety of the
penalties imposed upon it, which was raised by the petitioner for
the first time only on appeal. The CBAA held that this "is an
entirely new matter that petitioner can take up with the
Provincial Assessor (and) can be the subject of another protest
before the Local Board or a negotiation with the
local sanggunian . . ., and in case of an adverse decision by
either the Local Board or the local sanggunian, (it can) elevate
the same to this Board for appropriate action."
There is no need for this time-wasting procedure. The Court may
resolve the issue in this petition instead of referring it back to the
local authorities. We have studied the facts and circumstances of
this case as above discussed and find that the petitioner has
acted in good faith in questioning the assessment on the tailings
dam and the land submerged thereunder. It is clear that it has
not done so for the purpose of evading or delaying the payment
of the questioned tax. Hence, we hold that the petitioner is not
subject to penalty for its
non-declaration of the tailings dam and the submerged lands for
realty tax purposes.

WHEREFORE, the petition is DISMISSED for failure to show that


the questioned decision of respondent Central Board of
Assessment Appeals is tainted with grave abuse of discretion
except as to the imposition of penalties upon the petitioner which
is hereby SET ASIDE. Costs against the petitioner. It is so
ordered.

Sergs Products v. PCI Leasing


Facts: On 13 February 1998, PCI Leasing and Finance, Inc. filed a
complaint for sum of money, with anapplication for a writ of
replevin. On 6 March 1998, upon an ex-parte application of PCI
Leasing, judgeissued a writ of replevin directing its sheriff to
seize and deliver the machineries and equipment to PCILeasing
after 5 days and upon the payment of the necessary expenses.
On 24 March 1998, thesheriff proceeded to petitioner's factory,
seized one machinery with word that the return for the
othermachineries. On 25 March 1998, petitioners filed a motion
for special protective order, invoking thepower of the court to
control the conduct of its officers and amend and control its
processes, prayingfor a directive for the sheriff to defer
enforcement of the writ of replevin. On 6 April 1998, the
sheriffagain sought to enforce the writ of seizure and take
possession of the remaining properties. He wasable to take two
more, but was prevented by the workers from taking the rest. On
7 April 1998, theywent to the CA via an original action for
certiorari.
Citing the Agreement of the parties, the appellate court held that
the subject machines were personalproperty, and that they had
only been leased, not owned, by petitioners; and ruled that the
"words ofthe contract are clear and leave no doubt upon the true
intention of the contracting parties." It thusaffirmed the 18
February 1998 Order, and the 31 March 1998 Resolution of the
lower court, and liftedthe preliminary injunction issued on 15
June 1998. A subsequent motion for reconsideration wasdenied
on 26 February 1999. Hence, the petition for review on certiorari.

Issue: Whether the machines are personal or real property?


Held: The machinery were essential and principal elements of
their chocolate-making industry. Hence,although each of them
was movable or personal property on its own, all of them have
become"immobilized by destination because they are essential
and principal elements in the industry." Themachines are thus,
real, not personal, property pursuant to Article 415 (5) of the Civil
Code.
Contracting parties may validly stipulate that a real property be
considered as personal. After agreeingto such stipulation, they
are consequently estopped from claiming otherwise. Under the
principle ofestoppel, a party to a contract is ordinarily precluded
from denying the truth of any material fact foundtherein. Thus,
said machines are proper subjects of the Writ of Seizure
(compare Tumalad v. Vicencio).
The holding that the machines should be deemed personal
property pursuant to the Lease Agreementis good only insofar as
the contracting parties are concerned. Hence, while the parties
are bound bythe Agreement, third persons acting in good faith
are not affected by its stipulation characterizing thesubject
machinery as personal. In the present case, however, there is no
showing that any specificthird party would be adversely affected.

TSAI V. COURT OF APPEALS


336 SCRA 324

FACTS:
EVERTEX secured a loan from PBC, guaranteed by a real
estate and chattel mortgage over a parcel of land where the
factory stands, and the chattels located therein, as included in
a schedule attached to the mortgage contract. Another loan
was obtained secured by a chattel mortgage over
properties with similar descriptions listed in the first schedule.
During the date of execution of the second mortgage,
EVERTEX purchased machineries and equipment.

Due to business reverses, EVERTEX filed for insolvency


proceedings. It failed to pay its obligation and thus, PBC
initiated extrajudicial foreclosure of the mortgages. PBC
was the highest bidder in the public auctions, making it the
owner of the properties. It then leased the factory premises
to Tsai. Afterwards, EVERTEX sought the annulment of the
sale and conveyance of the properties to PBC as it was allegedly
a violation of the INSOLVENCY LAW.
The RTC held that the lease and sale were irregular as it
involved properties not included in theschedule of the
mortgage contract.
HELD:
While it is true that the controverted properties appear to be
immobile, a perusal of the contract of REM and CM
executed by the parties gives a contrary indication. In the
case at bar, both the trial and appellate courts show that the
intention was to treat the machineries as movables or
personal property.
Assuming that the properties were considered immovables,
nothing detracts the parties from treating it as chattels to
secure an obligation under the principle of estoppel.