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G.R. No. L-11658 February 15, 1918 date of registry of the plaintiff's certificate.

LEUNG YEE, plaintiff-appellant, Article 1473 of the Civil Code is as follows:

vs. If the same thing should have been sold to different vendees, the ownership shall be transfer to the
person who may have the first taken possession thereof in good faith, if it should be personal property.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.
Booram and Mahoney for appellant. Williams, Ferrier and SyCip for appellees.
Should there be no entry, the property shall belong to the person who first took possession of it in
good faith, and, in the absence thereof, to the person who presents the oldest title, provided there is
CARSON, J.:
good faith.

The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery company
The registry her referred to is of course the registry of real property, and it must be apparent that the
from the defendant machinery company, and executed a chattel mortgage thereon to secure payment
annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be
of the purchase price. It included in the mortgage deed the building of strong materials in which the
given the legal effect of an inscription in the registry of real property. By its express terms, the Chattel
machinery was installed, without any reference to the land on which it stood. The indebtedness
Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole
secured by this instrument not having been paid when it fell due, the mortgaged property was sold by
purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel
the sheriff, in pursuance of the terms of the mortgage instrument, and was bought in by the machinery
mortgages," that is to say, mortgages of personal property executed in the manner and form
company. The mortgage was registered in the chattel mortgage registry, and the sale of the property
prescribed in the statute. The building of strong materials in which the rice-cleaning machinery was
to the machinery company in satisfaction of the mortgage was annotated in the same registry on
installed by the "Compaia Agricola Filipina" was real property, and the mere fact that the parties seem
December 29, 1913.
to have dealt with it separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the chattel mortgage of the
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina" building and the machinery installed therein, not the annotation in that registry of the sale of the
executed a deed of sale of the land upon which the building stood to the machinery company, but this mortgaged property, had any effect whatever so far as the building was concerned.
deed of sale, although executed in a public document, was not registered. This deed makes no
reference to the building erected on the land and would appear to have been executed for the purpose
We conclude that the ruling in favor of the machinery company cannot be sustained on the ground
of curing any defects which might be found to exist in the machinery company's title to the building
assigned by the trial judge. We are of opinion, however, that the judgment must be sustained on the
under the sheriff's certificate of sale. The machinery company went into possession of the building at or
ground that the agreed statement of facts in the court below discloses that neither the purchase of the
about the time when this sale took place, that is to say, the month of December, 1913, and it has
building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made in
continued in possession ever since.
good faith, and that the machinery company must be held to be the owner of the property under the
third paragraph of the above cited article of the code, it appearing that the company first took
At or about the time when the chattel mortgage was executed in favor of the machinery company, the possession of the property; and further, that the building and the land were sold to the machinery
mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon the company long prior to the date of the sheriff's sale to the plaintiff.
building, separate and apart from the land on which it stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of
It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in
the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured
express terms, in relation to "possession" and "title," but contain no express requirement as to "good
judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on or
faith" in relation to the "inscription" of the property on the registry, it must be presumed that good
about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the
faith is not an essential requisite of registration in order that it may have the effect contemplated in
land registry of the Province of Cavite.
this article. We cannot agree with this contention. It could not have been the intention of the legislator
to base the preferential right secured under this article of the code upon an inscription of title in bad
At the time when the execution was levied upon the building, the defendant machinery company, faith. Such an interpretation placed upon the language of this section would open wide the door to
which was in possession, filed with the sheriff a sworn statement setting up its claim of title and fraud and collusion. The public records cannot be converted into instruments of fraud and oppression
demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the by one who secures an inscription therein in bad faith. The force and effect given by law to an
plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon inscription in a public record presupposes the good faith of him who enters such inscription; and rights
which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the created by statute, which are predicated upon an inscription in a public registry, do not and cannot
sheriff's sale. accrue under an inscription "in bad faith," to the benefit of the person who thus makes the inscription.

This action was instituted by the plaintiff to recover possession of the building from the machinery Construing the second paragraph of this article of the code, the supreme court of Spain held in its
company. sentencia of the 13th of May, 1908, that:

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the This rule is always to be understood on the basis of the good faith mentioned in the first paragraph;
machinery company, on the ground that the company had its title to the building registered prior to the therefore, it having been found that the second purchasers who record their purchase had knowledge
of the previous sale, the question is to be decided in accordance with the following paragraph. (Note 2, on a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts
art. 1473, Civ. Code, Medina and Maranon [1911] edition.) by which alone the inward motive may, with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith implies a "freedom from knowledge
and circumstances which ought to put a person on inquiry," and so it is that proof of such knowledge
Although article 1473, in its second paragraph, provides that the title of conveyance of ownership of
overcomes the presumption of good faith in which the courts always indulge in the absence of proof to
the real property that is first recorded in the registry shall have preference, this provision must always
the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen or touched,
be understood on the basis of the good faith mentioned in the first paragraph; the legislator could not
but rather a state or condition of mind which can only be judged of by actual or fancied tokens or
have wished to strike it out and to sanction bad faith, just to comply with a mere formality which, in
signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-
given cases, does not obtain even in real disputes between third persons. (Note 2, art. 1473, Civ. Code,
2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
issued by the publishers of the La Revista de los Tribunales, 13th edition.)

We conclude that upon the grounds herein set forth the disposing part of the decision and judgment
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the
entered in the court below should be affirmed with costs of this instance against the appellant.
sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company
had bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to
the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The So ordered.
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had
filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the
building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to
the plaintiff was not made in good faith, we should not be understood as questioning, in any way, the
good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." The truth is
that both the plaintiff and the defendant company appear to have had just and righteous claims against
their common debtor. No criticism can properly be made of the exercise of the utmost diligence by the
plaintiff in asserting and exercising his right to recover the amount of his claim from the estate of the
common debtor. We are strongly inclined to believe that in procuring the levy of execution upon the
factory building and in buying it at the sheriff's sale, he considered that he was doing no more than he
had a right to do under all the circumstances, and it is highly possible and even probable that he
thought at that time that he would be able to maintain his position in a contest with the machinery
company. There was no collusion on his part with the common debtor, and no thought of the
perpetration of a fraud upon the rights of another, in the ordinary sense of the word. He may have
hoped, and doubtless he did hope, that the title of the machinery company would not stand the test of
an action in a court of law; and if later developments had confirmed his unfounded hopes, no one
could question the legality of the propriety of the course he adopted.

But it appearing that he had full knowledge of the machinery company's claim of ownership when he
executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing further
that the machinery company's claim of ownership was well founded, he cannot be said to have been an
innocent purchaser 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.

One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have put
him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the
title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon
his guard, and then claim that he acted in good faith under the belief that there was no defect in the
title of the vendor. His mere refusal to believe that such defect exists, or his willful closing of his eyes
to the possibility of the existence of a defect in his vendor's title, will not make him an innocent
purchaser for value, if afterwards develops that the title was in fact defective, and it appears that he
had such notice of the defects as would have led to its discovery had he acted with that measure of
precaution which may reasonably be acquired of a prudent man in a like situation. Good faith, or lack
of it, is in its analysis a question of intention; but in ascertaining the intention by which one is actuated
G.R. No. L-40411 August 7, 1935 1. Land, buildings, roads and constructions of all kinds adhering to the soil;

DAVAO SAW MILL CO., INC., plaintiff-appellant, xxx xxx xxx

vs. 5. Machinery, liquid containers, instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant. J.W. Ferrier for
doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing
appellees.
from the facts.

MALCOLM, J.:
In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
The issue in this case, as announced in the opening sentence of the decision in the trial court and as conclusive, the characterization of the property as chattels by the appellant is indicative of intention
set forth by counsel for the parties on appeal, involves the determination of the nature of the and impresses upon the property the character determined by the parties. In this connection the
properties described in the complaint. The trial judge found that those properties were personal in decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil., 630),
nature, and as a consequence absolved the defendants from the complaint, with costs against the whether obiter dicta or not, furnishes the key to such a situation.
plaintiff.
It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the is machinery which is involved; moreover, machinery not intended by the owner of any building or land
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao, for use in connection therewith, but intended by a lessee for use in a building erected on the land by
Province of Davao. However, the land upon which the business was conducted belonged to another the latter to be returned to the lessee on the expiration or abandonment of the lease.
person. On the land the sawmill company erected a building which housed the machinery used by it.
Some of the implements thus used were clearly personal property, the conflict concerning machines
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court,
which were placed and mounted on foundations of cement. In the contract of lease between the
it was held that machinery which is movable in its nature only becomes immobilized when placed in a
sawmill company and the owner of the land there appeared the following provision:
plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any
person having only a temporary right, unless such person acted as the agent of the owner. In the
That on the expiration of the period agreed upon, all the improvements and buildings introduced and opinion written by Chief Justice White, whose knowledge of the Civil Law is well known, it was in part
erected by the party of the second part shall pass to the exclusive ownership of the party of the first said:
part without any obligation on its part to pay any amount for said improvements and buildings; also, in
the event the party of the second part should leave or abandon the land leased before the time herein
To determine this question involves fixing the nature and character of the property from the point of
stipulated, the improvements and buildings shall likewise pass to the ownership of the party of the first
view of the rights of Valdes and its nature and character from the point of view of Nevers & Callaghan
part as though the time agreed upon had expired: Provided, however, That the machineries and
as a judgment creditor of the Altagracia Company and the rights derived by them from the execution
accessories are not included in the improvements which will pass to the party of the first part on the
levied on the machinery placed by the corporation in the plant. Following the Code Napoleon, the Porto
expiration or abandonment of the land leased.
Rican Code treats as immovable (real) property, not only land and buildings, but also attributes
immovability in some cases to property of a movable nature, that is, personal property, because of the
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, destination to which it is applied. "Things," says section 334 of the Porto Rican Code, "may be
Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action immovable either by their own nature or by their destination or the object to which they are
against the defendant in that action; a writ of execution issued thereon, and the properties now in applicable." Numerous illustrations are given in the fifth subdivision of section 335, which is as follows:
question were levied upon as personalty by the sheriff. No third party claim was filed for such "Machinery, vessels, instruments or implements intended by the owner of the tenements for the
properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein. industrial or works that they may carry on in any building or upon any land and which tend directly to
Indeed the bidder, which was the plaintiff in that action, and the defendant herein having meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq. to and
consummated the sale, proceeded to take possession of the machinery and other properties described inclusive of article 534, recapitulating the things which, though in themselves movable, may be
in the corresponding certificates of sale executed in its favor by the sheriff of Davao. immobilized.) So far as the subject-matter with which we are dealing machinery placed in the plant
it is plain, both under the provisions of the Porto Rican Law and of the Code Napoleon, that
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has machinery which is movable in its nature only becomes immobilized when placed in a plant by the
on a number of occasions treated the machinery as personal property by executing chattel mortgages owner of the property or plant. Such result would not be accomplished, therefore, by the placing of
in favor of third persons. One of such persons is the appellee by assignment from the original machinery in a plant by a tenant or a usufructuary or any person having only a temporary right.
mortgages. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and
decisions quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests,
as pointed out by Demolombe, upon the fact that one only having a temporary right to the possession
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property or enjoyment of property is not presumed by the law to have applied movable property belonging to
consists of him so as to deprive him of it by causing it by an act of immobilization to become the property of
another. It follows that abstractly speaking the machinery put by the Altagracia Company in the plant
belonging to Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express provisions of the
lease under which the Altagracia held, since the lease in substance required the putting in of improved
machinery, deprived the tenant of any right to charge against the lessor the cost such machinery, and
it was expressly stipulated that the machinery so put in should become a part of the plant belonging to
the owner without compensation to the lessee. Under such conditions the tenant in putting in the
machinery was acting but as the agent of the owner in compliance with the obligations resting upon
him, and the immobilization of the machinery which resulted arose in legal effect from the act of the
owner in giving by contract a permanent destination to the machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the
Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that they had
the right to levy on it under the execution upon the judgment in their favor, and the exercise of that
right did not in a legal sense conflict with the claim of Valdes, since as to him the property was a part
of the realty which, as the result of his obligations under the lease, he could not, for the purpose of
collecting his debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this
instance to be paid by the appellant.
G.R. No. L-7057 October 29, 1954 reinstate the machinery and equipment removed by them in their original condition in which they were
found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of the
Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which to comply with
MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,
the order of the Court (appendix 10) was denied; and on May 4, 1953, the trial court ordered the
Plaintiff therein to furnish the Provincial Sheriff within 5 days with the necessary funds, technical men,
vs. laborers, equipment and materials to effect the repeatedly mentioned re-installation (Appendix 13).
(Petitioner's brief, Appendix A, pp. I-IV.)
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE COURT
OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO VILLARAMA, Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled "Machinery
respondents. and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of Bulacan, Ipo
Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was alleged that, in ordering
Vicente J. Francisco for petitioner.Capistrano and Capistrano for respondents. the petitioner to furnish the provincial sheriff of Bulacan "with necessary funds, technical men, laborers,
equipment and materials, to effect the installation of the machinery and equipment" in question, the
Court of Firs Instance of Bulacan had committed a grave abuse if discretion and acted in excess of its
CONCEPCION, J.: jurisdiction, for which reason it was prayed that its order to this effect be nullified, and that,
meanwhile, a writ of preliminary injunction be issued to restrain the enforcement o said order of may 4,
This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from a 1953. Although the aforementioned writ was issued by the Court of Appeals, the same subsequently
decision of the Court of Appeals denying an original petition for certiorari filed by said petitioner against dismissed by the case for lack of merit, with costs against the petitioner, upon the following grounds:
Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the respondents herein.
While the seizure of the equipment and personal properties was ordered by the respondent Court, it is,
The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote: however, logical to presume that said court did not authorize the petitioner or its agents to destroy, as
they did, said machinery and equipment, by dismantling and unbolting the same from their concrete
basements, and cutting and sawing their wooden supports, thereby rendering them unserviceable and
On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First Instance of beyond repair, unless those parts removed, cut and sawed be replaced, which the petitioner, not
Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies, Inc., Plaintiff, vs. Ipo withstanding the respondent Court's order, adamantly refused to do. The Provincial Sheriff' s tortious
Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the recovery of the machinery and act, in obedience to the insistent proddings of the president of the Petitioner, Ramon S. Roco, had no
equipment sold and delivered to said defendants at their factory in barrio Bigti, Norzagaray, Bulacan. justification in law, notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden
Upon application ex-parte of the petitioner company, and upon approval of petitioner's bond in the sum duty of the respondent Judge to give redress to the respondent Company, for the unlawful and
of P15,769.00, on March 13,1953, respondent judge issued an order, commanding the Provincial wrongful acts committed by the petitioner and its agents. And as this was the true object of the order
Sheriff of Bulacan to seize and take immediate possession of the properties specified in the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue. The ministerial duty of
(Appendix I, Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and the Sheriff should have its limitations. The Sheriff knew or must have known what is inherently right
a crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's order and inherently wrong, more so when, as in this particular case, the deputy sheriffs were shown a letter
into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro Torres, in charge of respondent Company's attorney, that the machinery were not personal properties and, therefore, not
thereof, met the deputy sheriffs, and Contreras handed to them a letter addressed to Atty. Leopoldo C. subject to seizure by the terms of the order. While it may be conceded that this was a question of law
Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the defendants therein, too technical to decide on the spot, it would not have costs the Sheriff much time and difficulty to bring
protesting against the seizure of the properties in question, on the ground that they are not personal the letter to the court's attention and have the equipment and machinery guarded, so as not to
properties. Contending that the Sheriff's duty is merely ministerial, the deputy sheriffs, Roco, the frustrate the order of seizure issued by the trial court. But acting upon the directives of the president of
latter's crew of technicians and laborers, Contreras and Torres, went to the factory. Roco's attention the Petitioner, to seize the properties at any costs, in issuing the order sought to be annulled, had not
was called to the fact that the equipment could not possibly be dismantled without causing damages or committed abuse of discretion at all or acted in an arbitrary or despotic manner, by reason of passion
injuries to the wooden frames attached to them. As Roco insisted in dismantling the equipment on his or personal hostility; on the contrary, it issued said order, guided by the well known principle that of
own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs directed the property has to be returned, it should be returned in as good a condition as when taken (Bachrach
that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the defendant Company Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had gone beyond the scope of his authority, it is
filed an urgent motion, with a counter-bond in the amount of P15,769, for the return of the properties the respondent Provincial Sheriff. But considering that fact that he acted under the pressure of Ramon
seized by the deputy sheriffs. On the same day, the trial court issued an order, directing the Provincial S. Roco, and that the order impugned was issued not by him, but by the respondent Judge, We simply
Sheriff of Bulacan to return the machinery and equipment to the place where they were installed at the declare that said Sheriff' act was most unusual and the result of a poor judgment. Moreover, the Sheriff
time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs returned the properties not being an officer exercising judicial functions, the writ may not reach him, for certiorari lies only to
seized, by depositing them along the road, near the quarry, of the defendant Company, at Bigti, review judicial actions.
without the benefit of inventory and without re-installing hem in their former position and replacing the
destroyed posts, which rendered their use impracticable. On March 23, 1953, the defendants' counsel
asked the provincial Sheriff if the machinery and equipment, dumped on the road would be re-installed The Petitioner complains that the respondent Judge had completely disregarded his manifestation that
tom their former position and condition (letter, Appendix 4). On March 24, 1953, the Provincial Sheriff the machinery and equipment seized were and still are the Petitioner's property until fully paid for and
filed an urgent motion in court, manifesting that Roco had been asked to furnish the Sheriff's office such never became immovable. The question of ownership and the applicability of Art. 415 of the new
with the expenses, laborers, technical men and equipment, to carry into effect the court's order, to Civil Code are immaterial in the determination of the only issue involved in this case. It is a matter of
return the seized properties in the same way said Roco found them on the day of seizure, but said evidence which should be decided in the hearing of the case on the merits. The question as to whether
Roco absolutely refused to do so, and asking the court that the Plaintiff therein be ordered to provide the machinery or equipment in litigation are immovable or not is likewise immaterial, because the only
the required aid or relieve the said Sheriff of the duty of complying with the said order dated March 20, issue raised before the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's
1953 (Appendix 5). On March 30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to instance, was justified in destroying the machinery and in refusing to restore them to their original form
, at the expense of the Petitioner. Whatever might be the legal character of the machinery and Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the petitioner. So
equipment, would not be in any way justify their justify their destruction by the Sheriff's and the said ordered.
Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied , petitioner
has brought the case to Us for review by writ of certiorari. Upon examination of the record, We are
satisfied, however that the Court of Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to "personal
property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully taken or
detained from the owner thereof, provided such property is capable of identification and delivery; but
replevin will not lie for the recovery of real property or incorporeal personal property. (77 C. J. S. 17)
(Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and
equipment in question appeared to be attached to the land, particularly to the concrete foundation of
said premises, in a fixed manner, in such a way that the former could not be separated from the latter
"without breaking the material or deterioration of the object." Hence, in order to remove said outfit, it
became necessary, not only to unbolt the same, but , also, to cut some of its wooden supports.
Moreover, said machinery and equipment were "intended by the owner of the tenement for an
industry" carried on said immovable and tended." For these reasons, they were already immovable
property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines, which are
substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As such
immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the realty, it is not
the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to be part
thereof, as, for example, a house or a turbine pump constituting part of a building's cooling system; . .
. (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's agent and
president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility," stating that.,
precisely, "that is the reason why plaintiff posted a bond ." In this manner, petitioner clearly assumed
the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5 of Rule
62 of the Rules of Court, the defendant in an action for replevin is entitled to the return of the property
in dispute upon the filing of a counterbond, as provided therein. In other words, petitioner knew that
the restitution of said property to respondent company might be ordered under said provision of the
Rules of Court, and that, consequently, it may become necessary for petitioner to meet the liabilities
incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority squarely in point
obviously real property are not subject to replevin it is well settled that, when the restitution of what
has been ordered, the goods in question shall be returned in substantially the same condition as when
taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and equipment involved in this case
were duly installed and affixed in the premises of respondent company when petitioner's representative
caused said property to be dismantled and then removed, it follows that petitioner must also do
everything necessary to the reinstallation of said property in conformity with its original condition.
G.R. Nos. L-10837-38 May 30, 1958 virtue of the real estate mortgage executed by her co-defendants, she acquired a real right over the lot
and the house constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff
of Rizal as a result of the foreclosure of the chattel mortgage on the house was null and void for non-
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
compliance with the form required by law. She, therefore, prayed for the dismissal of the complaint
and anullment of the sale made by the Provincial Sheriff. She also demanded the amount of P5,000.00
vs. from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as crossclaim, for
attorney's fees and costs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
Defendants spouses in their answer admitted some of the averments of the complaint and denied the
ISABEL IYA, plaintiff, others. They, however, prayed for the dismissal of the action for lack of cause of action, it being
alleged that plaintiff was already the owner of the house in question, and as said defendants admitted
this fact, the claim of the former was already satisfied.
vs.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY. (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the contract of
INC., defendants. mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan of
P12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in 4
Jovita L. de Dios for defendant Isabel Iya. M. Perez Cardenas and Apolonio Abola for defendant years, extendible for only one year; that to secure payment thereof, said defendants mortgaged the
Associated Insurance and Surety Co., Inc. house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park Subdivision,
Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party defendant
because it claimed to have an interest on the residential house also covered by said mortgage; that it
FELIX, J.: was stipulated in the aforesaid real estate mortgage that default in the payment of the interest agreed
upon would entitle the mortgagee to foreclose the same even before the lapse of the 4-year period;
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house of and as defendant spouses had allegedly failed to pay the interest for more than 6 months, plaintiff
strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan, prayed the Court to order said defendants to pay the sum of P12,000.00 with interest thereon at 12%
Rizal, which they purchased on installment basis from the Philippine Realty Corporation. On November per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the total
6, 1951, to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a bond in the obligation as damages, and for costs. As an alternative in case such demand may not be met and
sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insurance and Surety Co., satisfied plaintiff prayed for a decree of foreclosure of the land, building and other improvements
Inc., and as counter-guaranty therefor, the spouses Valino executed an alleged chattel mortgage on thereon to be sold at public auction and the proceeds thereof applied to satisfy the demands of
the aforementioned house in favor of the surety company, which encumbrance was duly registered plaintiff; that the Valinos, the surety company and any other person claiming interest on the mortgaged
with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time said properties be barred and foreclosed of all rights, claims or equity of redemption in said properties; and
undertaking took place, the parcel of land on which the house is erected was still registered in the for deficiency judgment in case the proceeds of the sale of the mortgaged property would be
name of the Philippine Realty Corporation. Having completed payment on the purchase price of the lot, insufficient to satisfy the claim of plaintiff.
the Valinos were able to secure on October 18, 1958, a certificate of title in their name (T.C.T. No.
27884). Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an Defendant surety company, in answer to this complaint insisted on its right over the building, arguing
indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot and the house that as the lot on which the house was constructed did not belong to the spouses at the time the
in favor of Isabel Iya, which was duly registered and annotated at the back of the certificate of title. chattel mortgage was executed, the house might be considered only as a personal property and that
the encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the provisions
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company of the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that said building be
was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety company excluded from the real estate mortgage and its right over the same be declared superior to that of
demanded reimbursement from the spouses Valino, and as the latter likewise failed to do so, the plaintiff, for damages, attorney's fees and costs.
company foreclosed the chattel mortgage over the house. As a result thereof, a public sale was
conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the property was awarded Taking side with the surety company, defendant spouses admitted the due execution of the mortgage
to the surety company for P8,000.00, the highest bid received therefor. The surety company then upon the land but assailed the allegation that the building was included thereon, it being contended
caused the said house to be declared in its name for tax purposes (Tax Declaration No. 25128). that it was already encumbered in favor of the surety company before the real estate mortgage was
executed, a fact made known to plaintiff during the preparation of said contract and to which the latter
Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage over offered no objection. As a special defense, it was asserted that the action was premature because the
the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said surety contract was for a period of 4 years, which had not yet elapsed.
company instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano and
Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of The two cases were jointly heard upon agreement of the parties, who submitted the same on a
the residential house from the real estate mortgage in favor of defendant Iya and the declaration and stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the
recognition of plaintiff's right to ownership over the same in virtue of the award given by the Provincial chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and superior
Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the Court over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled that as the
to sentence the spouses Valino to pay said surety moral and exemplary damages, attorney's fees and Valinos were not yet the registered owner of the land on which the building in question was
costs. Defendant Isabel Iya filed her answer to the complaint alleging among other things, that in constructed at the time the first encumbrance was made, the building then was still a personality and a
chattel mortgage over the same was proper. However, as the mortgagors were already the owner of Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the
the land at the time the contract with Isabel Iya was entered into, the building was transformed into a rights of the surety company, over the building superior to that of Isabel Iya and excluding the building
real property and the real estate mortgage created thereon was likewise adjudged as proper. It is to be from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to foreclose not
noted in this connection that there is no evidence on record to sustain the allegation of the spouses only the land but also the building erected thereon is hereby recognized, and the proceeds of the sale
Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or knew thereof at public auction (if the land has not yet been sold), shall be applied to the unsatisfied
that part of the mortgaged property, i.e., the house, had previously been mortgaged to the surety judgment in favor of Isabel Iya. This decision however is without prejudice to any right that the
company. Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino on
account of the mortgage of said building they executed in favor of said surety company. Without
pronouncement as to costs. It is so ordered.
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 encumbrance. So 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.

There is no question as to appellant's right over the land covered by the real estate mortgage;
however, as the building constructed thereon has been the subject of 2 mortgages; controversy arise
as to which of these encumbrances should receive preference over the other. The decisive factor in
resolving the issue presented by this appeal is the determination of the nature of the structure litigated
upon, for where it be considered a personality, 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. The lower Court, deciding in
favor of the surety company, based its ruling on the premise that as the mortgagors were not the
owners of the land on which the building is erected at the time the first encumbrance was made, said
structure partook of the nature of a personal property and could properly be the subject of a chattel
mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:

. . . 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, G.R. Nos.
supra, p. 98).

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 the ownership
of the land, would create a situation where a permanent fixture changes its nature or character as the
ownership of the land changes hands. In the case at bar, as personal properties could only be the
subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in question is not
one, the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it
is true that said document was correspondingly registered in the Chattel Mortgage Register of Rizal,
this act 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. 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). Nor can we give any
consideration to the contention of the surety that it has acquired ownership over the property in
question by reason of the sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly
pronounced:

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).
G.R. No. L-15334 January 31, 1964 above, the ground around the two legs of the third tower was excavated to a depth about two or three
inches beyond the outside level of the steel bar foundation. It was found that there was no concrete
foundation. Like the two previous ones, the bottom arrangement of the legs thereof were found to be
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON
resting on soft adobe, which, probably due to high humidity, looks like mud or clay. It was also found
CITY, petitioners,
that the square metal frame supporting the legs were not attached to any material or foundation.

vs.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers for
real property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's petition to
MANILA ELECTRIC COMPANY, respondent. cancel these declarations, an appeal was taken by respondent to the Board of Assessment Appeals of
Quezon City, which required respondent to pay the amount of P11,651.86 as real property tax on the
Assistant City Attorney Jaime R. Agloro for petitioners. Ross, Selph and Carrascoso for respondent. said steel towers for the years 1952 to 1956. Respondent paid the amount under protest, and filed a
petition for review in the Court of Tax Appeals (CTA for short) which rendered a decision on December
29, 1958, ordering the cancellation of the said tax declarations and the petitioner City Treasurer of
PAREDES, J.: Quezon City to refund to the respondent the sum of P11,651.86. The motion for reconsideration having
been denied, on April 22, 1959, the instant petition for review was filed.
From the stipulation of facts and evidence adduced during the hearing, the following appear:
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the Municipal "poles" which are declared exempt from taxes under part II paragraph 9 of respondent's franchise; (2)
Board of Manila to grant a franchise to construct, maintain and operate an electric street railway and the steel towers are personal properties and are not subject to real property tax; and (3) the City
electric light, heat and power system in the City of Manila and its suburbs to the person or persons Treasurer of Quezon City is held responsible for the refund of the amount paid. These are assigned as
making the most favorable bid. Charles M. Swift was awarded the said franchise on March 1903, the errors by the petitioner in the brief.
terms and conditions of which were embodied in Ordinance No. 44 approved on March 24, 1903.
Respondent Manila Electric Co. (Meralco for short), became the transferee and owner of the franchise. The tax exemption privilege of the petitioner is quoted hereunder:

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna and is PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not
transmitted to the City of Manila by means of electric transmission wires, running from the province of including poles, wires, transformers, and insulators), machinery and personal property as other persons
Laguna to the said City. These electric transmission wires which carry high voltage current, are are or may be hereafter required by law to pay ... Said percentage shall be due and payable at the time
fastened to insulators attached on steel towers constructed by respondent at intervals, from its hydro- stated in paragraph nineteen of Part One hereof, ... and shall be in lieu of all taxes and assessments of
electric plant in the province of Laguna to the City of Manila. The respondent Meralco has constructed whatsoever nature and by whatsoever authority upon the privileges, earnings, income, franchise, and
40 of these steel towers within Quezon City, on land belonging to it. A photograph of one of these steel poles, wires, transformers, and insulators of the grantee from which taxes and assessments the
towers is attached to the petition for review, marked Annex A. Three steel towers were inspected by grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise;
the lower court and parties and the following were the descriptions given there of by said court: emphasis supplied.)

The first steel tower is located in South Tatalon, Espaa Extension, Quezon City. The findings were as The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as
follows: the ground around one of the four posts was excavated to a depth of about eight (8) feet, with typically the stem of a small tree stripped of its branches; also by extension, a similar typically
an opening of about one (1) meter in diameter, decreased to about a quarter of a meter as it we cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the top
deeper until it reached the bottom of the post; at the bottom of the post were two parallel steel bars of which something is affixed or by which something is supported; as a dovecote set on a pole;
attached to the leg means of bolts; the tower proper was attached to the leg three bolts; with two telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New International
cross metals to prevent mobility; there was no concrete foundation but there was adobe stone Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
underneath; as the bottom of the excavation was covered with water about three inches high, it could poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars joined
not be determined with certainty to whether said adobe stone was placed purposely or not, as the together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they are no
place abounds with this kind of stone; and the tower carried five high voltage wires without cover or made of wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for
any insulating materials. which exemption is granted, is not determined by their place or location, nor by the character of the
electric current it carries, nor the material or form of which it is made, but the use to which they are
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land owned by the dedicated. In accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
petitioner approximate more than one kilometer from the first tower. As in the first tower, the ground or metal, but includes "upright standards to the top of which something is affixed or by which
around one of the four legs was excavate from seven to eight (8) feet deep and one and a half (1-) something is supported. As heretofore described, respondent's steel supports consists of a framework
meters wide. There being very little water at the bottom, it was seen that there was no concrete of four steel bars or strips which are bound by steel cross-arms atop of which are cross-arms
foundation, but there soft adobe beneath. The leg was likewise provided with two parallel steel bars supporting five high voltage transmission wires (See Annex A) and their sole function is to support or
bolted to a square metal frame also bolted to each corner. Like the first one, the second tower is made carry such wires.
up of metal rods joined together by means of bolts, so that by unscrewing the bolts, the tower could be
dismantled and reassembled. The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not a
novelty. Several courts of last resort in the United States have called these steel supports "steel
The third tower examined is located along Kamias Road, Quezon City. As in the first two towers given towers", and they denominated these supports or towers, as electric poles. In their decisions the words
"towers" and "poles" were used interchangeably, and it is well understood in that jurisdiction that a
transmission tower or pole means the same thing. (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;
In a proceeding to condemn land for the use of electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this term was construed to mean either wood or metal xxx xxx xxx
poles and in view of the land being subject to overflow, and the necessary carrying of numerous wires
and the distance between poles, the statute was interpreted to include towers or poles. (Stemmons
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and Phrases, p. 365.)
industry or works which may be carried in a building or on a piece of land, and which tends directly to
meet the needs of the said industry or works;
The term "poles" was also used to denominate the steel supports or towers used by an association
used to convey its electric power furnished to subscribers and members, constructed for the purpose of
xxx xxx xxx
fastening high voltage and dangerous electric wires alongside public highways. The steel supports or
towers were made of iron or other metals consisting of two pieces running from the ground up some
thirty feet high, being wider at the bottom than at the top, the said two metal pieces being connected The steel towers or supports in question, do not come within the objects mentioned in paragraph 1,
with criss-cross iron running from the bottom to the top, constructed like ladders and loaded with high because they do not constitute buildings or constructions adhered to the soil. They are not construction
voltage electricity. In form and structure, they are like the steel towers in question. (Salt River Valley analogous to buildings nor adhering to the soil. As per description, given by the lower court, they are
Users' Ass'n v. Compton, 8 P. 2nd, 249-250.) removable and merely attached to a square metal frame by means of bolts, which when unscrewed
could easily be dismantled and moved from place to place. They can not be included under paragraph
3, as they are not attached to an immovable in a fixed manner, and they can be separated without
The term "poles" was used to denote the steel towers of an electric company engaged in the
breaking the material or causing deterioration upon the object to which they are attached. Each of
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
these steel towers or supports consists of steel bars or metal strips, joined together by means of bolts,
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of about
which can be disassembled by unscrewing the bolts and reassembled by screwing the same. These
35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of which
steel towers or supports do not also fall under paragraph 5, for they are not machineries, receptacles,
extends above the surface of the soil in the tower of Oxford, and to the towers are attached insulators,
instruments or implements, and even if they were, they are not intended for industry or works on the
arms, and other equipment capable of carrying wires for the transmission of electric power
land. Petitioner is not engaged in an industry or works in the land in which the steel supports or towers
(Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
are constructed.

In a case, the defendant admitted that the structure on which a certain person met his death was built
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the
for the purpose of supporting a transmission wire used for carrying high-tension electric power, but
sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued that as the
claimed that the steel towers on which it is carried were so large that their wire took their structure out
City Treasurer is not the real party in interest, but Quezon City, which was not a party to the suit,
of the definition of a pole line. It was held that in defining the word pole, one should not be governed
notwithstanding its capacity to sue and be sued, he should not be ordered to effect the refund. This
by the wire or material of the support used, but was considering the danger from any elevated wire
question has not been raised in the court below, and, therefore, it cannot be properly raised for the
carrying electric current, and that regardless of the size or material wire of its individual members, any
first time on appeal. The herein petitioner is indulging in legal technicalities and niceties which do not
continuous series of structures intended and used solely or primarily for the purpose of supporting
help him any; for factually, it was he (City Treasurer) whom had insisted that respondent herein pay
wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P.
the real estate taxes, which respondent paid under protest. Having acted in his official capacity as City
1016).
Treasurer of Quezon City, he would surely know what to do, under the circumstances.

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the very
object for which the franchise was granted. The poles as contemplated thereon, should be understood
and taken as a part of the electric power system of the respondent Meralco, for the conveyance of
electric current from the source thereof to its consumers. If the respondent would be required to
employ "wooden poles", or "rounded poles" as it used to do fifty years back, then one should admit
that the Philippines is one century behind the age of space. It should also be conceded by now that
steel towers, like the ones in question, for obvious reasons, can better effectuate the purpose for which
the respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the term poles, the logical question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx xxx xxx


G.R. No. L-30173 September 30, 1971 deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for execution,
and it was actually issued on 24 January 1957. However, the judgment regarding the surrender of
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
possession to plaintiffs-appellees could not be executed because the subject house had been already
demolished on 14 January 1957 pursuant to the order of the court in a separate civil case (No. 25816)
vs. for ejectment against the present defendants for non-payment of rentals on the land on which the
house was constructed.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and withdrawal
REYES, J.B.L., J.: of deposited rentals was denied for the reason that the liability therefor was disclaimed and was still
being litigated, and under Section 8, Rule 72, rentals deposited had to be held until final disposition of
the appeal.7
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that only
questions of law are involved.w defendants, ordering the latter to pay jointly and severally the former a
monthly rent of P200.00 on the house, subject-matter of this action, from March 27, 1956, to January On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive portion of
14, 1967, with interest at the legal rate from April 18, 1956, the filing of the complaint, until fully paid, which is quoted earlier. The said decision was appealed by defendants to the Court of Appeals which,
plus attorney's fees in the sum of P300.00 and to pay the costs. in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief and this appeal was
submitted for decision without it.

It appears on the records that on 1 September 1955 defendants-appellants executed a chattel


mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550 Int. 3, Defendants-appellants submitted numerous assignments of error which can be condensed into two
Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being questions, namely: .
rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of Manila
on 2 September 1955. The herein mortgage was executed to guarantee a loan of P4,800.00 received (a) Whether the municipal court from which the case originated had jurisdiction to adjudicate the
from plaintiffs-appellees, payable within one year at 12% per annum. The mode of payment was same;
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,
(b) Whether the defendants are, under the law, legally bound to pay rentals to the plaintiffs during the
would cause the remaining unpaid balance to becomeimmediately due and Payable and
period of one (1) year provided by law for the redemption of the extrajudicially foreclosed house.

the Chattel Mortgage will be enforceable in accordance with the provisions of Special Act No. 3135, and
We will consider these questions seriatim.
for this purpose, the Sheriff of the City of Manila or any of his deputies is hereby empowered and
authorized to sell all the Mortgagor's property after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees... 2 (a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which the
case originated, and consequently, the appellate jurisdiction of the Court of First Instance a quo, on the
theory that the chattel mortgage is void ab initio; whence it would follow that the extrajudicial
When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and on
foreclosure, and necessarily the consequent auction sale, are also void. Thus, the ownership of the
27 March 1956, the house was sold at public auction pursuant to the said contract. As highest bidder,
house still remained with defendants-appellants who are entitled to possession and not plaintiffs-
plaintiffs-appellees were issued the corresponding certificate of sale.3 Thereafter, on 18 April 1956,
appellees. Therefore, it is argued by defendants-appellants, the issue of ownership will have to be
plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila, praying, among
adjudicated first in order to determine possession. lt is contended further that ownership being in issue,
other things, that the house be vacated and its possession surrendered to them, and for defendants-
it is the Court of First Instance which has jurisdiction and not the municipal court.
appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time the possession is
surrendered.4 On 21 September 1956, the municipal court rendered its decision
Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds, which
are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery;
... ordering the defendants to vacate the premises described in the complaint; ordering further to pay
and (b) that the subject matter of the mortgage is a house of strong materials, and, being an
monthly the amount of P200.00 from March 27, 1956, until such (time that) the premises is (sic)
immovable, it can only be the subject of a real estate mortgage and not a chattel mortgage.
completely vacated; plus attorney's fees of P100.00 and the costs of the suit.5

On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants'
Defendants-appellants, in their answers in both the municipal court and court a quo impugned the
contentions as not supported by evidence and accordingly dismissed the charge,8 confirming the earlier
legality of the chattel mortgage, claiming that they are still the owners of the house; but they waived
finding of the municipal court that "the defense of ownership as well as the allegations of fraud and
the right to introduce evidence, oral or documentary. Instead, they relied on their memoranda in
deceit ... are mere allegations."9
support of their motion to dismiss, predicated mainly on the grounds that: (a) the municipal court did
not have jurisdiction to try and decide the case because (1) the issue involved, is ownership, and (2)
there was no allegation of prior possession; and (b) failure to prove prior demand pursuant to Section It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a mere statement of
2, Rule 72, of the Rules of Court.6 the facts which the party filing it expects to prove, but it is not evidence;11 and further, that when the
question to be determined is one of title, the Court is given the authority to proceed with the hearing of
the cause until this fact is clearly established. In the case of Sy vs. Dalman,12 wherein the defendant
During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
was also a successful bidder in an auction sale, it was likewise held by this Court that in detainer cases
the aim of ownership "is a matter of defense and raises an issue of fact which should be determined stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendats-
from the evidence at the trial." What determines jurisdiction are the allegations or averments in the appellants merely had a temporary right as lessee, and although this can not in itself alone determine
complaint and the relief asked for. 13 the status of the property, it does so when combined with other factors to sustain the interpretation
that the parties, particularly the mortgagors, intended to treat the house as personalty. Finally unlike in
the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery
Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab
and Williamson, 26 wherein third persons assailed the validity of the chattel mortgage,27 it is the
initio, and can only be a ground for rendering the contract voidable or annullable pursuant to Article
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel
1390 of the New Civil Code, by a proper action in court. 14 There is nothing on record to show that the
mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. Hence,
having treated the subject house as personalty.
defendants-appellants' claim of ownership on the basis of a voidable contract which has not been
voided fails.
(b) Turning to the question of possession and rentals of the premises in question. The Court of First
Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged house had
It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or
been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the lessor of the land
trickery, the chattel mortgage was still null and void ab initio because only personal properties can be
on which the house stood. For this reason, the said court limited itself to sentencing the erstwhile
subject of a chattel mortgage. The rule about the status of buildings as immovable property is stated in
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when the chattel
Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,15 cited in Associated Insurance Surety Co., Inc. vs. Iya, et
mortgage was foreclosed and the house sold) until 14 January 1957 (when it was torn down by the
al. 16 to the effect that
Sheriff), plus P300.00 attorney's fees.

... it is obvious that the inclusion of the building, separate and distinct from the land, in the
Appellants mortgagors question this award, claiming that they were entitled to remain in possession
enumeration of what may constitute real properties (art. 415, New Civil Code) could only mean one
without any obligation to pay rent during the one year redemption period after the foreclosure sale,
thing that a building is by itself an immovable property irrespective of whether or not said structure
i.e., until 27 March 1957. On this issue, We must rule for the appellants.
and the land on which it is adhered to belong to the same owner.

Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508.28 Section 14
Certain deviations, however, have been allowed for various reasons. In the case of Manarang and
of this Act allows the mortgagee to have the property mortgaged sold at public auction through a
Manarang vs. Ofilada,17 this Court stated that "it is undeniable that the parties to a contract may by
public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No.
agreement treat as personal property that which by nature would be real property", citing Standard Oil
4118, provided that the requirements of the law relative to notice and registration are complied with. 29
Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred to
In the instant case, the parties specifically stipulated that "the chattel mortgage will be enforceable in
the mortgagee by way of mortgage "the following described personal property." 19 The "personal
accordance with the provisions of Special Act No. 3135 ... ." 30 (Emphasis supplied).
property" consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion,20 the
subject of the contract designated as Chattel Mortgage was a house of mixed materials, and this Court
hold therein that it was a valid Chattel mortgage because it was so expressly designated and Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein)
specifically that the property given as security "is a house of mixed materials, which by its very nature may, at any time within one year from and after the date of the auction sale, redeem the property sold
is considered personal property." In the later case of Navarro vs. Pineda,21 this Court stated that at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the purchaser of the property
to obtain from the court the possession during the period of redemption: but the same provision
expressly requires the filing of a petition with the proper Court of First Instance and the furnishing of a
The view that parties to a deed of chattel mortgage may agree to consider a house as personal
bond. It is only upon filing of the proper motion and the approval of the corresponding bond that the
property for the purposes of said contract, "is good only insofar as the contracting parties are
order for a writ of possession issues as a matter of course. No discretion is left to the court. 33 In the
concerned. It is based, partly, upon the principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139,
absence of such a compliance, as in the instant case, the purchaser can not claim possession during
23 April 1958). In a case, a mortgaged house built on a rented land was held to be a personal
the period of redemption as a matter of right. In such a case, the governing provision is Section 34,
property, not only because the deed of mortgage considered it as such, but also because it did not
Rule 39, of the Revised Rules of Court 34 which also applies to properties purchased in extrajudicial
form part of the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an object
foreclosure proceedings.35 Construing the said section, this Court stated in the aforestated case of
placed on land by one who had only a temporary right to the same, such as the lessee or usufructuary,
Reyes vs. Hamada.
does not become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S. 58, cited in Davao
Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a
rented land belonging to another person, it may be mortgaged as a personal property as so stipulated In other words, before the expiration of the 1-year period within which the judgment-debtor or
in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted, however that the mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of right, to
principle is predicated on statements by the owner declaring his house to be a chattel, a conduct that possession of the same. Thus, while it is true that the Rules of Court allow the purchaser to receive the
may conceivably estop him from subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 rentals if the purchased property is occupied by tenants, he is, nevertheless, accountable to the
O.G. 5374): 22
judgment-debtor or mortgagor as the case may be, for the amount so received and the same will be
duly credited against the redemption price when the said debtor or mortgagor effects the redemption.
Differently stated, the rentals receivable from tenants, although they may be collected by the purchaser
In the contract now before Us, the house on rented land is not only expressly designated as Chattel
during the redemption period, do not belong to the latter but still pertain to the debtor of mortgagor .
Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by
The rationale for the Rule, it seems, is to secure for the benefit of the debtor or mortgagor, the
way of Chattel Mortgage23 the property together with its leasehold rights over the lot on which it is
payment of the redemption amount and the consequent return to him of his properties sold at public
constructed and participation ..." 24 Although there is no specific statement referring to the subject
auction. (Emphasis supplied)
house as personal property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an inconsistent The Hamada case reiterates the previous ruling in Chan vs. Espe.36
Since the defendants-appellants were occupying the house at the time of the auction sale, they are
entitled to remain in possession during the period of redemption or within one year from and after 27
March 1956, the date of the auction sale, and to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had not yet expired when
action was instituted in the court of origin, and that plaintiffs-appellees did not choose to take
possession under Section 7, Act No. 3135, as amended, which is the law selected by the parties to
govern the extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation to that
effect. Since plaintiffs-appellees' right to possess was not yet born at the filing of the complaint, there
could be no violation or breach thereof. Wherefore, the original complaint stated no cause of action
and was prematurely filed. For this reason, the same should be ordered dismissed, even if there was
no assignment of error to that effect. The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision of the cases. 37

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

FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one entered,
dismissing the complaint. With costs against plaintiffs-appellees.
G.R. No. L-55729 March 28, 1983 plaintiff under Tax Declaration No. 5619, notwithstanding the fact that said building is not owned by
the bank either by virtue of the public auction sale conducted by the Sheriff and sold to the Philippine
National Bank or by virtue of the Deed of Sale executed by the bank itself in its favor on September 21,
ANTONIO PUNSALAN, JR., petitioner,
1977 ...;

vs.
23. That said defendant bank fraudulently mentioned ... that the sale in its favor should likewise have
included the building, notwithstanding no legal basis for the same and despite full knowledge that the
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A. ORTIZ, Certificate of Sale executed by the sheriff in its favor ... only limited the sale to the land, hence, by
respondents. selling the building which never became the property of defendant, they have violated the principle
against 'pactum commisorium'.
Benjamin S. Benito & Associates for petitioner.
Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared
Expedito Yummul for private respondent. null and void and that damages in the total sum of P230,000.00, more or less, be awarded to him.2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of lack of
cause of action in that she was a purchaser for value and invoked the principle in Civil Law that the
"accessory follows the principal".3
MELENCIO-HERRERA, J.:
On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was
The sole issue presented by petitioner for resolution is whether or not respondent Court erred in improperly laid considering that the building was real property under article 415 (1) of the New Civil
denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de Lacsamana Code and therefore section 2(a) of Rule 4 should apply. 4
as the case had been dismissed on the ground of improper venue upon motion of co-respondent
Philippine National Bank (PNB).
Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale
with damages is in the nature of a personal action, which seeks to recover not the title nor possession
It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land of the property but to compel payment of damages, which is not an action affecting title to real
consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land to property.
respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount, the
property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the highest
bidder in said foreclosure proceedings. However, the bank secured title thereto only on December 14, On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows:
1977.
Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated March 13, 1980,
In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with considered against the plaintiff's opposition thereto dated April 1, 1980, including the reply therewith of
the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from the said defendant, this Court resolves to DISMISS the plaintiff's complaint for improper venue considering
Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said that the plaintiff's complaint which seeks for the declaration as null and void, the amendment to Deed
warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then leased of Absolute Sale executed by the defendant Philippine National Bank in favor of the defendant
the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975. Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly owned and
constructed by the plaintiff on the land of the defendant Philippine National Bank situated in the
Municipality of Bamban, Province of Tarlac, which warehouse is an immovable property pursuant to
On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and Article 415, No. 1 of the New Civil Code; and, as such the action of the plaintiff is a real action affecting
respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly to title to real property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in the
include in the sale, the building and improvement thereon. By virtue of said instruments, respondent - province where the property or any part thereof lies.5
Lacsamana secured title over the property in her name (TCT No. 173744) as well as separate tax
declarations for the land and building. 1
In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title to property but is limited to the validity of the deed
On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages" of sale and emphasized that the case should proceed with or without respondent PNB as respondent
against herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal, Lacsamana had already filed her Answer to the Complaint and no issue on venue had been raised by
Branch XXXI, Quezon City, essentially impugning the validity of the sale of the building as embodied in the latter.
the Amended Deed of Sale. In this connection, petitioner alleged:
On September 1, 1980,.respondent Court denied reconsideration for lack of merit.
xxx xxx xxx
Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was
22. That defendant, Philippine National Bank, through its Branch Manager ... by virtue of the request of concerned, as the issues had already been joined with the filing of respondent Lacsamana's Answer.
defendant ... executed a document dated July 31, 1978, entitled Amendment to Deed of Absolute Sale
... wherein said defendant bank as Vendor sold to defendant Lacsamana the building owned by the
In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as
the case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in


article 415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A building treated
separately from the land on which it stood is immovable property and the mere fact that the parties to
a contract seem to have dealt with it separate and apart from the land on which it stood in no wise
changed its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of 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 petitioner's 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 fundamental and
prime objective and nature of the case, which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
(Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore,
issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as the
validity of the Amended Contract of Sale between the former and respondent Lacsamana is in issue. It
would, indeed, be futile to proceed with the case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner
Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.
G.R. No. L-58469 May 16, 1983 The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by respondent's
MAKATI LEASING and FINANCE CORPORATION, petitioner,
representative. 1 Considering that petitioner has reserved its right to question the propriety of the Court
of Appeals' decision, the contention of private respondent that this petition has been mooted by such
vs. return may not be sustained.

WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents. The next and the more crucial question to be resolved in this Petition is whether the machinery in suit
is real or personal property from the point of view of the parties, with petitioner arguing that it is a
DE CASTRO, J.: personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by
said respondent.
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the speaking through Justice J.B.L. Reyes, ruled:
said appellate court, denying petitioner's motion for reconsideration.
Although there is no specific statement referring to the subject house as personal property, yet by
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only
Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned have meant to convey the house as chattel, or at least, intended to treat the same as such, so that
several receivables with the former under a Receivable Purchase Agreement. To secure the collection they should not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the
of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials subject house stood on a rented lot to which defendants-appellants merely had a temporary right as
inventory as well as a machinery described as an Artos Aero Dryer Stentering Range. lessee, and although this can not in itself alone determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the parties, particularly the mortgagors,
intended to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to validity of the chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors,
gain entry into private respondent's premises and was not able to effect the seizure of the who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court applies to the herein defendants-appellants, having treated the subject house as personality.
of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as the
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement appellate court did, the present case from the application of the abovequoted pronouncement. If a
of which was however subsequently restrained upon private respondent's filing of a motion for house of strong materials, like what was involved in the above Tumalad case, may be considered as
reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order personal property for purposes of executing a chattel mortgage thereon as long as the parties to the
lifting the restraining order for the enforcement of the writ of seizure and an order to break open the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason
premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private why a machinery, which is movable in its nature and becomes immobilized only by destination or
respondent's filing of a further motion for reconsideration. purpose, may not be likewise treated as such. This is really because one who has so agreed is
estopped from denying the existence of the chattel mortgage.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery. In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays
stress on the fact that the house involved therein was built on a land that did not belong to the owner
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private of such house. But the law makes no distinction with respect to the ownership of the land on which the
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by house is built and We should not lay down distinctions not contemplated by law.
the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the It must be pointed out that the characterization of the subject machinery as chattel by the private
new Civil Code, the same being attached to the ground by means of bolts and the only way to remove respondent is indicative of intention and impresses upon the property the character determined by the
it from respondent's plant would be to drill out or destroy the concrete floor, the reason why all that parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the
the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The parties to a contract may by agreement treat as personal property that which by nature would be real
appellate court rejected petitioner's argument that private respondent is estopped from claiming that property, as long as no interest of third parties would be prejudiced thereby.
the machine is real property by constituting a chattel mortgage thereon.
Private respondent contends that estoppel cannot apply against it because it had never represented nor
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has agreed that the machinery in suit be considered as personal property but was merely required and
brought the case to this Court for review by writ of certiorari. It is contended by private respondent, dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at
however, that the instant petition was rendered moot and academic by petitioner's act of returning the the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not
subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated. denied by the respondent, the status of the subject machinery as movable or immovable was never
placed in issue before the lower court and the Court of Appeals except in a supplemental memorandum
in support of the petition filed in the appellate court. Moreover, even granting that the charge is true,
such fact alone does not render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in
court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again
not refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates that
one should not benefit at the expense of another. Private respondent could not now therefore, be
allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery and
Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the
case at bar, the nature of the machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly,
the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and
set aside, and the Orders of the lower court are hereby reinstated, with costs against the private
respondent.

SO ORDERED.
G.R. No. L-47943 May 31, 1982 constitute taxable improvements.

MANILA ELECTRIC COMPANY, petitioner, Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a motion
for reconsideration which the Board denied in its resolution of November 25, 1977, a copy of which was
received by Meralco on February 28, 1978.
vs.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
resolution. It contends that the Board acted without jurisdiction and committed a grave error of law in
BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents.
holding that its storage tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property
enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized as realty by
AQUINO, J.: nature, by incorporation, by destination nor by analogy. Stress is laid on the fact that the tanks are not
attached to the land and that they were placed on leased land, not on the land owned by Meralco.
This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by Manila
Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The This is one of those highly controversial, borderline or penumbral cases on the classification of property
tanks are within the Caltex refinery compound. They have a total capacity of 566,000 barrels. They are where strong divergent opinions are inevitable. The issue raised by Meralco has to be resolved in the
used for storing fuel oil for Meralco's power plants. light of the provisions of the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax
Code, Presidential Decree No. 464 which took effect on June 1, 1974.
According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot.
Their bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
as the intermediate layer and a two-inch thick bituminous asphalt stratum as the top layer. The bottom buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This
of each tank is in contact with the asphalt layer, provision is reproduced with some modification in the Real Property Tax Code which provides:

The steel sides of the tank are directly supported underneath by a circular wall made of concrete, Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed and collected in all provinces,
eighteen inches thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is not cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery
attached to its foundation. It is not anchored or welded to the concrete circular wall. Its bottom plate is and other improvements affixed or attached to real property not hereinafter specifically exempted.
not attached to any part of the foundation by bolts, screws or similar devices. The tank merely sits on
its foundation. Each empty tank can be floated by flooding its dike-inclosed location with water four
The Code contains the following definition in its section 3:
feet deep. (pp. 29-30, Rollo.)

k) Improvements is a valuable addition made to property or an amelioration in its condition,


On the other hand, according to the hearing commissioners of the Central Board of Assessment
amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to
Appeals, the area where the two tanks are located is enclosed with earthen dikes with electric steel
enhance its value, beauty or utility or to adapt it for new or further purposes.
poles on top thereof and is divided into two parts as the site of each tank. The foundation of the tanks
is elevated from the remaining area. On both sides of the earthen dikes are two separate concrete
steps leading to the foundation of each tank. 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
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines
for the considerable quantities of oil needed by Meralco for its operations.
were installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises
Industrial Corporation whose buildings and pumping station are near Tank No. 2.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15
Atl. 2nd 271.
The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and the
walls, dikes and steps, which are integral parts of the tanks, are affixed to the land while the pipelines
are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on For purposes of taxation, the term "real property" may include things which should generally be
the basis of an assessment made by the provincial assessor, required Meralco to pay realty taxes on regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed
the two tanks. For the five-year period from 1970 to 1974, the tax and penalties amounted to as real property for purposes of taxation which on general principle might be considered personal
P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the tax and penalties as a condition for property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
entertaining its appeal from the adverse decision of the Batangas board of assessment appeals.
The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M. Almanzor Meralco's steel towers were held not to be subject to realty tax, is not in point because in that case the
as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and steel towers were regarded as poles and under its franchise Meralco's poles are exempt from taxation.
Community Development Jose Roo as members) in its decision dated November 5, 1976 ruled that Moreover, the steel towers were not attached to any land or building. They were removable from their
the tanks together with the foundation, walls, dikes, steps, pipelines and other appurtenances metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501,
where the tools and equipment in the repair, carpentry and blacksmith shops of a transportation
company were held not subject to realty tax because they were personal property.

WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are affirmed.
No costs.
G.R. No. L-50466 May 31, 1982 station is grossly erroneous. (pp. 58-60, Rollo).

CALTEX (PHILIPPINES) INC., petitioner, The said machines and equipment are loaned by Caltex to gas station operators under an appropriate
lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall
return to Caltex the machines and equipment in good condition as when received, ordinary wear and
vs.
tear excepted.

CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.


The lessor of the land, where the gas station is located, does not become the owner of the machines
and equipment installed therein. Caltex retains the ownership thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as
AQUINO, J.: taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city
board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board of
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its Assessment Appeals.
gas stations located on leased land.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of
The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose
water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air Roo, held in its decision of June 3, 1977 that the said machines and equipment are real property
compressors and tireflators. The city assessor described the said equipment and machinery in this within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree
manner: No. 464, which took effect on June 1, 1974, and that the definitions of real property and personal
property in articles 415 and 416 of the Civil Code are not applicable to this case.

A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is
any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its
attached in the wall of the shed or at the concrete wall fence. resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.

The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed. This is done to prevent conflagration because gasoline On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's
and other combustible oil are very inflammable. decision and for a declaration that t he said machines and equipment are personal property not subject
to realty tax (p. 16, Rollo).

This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is
commonly placed or constructed under the shed. The footing of the pump is a cement pad and this The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction
cement pad is imbedded in the pavement under the shed, and evidence that the gasoline underground over this case is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as
tank is attached and connected to the shed or building through the pipe to the pump and the pump is yet no Central Board of Assessment Appeals. Section 7(3) of that law in providing that the Tax Court
attached and affixed to the cement pad and pavement covered by the roof of the building or shed. had jurisdiction to review by appeal decisions of provincial or city boards of assessment appeals had in
mind the local boards of assessment appeals but not the Central Board of Assessment Appeals which
under the Real Property Tax Code has appellate jurisdiction over decisions of the said local boards of
The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor, assessment appeals and is, therefore, in the same category as the Tax Court.
the underground gasoline tank, neon lights signboard, concrete fence and pavement and the lot where
they are all placed or erected, all of them used in the pursuance of the gasoline service station
business formed the entire gasoline service-station. Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment
Appeals shall become final and executory after the lapse of fifteen days from the receipt of its decision
by the appellant. Within that fifteen-day period, a petition for reconsideration may be filed. The Code
As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for does not provide for the review of the Board's decision by this Court.
the tenement we consider in this particular case are (is) the pavement covering the entire lot which
was constructed by the owner of the gasoline station and the improvement which holds all the
properties under question, they are attached and affixed to the pavement and to the improvement. Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted to
herein by Caltex (Philippines), Inc.
The pavement covering the entire lot of the gasoline service station, as well as all the improvements,
machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ...
The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the Assessment
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the Law and the Real Property Tax Code.
water tank it is connected also by a steel pipe to the pavement, then to the electric motor which
electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and
underground tanks are outside of the service station, and to consider only the building as the service Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land,
buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair
provision is reproduced with some modification in the Real Property Tax Code which provides: shop of a bus company which were held to be personal property not subject to realty tax (Mindanao
Bus Co. vs. City Assessor, 116 Phil. 501).
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the
machinery and other improvements affixed or attached to real property not hereinafter specifically city assessor's is imposition of the realty tax on Caltex's gas station and equipment.
exempted.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are
The Code contains the following definitions in its section 3: affirmed. The petition for certiorari is dismissed for lack of merit. No costs.

k) Improvements is a valuable addition made to property or an amelioration in its condition, SO ORDERED.


amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to
enhance its value, beauty or utility or to adapt it for new or further purposes.

m) Machinery shall embrace machines, mechanical contrivances, instruments, appliances and


apparatus attached to the real estate. It includes the physical facilities available for production, as well
as the installations and appurtenant service facilities, together with all other equipment designed for or
essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).

We hold that 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 invokes the rule that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).

That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that
becomes real property by destination. In the Davao Saw Mills case the question was whether the
machinery mounted on foundations of cement and installed by the lessee on leased land should be
regarded as real property for purposes of execution of a judgment against the lessee. The sheriff
treated the machinery as personal property. This Court sustained the sheriff's action. (Compare with
Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in a replevin case
machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex
to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty
tax. This question is different from the issue raised in the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for some purposes they might be
considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things
classed as real property for purposes of taxation which on general principle might be considered
personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119
Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its
franchise which exempts its poles from taxation. The steel towers were considered personalty because
they were attached to square metal frames by means of bolts and could be moved from place to place
when unscrewed and dismantled.
G.R. No. L-50008 August 31, 1987 Exhibit "A, " also Exhibit "1" for defendant).

PRUDENTIAL BANK, petitioner, Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears a
rider typed at the bottom of the reverse side of the document under the lists of the properties
mortgaged which reads, as follows:
vs.

AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of
Mortgagors as herein stated is released or issued by the Bureau of Lands, the Mortgagors hereby
Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE,
authorize the Register of Deeds to hold the Registration of same until this Mortgage is cancelled, or to
respondents.
annotate this encumbrance on the Title upon authority from the Secretary of Agriculture and Natural
Resources, which title with annotation, shall be released in favor of the herein Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank) was at
PARAS, J.: the outset aware of the fact that the mortgagors (plaintiffs) have already filed a Miscellaneous Sales
Application over the lot, possessory rights over which, were mortgaged to it.
This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First
Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of
Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential Bank" declaring that Deeds of Zambales on November 23, 1971.
the deeds of real estate mortgage executed by respondent spouses in favor of petitioner bank are null
and void.
On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the sum of
P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of the said
The undisputed facts of this case by stipulation of the parties are as follows: defendant another deed of Real Estate Mortgage over the same properties previously mortgaged in
Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This second deed of Real Estate Mortgage was
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut Magcale likewise registered with the Registry of Deeds, this time in Olongapo City, on May 2,1973.
secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To secure payment of
this loan, plaintiffs executed in favor of defendant on the aforesaid date a deed of Real Estate On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the
Mortgage over the following described properties: parcel of land, possessory rights over which were mortgaged to defendant Prudential Bank, in favor of
plaintiffs. On the basis of the aforesaid Patent, and upon its transcription in the Registration Book of
l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total floor the Province of Zambales, Original Certificate of Title No. P-2554 was issued in the name of Plaintiff
area of 263 sq. meters, more or less, generally constructed of mixed hard wood and concrete Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972.
materials, under a roofing of cor. g. i. sheets; declared and assessed in the name of FERNANDO
MAGCALE under Tax Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
value of P35,290.00. This building is the only improvement of the lot. application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were
extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties therein
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the lot mortgaged to defendant as the highest bidder in a public auction sale conducted by the defendant City
where the above property is erected, and more particularly described and bounded, as follows: Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written request from
plaintiffs through counsel dated March 29, 1978, for the defendant City Sheriff to desist from going
with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-
A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin 31).
Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m. more or less, declared and
assessed in the name of FERNANDO MAGCALE under Tax Duration No. 19595 issued by the Assessor of
Olongapo City with an assessed value of P1,860.00; bounded on the Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage
as null and void (Ibid., p. 35).

NORTH: By No. 6, Ardoin Street


On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by
private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979
SOUTH: By No. 2, Ardoin Street (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition
(Ibid., pp. 5-28).
EAST: By 37 Canda Street, and
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
WEST: By Ardoin Street. respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as visible limits. (
Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that
were required to submit simultaneously their respective memoranda. (Ibid., p. 114). Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land
Act, or any improvement thereon and therefore have no application to the assailed mortgage in the
case at bar which was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730,
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed
also a restriction appearing on the face of private respondent's title has likewise no application in the
their Memorandum on August 1, 1979 (Ibid., pp. 146-155).
instant case, despite its reference 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
In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158). regarding the improvements existing thereon.

In its Memorandum, petitioner raised the following issues: But it is a different matter, as regards the second mortgage executed over the same properties on May
2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND Olongapo City on the same date. Relative thereto, it is evident that 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 Republic Act 730, and is
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF therefore null and void.
MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE
COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF
INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122). Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated,
without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand,
This petition is impressed with merit. thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120,
building erected on the land belonging to another. 122 and 123 of Commonwealth Act 141, has held:

The answer is in the affirmative. ... Nonetheless, we apply our earlier rulings because we believe that as 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
In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled a void contract. Indeed, it is generally considered that as between parties to a contract, validity cannot
that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision be given to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not
of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L- within the competence of any citizen to barter away what public policy by law was to preserve (Gonzalo
10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).
30,1958).
This pronouncement covers only the previous transaction already alluded to and does not pass upon
Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the any new contract between the parties (Ibid), as in the case at bar. It should not preclude new
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on contracts that may be entered into between petitioner bank and private respondents that are in
which it has been built. Such a mortgage would be still a real estate mortgage for the building would accordance with the requirements of the law. After all, private respondents themselves declare that
still be considered immovable property even if dealt with separately and apart from the land (Leung they are not denying the legitimacy of their debts and appear to be open to new negotiations under the
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever steps
possessory rights over said properties before title is vested on the grantee, may be validly transferred the Government may take for the reversion of the land in its favor.
or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is
Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling
the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void, without
where the building was erected, was executed on November 19, 1971 and registered under the prejudice to any appropriate action the Government may take against private respondents.
provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous
Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 SO ORDERED.
was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore
without question that the original mortgage was executed before the issuance of the final patent and
before the government was divested of its title to the land, 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; Pena "Law on Natural Resources", p. 49). Under the
foregoing considerations, it is evident that the mortgage executed by private respondent on his own
building which was erected on the land belonging to the government is to all intents and purposes a
valid mortgage.
G.R. No. 106041 January 29, 1993 The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it
is not an "improvement" upon the land within the meaning of the Real Property Tax Code. More
particularly, it is claimed
BENGUET CORPORATION, petitioner,

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


vs.

(a) that the tailings dam has no value separate from and independent of the mine; hence, by itself it
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
cannot be considered an improvement separately assessable;
ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and
MUNICIPALITY OF SAN MARCELINO, respondents.
(b) that it is an integral part of the mine;

(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;
CRUZ, J.:

(d) that the building of the dam has stripped the property of any commercial value as the property is
The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on
submerged under water wastes from the mine;
the petitioner's tailings dam and the land thereunder over its protest.

(e) that the tailings dam is an environmental pollution control device for which petitioner must be
The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said properties
commended rather than penalized with a realty tax assessment;
as taxable improvements. The assessment was appealed to the Board of Assessment Appeals of the
Province of Zambales. On August 24, 1988, the appeal was dismissed mainly on the ground of the
petitioner's "failure to pay the realty taxes that fell due during the pendency of the appeal." (f) that the installation and utilization of the tailings dam as a pollution control device is a requirement
imposed by law;
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 (2) as regards the valuation of the tailings dam and the submerged lands:
appeal but, on the merits, agreed that "the tailings dam and the lands submerged thereunder (were)
subject to realty tax."
(a) that the subject properties have no market value as they cannot be sold independently of the mine;

For purposes of taxation the dam is considered as real property as it comes within the object
(b) that the valuation of the tailings dam should be based on its incidental use by petitioner as a water
mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a construction adhered
reservoir and not on the alleged cost of construction of the dam and the annual build-up expense;
to the soil which cannot be separated or detached without 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 (c) that the "residual value formula" used by the Provincial Assessor and adopted by respondent CBAA
Code. (P.D. 464). is arbitrary and erroneous; and

Although the dam is partly used as an anti-pollution device, this Board cannot accede to the request for (3) as regards the petitioner's liability for penalties for
tax exemption in the absence of a law authorizing the same.
non-declaration of the tailings dam and the submerged lands for realty tax purposes:
xxx xxx xxx
(a) that where a tax is not paid in an honest belief that it is not due, no penalty shall be collected in
We find the appraisal on the land submerged as a result of the construction of the tailings dam, addition to the basic tax;
covered by Tax Declaration Nos.
(b) that no other mining companies in the Philippines operating a tailings dam have been made to
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for Zambales which declare the dam for realty tax purposes.
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 The petitioner does not dispute that the tailings dam may be considered realty within the meaning of
reasonableness, i.e., that the P50.00 per square meter applied by Respondent-Appellee Provincial Article 415. It insists, however, that the dam cannot be subjected to realty tax as a separate and
Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value independent property because it does not constitute an "assessable improvement" on the mine
applied by Respondent Appellee Provincial Assessor of Zambales on the properties of Petitioner- although a considerable sum may have been spent in constructing and maintaining it.
Appellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266.

To support its theory, the petitioner cites the following cases:


This petition for certiorari now seeks to reverse the above ruling.
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be
constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond. 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
for the considerable quantities of oil needed by MERALCO for its operations. (Manila Electric Co. v.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road
CBAA, 114 SCRA 273).
constructed by the timber concessionaire in the area, where this Court did not impose a realty tax on
the road primarily for two reasons:
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
In the first place, it cannot be disputed that the ownership of the road that was constructed by
were welded to form the pipeline. (MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA 261).
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 The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate. (Flax-Pond
constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for . . . appellee Water Co. v. City of Lynn, 16 N.E. 742).
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
The oil tanks are structures within the statute, that they are designed and used by the owner as
residing in or within the vicinity of the land. . . . In other words, the government has practically
permanent improvement of the free hold, and that for such reasons they were properly assessed by
reserved the rights to use the road to promote its varied activities. Since, as above shown, the road in
the respondent taxing district as improvements. (Standard Oil Co. of New Jersey v. Atlantic City, 15 A
question cannot be considered as an improvement which belongs to appellee, although in part is for its
2d. 271)
benefit, it is clear that the same cannot be the subject of assessment within the meaning of Section 2
of C.A.
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
No. 470.
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:
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.
Art. 415. The following are immovable property.

3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared
(1) Lands, buildings and constructions of all kinds adhered to the soil;
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." xxx xxx xxx

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case involved (3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated
drain tunnels constructed by plaintiff when it expanded its mining operations downward, resulting in a therefrom without breaking the material or deterioration of the object.
constantly increasing flow of water in the said mine. It was held that:
Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is due
Whatever value they have is connected with and in fact is an integral part of the mine itself. Just as "on the real property, including land, buildings, machinery and other improvements" not specifically
much so as any shaft which descends into the earth or an underground incline, tunnel, or drift would exempted in Section 3 thereof. A reading of that section shows that the tailings dam of the petitioner
be which was used in connection with the mine. does not fall under any of the classes of exempt real properties therein enumerated.

On the other hand, the Solicitor General argues that the dam is an assessable improvement because it Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines
enhances the value and utility of the mine. The primary function of the dam is to receive, retain and improvement as follows:
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. (k) Improvements is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to
There is also ample jurisprudence to support this view, thus: enhance its value, beauty or utility or to adopt it for new or further purposes.

. . . The said equipment and machinery, as appurtenances to the gas station building or shed owned by The term has also been interpreted as "artificial alterations of the physical condition of the ground that
Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the are reasonably permanent in character."2
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 The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not
within the meaning of the Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc. v. be operated without the aid of the drain tunnels, which were indispensable to the successful
CBAA, 114 SCRA 296). development and extraction of the minerals therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be carried out because the It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial agencies
primary function of the dam is merely to receive and retain the wastes and water coming from the like the CBAA, which, because of the nature of its functions and its frequent exercise thereof, has
mine. There is no allegation that the water coming from the dam is the sole source of water for the developed expertise in the resolution of assessment problems. The only exception to this rule is where
mining operation so as to make the dam an integral part of the mine. In fact, as a result of the it is clearly shown that the administrative body has committed grave abuse of discretion calling for the
construction of the dam, the petitioner can now impound and recycle water without having to spend for intervention of this Court in the exercise of its own powers of review. There is no such showing in the
the building of a water reservoir. And as the petitioner itself points out, even if the petitioner's mine is case at bar.
shut down or ceases operation, the dam may still be used for irrigation of the surrounding areas, again
unlike in the Ontario case.
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
As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water only on appeal. The CBAA held that this "is an entirely new matter that petitioner can take up with the
reservoir dams used for different purposes and for the benefit of the surrounding areas. By contrast, Provincial Assessor (and) can be the subject of another protest before the Local Board or a negotiation
the tailings dam in question is being used exclusively for the benefit of the petitioner. 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."
Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just
as vigorously contends that at the end of the mining operation the tailings dam will serve the local There is no need for this time-wasting procedure. The Court may resolve the issue in this petition
community as an irrigation facility, thereby implying that it can exist independently of the mine. 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
From the definitions and the cases cited above, it would appear that whether a structure constitutes an
for the purpose of evading or delaying the payment of the questioned tax. Hence, we hold that the
improvement so as to partake of the status of realty would depend upon the degree of permanence
petitioner is not subject to penalty for its
intended in its construction and use. The expression "permanent" as applied to an improvement does
not imply that the improvement must be used perpetually but only until the purpose to which the
principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to non-declaration of the tailings dam and the submerged lands for realty tax purposes.
remain as long as the land to which it is annexed is still used for the said purpose.
WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of respondent
The Court is convinced that the subject dam falls within the definition of an "improvement" because it Central Board of Assessment Appeals is tainted with grave abuse of discretion except as to the
is permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs against the petitioner. It
immovable nature of the dam defines its character as real property under Article 415 of the Civil Code is so ordered.
and thus makes it taxable under Section 38 of the Real Property Tax Code.

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.

002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for San Marcelino,
Zambales, which is fifty (50.00) pesos per square meter for third class industrial land (TSN, page 17,
July 5, 1989) and Schedule 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 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.
[G.R. No. 137705. August 22, 2000] argued that to give effect to the agreement would be prejudicial to innocent third parties. They further
SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING stated that PCI Leasing [was] estopped from treating these machineries as personal because the
AND FINANCE, INC., respondent. contracts in which the alleged agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the
remaining properties. He was able to take two more, but was prevented by the workers from taking the
rest.
DECISION On April 7, 1998, they went to [the CA] via an original action for certiorari.
PANGANIBAN, J.: Ruling of the Court of Appeals
After agreeing to a contract stipulating that a real or immovable property be Citing the Agreement of the parties, the appellate court held that the subject
considered as personal or movable, a party is estopped from subsequently claiming machines were personal property, and that they had only been leased, not owned, by
otherwise. Hence, such property is a proper subject of a writ of replevin obtained by petitioners. It also ruled that the words of the contract are clear and leave no doubt
the other contracting party. upon the true intention of the contracting parties. Observing that Petitioner Goquiolay
was an experienced businessman who was not unfamiliar with the ways of the trade, it
ruled that he should have realized the import of the document he signed. The CA
further held:
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision[if !supportFootnotes][1][endif] of the Court of Appeals (CA)[if !supportFootnotes][2][endif] in CA-GR
SP No. 47332 and its February 26, 1999 Resolution[if !supportFootnotes][3][endif] denying Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case
reconsideration. The decretal portion of the CA Decision reads as follows: below, since the merits of the whole matter are laid down before us via a petition whose sole purpose
is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in issuing the
assailed Order and Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being enforced by one, and [its]
WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated validity is attacked by the other a matter x x x which respondent court is in the best position to
March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary injunction determine.
issued on June 15, 1998 is hereby LIFTED.[if !supportFootnotes][4][endif] Hence, this Petition.[if !supportFootnotes][11][endif]
In its February 18, 1998 Order,[if !supportFootnotes][5][endif] the Regional Trial Court
(RTC) of Quezon City (Branch 218)[if !supportFootnotes][6][endif] issued a Writ of Seizure.[if
!supportFootnotes][7][endif]
The March 18, 1998 Resolution[if !supportFootnotes][8][endif] denied
petitioners Motion for Special Protective Order, praying that the deputy sheriff be The Issues
enjoined from seizing immobilized or other real properties in (petitioners) factory in In their Memorandum, petitioners submit the following issues for our
Cainta, Rizal and to return to their original place whatever immobilized machineries or consideration:
equipments he may have removed.[if !supportFootnotes][9][endif]

A. Whether or not the machineries purchased and imported by SERGS became real property by virtue
The Facts of immobilization.
The undisputed facts are summarized by the Court of Appeals as follows: [if B. Whether or not the contract between the parties is a loan or a lease.[if !supportFootnotes][12][endif]
!supportFootnotes][10][endif]
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised by
respondent.
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with the
RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of The Courts Ruling
replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment to PCI The Petition is not meritorious.
Leasing after 5 days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory, seized
one machinery with [the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the Preliminary Matter:Procedural Questions
power of the court to control the conduct of its officers and amend and control its processes, praying Respondent contends that the Petition failed to indicate expressly whether it
for a directive for the sheriff to defer enforcement of the writ of replevin. was being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that
This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still the Petition erroneously impleaded Judge Hilario Laqui as respondent.
personal and therefore still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding. They
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is Petition for Review on truth of any material fact found therein.
Certiorari.[if !supportFootnotes][13][endif]

Hence, in Tumalad v. Vicencio,[if !supportFootnotes][19][endif] the Court upheld the


While Judge Laqui should not have been impleaded as a respondent,[if intention of the parties to treat a house as a personal property because it had been
!supportFootnotes][14][endif]
substantial justice requires that such lapse by itself should not made the subject of a chattel mortgage. The Court ruled:
warrant the dismissal of the present Petition. In this light, the Court deems it proper to
remove, motu proprio, the name of Judge Laqui from the caption of the present case.

x x x. Although there is no specific statement referring to the subject house as personal property, yet
by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could
Main Issue: Nature of the Subject Machinery only have meant to convey the house as chattel, or at least, intended to treat the same as such, so
Petitioners contend that the subject machines used in their factory were not that they should not now be allowed to make an inconsistent stand by claiming otherwise.
proper subjects of the Writ issued by the RTC, because they were in fact real property. Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Serious policy considerations, they argue, militate against a contrary characterization. Textile Mills[if !supportFootnotes][20][endif] also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ of
replevin because it was treated as personal property in a contract. Pertinent portions of
the Courts ruling are reproduced hereunder:
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.[if !supportFootnotes][15][endif] Section 3 thereof reads:

x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as the
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
order and the corresponding writ of replevin describing the personal property alleged to be wrongfully absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only
detained and requiring the sheriff forthwith to take such property into his custody. by destination or purpose, may not be likewise treated as such. This is really because one who has so
On the other hand, Article 415 of the Civil Code enumerates immovable or real agreed is estopped from denying the existence of the chattel mortgage.
property as follows: In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. Specifically, Section 12.1 of the
Agreement reads as follows:[if !supportFootnotes][21][endif]

ART. 415. The following are immovable property:


x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an 12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that
industry or works which may be carried on in a building or on a piece of land, and which tend directly the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or
to meet the needs of the said industry or works; attached to or embedded in, or permanently resting upon, real property or any building thereon, or
x x x....................................x x x....................................x x x attached in any manner to what is permanent.
In the present case, the machines that were the subjects of the Writ of Seizure Clearly then, petitioners are estopped from denying the characterization of the
were placed by petitioners in the factory built on their own land. Indisputably, they subject machines as personal property. Under the circumstances, they are proper
were essential and principal elements of their chocolate-making industry. Hence, subjects of the Writ of Seizure.
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.[if !supportFootnotes][16][endif] In that sense, petitioners are correct in arguing
that the said machines are real, not personal, property pursuant to Article 415 (5) of It should be stressed, however, that our holding -- that the machines should
the Civil Code.[if !supportFootnotes][17][endif] be deemed personal property pursuant to the Lease Agreement is good only insofar as
the contracting parties are concerned.[if !supportFootnotes][22][endif] Hence, while the parties are
bound by the Agreement, third persons acting in good faith are not affected by its
stipulation characterizing the subject machinery as personal.[if !supportFootnotes][23][endif] In
Be that as it may, we disagree with the submission of the petitioners that the any event, there is no showing that any specific third party would be adversely
said machines are not proper subjects of the Writ of Seizure. affected.

The Court has held that contracting parties may validly stipulate that a real Validity of the Lease Agreement
property be considered as personal.[if !supportFootnotes][18][endif] After agreeing to such In their Memorandum, petitioners contend that the Agreement is a loan and
stipulation, they are consequently estopped from claiming otherwise. Under the not a lease.[if !supportFootnotes][24][endif] Submitting documents supposedly showing that they
principle of estoppel, a party to a contract is ordinarily precluded from denying the own the subject machines, petitioners also argue in their Petition that the Agreement
suffers from intrinsic ambiguity which places in serious doubt the intention of the then its workers would be out of work and thrown into the streets.[if !supportFootnotes][31][endif]
parties and the validity of the lease agreement itself.[if !supportFootnotes][25][endif] In their Reply They also allege that the seizure would nullify all efforts to rehabilitate the corporation.
to respondents Comment, they further allege that the Agreement is invalid.[if
!supportFootnotes][26][endif]

Petitioners arguments do not preclude the implementation of the Writ. As


earlier discussed, law and jurisprudence support its propriety. Verily, the above-
These arguments are unconvincing. The validity and the nature of the contract mentioned consequences, if they come true, should not be blamed on this Court, but
are the lis mota of the civil action pending before the RTC. A resolution of these on the petitioners for failing to avail themselves of the remedy under Section 5 of Rule
questions, therefore, is effectively a resolution of the merits of the case. Hence, they 60, which allows the filing of a counter-bond. The provision states:
should be threshed out in the trial, not in the proceedings involving the issuance of the
Writ of Seizure.

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or
of the surety or sureties thereon, he cannot immediately require the return of the property, but if he
Indeed, in La Tondea Distillers v. CA,[if !supportFootnotes][27][endif] the Court explained does not so object, he may, at any time before the delivery of the property to the applicant, require the
that the policy under Rule 60 was that questions involving title to the subject property return thereof, by filing with the court where the action is pending a bond executed to the applicant, in
questions which petitioners are now raising -- should be determined in the trial. In that double the value of the property as stated in the applicants affidavit for the delivery thereof to the
case, the Court noted that the remedy of defendants under Rule 60 was either to post applicant, if such delivery be adjudged, and for the payment of such sum to him as may be recovered
a counter-bond or to question the sufficiency of the plaintiffs bond. They were not against the adverse party, and by serving a copy bond on the applicant.
allowed, however, to invoke the title to the subject property. The Court ruled: WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED.
Costs against petitioners.

SO ORDERED.
In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ
of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied upon
therefor, as in proceedings on preliminary attachment or injunction, and thereby put at issue the
matter of the title or right of possession over the specific chattel being replevied, the policy apparently
being that said matter should be ventilated and determined only at the trial on the merits.[if
!supportFootnotes][28][endif]

Besides, these questions require a determination of facts and a presentation of


evidence, both of which have no place in a petition for certiorari in the CA under Rule
65 or in a petition for review in this Court under Rule 45.[if !supportFootnotes][29][endif]

Reliance on the Lease Agreement


It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In fact,
petitioners assailed it first only in the RTC proceedings, which had ironically been
instituted by respondent. Accordingly, it must be presumed valid and binding as the
law between the parties.

Makati Leasing and Finance Corporation[if !supportFootnotes][30][endif] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery as personal property,
was also assailed because respondent had allegedly been required to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. The Court rejected the argument and relied
on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void
ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to
Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that
the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x

Alleged Injustice Committed on the Part of Petitioners


Petitioners contend that if the Court allows these machineries to be seized,
G.R. No. 120098 October 2, 2001 Serial Numbers Size of Machines

RUBY L. TSAI, petitioner, xxx xxx xxx

vs. B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, xxx xxx xxx
respondents.
C. Two (2) Circular Knitting Machines made in West Germany.
x---------------------------------------------------------x
xxx xxx xxx
[G.R. No. 120109. October 2, 2001.]
D. Four (4) Winding Machines.
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
xxx xxx xxx
vs.
SCHEDULE "A"
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.
I. TCT # 372097 - RIZAL
QUISUMBING, J.:
xxx xxx xxx
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986,
affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also
II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned
assailed is respondent court's resolution denying petitioners' motion for reconsideration.
lot.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located
(P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the
at . . .
loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under
TCT No. 372097, where its factory stands, and the chattels located therein as enumerated in a
schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel Mortgage (a) Forty eight sets (48) Vayrow Knitting Machines . . .
are quoted below:
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
MORTGAGE
(c) Two (2) Circular Knitting Machines . . .
(REAL AND CHATTEL)
(d) Two (2) Winding Machines . . .
xxx xxx xxx
(e) Two (2) Winding Machines . . .
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE,
. . . certain parcel(s) of land, together with all the buildings and improvements now existing or which IV. Any and all replacements, substitutions, additions, increases and accretions to above properties.
may hereafter exist thereon, situated in . . .

xxx xxx xxx3


"Annex A"

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications continued) by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed
properties were similar to those listed in Annex A of the first mortgage deed.
LIST OF MACHINERIES & EQUIPMENT
After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong: purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as 3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00
SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The as and for attorney's fees and expenses of litigation;
CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were
taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00
two mortgages as abovementioned.
by way of exemplary damages;

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced
5. Ordering the dismissal of the counterclaim of the defendants; and
extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to
Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages"
and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 6. Ordering the defendants to proportionately pay the costs of suit.
1982.
SO ORDERED.4
On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the
highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated
1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a August 31, 1994, the dispositive portion of which reads:
Certificate of Sale on the same day.

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject
November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all
month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, other respects. No pronouncement as to costs.5
including the contested machineries.

Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995,
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with PBCom and Tsai filed their separate petitions for review with this Court.
the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject
mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been
transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
such assets sold to her, and should reconvey the assets.
I
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested
properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT
Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF
Sale dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982. REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979
DEED OF CHATTEL MORTGAGE.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting
Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment. II

The RTC found that the lease and sale of said personal properties were irregular and illegal because THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED
they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE
included in the schedules attached to the mortgage contracts. The trial court decreed: CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT.

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants: III

1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A
favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in PURCHASER IN BAD FAITH.
par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from
finality of this decision; IV

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER
P5,200,000.00 as compensation for the use and possession of the properties in question from ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR WANT OF VALID
November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at FACTUAL AND LEGAL BASIS.
the legal rate per annum until full payment;
V
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST unless the factual findings complained of are devoid of support by the evidence on record or the
PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6 assailed judgment is based on misapprehension of facts.13 This rule is applied more stringently when
the findings of fact of the RTC is affirmed by the Court of Appeals.14
In G.R. No. 120098, PBCom raised the following issues:
The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive
of the issues: (1) the "controverted machineries" are not covered by, or included in, either of the two
I.
mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said
machineries were not included in the list of properties appended to the Notice of Sale, and neither were
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF they included in the Sheriff's Notice of Sale of the foreclosed properties.15
THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE
MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY
Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or
PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES
cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable
DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE
under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue.
UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE
Mere nuts and bolts do not foreclose the controversy. We have to look at the parties' intent.
REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL
ESTATE TAX PURPOSES?
While it is true that the controverted properties appear to be immobile, a perusal of the contract of
Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at
II
bar, both the trial and the appellate courts reached the same finding that the true intention of PBCOM
and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, respondent appellate court's ruling is quoted below:
EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED
P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED
As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real
MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY
properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage,
COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED
militates against appellants' posture. It should be noted that the printed form used by appellant bank
DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and
appellee EVERTEX was the typing in capital letters, immediately following the printed caption of
The principal issue, in our view, is whether or not the inclusion of the questioned properties in the mortgage, of the phrase "real and chattel." So also, the "machineries and equipment" in the printed
foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to form of the bank had to be inserted in the blank space of the printed contract and connected with the
petitioner Ruby Tsai is valid. word "building" by typewritten slash marks. Now, then, if the machineries in question were
contemplated to be included in the real estate mortgage, there would have been no necessity to ink a
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered
the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the
deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that land and building involved.
respondent court erred in holding that the disputed 1981 machineries are not real properties. 9 Finally,
she contends that the Court of Appeals erred in holding against petitioner's arguments on prescription As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely
and laches10 and in assessing petitioner actual damages, attorney's fees and expenses of litigation, for to chattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63)
want of valid factual and legal basis.11 individually described machineries while the schedule listed only machines and 2,996,880.50 worth of
finished cotton fabrics and natural cotton fabrics.16
Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment
decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the
leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the evidence on record, we find no compelling reason to depart therefrom.
pieces of machinery in question were personal properties have no factual and legal basis. Finally, it
asserts that the Court of Appeals erred in assessing damages and attorney's fees against PBCom.
Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the
parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back
In opposition, private respondents argue that the controverted units of machinery are not "real as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if
properties" but chattels, and, therefore, they were not part of the foreclosed real properties, rendering there is a stipulation as when it is used as security in the payment of an obligation where a chattel
the lease and the subsequent sale thereof to Tsai a nullity.12 mortgage is executed over it, as in the case at bar.

Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and
and ought to be denied. Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all
properties included therein as immovable, and (2) attached to the said contract a separate "LIST OF
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the parties'
under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired
properties, which are of the same description as the units enumerated under the title "LIST OF
MACHINERIES & EQUIPMENT," must also be treated as chattels. for the contested units of machinery, the exemplary damages, and attorney's fees.

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid
subject mortgages were intended by the parties to involve chattels, insofar as equipment and rentals of the contested properties based on the testimony of John Chua, who testified that the
machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: P100,000.00 was based on the accepted practice in banking and finance, business and investments
"a chattel mortgage shall be deemed to cover only the property described therein and not like or that the rental price must take into account the cost of money used to buy them. The Court of Appeals
substituted property thereafter acquired by the mortgagor and placed in the same depository as the did not give full credence to Chua's projection and reduced the award to P20,000.00.
property originally mortgaged, anything in the mortgage to the contrary notwithstanding."
Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof
And, since the disputed machineries were acquired in 1981 and could not have been involved in the but must actually be proven with reasonable degree of certainty, premised upon competent proof or
1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include best evidence obtainable of the actual amount thereof.23 However, the allegations of respondent
subject machineries with the properties enumerated in said chattel mortgages. company as to the amount of unrealized rentals due them as actual damages remain mere assertions
unsupported by documents and other competent evidence. In determining actual damages, the court
cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent
As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.
proof and on the best evidence obtainable regarding the actual amount of loss.24 However, we are not
Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod
prepared to disregard the following dispositions of the respondent appellate court:
non habet, one cannot give what one does not have.17

. . . In the award of actual damages under scrutiny, there is nothing on record warranting the said
Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity,
award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to
she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX.
February 1991, and the additional award of P100,000.00 per month thereafter.

To the contrary, however, are the factual findings and conclusions of the trial court that she is not a
As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua
purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in
and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly
good faith and for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge
sustained by appellees, by way of unrealized rental income of subject machineries and equipments.
this burden persuasively.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be
Moreover, a purchaser in good faith and for value is one who buys the property of another without
a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing
notice that some other person has a right to or interest in such property and pays a full and fair price
the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken
for the same, at the time of purchase, or before he has notice of the claims or interest of some other
possession of the machineries and equipments in question, somebody was willing and ready to rent the
person in the property.19 Records reveal, however, that when Tsai purchased the controverted
same for P100,000.00 a month.
properties, she knew of respondent's claim thereon. As borne out by the records, she received the
letter of respondent's counsel, apprising her of respondent's claim, dated February 27, 1987.20 She
replied thereto on March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy xxx xxx xxx
the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not
a purchaser in good faith.
Then, too, even assuming arguendo that the said machineries and equipments could have generated a
rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are been a gross income. Therefrom should be deducted or removed, expenses for maintenance and
located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated repairs . . . Therefore, in the determination of the actual damages or unrealized rental income sued
therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute
PBCom's name does not automatically make PBCom the owner of everything found therein, especially would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing
in view of EVERTEX's letter to Tsai enunciating its claim. rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month,
since November 1986, is more realistic and fair.25
Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason
to disturb the consistent findings of both courts below that the case for the reconveyance of the As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals
disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches deleted. But according to the CA, there was no clear showing that petitioners acted malevolently,
does not apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite to award
company immediately filed an action to recover possession and ownership of the disputed properties. exemplary damages that the wrongful act must be accompanied by bad faith,26 and the guilty acted in
There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained a wanton, fraudulent, oppressive, reckless or malevolent manner.27 As previously stressed, petitioner
length of time, to do that which, by exercising due diligence, could or should have been done earlier. Tsai's act of purchasing the controverted properties despite her knowledge of EVERTEX's claim was
The doctrine of stale demands would apply only where by reason of the lapse of time, it would be oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom
inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this also received the same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's
Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22 act of taking all the properties found in the factory of the financially handicapped respondent, including
those properties not covered by or included in the mortgages, is equally oppressive and tainted with
bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is proper.
As to the award of damages, the contested damages are the actual compensation, representing rentals
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil
Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages,
their assessment being left to the discretion of the court in accordance with the circumstances of each
case.29 While the imposition of exemplary damages is justified in this case, equity calls for its reduction.
In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we
laid down the rule that judicial discretion granted to the courts in the assessment of damages must
always be exercised with balanced restraint and measured objectivity. Thus, here the award of
exemplary damages by way of example for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary
damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of
litigation is reasonable, given the circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in
CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of
Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills,
Inc. the following: (1) P20,000.00 per month, as compensation for the use and possession of the
properties in question from November 198631 until subject personal properties are restored to
respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as
attorney's fees and litigation expenses. Costs against petitioners.

SO ORDERED.

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