G.R. Nos.
L-10837-38 May 30, 1958 executed
ASSOCIATED INSURANCE and SURETY COMPANY,
INC., plaintiff, vs.
ISABEL IYA, ADRIANO VALINO and LUCIA
VALINO, defendants.
ISABEL IYA, plaintiff, vs.
ADRIANO VALINO, LUCIA VALINO and
ASSOCIATED INSURANCE and SURETY COMPANY.
INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and ApolonioAbola for defendant
Associated Insurance and Surety Co., Inc.
SYLLABUS
1. IMMOVABLE PROPERTY; BUILDINGS; IMMOVABLE
STATUS OF BUILDING UNAFFECTED BY CHANGE OF
OWNERSHIP OF LAND. — 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 v. Orosa, supra, p. 98). It cannot
be divested of its character of a realty by the fact that
the land on which it is constructed belongs to another.
If the status of the building were to depend on the
ownership of the land, a situation would be created
where a permanent fixture changes its nature or
character as the ownership of the land changes hands.
2. CHATTEL MORTGAGE; SUBJECT OF; EFFECT WHERE
THE INTEREST CONVEYED IS IMMOVABLE. — As
personal properties could only be the subject of a
chattel mortgage, the execution of a chattel mortgage
on a building is invalid and a nullity, the registration of
the chattel notwithstanding. The registration of the
chattel in the Chattel Mortgage Registry 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 v. Strong
Machinery Co., 37 Phil. 644).
3. ID.; ID.; RIGHT ACQUIRED BY PURCHASER AT AN
EXTRA-JUDICIAL FORECLOSURE SALE. — A mortgage
creditor who purchases real properties at an extra-
judicial 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 v. Ah Kee, 60 Phil. 899).
DECISION
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband
and wife, were the owners and possessors of a house
of strong materials constructed on Lot No. 3, Block No.
80 of the Grace Park Subdivision in Caloocan, Rizal,
which they purchased on installment basis from the
Philippine Realty Corporation. On November 6, 1951,
to enable her to purchase on credit rice from the
NARIC, Lucia A. Valino filed a bond in the sum of
P11,000.00 (AISCO Bond No. G-971) subscribed by
the Associated Insurance and Surety Co., Inc., and as
counter-guaranty therefor, the spouses Valino
an alleged chattel mortgage on the
aforementioned house in favor of the surety company,
which encumbrance was duly registered with
the Chattel Mortgage Register of Rizal on December 6,
1951. It is admitted that at the time said undertaking
took place, the parcel of land on which the house is
erected was still registered in the name of the
Philippine Realty Corporation. Having completed
payment on the purchase price of the lot, the Valinos
were able to secure on 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 indebtedness in the
amount of P12,000.00, executed a real estate
mortgage over the lot and the house in favor of Isabel
Iya, which was duly registered and annotated at the
back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to
satisfy her obligation to the NARIC, the surety
company was compelled to pay the same pursuant to
the undertaking of the bond. In turn, the surety
company demanded reimbursement from the spouses
Valino, and as the latter likewise failed to do so, the
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 to the surety
company for P8,000.00, the highest bid received
therefor. The surety company then caused the said
house to be declared in its name for tax purposes (Tax
Declaration No. 25128).
Sometime in July, 1953, the surety company
learned of the existence of the real estate mortgage
over the lot covered by T.C.T. No. 26884 together with
the improvements thereon; thus, said surety 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 residential
house from the real estate mortgage in favor of
defendant Iya and the declaration and recognition of
plaintiff's right to ownership over the same in virtue of
the award given by the Provincial Sheriff of Rizal
during the public auction held on December 26, 1952.
Plaintiff likewise asked the Court to sentence the
spouses Valino to pay said surety moral and exemplary
damages, attorney's fees and costs. Defendant Isabel
Iya filed her answer to the complaint alleging among
other things, that in 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-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
from plaintiff as counterclaim, the sum of P5,000.00
from her co-defendants as crossclaim, for attorney's
fees and costs.
Defendants spouses in their answer admitted
some of the averments of the complaint and denied
the 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.
On October 29, 1953, Isabel Iya filed another
civil action against the Valinos and the surety company
(Civil Case No. 2504 of the Court of First Instance of
Manila) stating that pursuant to the contract of
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 years, extendible for only one year; that to secure
payment thereof, said defendants mortgaged the
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 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; and as defendant spouses
had allegedly failed to pay the interest for more than 6
months, plaintiff prayed the Court to order said
defendants to pay the sum of P12,000.00 with interest
thereon at 12% per annum from March 25, 1953, until
fully paid; for an additional sum equivalent to 20% of
the total obligation as damages, and for costs. As an
alternative in case such demand may not be met and
satisfied plaintiff prayed for a decree of foreclosure of
the land, building and other improvements thereon to
be sold at public auction and the proceeds thereof
applied to satisfy the demands of plaintiff; that the
Valinos, the surety company and any other person
claiming interest on the mortgaged properties be
barred and foreclosed of all rights, claims or equity of
redemption in said properties; and for deficiency
judgment in case the proceeds of the sale of the
mortgaged property would be insufficient to satisfy the
claim of plaintiff.
Defendant surety company, in answer to this
complaint insisted on its right over the building,
arguing that as the lot on which the house was
constructed did not belong to the spouses at the time
the 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 of the
Chattel Mortgage Law were proper and legal.
Defendant therefore prayed that said building be
excluded from the real estate mortgage and its right
over the same be declared superior to that of plaintiff,
for damages, attorney's fees and costs.
Taking side with the surety company,
defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation
that the building was included thereon, it being
contended 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
offered no objection. As a special defense, it was
asserted that the action was premature because the
contract was for a period of 4 years, which had not yet
elapsed.
The two cases were jointly heard upon
agreement of the parties, who submitted the same on
a stipulation of facts, after which the Court rendered
judgment dated March 8, 1956, holding that the
chattel mortgage in favor of the Associated Insurance
and Surety Co., Inc., was preferred and superior over
the real estate mortgage subsequently executed in
favor of Isabel Iya. It was ruled that as the Valinos
were not yet the registered owner of the land on which
the building in question was constructed at the time
the first encumbrance was made, the building then
was still a personality and a chattel mortgage over the
same was proper. However, as the mortgagors were
already the owner of the land at the time the contract
with Isabel Iya was entered into, the building was
transformed into a real property and the real estate
mortgage created thereon was likewise adjudged as
proper. It is to be noted in this connection that there is
no evidence on record to sustain the allegation of the
spouses Valino that at the time they mortgaged
their house and lot to Isabel Iya, the latter was told or
knew that part of the mortgaged property, i.e.,
the house, had previously been mortgaged to the
surety company.
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 thereof at public auction (if the land has not yet been
estate connotes the land and the sold), shall be applied to the unsatisfied judgment in
building constructed thereon, it is favor of Isabel Iya. This decision however is without
obvious that the inclusion of the prejudice to any right that the Associated Insurance
building, separate and distinct from the and Surety Co., Inc., may have against the spouses
land, in the enumeration of what may Adriano and Lucia Valino on account of the mortgage
constitute real properties (Art. 415, of said building they executed in favor of said surety
new Civil Code) could only mean one company. Without pronouncement as to costs. It is SO
thing — that a building is by itself an ORDERED.
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).

Wherefore the portion of the decision of the

lower Court in these two cases appealed from holding
the rights of the surety company, over the building
superior to that of Isabel Iya and excluding the
building from the foreclosure prayed for by the latter is
reversed and appellant Isabel Iya's right to foreclose
not only the land but also the building erected thereon
is hereby recognized, and the proceeds of the sale

G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R.
TUMALAD, plaintiffs-appellees, vs.
ALBERTA VICENCIO and EMILIANO
SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
DECISION
REYES, J.B.L., J.:
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.
This case was originally commenced by
defendants-appellants in the municipal court of Manila
in Civil Case No. 43073, for ejectment. Having lost
therein, defendants-appellants appealed to the court a
quo (Civil Case No. 30993) which also rendered a
decision against them, the dispositive portion of which
follows:
WHEREFORE, the court hereby
renders judgment in favor of
the plaintiffs and against the
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 14,
1967, with interest at the legal
rate from April 18, 1956, the
filing of the complaint, until
fully paid, plus attorney's fees
in the sum of P300.00 and to
pay the costs.
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,
Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B
and 7-B, Block No. 2554, which were being rented
from Madrigal & Company, Inc. The mortgage was
registered in the Registry of Deeds of Manila on 2
September 1955. The herein mortgage was executed
to guarantee a loan of P4,800.00 received from
plaintiffs-appellees, payable within one year at 12%
per annum. The mode of payment was P150.00
monthly, starting September, 1955, up to July 1956,
and the lump sum of P3,150 was payable on or before
August, 1956. It was also agreed that default in the
payment of any of the amortizations, would cause the
remaining unpaid balance to becomeimmediately due
and Payable and —
the Chattel Mortgage will be
enforceable in accordance with the
provisions of Special Act No. 3135, and
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
When defendants-appellants defaulted in
paying, the mortgage was extrajudicially foreclosed,
and on 27 March 1956, the house was sold at public
auction pursuant to the said contract. As highest
bidder, plaintiffs-appellees were issued the
corresponding certificate of sale. 3 Thereafter, on 18
April 1956, plaintiffs-appellant commenced Civil Case
No. 43073 in the municipal court of Manila, praying,
among other things, that the house be vacated and its
possession surrendered to them, and for defendants-
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 —
... ordering the defendants to vacate
the premises described in the
complaint; ordering further to pay
monthly the amount of P200.00 from
March 27, 1956, until such (time that)
the premises is (sic) completely
vacated; plus attorney's fees of
P100.00 and the costs of the suit. 5
Defendants-appellants, in their answers in both
the municipal court and court a quo impugned the
legality of the chattel mortgage, claiming that they are
still the owners of the house; but they waived the right
to introduce evidence, oral or documentary. Instead,
they relied on their memoranda in 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 2, Rule 72, of the Rules of
Court. 6
During the pendency of the appeal to the Court
of First Instance, defendants-appellants failed to
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 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) for ejectment against
the present defendants for non-payment of rentals on
the land on which the house was constructed.
The motion of plaintiffs for dismissal of the
appeal, execution of the supersedeas bond and
withdrawal 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

On 7 October 1957, the appellate court of First
Instance rendered its decision, the dispositive portion
of which is quoted earlier. The said decision was
appealed by defendants to the Court of Appeals which,
in turn, certified the appeal to this Court. Plaintiffs-
appellees failed to file a brief and this appeal was
submitted for decision without it.
Defendants-appellants submitted numerous
assignments of error which can be condensed into two
questions, namely: .
(a) Whether the municipal court from
which the case originated had
jurisdiction to adjudicate the same;
(b) Whether the defendants are, under
the law, legally bound to pay rentals to
the plaintiffs during the period of one
(1) year provided by law for the
redemption of the extrajudicially
foreclosed house.
We will consider these questions seriatim.
(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
foreclosure, and necessarily the consequent auction
sale, are also void. Thus, the ownership of the house
still remained with defendants-appellants who are
entitled to possession and not plaintiffs-appellees.
Therefore, it is argued by defendants-appellants, the
issue of ownership will have to be adjudicated first in
order to determine possession. lt is contended further
that ownership being in issue, it is the Court of First
Instance which has jurisdiction and not the municipal
court.
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; and
(b) that the subject matter of the mortgage is a house
of strong materials, and, being an immovable, it can
only be the subject of a real estate mortgage and not a
chattel mortgage.
On the charge of fraud, deceit or trickery, the
Court of First Instance found defendants-appellants'
contentions as not supported by evidence and
accordingly dismissed the charge, 8 confirming the
earlier finding of the municipal court that "the defense
of ownership as well as the allegations of fraud and
deceit ... are mere allegations." 9
It has been held in Supia and Batiaco vs.
Quintero and Ayala 10 that "the answer is a mere
statement of 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 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 from the evidence at the trial." What
determines jurisdiction are the allegations or
averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is
true, fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the
contract voidable or annullable pursuant to Article
1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed
that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the basis
of a voidable contract which has not been voided fails.
It is claimed in the alternative by defendants-
appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and void ab
initio because only personal properties can be subject
of a chattel mortgage. The rule about the status of
buildings as immovable property is stated in Lopez vs.
Orosa, Jr. and Plaza Theatre Inc., 15cited in Associated
Insurance Surety Co., Inc. vs. Iya, et al. 16 to the
effect that —
... 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 irrespective of
whether or not said structure
and the land on which it is
adhered to belong to the same
owner.
Certain deviations, however, have been
allowed for various reasons. In the case of Manarang
and Manarang vs. Ofilada, 17 this Court stated that "it
is undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo. 18 In the latter
case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following
described personal property." 19 The "personal
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 specifically that the
property given as security "is a house of mixed
materials, which by its very nature is considered
personal property." In the later case of Navarro vs.
Pineda,21 this Court stated that —

The view that parties to a deed
of chattel mortgage may agree
to consider a house as personal
property for the purposes of
said contract, "is good only
insofar as the contracting
parties are concerned. It is
based, partly, upon the
principle of estoppel"
(Evangelista vs. Alto Surety,
No. L-11139, 23 April 1958). In
a case, a mortgaged house
built on a rented land was held
to be a personal property, not
only because the deed of
mortgage considered it as
such, but also because it did
not form part of the land
(Evangelists vs. Abad, [CA]; 36
O.G. 2913), for it is now
settled that an object placed on
land by one who had only a
temporary right to the same,
such as the lessee or
usufructuary, does not become
immobilized by attachment
(Valdez vs. Central Altagracia,
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 the document of
mortgage. (Evangelista vs.
Abad, Supra.) It should be
noted, however that the
principle is predicated on
statements by the owner
declaring his house to be a
chattel, a conduct that may
conceivably estop him from
subsequently claiming
otherwise. (Ladera vs. C.N.
Hodges, [CA] 48 O.G.
5374): 22
In the contract now before Us, the house on
rented land is not only expressly designated as Chattel
Mortgage; it specifically provides that "the mortgagor
... voluntarily CEDES, SELLS and TRANSFERS by way
of Chattel Mortgage 23 the property together with its
leasehold rights over the lot on which it is constructed
and participation ..." 24Although 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 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 stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which
defendats-appellants merely had a temporary right as
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 personalty.
Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and
Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong
Machinery and Williamson, 26 wherein third
persons assailed the validity of the chattel
mortgage, 27 it is the defendants-appellants
themselves, as debtors-mortgagors, who are attacking
the validity of the chattel mortgage in this case. The
doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject
house as personalty.
(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 been
demolished on 14 and 15 January 1957 by virtue of a
decision obtained by the lessor of the land on which
the house stood. For this reason, the said court limited
itself to sentencing the erstwhile mortgagors to pay
plaintiffs a monthly rent of P200.00 from 27 March
1956 (when the chattel mortgage was foreclosed and
the house sold) until 14 January 1957 (when it was
torn down by the Sheriff), plus P300.00 attorney's
fees.
Appellants mortgagors question this award,
claiming that they were entitled to remain in
possession without any obligation to pay rent during
the one year redemption period after the foreclosure
sale, i.e., until 27 March 1957. On this issue, We must
rule for the appellants.
Chattel mortgages are covered and regulated
by the Chattel Mortgage Law, Act No. 1508. 28 Section
14 of this Act allows the mortgagee to have the
property mortgaged sold at public auction through a
public officer in almost the same manner as that
allowed by Act No. 3135, as amended by Act No. 4118,
provided that the requirements of the law relative to
notice and registration are complied with. 29 In the
instant case, the parties specifically stipulated that
"the chattel mortgage will be enforceable in
accordance with the provisions of Special Act No.
3135 ... ." 30 (Emphasis supplied).
Section 6 of the Act referred to 31 provides that
the debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the
date of the auction sale, redeem the property sold 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 bond. It is only
upon filing of the proper motion and the approval of
the corresponding bond that the order for a writ of
possession issues as a matter of course. No discretion
is left to the court. 33 In the absence of such a
compliance, as in the instant case, the purchaser can
not claim possession during the period of redemption
as a matter of right. In such a case, the governing
provision is Section 34, Rule 39, of the Revised Rules
of Court 34 which also applies to properties purchased
in extrajudicial foreclosure proceedings. 35 Construing
the said section, this Court stated in the aforestated
case of Reyes vs. Hamada.
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

In other words, before the It follows that the court below erred in
expiration of the 1-year period requiring the mortgagors to pay rents for the year
within which the judgment- following the foreclosure sale, as well as attorney's
debtor or mortgagor may fees.
redeem the property, the
purchaser thereof is not FOR THE FOREGOING REASONS, the decision
entitled, as a matter of right, appealed from is reversed and another one entered,
to possession of the same. dismissing the complaint. With costs against plaintiffs-
Thus, while it is true that the appellees.
Rules of Court allow the
purchaser to receive the
rentals if the purchased
property is occupied by
tenants, he is, nevertheless,
accountable to the 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
during the redemption period,
do not belong to the latter but
still pertain to the debtor of
mortgagor. The rationale for
the Rule, it seems, is to secure
for the benefit of the debtor or
mortgagor, the payment of the
redemption amount and the
consequent return to him of his
properties sold at public
auction. (Emphasis supplied)

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

G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner, vs. THE
CITY ASSESSOR & TREASURER and the BOARD OF
TAX APPEALS of Cagayan de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
SYLLABUS
1. PROPERTY; IMMOVABLE PROPERTY BY
DESTINATION; TWO REQUISITES BEFORE MOVABLES
MAY BE DEEMED TO HAVE BEEN IMMOBILIZED;
TOOLS AND EQUIPMENTS MERELY INCIDENTAL TO
BUSINESS NOT SUBJECT TO REAL ESTATE TAX. —
Movable equipments, to be immobilized in
contemplation of Article 415 of the Civil Code, must be
the essential and principal elements of an industry or
works which are carried on in a building or on a piece
of land. Thus, where the business is one of
transportation, which is carried on without a repair or
service shop, and its rolling equipment is repaired or
serviced in a shop belonging to another, the tools and
equipments in its repair shop which appear movable
are merely incidentals and may not be considered
immovables, and, hence, not subject to assessment as
real estate for purposes of the real estate tax.
DECISION
LABRADOR, J.:
This is a petition for the review of the decision
of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is
liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred
to.
Respondent City Assessor of Cagayan de Oro
City assessed at P4,400 petitioner's above-mentioned
equipment. Petitioner appealed the assessment to the
respondent Board of Tax Appeals on the ground that
the same are not realty. The Board of Tax Appeals of
the City sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a petition for
the review of the assessment.
In the Court of Tax Appeals the parties
submitted the following stipulation of facts:
Petitioner and respondents, thru their
respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely
engaged in transporting passengers and
cargoes by motor trucks, over its authorized
lines in the Island of Mindanao, collecting rates
approved by the Public Service Commission;
2. That petitioner has its main office and shop
at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao;
Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed
by the respondent as real properties are the
following:
(a) Hobart Electric Welder Machine,
appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in
the attached photograph, marked
Annex "B";
(c) Lathe machine with motor,
appearing in the attached photograph,
marked Annex "C";
(d) Black and Decker Grinder,
appearing in the attached photograph,
marked Annex "D";
(e) PEMCO Hydraulic Press, appearing
in the attached photograph, marked
Annex "E";
(f) Battery charger (Tungar charge
machine) appearing in the attached
photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel,
appearing in the attached photograph,
marked Annex "G".
4. That these machineries are sitting on
cement or wooden platforms as may be seen in
the attached photographs which form part of
this agreed stipulation of facts;
5. That petitioner is the owner of the land
where it maintains and operates a garage for
its TPU motor trucks; a repair shop; blacksmith
and carpentry shops, and with these
machineries which are placed therein, its TPU
trucks are made; body constructed; and same
are repaired in a condition to be serviceable in
the TPU land transportation business it
operates;
6. That these machineries have never been or
were never used as industrial equipments to
produce finished products for sale, nor to
repair machineries, parts and the like offered
to the general public indiscriminately for
business or commercial purposes for which
petitioner has never engaged in, to date.
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having denied a
motion for reconsideration, petitioner brought the case
to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the
questioned assessments are valid; and that
said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the
movable equipments are taxable realties, by
reason of their being intended or destined for
use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate
taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's
motion for reconsideration.

Respondents contend that said equipments,
tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New
Civil Code which provides:
Art. 415. — The following are immovable
properties:
x xx x xx x xx
(5) Machinery, receptacles,
instruments or implements intended by
the owner of the tenement for an
industry or works which may be carried
on in a building or on a piece of land,
and which tend directly to meet the
needs of the said industry or works.
(Emphasis ours.)
Note that the stipulation expressly states that
the equipment are placed on wooden or cement
platforms. They can be moved around and about in
petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the
Supreme Court said:
Article 344 (Now Art. 415), paragraph
(5) of the Civil Code, gives the
character of real property to
"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 or
industry."
If the installation of the machinery and
equipment in question in the central of
the Mabalacat Sugar Co., Inc., in lieu
of the other of less capacity existing
therein, for its sugar and industry,
converted them into real property by
reason of their purpose, it cannot be
said that their incorporation therewith
was not permanent in character
because, as essential and principle
elements of a sugar central, without
them the sugar central would be
unable to function or carry on the
industrial purpose for which it was
established. Inasmuch as the central is
permanent in character, the necessary
machinery and equipment installed for
carrying on the sugar industry for
which it has been established must
necessarily be permanent. (Emphasis
ours.)
So that movable equipments to be immobilized
in contemplation of the law must first be "essential and
principal elements" of an industry or works without
which such industry or works would be "unable to
function or carry on the industrial purpose for which it
was established." We may here distinguish, therefore,
those movable which become immobilized by
destination because they are essential and principal
elements in the industry for those which may not be so
considered immobilized because they are merely
incidental, not essential and principal. Thus, cash
registers, typewriters, etc., usually found and used in
hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered
immobilized by destination, for these businesses can
continue or carry on their functions without these
equity comments. Airline companies use forklifts, jeep-
wagons, pressure pumps, IBM machines, etc. which
are incidentals, not essentials, and thus retain their
movable nature. On the other hand, machineries of
breweries used in the manufacture of liquor and soft
drinks, though movable in nature, are immobilized
because they are essential to said industries; but the
delivery trucks and adding machines which they
usually own and use and are found within their
industrial compounds are merely incidental and retain
their movable nature.
Similarly, the tools and equipments in question
in this instant case are, by their nature, not essential
and principle municipal elements of petitioner's
business of transporting passengers and cargoes by
motor trucks. They are merely incidentals — acquired
as movables and used only for expediency to facilitate
and/or improve its service. Even without such tools
and equipments, its business may be carried on, as
petitioner has carried on, without such equipments,
before the war. The transportation business could be
carried on without the repair or service shop if its
rolling equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the question
at issue is as follows:
Art. 415. The following are immovable
property:
x xx x xx x xx
(5) Machinery, receptacles,
instruments or implements intended by
the owner of the tenement for an
industry or works which may be carried
on in a building or on a piece of land,
and which tend directly to meet the
needs of the said industry or works;
(Civil Code of the Phil.)
Aside from the element of essentiality the
above-quoted provision also requires that the industry
or works be carried on in a building or on a piece of
land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and
instruments or implements" are found in a building
constructed on the land. A sawmill would also be
installed in a building on land more or less
permanently, and the sawing is conducted in the land
or building.
But in the case at bar the equipments in
question are destined only to repair or service the
transportation business, which is not carried on in a
building or permanently on a piece of land, as
demanded by the law. Said equipments may not,
therefore, be deemed real property.
Resuming what we have set forth
above, we hold that the equipments in
question are not absolutely essential to the
petitioner's transportation business, and
petitioner's business is not carried on in a
building, tenement or on a specified land, so
said equipment may not be considered real
estate within the meaning of Article 415 (c) of
the Civil Code.
WHEREFORE, the decision subject of the
petition for review is hereby set aside and the
equipment in question declared not subject to
assessment as real estate for the purposes of the real
estate tax. Without costs.
SO ORDERED.
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant, vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
DECISION
JOHNSON, J.:
The action was commenced in the Court of
First Instance of the Province of Tarlac on the 14th day
of December 1924. The facts are about as conflicting
as it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged
that the defendant Vitaliano Mamawal, deputy sheriff
of the Province of Tarlac, by virtue of a writ of
execution issued by the Court of First Instance of
Pampanga, attached and sold to the defendant
Emiliano J. Valdez the sugar cane planted by the
plaintiff and his tenants on seven parcels of land
described in the complaint in the third paragraph of
the first cause of action; that within one year from the
date of the attachment and sale the plaintiff offered to
redeem said sugar cane and tendered to the defendant
Valdez the amount sufficient to cover the price paid by
the latter, the interest thereon and any assessments or
taxes which he may have paid thereon after the
purchase, and the interest corresponding thereto and
that Valdez refused to accept the money and to return
the sugar cane to the plaintiff.
As a second cause of action, the plaintiff
alleged that the defendant Emiliano J. Valdez was
attempting to harvest the palay planted in four of the
seven parcels mentioned in the first cause of action;
that he had harvested and taken possession of the
palay in one of said seven parcels and in another
parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay
belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary
injunction be issued against the defendant Emiliano J.
Valdez his attorneys and agents, restraining them (1)
from distributing him in the possession of the parcels
of land described in the complaint; (2) from taking
possession of, or harvesting the sugar cane in
question; and (3) from taking possession, or
harvesting the palay in said parcels of land. Plaintiff
also prayed that a judgment be rendered in his favor
and against the defendants ordering them to consent
to the redemption of the sugar cane in question, and
that the defendant Valdez be condemned to pay to the
plaintiff the sum of P1,056 the value of palay
harvested by him in the two parcels above-mentioned
,with interest and costs.
On December 27, 1924, the court, after
hearing both parties and upon approval of the bond for
P6,000 filed by the plaintiff, issued the writ of
preliminary injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his
amended answer, denied generally and specifically
each and every allegation of the complaint and step up
the following defenses:
(a) That the sugar cane in question had the
nature of personal property and was not,
therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and
7 described in the first cause of action of the
complaint;
(c) That he was the owner of the palay in
parcels 1, 2 and 7; and
(d) That he never attempted to harvest the
palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of
counterclaim, alleged that by reason of the preliminary
injunction he was unable to gather the sugar cane,
sugar-cane shoots (puntas de canadulce) palay in said
parcels of land, representing a loss to him of
P8,375.20 and that, in addition thereto, he suffered
damages amounting to P3,458.56. He prayed, for a
judgment (1) absolving him from all liability under the
complaint; (2) declaring him to be the absolute owner
of the sugar cane in question and of the palay in
parcels 1, 2 and 7; and (3) ordering the plaintiff to pay
to him the sum of P11,833.76, representing the value
of the sugar cane and palay in question, including
damages.
Upon the issues thus presented by the
pleadings the cause was brought on for trial. After
hearing the evidence, and on April 28, 1926, the
Honorable CayetanoLukban, judge, rendered a
judgment against the plaintiff and in favor of the
defendants —
(1) Holding that the sugar cane in question
was personal property and, as such, was not
subject to redemption;
(2) Absolving the defendants from all liability
under the complaint; and
(3) Condemning the plaintiff and his sureties
Cenon de la Cruz, Juan Sangalang and Marcos
Sibal to jointly and severally pay to the
defendant Emiliano J. Valdez the sum of
P9,439.08 as follows:
(a) P6,757.40, the value of the sugar
cane;
(b) 1,435.68, the value of the sugar-
cane shoots;
(c) 646.00, the value of palay
harvested by plaintiff;
(d) 600.00, the value of 150 cavans of
palay which the defendant was not
able to raise by reason of the
injunction, at P4 cavan. 9,439.08 From
that judgment the plaintiff appealed
and in his assignments of error
contends that the lower court erred:
(1) In holding that the sugar cane in
question was personal property and,
therefore, not subject to redemption;
(2) In holding that parcels 1 and 2 of the
complaint belonged to Valdez, as well as
parcels 7 and 8, and that the palay therein was
planted by Valdez;
(3) In holding that Valdez, by reason of the
preliminary injunction failed to realized
P6,757.40 from the sugar cane and P1,435.68
from sugar-cane shoots (puntas de canadulce);
(4) In holding that, for failure of plaintiff to
gather the sugar cane on time, the defendant
was unable to raise palay on the land, which
would have netted him the sum of P600; and.
(5) In condemning the plaintiff and his sureties
to pay to the defendant the sum of P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of
the Province of Tarlac, by virtue of writ of
execution in civil case No. 20203 of the Court
of First Instance of Manila (Macondray& Co.,
Inc. vs. Leon Sibal),levied an attachment on
eight parcels of land belonging to said Leon
Sibal, situated in the Province of Tarlac,
designated in the second of attachment as
parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B,
Exhibit 2-A).
(2) That on July 30, 1923, Macondray& Co.,
Inc., bought said eight parcels of land, at the
auction held by the sheriff of the Province of
Tarlac, for the sum to P4,273.93, having paid
for the said parcels separately as follows
(Exhibit C, and 2-A):
Parcel
1
....................................... P1.00
..............................
2
....................................... 2,000.00
..............................
3
....................................... 120.93
..............................
4
....................................... 1,000.00
..............................
5
....................................... 1.00
..............................
6
....................................... 1.00
..............................
7 with the house thereon
150.00
..........................
8
1,000.00
.......................................
=====
..............................
=====
4,273.93
(3) That within one year from the sale of said
parcel of land, and on the 24th day of
 September, 1923, the judgment debtor, Leon
Sibal, paid P2,000 to Macondray& Co., Inc., for
the account of the redemption price of said
parcels of land, without specifying the
particular parcels to which said amount was to
applied. The redemption price said eight
parcels was reduced, by virtue of said
transaction, to P2,579.97 including interest
(Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant
Vitaliano Mamawal, deputy sheriff of the
Province of Tarlac, by virtue of a writ of
execution in civil case No. 1301 of the Province
of Pampanga (Emiliano J. Valdez vs. Leon Sibal
1.º — the same parties in the present case),
attached the personal property of said Leon
Sibal located in Tarlac, among which was
included the sugar cane now in question in the
seven parcels of land described in the
complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy
sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar
cane in question to Emilio J. Valdez, who paid
therefor the sum of P1,550, of which P600 was
for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff,
by virtue of said writ of execution, also
attached the real property of said Leon Sibal in
Tarlac, including all of his rights, interest and
participation therein, which real property
consisted of eleven parcels of land and a house
and camarin situated in one of said parcels
(Exhibit A).
(4) That on June 25, 1924, eight of said eleven
parcels, including the house and the camarin,
were bought by Emilio J. Valdez at the auction
held by the sheriff for the sum of P12,200.
Said eight parcels were designated in the
certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10
and 11. The house and camarin were situated
on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated
in the certificate of the sheriff as parcels 2, 12,
and 13, were released from the attachment by
virtue of claims presented by Agustin Cuyugan
and DomicianoTizon (Exhibit A).
(6) That on the same date, June 25, 1924,
Macondray& Co. sold and conveyed to Emilio J.
Valdez for P2,579.97 all of its rights and
interest in the eight parcels of land acquired by
it at public auction held by the deputy sheriff of
Tarlac in connection with civil case No. 20203
of the Court of First Instance of Manila, as
stated above. Said amount represented the
unpaid balance of the redemption price of said
eight parcels, after payment by Leon Sibal of
P2,000 on September 24, 1923, fro the
account of the redemption price, as stated
above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane
in question, located in the seven parcels of
land described in the first cause of action of
the complaint at public auction on May 9 and
10, 1924, for P600.
(2) That on July 30, 1923, Macondray& Co.
became the owner of eight parcels of land
situated in the Province of Tarlac belonging to
Leon Sibal and that on September 24, 1923,
Leon Sibal paid to Macondray& Co. P2,000 for
the account of the redemption price of said
parcels.
(3) That on June 25, 1924, Emilio J. Valdez
acquired from Macondray& Co. all of its rights
and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez
also acquired all of the rights and interest
which Leon Sibal had or might have had on
said eight parcels by virtue of the P2,000 paid
by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute
owner of said eight parcels of land.
The first question raised by the appeal is,
whether the sugar cane in question is personal or real
property. It is contended that sugar cane comes under
the classification of real property as "ungathered
products" in paragraph 2 of article 334 of the Civil
Code. Said paragraph 2 of article 334 enumerates as
real property the following: Trees, plants, and
ungathered products, while they are annexed to the
land or form an integral part of any immovable
property." That article, however, has received in recent
years an interpretation by the Tribunal Supremo de
España, which holds that, under certain conditions,
growing crops may be considered as personal
property. (Decision of March 18, 1904, vol. 97, Civil
Jurisprudence of Spain.)
Manresa, the eminent commentator of the
Spanish Civil Code, in discussing section 334 of the
Civil Code, in view of the recent decisions of the
supreme Court of Spain, admits that growing crops are
sometimes considered and treated as personal
property. He says:
No creemos, sin embargo, que
estoexcluya la
excepcionquemuchosautoreshacentoca
nte a la venta de todacosecha o de
parte de ellacuandoaun no estacogida
(cosafrecuente con la uvay y la
naranja), y a la de lenas,
considerandoambascomo muebles. El
Tribunal Supremo, ensentencia de 18
de marzo de 1904, al entendersobre un
contrato de arrendamiento de un
prediorustico, resuelve que
suterminacionpordesahucio no
extinguelos derechos del arrendario,
para recolectar o
percibirlosfrutoscorrespondientes al
añoagricola, dentro del que
nacieronaquellos derechos, cuando el
arrendor ha percibido a suvez el
importe de la
 rentaintegracorrespondiente,
auncuando lo hayasidoporprecepto
legal durante el curso del juicio,
fundandose para ello, no solo en que
de otrasuerte se daria al desahucio un
alcance que no tiene, sinoen que, y
estoes lo interesante a Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28
nuestroproposito, la consideracion de
inmuebles que el articulo 334 del
Codigo Civil atribuge a
losfrutospendientes, no les priva del
caracter de productospertenecientes,
como tales, a quienes a ellostenga
derecho, Ilegado el momento de
surecoleccion.
x xx x xx x xx
Mas actualmente y porvirtud de la
nuevaedicion de la Ley Hipotecaria,
publicadaen 16 de diciembre de 1909,
con las reformasintroducidaspor la de
21 de abril anterior, la hipoteca, salvo
pactoexpreso que disponga lo
contrario, y cualquiera que sea la
naturaleza y forma de la obligacion que
garantice, no
comprendelosfrutos cualquiera que sea
la situacionen que se encuentre. (3
Manresa, 5. edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under
Spanish authorities, pending fruits and ungathered
products may be sold and transferred as personal
property; (2) that the Supreme Court of Spain, in a
case of ejectment of a lessee of an agricultural land,
held that the lessee was entitled to gather the
products corresponding to the agricultural year,
because said fruits did not go with the land but
belonged separately to the lessee; and (3) that under
the Spanish Mortgage Law of 1909, as amended, the
mortgage of a piece of land does not include the fruits
and products existing thereon, unless the contract
expressly provides otherwise.
An examination of the decisions of the
Supreme Court of Louisiana may give us some light on
the question which we are discussing. Article 465 of
the Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code, provides:
"Standing crops and the fruits of trees not gathered,
and trees before they are cut down, are likewise
immovable, and are considered as part of the land to
which they are attached."
The Supreme Court of Louisiana having
occasion to interpret that provision, held that in some
cases "standing crops" may be considered and dealt
with as personal property. In the case of Lumber Co.
vs. Sheriff and Tax Collector (106 La., 418) the
Supreme Court said: "True, by article 465 of the Civil
Code it is provided that 'standing crops and the fruits
of trees not gathered and trees before they are cut
down . . . are considered as part of the land to which
they are attached, but the immovability provided for is
only one in abstracto and without reference to rights
on or to the crop acquired by others than the owners
of the property to which the crop is attached. . . . The
existence of a right on the growing crop is a
mobilization by anticipation, a gathering as it were in
advance, rendering the crop movable quoad the right
acquired therein. Our jurisprudence recognizes the
possible mobilization of the growing crop." (Citizens'
La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629;
Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana
said in the case of Porche vs. Bodin (28 La. An., 761)
that "article 465 of the Revised Code says that
standing crops are considered as immovable and as
part of the land to which they are attached, and article
466 declares that the fruits of an immovable gathered
or produced while it is under seizure are considered as
making part thereof, and incurred to the benefit of the
person making the seizure. But the evident meaning of
these articles, is where the crops belong to the owner
of the plantation they form part of the immovable, and
where it is seized, the fruits gathered or produced
inure to the benefit of the seizing creditor.
A crop raised on leased
premises in no sense forms
part of the immovable. It
belongs to the lessee, and may
be sold by him, whether it be
gathered or not, and it may be
sold by his judgment creditors.
If it necessarily forms part of
the leased premises the result
would be that it could not be
sold under execution separate
and apart from the land. If a
lessee obtain supplies to make
his crop, the factor's lien would
not attach to the crop as a
separate thing belonging to his
debtor, but the land belonging
to the lessor would be affected
with the recorded privilege.
The law cannot be construed so
as to result in such absurd
consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann.,
244)the court said:
If the crop quoad the pledge thereof
under the act of 1874 was an
immovable, it would be destructive of
the very objects of the act, it would
render the pledge of the crop objects
of the act, it would render the pledge
of the crop impossible, for if the crop
was an inseparable part of the realty
possession of the latter would be
necessary to that of the former; but
such is not the case. True, by article
465 C. C. it is provided that "standing
crops and the fruits of trees not
gathered and trees before they are cut
down are likewise immovable and are
 considered as part of the land to which
they are attached;" but the
immovability provided for is only one in
abstracto and without reference to
rights on or to the crop acquired by
other than the owners of the property
to which the crop was attached. The
immovability of a growing crop is in the
order of things temporary, for the crop
passes from the state of a growing to
that of a gathered one, from an
immovable to a movable. The
existence of a right on the growing
crop is a mobilization by anticipation, a
gathering as it were in advance,
rendering the crop movable quoad the
right acquired thereon. The provision
of our Code is identical with the
Napoleon Code 520, and we may
therefore obtain light by an
examination of the jurisprudence of
France.
The rule above announced, not only by
the Tribunal Supremo de España but by the Supreme
Court of Louisiana, is followed in practically every state
of the Union.
From an examination of the reports and codes
of the State of California and other states we find that
the settle doctrine followed in said states in connection
with the attachment of property and execution of
judgment is, that growing crops raised by yearly labor
and cultivation are considered personal property. (6
Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23
Corpus Juris, p. 329: Raventas vs. Green, 57 Cal.,
254; Norris vs. Watson, 55 Am. Dec., 161;
Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on
Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526;
Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax,
27 Minn., 528; Preston vs. Ryan, 45 Mich., 174;
Freeman on Execution, vol. 1, p. 438; Drake on
Attachment, sec. 249; Mechem on Sales, sec. 200 and
763.)
Mr. Mechem says that a valid sale may be
made of a thing, which though not yet actually in
existence, is reasonably certain to come into existence
as the natural increment or usual incident of
something already in existence, and then belonging to
the vendor, and then title will vest in the buyer the
moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387;
Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.)
Things of this nature are said to have a potential
existence. A man may sell property of which he is
potentially and not actually possessed. He may make a
valid sale of the wine that a vineyard is expected to
produce; or the gain a field may grow in a given time;
or the milk a cow may yield during the coming year; or
the wool that shall thereafter grow upon sheep; or
what may be taken at the next cast of a fisherman's
net; or fruits to grow; or young animals not yet in
existence; or the good will of a trade and the like. The
thing sold, however, must be specific and identified.
They must be also owned at the time by the vendor.
(Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)
It is contended on the part of the appellee that
paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil Procedure
as well as by Act No. 1508, the Chattel Mortgage Law.
Said section 450 enumerates the property of a
judgment debtor which may be subjected to execution.
The pertinent portion of said section reads as follows:
"All goods, chattels, moneys, and other property, both
real and personal, * * * shall be liable to execution.
Said section 450 and most of the other sections of the
Code of Civil Procedure relating to the execution of
judgment were taken from the Code of Civil Procedure
of California. The Supreme Court of California, under
section 688 of the Code of Civil Procedure of that state
(Pomeroy, p. 424) has held, without variation, that
growing crops were personal property and subject to
execution.
Act No. 1508, the Chattel Mortgage Law, fully
recognized that growing crops are personal property.
Section 2 of said Act provides: "All personal property
shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in
pursuance thereof shall be termed a chattel
mortgage." Section 7 in part provides: "If growing
crops be mortgaged the mortgage may contain an
agreement stipulating that the mortgagor binds
himself properly to tend, care for and protect the crop
while growing.
It is clear from the foregoing provisions that
Act No. 1508 was enacted on the assumption that
"growing crops" are personal property. This
consideration tends to support the conclusion
hereinbefore stated, that paragraph 2 of article 334 of
the Civil Code has been modified by section 450 of Act
No. 190 and by Act No. 1508 in the sense that
"ungathered products" as mentioned in said article of
the Civil Code have the nature of personal property. In
other words, the phrase "personal property" should be
understood to include "ungathered products."
At common law, and generally in the
United States, all annual crops which
are raised by yearly manurance and
labor, and essentially owe their annual
existence to cultivation by man, . may
be levied on as personal property." (23
C. J., p. 329.) On this question
Freeman, in his treatise on the Law of
Executions, says: "Crops, whether
growing or standing in the field ready
to be harvested, are, when produced
by annual cultivation, no part of the
realty. They are, therefore, liable to
voluntary transfer as chattels. It is
equally well settled that they may be
seized and sold under execution.
(Freeman on Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2
of article 334 of the Civil Code has been modified by
section 450 of the Code of Civil Procedure and by Act
No. 1508, in the sense that, for the purpose of
attachment and execution, and for the purposes of the
Chattel Mortgage Law, "ungathered products" have the
nature of personal property. The lower court,
therefore, committed no error in holding that the sugar
cane in question was personal property and, as such,
was not subject to redemption.
All the other assignments of error made by the
appellant, as above stated, relate to questions of fact
only. Before entering upon a discussion of said
assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear at
the trial during the presentation of evidence by the
defendant. His absence from the trial and his failure to
cross-examine the defendant have lent considerable
weight to the evidence then presented for the defense.
Coming not to the ownership of parcels 1 and
2 described in the first cause of action of the
complaint, the plaintiff made a futile attempt to show
that said two parcels belonged to Agustin Cuyugan and
were the identical parcel 2 which was excluded from
the attachment and sale of real property of Sibal to
Valdez on June 25, 1924, as stated above. A
comparison of the description of parcel 2 in the
certificate of sale by the sheriff (Exhibit A) and the
description of parcels 1 and 2 of the complaint will
readily show that they are not the same.
The description of the parcels in the complaint is as
follows:
1. La
cañadulcesembradaporlosinquilinos del
ejecutado Leon Sibal 1.º enunaparcela
de terreno de la pertenencia del
citadoejecutado, situadaenLibutad,
Culubasa, Bamban, Tarlac, de unas dos
hectareaspoco mas o menos de
superficie.
2. La cañadulcesembradapor el
inquilino del ejecutado Leon Sibal 1.º,
Ilamado Alejandro Policarpio,
enunaparcela de terreno de la
pertenencia del ejecutado,
situadaenDalayap, Culubasa, Bamban,
Tarlac de unas dos hectareas de
superficiepoco mas o menos." The
description of parcel 2 given in the
certificate of sale (Exhibit A) is as
follows:
2a.
TerrenopalayerosituadoenCulubasa,
Bamban, Tarlac, de 177,090 metros
cuadrados de superficie, linda al N. con
CanutoSibal, Esteban Lazatin and
Alejandro Dayrit; al E. con Francisco
Dizon, Felipe Mañu and others; al S.
con Alejandro Dayrit, Isidro Santos and
MelecioMañu; y al O. con Alejandro
Dayrit and Paulino Vergara. Tax No.
2854, vadoramillarado P4,200 pesos.
On the other hand the evidence for the
defendant purported to show that parcels 1 and 2 of
the complaint were included among the parcels bought
by Valdez from Macondray on June 25, 1924, and
corresponded to parcel 4 in the deed of sale (Exhibit B
and 2), and were also included among the parcels
bought by Valdez at the auction of the real property of
Leon Sibal on June 25, 1924, and corresponded to
parcel 3 in the certificate of sale made by the sheriff
(Exhibit A). The description of parcel 4 (Exhibit 2) and
parcel 3 (Exhibit A) is as follows:
Parcels No. 4. — Terrenopalayero,
ubicadoen el barrio de
Culubasa,Bamban, Tarlac, I. F. de
145,000 metros cuadrados de
superficie, lindante al Norte con Road
of the barrio of Culubasa that goes to
Concepcion; al Este con Juan Dizon; al
Sur con Lucio Maño y CanutoSibal y al
Oeste con Esteban Lazatin, su valor
amillaradoasciende a la suma de
P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation
between parcels 1 and 2 of the complaint and parcel 4
(Exhibit 2 and B) and parcel 3 (Exhibit A). But,
inasmuch as the plaintiff did not care to appear at the
trial when the defendant offered his evidence, we are
inclined to give more weight to the evidence adduced
by him that to the evidence adduced by the plaintiff,
with respect to the ownership of parcels 1 and 2 of the
compliant. We, therefore, conclude that parcels 1 and
2 of the complaint belong to the defendant, having
acquired the same from Macondray& Co. on June 25,
1924, and from the plaintiff Leon Sibal on the same
date.
It appears, however, that the plaintiff planted
the palay in said parcels and harvested therefrom 190
cavans. There being no evidence of bad faith on his
part, he is therefore entitled to one-half of the crop, or
95 cavans. He should therefore be condemned to pay
to the defendant for 95 cavans only, at P3.40 a cavan,
or the sum of P323, and not for the total of 190 cavans
as held by the lower court.
As to the ownership of parcel 7 of the
complaint, the evidence shows that said parcel
corresponds to parcel 1 of the deed of sale of
Macondray& Co, to Valdez (Exhibit B and 2), and to
parcel 4 in the certificate of sale to Valdez of real
property belonging to Sibal, executed by the sheriff as
above stated (Exhibit A). Valdez is therefore the
absolute owner of said parcel, having acquired the
interest of both Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal,
Tarlac, described in paragraph 3 of the second cause of
action, it appears from the testimony of the plaintiff
himself that said parcel corresponds to parcel 8 of the
deed of sale of Macondray to Valdez (Exhibit B and 2)
and to parcel 10 in the deed of sale executed by the
sheriff in favor of Valdez (Exhibit A). Valdez is
therefore the absolute owner of said parcel, having
acquired the interest of both Macondray and Sibal
therein.
 Sibal are hereby ordered to pay to the defendant
In this connection the following facts are jointly and severally the sum of P8,900.80, instead of
worthy of mention: P9,439.08 allowed by the lower court, as follows:
Execution in favor of Macondray& Co., May 11,
P6,757.40 for the sugar cane;
1923. Eight parcels of land were attached under said
execution. Said parcels of land were sold to for the sugar cane
Macondray& Co. on the 30th day of July, 1923. Rice 1,220.40
shoots;
paid P4,273.93. On September 24, 1923, Leon Sibal
paid to Macondray& Co. P2,000 on the redemption of for the palay harvested
said parcels of land. (See Exhibits B and C ). 323.00 by plaintiff in parcels 1
and 2;
Attachment, April 29, 1924, in favor of Valdez.
Personal property of Sibal was attached, including the for the palay which
sugar cane in question. (Exhibit A) The said personal 600.00 defendant could have
property so attached, sold at public auction May 9 and raised.
10, 1924. April 29, 1924, the real property was
attached under the execution in favor of Valdez
(Exhibit A). June 25, 1924, said real property was sold 8,900.80
and purchased by Valdez (Exhibit A). ============
In all other respects, the judgment appealed from is
June 25, 1924, Macondray& Co. sold all of the hereby affirmed, with costs. SO ORDERED.
land which they had purchased at public auction on the
30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane

by reason of the injunction, the evidence shows that
the sugar cane in question covered an area of 22
hectares and 60 ares (Exhibits 8, 8-b and 8-c); that
said area would have yielded an average crop of 1039
picos and 60 cates; that one-half of the quantity, or
519 picos and 80 cates would have corresponded to
the defendant, as owner; that during the season the
sugar was selling at P13 a pico (Exhibit 5 and 5-A).
Therefore, the defendant, as owner, would have netted
P 6,757.40 from the sugar cane in question. The
evidence also shows that the defendant could have
taken from the sugar cane 1,017,000 sugar-cane
shoots (puntas de cana) and not 1,170,000 as
computed by the lower court. During the season the
shoots were selling at P1.20 a thousand (Exhibits 6
and 7). The defendant therefore would have netted
P1,220.40 from sugar-cane shoots and not P1,435.68
as allowed by the lower court.

As to the palay harvested by the plaintiff in

parcels 1 and 2 of the complaint, amounting to 190
cavans, one-half of said quantity should belong to the
plaintiff, as stated above, and the other half to the
defendant. The court erred in awarding the whole crop
to the defendant. The plaintiff should therefore pay the
defendant for 95 cavans only, at P3.40 a cavan, or
P323 instead of P646 as allowed by the lower court.

The evidence also shows that the defendant

was prevented by the acts of the plaintiff from
cultivating about 10 hectares of the land involved in
the litigation. He expected to have raised about 600
cavans of palay, 300 cavans of which would have
corresponded to him as owner. The lower court has
wisely reduced his share to 150 cavans only. At P4 a
cavan, the palay would have netted him P600.

In view of the foregoing, the judgment

appealed from is hereby modified. The plaintiff and his
sureties Cenon de la Cruz, Juan Sangalang and Marcos
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW
YORK, petitioner, vs.
JOAQUIN JARAMILLO, as register of deeds of the
City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for
respondent.
SYLLABUS
1. CHATTEL MORTGAGE; REGISTRATION; NOTICE. —
The efficacy of the act of recording a chattel mortgage
consists in the fact that registration operates as
constructive notice of the existence of the contract,
and the legal effects of the instrument must be
discovered in the document itself, in relation with the
fact of notice. Registration adds nothing to the
instrument, considered as a source of title, and affects
nobody’s rights except as a species of constructive
notice.
2. ID.; ID.; FUNCTION OF REGISTER. — The duties of
a register of deeds in respect to the registration of
chattel mortgages are purely of a ministerial character,
and he is clothed with no judicial or quasi-judicial
power to determine the nature of the property,
whether real or personal, which is the subject of the
mortgage. Generally speaking, he should accept the
qualification of the property adapted by the person
who presents the instrument for registration and
should place the instrument on record, upon payment
of the proper fee, leaving the effects of registration to
be determined by the court if such question should
arise for legal determination.
DECISION
STREET, J.:
This cause is before us upon demurrer
interposed by the respondent, Joaquin Jaramillo,
register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York,
seeking a peremptory mandamus to compel the
respondent to record in the proper register a document
purporting to be a chattel mortgage executed in the
City of Manila by Gervasia de la Rosa, Vda. de Vera, in
favor of the Standard Oil Company of New York.
It appears from the petition that on November
27, 1922, Gervasia de la Rosa, Vda. de Vera, was the
lessee of a parcel of land situated in the City of Manila
and owner of the house of strong materials built
thereon, upon which date she executed a document in
the form of a chattel mortgage, purporting to convey
to the petitioner by way of mortgage both the
leasehold interest in said lot and the building which
stands thereon.
The clauses in said document describing the
property intended to be thus mortgage are expressed
in the following words:
Now, therefore, the mortgagor hereby
conveys and transfer to the mortgage,
by way of mortgage, the following
described personal property, situated
in the City of Manila, and now in
possession of the mortgagor, to wit:
(1) All of the right, title, and interest of
the mortgagor in and to the contract of
lease hereinabove referred to, and in
and to the premises the subject of the
said lease;
(2) The building, property of the
mortgagor, situated on the aforesaid
leased premises.
After said document had been duly
acknowledge and delivered, the petitioner caused the
same to be presented to the respondent, Joaquin
Jaramillo, as register of deeds of the City of Manila, for
the purpose of having the same recorded in the book
of record of chattel mortgages. Upon examination of
the instrument, the respondent was of the opinion that
it was not a chattel mortgage, for the reason that the
interest therein mortgaged did not appear to be
personal property, within the meaning of the Chattel
Mortgage Law, and registration was refused on this
ground only.
We are of the opinion that the position taken
by the respondent is untenable; and it is his duty to
accept the proper fee and place the instrument on
record. The duties of a register of deeds in respect to
the registration of chattel mortgage are of a purely
ministerial character; and no provision of law can be
cited which confers upon him any judicial or quasi-
judicial power to determine the nature of any
document of which registration is sought as a chattel
mortgage.
The original provisions touching this matter are
contained in section 15 of the Chattel Mortgage Law
(Act No. 1508), as amended by Act No. 2496; but
these have been transferred to section 198 of the
Administrative Code, where they are now found. There
is nothing in any of these provisions conferring upon
the register of deeds any authority whatever in respect
to the "qualification," as the term is used in Spanish
law, of chattel mortgage. His duties in respect to such
instruments are ministerial only. The efficacy of the act
of recording a chattel mortgage consists in the fact
that it operates as constructive notice of the existence
of the contract, and the legal effects of the contract
must be discovered in the instrument itself in relation
with the fact of notice. Registration adds nothing to the
instrument, considered as a source of title, and affects
nobody's rights except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply
no absolute criterion for discriminating between real
property and personal property for purpose of the
application of the Chattel Mortgage Law. Those articles
state rules which, considered as a general doctrine, are
law in this jurisdiction; but it must not be forgotten
that under given conditions property may have
character different from that imputed to it in said
articles. It is undeniable that the parties to a contract
may by agreement treat as personal property that
which by nature would be real property; and it is a
familiar phenomenon to see things classed as real
property for purposes of taxation which on general of the register of deeds to accept the estimate placed
principle might be considered personal property. Other upon the document by the petitioner and to register it,
situations are constantly arising, and from time to time upon payment of the proper fee.
are presented to this court, in which the proper
classification of one thing or another as real or The demurrer is overruled; and unless within
personal property may be said to be doubtful. the period of five days from the date of the notification
hereof, the respondent shall interpose a sufficient
The point submitted to us in this case was answer to the petition, the writ of mandamus will be
determined on September 8, 1914, in an issued, as prayed, but without costs. SO ORDERED.
administrative ruling promulgated by the Honorable
James A. Ostrand, now a Justice of this Court, but
acting at that time in the capacity of Judge of the
fourth branch of the Court of First Instance of the
Ninth Judicial District, in the City of Manila; and little of
value can be here added to the observations contained
in said ruling. We accordingly quote therefrom as
follows:

It is unnecessary here to determine

whether or not the property described
in the document in question is real or
personal; the discussion may be
confined to the point as to whether a
register of deeds has authority to deny
the registration of a document
purporting to be a chattel mortgage
and executed in the manner and form
prescribed by the Chattel Mortgage
Law.

Then, after quoting section 5 of the Chattel Mortgage

Law (Act No. 1508), his Honor continued:

Based principally upon the provisions

of section quoted the Attorney-General
of the Philippine Islands, in an opinion
dated August 11, 1909, held that a
register of deeds has no authority to
pass upon the capacity of the parties to
a chattel mortgage which is presented
to him for record. A fortiori a register
of deeds can have no authority to pass
upon the character of the property
sought to be encumbered by a chattel
mortgage. Of course, if the mortgaged
property is real instead of personal the
chattel mortgage would no doubt be
held ineffective as against third parties,
but this is a question to be determined
by the courts of justice and not by the
register of deeds.

In Leung Yee vs. Frank L. Strong Machinery

Co. and Williamson (37 Phil., 644), this court held that
where the interest conveyed is of the nature of real,
property, the placing of the document on record in the
chattel mortgage register is a futile act; but that
decision is not decisive of the question now before us,
which has reference to the function of the register of
deeds in placing the document on record.

In the light of what has been said it becomes

unnecessary for us to pass upon the point whether the
interests conveyed in the instrument now in question
are real or personal; and we declare it to be the duty
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant, vs.
FRANK L. STRONG MACHINERY COMPANY and J.
G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
SYLLABUS
1. CHATTEL MORTGAGE; REGISTRY OF MORTGAGE
COVERING REAL PROPERTY. — The sole purpose and
object of the chattel mortgage registry is to provide for
the registry of "chattel mortgages," and transfers
thereof, that is to say, mortgages of personal property
executed in the manner and form prescribed in the
statute. Neither the original registry in a chattel
mortgage registry of an instrument purporting to be a
chattel mortgage of a building and the machinery
installed therein, nor the annotation in that registry of
the sale of the mortgaged property, had any effect
whatever so far as the building is concerned.
2. ID.; ID. — A factory building is real property, and
the mere fact that it is mortgaged and sold, separate
and apart from the land on which it stands, in no wise
changes its character as real property.
3. VENDOR AND PURCHASER; REGISTRY OF TITLE;
GOOD FAITH. — The rights secured under the
provisions of article 1473 of the Civil Code to that one
of two purchasers of the same real estate, who has
secured and inscribed his title thereto in the Land
Registry, do not accrue unless such inscription is made
in good faith.
4. ID.; SEPARATE PURCHASERS; DETERMINATION OF
RIGHTS. — The respective rights of two or more
separate purchasers of the same real estate from the
same owner in case none of them has secured an
inscription of his title in the land registry in good faith,
are to be determined in accord with the third, and not
the second paragraph of that article.
5. ID.; 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.
6. ID.; ID. — 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.
7. ID.; ID. — Good faith, or the lack of it, is in its last
analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion,
we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward
motive may, with safety, be determined.
8. ID.; ID. — "Good faith, or the want of it, is not a
visible, tangible fact that can be seen or touched but
rather a state or condition of mind which can only be
judged of by actual or fancied tokens or signs."
DECISION
CARSON, J.:
The "Compañia Agricola Filipina" bought a
considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and
executed a chattel mortgage thereon to secure
payment of the purchase price. It included in the
mortgage deed the building of strong materials in
which the machinery was installed, without any
reference to the land on which it stood. The
indebtedness secured by this instrument not having
been paid when it fell due, the mortgaged property
was sold by the sheriff, in pursuance of the terms of
the mortgage instrument, and was bought in by the
machinery company. The mortgage was registered in
the chattel mortgage registry, and the sale of the
property to the machinery company in satisfaction of
the mortgage was annotated in the same registry on
December 29, 1913.
A few weeks thereafter, on or about the 14th
of January, 1914, the "Compañia Agricola Filipina"
executed a deed of sale of the land upon which the
building stood to the machinery company, but this
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 of curing any
defects which might be found to exist in the machinery
company's title to the building under the sheriff's
certificate of sale. The machinery company went into
possession of the building at or about the time when
this sale took place, that is to say, the month of
December, 1913, and it has continued in possession
ever since.
At or about the time when the chattel
mortgage was executed in favor of the machinery
company, the mortgagor, the "Compañia Agricola
Filipina" executed another mortgage to the plaintiff
upon the 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 the
mortgagor to pay the amount of the indebtedness
secured by the mortgage, the plaintiff secured
judgment for that amount, levied execution upon the
building, bought it in at the sheriff's sale on or about
the 18th of December, 1914, and had the sheriff's
certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied
upon the building, the defendant machinery company,
which was in possession, filed with the sheriff a sworn
statement setting up its claim of title and demanding
the release of the property from the levy. Thereafter,
upon demand of the sheriff, the plaintiff executed an
indemnity bond in favor of the sheriff in the sum of
P12,000, in reliance upon which the sheriff sold the
property at public auction to the plaintiff, who was the
highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover
possession of the building from the machinery
company.
The trial judge, relying upon the terms of
article 1473 of the Civil Code, gave judgment in favor
of the machinery company, on the ground that the
company had its title to the building registered prior to
the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
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.
Should it be real property, it shall
belong to the person acquiring it who
first recorded it in the registry.
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 good faith.
The registry her referred to is of course the
registry of real property, and it must be apparent that
the annotation or inscription of a deed of sale of real
property in a chattel mortgage registry cannot be
given the legal effect of an inscription in the registry of
real property. By its express terms, the Chattel
Mortgage Law contemplates and makes provision for
mortgages of personal property; and the sole purpose
and object of the chattel mortgage registry is to
provide for the registry of "Chattel mortgages," that is
to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The
building of strong materials in which the rice-cleaning
machinery was installed by the "Compañia Agricola
Filipina" was real property, and the mere fact that the
parties seem 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 building
and the machinery installed therein, not the annotation
in that registry of the sale of the mortgaged property,
had any effect whatever so far as the building was
concerned.
We conclude that the ruling in favor of the
machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion,
however, that the judgment must be sustained on the
ground that the agreed statement of facts in the court
below discloses that neither the purchase of the
building by the plaintiff nor his inscription of the
sheriff's certificate of sale in his favor was made in
good faith, and that the machinery company must be
held to be the owner of the property under the third
paragraph of the above cited article of the code, it
appearing that the company first took possession of
the property; and further, that the building and the
land were sold to the machinery company long prior to
the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions
of article 1473 of the Civil Code require "good faith," in
express terms, in relation to "possession" and "title,"
but contain no express requirement as to "good faith"
in relation to the "inscription" of the property on the
registry, it must be presumed that good faith is not an
essential requisite of registration in order that it may
have the effect contemplated in 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 faith. Such an interpretation
placed upon the language of this section would open
wide the door to fraud and collusion. The public
records cannot be converted into instruments of fraud
and oppression by one who secures an inscription
therein in bad faith. The force and effect given by law
to an inscription in a public record presupposes the
good faith of him who enters such inscription; and
rights created by statute, which are predicated upon
an inscription in a public registry, do not and cannot
accrue under an inscription "in bad faith," to the
benefit of the person who thus makes the inscription.
Construing the second paragraph of this article
of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that:
This rule is always to be understood on
the basis of the good faith mentioned
in the first paragraph; 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, art. 1473, Civ.
Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second
paragraph, provides that the title of
conveyance of ownership of the real
property that is first recorded in the
registry shall have preference, this
provision must always be understood
on the basis of the good faith
mentioned in the first paragraph; the
legislator could not have wished to
strike it out and to sanction bad faith,
just to comply with a mere formality
which, in given cases, does not obtain
even in real disputes between third
persons. (Note 2, art. 1473, Civ. Code,
issued by the publishers of the La
Revista de losTribunales, 13th edition.)
The agreed statement of facts clearly discloses
that the plaintiff, when he bought the building at the
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 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 "Compañia 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.
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 on a given occasion, we are necessarily
controlled by the evidence as to the conduct and
outward acts 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 overcomes the presumption of good faith in
which the courts always indulge in the absence of
proof to the contrary. "Good faith, or the want of it, is
not a visible, tangible fact that can be seen or touched,
but rather a state or condition of mind which can only
be judged of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas
Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set
forth the disposing part of the decision and judgment
entered in the court below should be affirmed with
costs of this instance against the appellant. SO
ORDERED.

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
G.R. No. L-50008 August 31, 1987
PRUDENTIAL BANK, petitioner, vs.
HONORABLE DOMINGO D. PANIS, Presiding
Judge of Branch III, Court of First Instance of
Zambales and Olongapo City; FERNANDO
MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; REAL ESTATE MORTGAGE;
BUILDING ALONE MAY BE SUBJECT THEREOF. — The
pivotal issue in this case is whether or not a valid real
estate mortgage can be constituted on the building
erected on the land belonging to another. The answer
is in the affirmative. In the enumeration of properties
under Article 415 of the Civil Code of the Philippines,
this Court ruled that, "it is obvious that the inclusion of
‘building’ separate and distinct from the land, in said
provision of law can only mean that a building is by
itself an immovable property." (Lopez v. Orosa, Jr., Et
Al., L-10817-18, Feb. 28, 1958; Associated Inc. and
Surety Co., Inc. v. Iya, Et Al., L-10837-38, May 30,
1958). Thus, while it is true that a mortgage of land
necessarily includes, in the absence of stipulation of
the improvements thereon, buildings, still a building by
itself may be mortgaged apart from the land on which
it has been built. Such a mortgage would be still a real
estate mortgage for the building would still be
considered immovable property even if dealt with
separately and apart from the land (Leung Yee v.
Strong Machinery Co., 37 Phil. 644).
2. ID.; ID.; ID.; ID.; POSSESSORY RIGHTS OVER A
BUILDING MAY BE VALIDLY MORTGAGED. — In the
same manner, this Court has also established that
possessory rights over said properties before title is
vested on the grantee, may be validly transferred or
conveyed as in a deed of mortgage (Vda. de Bautista
v. Marcos, 3 SCRA 438 [1961]).
3. ID.; ID.; ID.; ID.; CASE AT BAR. — Coming back to
the case at bar, the records show, as aforestated that
the original mortgage deed on the 2-storey semi-
concrete residential building with warehouse and on
the right of occupancy on the lot where the building
was erected, was executed on November 19, 1971 and
registered under the 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 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.
v. Meer, 96 Phil. 515; Director of Lands v. De Leon,
110 Phil. 28; Director of Lands v. Jurado, L-14702,
May 23, 1961; Peña, "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.
4. ID.; ID.; DOCTRINE OF ESTOPPEL CANNOT GIVE
VALIDITY TO A VOID CONTRACT. — The Court, in
recently ruling on violations of Section 124 which
refers to sections 118, 120, 122 and 123 of
Commonwealth Act 141, has held: ". . . 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 a void contract. Indeed, it is
generally considered that as between parties to a
contract, validity cannot be given to it by estoppel if it
is prohibited by law or is against public policy (19 Am.
Jur. 802). It is not within the competence of any
citizen to barter away what public policy by law seeks
to preserve (Gonzalo Puyat& Sons, Inc. v. De losAmas
and Alino, supra). . . ." (Arsenal v. IAC, 143 SCRA 54
[1986]).
5. ID.; ID.; ID.; CASE AT BAR. — This pronouncement
covers only the previous transaction already alluded to
and does not pass upon any new contract between the
parties as in the case at bar. It should not preclude
new contracts that may be entered into between
petitioner bank and private respondents that are in
accordance with the requirements of the law. After all,
private respondents themselves declare that they are
not denying the legitimacy of their debts and appear to
be open to new negotiations under the law. Any new
transaction, however, would be subject to whatever
steps the Government may take for the reversion of
the land in its favor.
DECISION
PARAS, J.:
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.
Magcale and TeodulaBaluyut-Magcale vs. Hon. Ramon
Y. Pardo and Prudential Bank" declaring that the deeds
of real estate mortgage executed by respondent
spouses in favor of petitioner bank are null and void.
The undisputed facts of this case by stipulation
of the parties are as follows:
... on November 19, 1971, plaintiffs-
spouses Fernando A. Magcale and
TeodulaBaluyutMagcale 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
Mortgage over the following described
properties:
l. A 2-STOREY, SEMI-CONCRETE,
residential building with warehouse
spaces containing a total floor area of
263 sq. meters, more or less, generally
constructed of mixed hard wood and
concrete materials, under a roofing of
cor. g. i. sheets; declared and assessed
in the name of FERNANDO MAGCALE Mortgagors
under Tax Declaration No. 21109, hereby
issued by the Assessor of Olongapo authorize the
City with an assessed value of Register of
P35,290.00. This building is the only Deeds to hold
improvement of the lot. the
2. THE PROPERTY hereby conveyed by Registration of
way of MORTGAGE includes the right of same until this
occupancy on the lot where the above Mortgage is
property is erected, and more cancelled, or to
particularly described and bounded, as annotate this
follows: encumbrance
A first class residential land on the Title
Identffied as Lot No. 720, (Ts- upon authority
308, OlongapoTownsite from the
Subdivision) Ardoin Street, Secretary of
East Bajac-Bajac, Olongapo Agriculture and
City, containing an area of 465 Natural
sq. m. more or less, declared Resources,
and assessed in the name of which title with
FERNANDO MAGCALE under annotation,
Tax Duration No. 19595 issued shall be
by the Assessor of Olongapo released in
City with an assessed value of favor of the
P1,860.00; bounded on the herein
NORTH: By No. Mortgage.
6, Ardoin Street
SOUTH: By No. From the aforequoted
2, Ardoin Street stipulation, it is obvious that
EAST: By 37 the mortgagee (defendant
Canda Street, and Prudential Bank) was at the
WEST: By outset aware of the fact that
Ardoin Street. the mortgagors (plaintiffs)
have already filed a
All corners of the lot Miscellaneous Sales Application
marked by conc. over the lot, possessory rights
cylindrical monuments over which, were mortgaged to
of the Bureau of Lands it.
as visible limits. (
Exhibit "A, " also Exhibit "A" (Real Estate
Exhibit "1" for Mortgage) was registered
defendant). under the Provisions of Act
3344 with the Registry of
Apart from the stipulations in Deeds of Zambales on
the printed portion of the November 23, 1971.
aforestated deed of mortgage,
there appears a rider typed at On May 2, 1973, plaintiffs
the bottom of the reverse side secured an additional loan from
of the document under the lists defendant Prudential Bank in
of the properties mortgaged the sum of P20,000.00. To
which reads, as follows: secure payment of this
additional loan, plaintiffs
AND IT IS executed in favor of the said
FURTHER defendant another deed of Real
AGREED that in Estate Mortgage over the same
the event the properties previously
Sales Patent on mortgaged in Exhibit "A."
the lot applied (Exhibit "B;" also Exhibit "2"
for by the for defendant). This second
Mortgagors as deed of Real Estate Mortgage
herein stated is was likewise registered with
released or the Registry of Deeds, this time
issued by the in Olongapo City, on May
Bureau of 2,1973.
Lands, the
 On April 24, 1973, the Secretary of
Agriculture issued Miscellaneous Sales
Patent No. 4776 over the 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 the Province of
Zambales, Original Certificate of Title
No. P-2554 was issued in the name of
Plaintiff Fernando Magcale, by the Ex-
Oficio Register of Deeds of Zambales,
on May 15, 1972.
For failure of plaintiffs to pay their
obligation to defendant Bank after it
became due, and upon 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
mortgaged to defendant as the highest
bidder in a public auction sale
conducted by the defendant City
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-
31).
Respondent Court, in a Decision dated
November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).
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 (Ibid.,
p. 63), the Motion for Reconsideration was denied for
lack of merit. Hence, the instant petition (Ibid., pp. 5-
28).
The first Division of this Court, in a Resolution
dated March 9, 1979, resolved to require the
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).
Thereafter, in the Resolution dated June 13,
1979, the petition was given due course and the
parties were required to submit simultaneously their
respective memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its
Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1,
1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this
case was considered submitted for decision (Ibid., P.
158).
In its Memorandum, petitioner raised the
following issues:
1. WHETHER OR NOT THE DEEDS OF REAL ESTATE
MORTGAGE ARE VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN
FAVOR OF PRIVATE RESPONDENTS OF
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).
This petition is impressed with merit.
The pivotal issue in this case is whether or not
a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article
415 of the Civil Code of the Philippines, this Court
ruled that, "it is obvious that the inclusion of "building"
separate and distinct from the land, in said provision of
law can only mean that a building is by itself an
immovable property." (Lopez vs. Orosa, Jr., et al., L-
10817-18, Feb. 28, 1958; Associated Inc. and Surety
Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land
necessarily includes, in the absence of stipulation of
the improvements thereon, buildings, still a building by
itself may be mortgaged apart from the land on which
it has been built. Such a mortgage would be still a real
estate mortgage for the building would still be
considered immovable property even if dealt with
separately and apart from the land (Leung Yee vs.
Strong Machinery Co., 37 Phil. 644). In the same
manner, this Court has also established that
possessory rights over said properties before title is
vested on the grantee, may be validly transferred or
conveyed as in a deed of mortgage (Vda. de Bautista
vs. Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records
show, as aforestated that the original mortgage deed
on the 2-storey semi-concrete residential building with
warehouse and on the right of occupancy on the lot
where the building was erected, was executed on
November 19, 1971 and registered under the
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 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; (19 Am. Jur. 802). It is not
Director of Lands vs. Jurado, L-14702, May 23, 1961; within the competence of any
Pena "Law on Natural Resources", p. 49). Under the citizen to barter away what
foregoing considerations, it is evident that the public policy by law was to
mortgage executed by private respondent on his own preserve (Gonzalo Puyat&
building which was erected on the land belonging to Sons, Inc. vs. De losAmas and
the government is to all intents and purposes a valid Alino supra). ... (Arsenal vs.
mortgage. IAC, 143 SCRA 54 [1986]).

As to restrictions expressly mentioned on the
face of respondents' OCT No. P-2554, it will be noted
that 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, also a
restriction appearing on the face of private
respondent's title has likewise no application in the
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 regarding the
improvements existing thereon.
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
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 therefore
null and void.
This pronouncement covers only the previous
transaction already alluded to and does not pass upon
any new contract between the parties (Ibid), as in the
case at bar. It should not preclude new contracts that
may be entered into between petitioner bank and
private respondents that are in accordance with the
requirements of the law. After all, private respondents
themselves declare that they are not denying the
legitimacy of their debts and appear to be open to new
negotiations under the law (Comment; Rollo, pp. 95-
96). Any new transaction, however, would be subject
to whatever steps the Government may take for the
reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the
Court of First Instance of Zambales&Olongapo City is
hereby MODIFIED, declaring that the Deed of Real
Estate Mortgage for P70,000.00 is valid but ruling that
the Deed of Real Estate Mortgage for an additional loan
of P20,000.00 is null and void, without prejudice to
any appropriate action the Government may take
against private respondents.
SO ORDERED.

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, thereby
implicitly authorizing Prudential Bank to cause the
annotation of said mortgage on their title.

However, the Court, in recently ruling on

violations of Section 124 which refers to Sections 118,
120, 122 and 123 of Commonwealth Act 141, has
held:

... 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 a void contract.
Indeed, it is generally
considered that as between
parties to a contract, validity
cannot be given to it by
estoppel if it is prohibited by
law or is against public policy
G.R. No. 120098 October 2, 2001
RUBY L. TSAI, petitioner, vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS,
INC. and MAMERTO R VILLALUZ, respondents.
x---------------------------------------------------------x
G.R. No. 120109. October 2, 2001.
PHILIPPINE BANK OF
COMMUNICATIONS, petitioner, vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS
and MAMERTO R VILLALUZ, respondents.
DECISION
QUISUMBING, J.:
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
assailed is respondent court's resolution denying
petitioners' motion for reconsideration.
On November 26, 1975, respondent Ever
Textile Mills, Inc. (EVERTEX) obtained a three million
peso (P3,000,000.00) loan from petitioner Philippine
Bank of Communications (PBCom). As security for the
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 are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx xxx xxx
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 may
hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever
Textile Mills in favor of PBCommunications —
continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting
Machines-Tompkins made in Hongkong:
Serial Numbers Size of Machines
xxx xxx xxx
B. Sixteen (16) sets of Vayrow Knitting
Machines made in Taiwan.
xxx xxx xxx
C. Two (2) Circular Knitting Machines made in
West Germany.
xxx xxx xxx
D. Four (4) Winding Machines.
xxx xxx xxx
SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx xxx xxx
II. Any and all buildings and improvements
now existing or hereafter to exist on the
above-mentioned lot.
III. MACHINERIES & EQUIPMENT situated,
located and/or installed on the above-
mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting
Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines
...
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions,
additions, increases and accretions to above
properties.
xxx xxx xxx3
On April 23, 1979, PBCom granted a second
loan of P3,356,000.00 to EVERTEX. The loan was
secured 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.
After April 23, 1979, the date of the execution
of the second mortgage mentioned above, EVERTEX
purchased various machines and equipments.
On November 19, 1982, due to business
reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct
Court of First Instance of Pasay City, Branch XXVIII.
The 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
two mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to
meet its obligation to PBCom, the latter commenced
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, 1982.
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, 1982,
another public auction was held and again, PBCom was
the highest bidder. The sheriff issued a Certificate of
Sale on the same day.
On March 7, 1984, PBCom consolidated its
ownership over the lot and all the properties in it. In
November 1986, it leased the entire factory premises
to petitioner Ruby L. Tsai for P50,000.00 a month. On
May 3, 1988, PBCom sold the factory, lock, stock and
barrel to Tsai for P9,000,000.00, including the
contested machineries.
 On March 16, 1989, EVERTEX filed a complaint
for annulment of sale, reconveyance, and damages
with 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 such
assets sold to her, and should reconvey the assets.
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
Chattel Mortgage of April 23, 1979, and neither were
those properties included in the Notice of Sheriff's Sale
dated December 1, 1982 and Certificate of Sale . . .
dated December 15, 1982.
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.
The RTC found that the lease and sale of said
personal properties were irregular and illegal because
they were not duly foreclosed nor sold at the
December 15, 1982 auction sale since these were not
included in the schedules attached to the mortgage
contracts. The trial court decreed:
WHEREFORE, judgment is hereby
rendered in favor of plaintiff
corporation and against the
defendants:
1. Ordering the annulment of the sale
executed by defendant Philippine
Bank of Communications in favor of
defendant Ruby L. Tsai on May 3,
1988 insofar as it affects the personal
properties listed in 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;
2. Ordering the defendants to pay
jointly and severally the plaintiff
corporation the sum of P5,200,000.00
as compensation for the use and
possession of the properties in
question from November 1986 to
February 1991 and P100,000.00 every
month thereafter, with interest
thereon at the legal rate per annum
until full payment;
3. Ordering the defendants to pay
jointly and severally the plaintiff
corporation the sum of P50,000.00 as
and for attorney's fees and expenses
of litigation;
4. Ordering the defendants to pay
jointly and severally the plaintiff
corporation the sum of P200,000.00
by way of exemplary damages;
5. Ordering the dismissal of the
counterclaim of the defendants; and
6. Ordering the defendants to
proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to
the Court of Appeals, which issued its decision dated
August 31, 1994, the dispositive portion of which
reads:
WHEREFORE, except for the
deletion therefrom of the award; for
exemplary damages, and reduction of
the actual damages, from P100,000.00
to P20,000.00 per month, from
November 1986 until subject personal
properties are restored to appellees,
the judgment appealed from is hereby
AFFIRMED, in all other respects. No
pronouncement as to costs.5
Motion for reconsideration of the above
decision having been denied in the resolution of April
28, 1995, PBCom and Tsai filed their separate petitions
for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the
following errors to the respondent court:
I
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE PARTIES BY
TREATING THE 1981 ACQUIRED MACHINERIES
AS CHATTELS INSTEAD OF REAL PROPERTIES
WITHIN THEIR EARLIER 1975 DEED OF REAL
AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN HOLDING THAT
THE DISPUTED 1981 MACHINERIES ARE NOT
REAL PROPERTIES DEEMED PART OF THE
MORTGAGE — DESPITE THE CLEAR IMPORT OF
THE EVIDENCE AND APPLICABLE RULINGS OF
THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN ASSESSING
PETITIONER ACTUAL DAMAGES, ATTORNEY'S
FEES AND EXPENSES OF LITIGATION — FOR
WANT OF VALID FACTUAL AND LEGAL BASIS.
V
THE HONORABLE COURT OF APPEALS
(SECOND DIVISION) ERRED IN HOLDING
AGAINST PETITIONER'S ARGUMENTS ON
PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following
issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE
MACHINERIES LISTED UNDER PARAGRAPH 9 OF 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 PBCOM
DESPITE THE PROVISION IN THE 1975 DEED THAT ALL
AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME
OF THE MORTGAGE SHALL FORM PART THEREOF, AND
DESPITE THE UNDISPUTED FACT THAT SAID
MACHINERIES ARE BIG AND HEAVY, BOLTED OR
CEMENTED ON THE REAL PROPERTY MORTGAGED BY
EVER TEXTILE MILLS TO PBCOM, AND WERE
ASSESSED FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE
MACHINERIES IN QUESTION IN GOOD FAITH,
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 MACHINERIES AND HAD TO PAY
ALL THE BACK TAXES OF EVER TEXTILE MILLS BE
LEGALLY COMPELLED TO RETURN TO EVER THE SAID
MACHINERIES OR IN LIEU THEREOF BE ASSESSED
DAMAGES. IS THAT SITUATION TANTAMOUNT TO A
CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or
not the inclusion of the questioned properties in the
foreclosed properties is proper. The secondary issue is
whether or not the sale of these properties to
petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of
Appeals in effect made a contract for the parties by
treating the 1981 acquired units of machinery as
chattels instead of real properties within their earlier
1975 deed of Real and Chattel Mortgage or 1979 deed
of Chattel Mortgage.8 Additionally, Tsai argues that
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 and
laches10 and in assessing petitioner actual damages,
attorney's fees and expenses of litigation, for want of
valid factual and legal basis.11
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 leased nor
sold to Ruby Tsai. It further argued that the Court of
Appeals' pronouncement that the 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.
In opposition, private respondents argue that
the controverted units of machinery are not "real
properties" but chattels, and, therefore, they were not
part of the foreclosed real properties, rendering the
lease and the subsequent sale thereof to Tsai a
nullity.12
Considering the assigned errors and the
arguments of the parties, we find the petitions devoid
of merit and ought to be denied.
Well settled is the rule that the jurisdiction of
the Supreme Court in a petition for review on certiorari
under Rule 45 of the Revised Rules of Court is limited
to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by
the evidence on record or the 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
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
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 they included in
the Sheriff's Notice of Sale of the foreclosed
properties.15
Petitioners contend that the nature of the
disputed machineries, i.e., that they were heavy,
bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable
under Article 415 (3) and (5) of the New Civil Code.
This assertion, however, does not settle the issue.
Mere nuts and bolts do not foreclose the controversy.
We have to look at the parties' intent.
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
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 respondent
appellate court's ruling is quoted below:
As stressed upon by appellees,
appellant bank treated the machineries
as chattels; never as real properties.
Indeed, the 1975 mortgage contract,
which was actually real and chattel
mortgage, militates against appellants'
posture. It should be noted that the
printed form used by appellant bank
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 mortgage, of the
phrase "real and chattel." So also, the
"machineries and equipment" in the
printed form of the bank had to be
inserted in the blank space of the
 printed contract and connected with
the 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 chattel
mortgage specifically mentioning as
part III of Schedule A a listing of the
machineries covered thereby. It would
have sufficed to list them as
immovables in the Deed of Real Estate
Mortgage of the land and building
involved.
As regards the 1979 contract, the
intention of the parties is clear and
beyond question. It refers solely
to chattels. The inventory list of the
mortgaged properties is an itemization
of sixty-three (63) individually
described machineries while the
schedule listed only machines and
2,996,880.50 worth of finished cotton
fabrics and natural cotton fabrics.16
In the absence of any showing that this
conclusion is baseless, erroneous or uncorroborated by
the evidence on record, we find no compelling reason
to depart therefrom.
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
as Navarro v. Pineda, 9 SCRA 631 (1963), an
immovable may be considered a personal property if
there is a stipulation as when it is used as security in
the payment of an obligation where a chattel mortgage
is executed over it, as in the case at bar.
In the instant case, the parties herein: (1)
executed a contract styled as "Real Estate Mortgage
and 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
MACHINERIES & EQUIPMENT". These facts, taken
together, evince the conclusion that the parties'
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.
Accordingly, we find no reversible error in the
respondent appellate court's ruling that inasmuch as
the subject mortgages were intended by the parties to
involve chattels, insofar as equipment and machinery
were concerned, the Chattel Mortgage Law applies,
which provides in Section 7 thereof that: "a chattel
mortgage shall be deemed to cover only the property
described therein and not like or substituted property
thereafter acquired by the mortgagor and placed in the
same depository as the property originally mortgaged,
anything in the mortgage to the contrary
notwithstanding."
And, since the disputed machineries were
acquired in 1981 and could not have been involved in
the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to
include subject machineries with the properties
enumerated in said chattel mortgages.
As the auction sale of the subject properties to
PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a nullity
under the elementary principle of nemo dat quod non
habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that
PBCom's title over the contested properties is a nullity,
she is nevertheless a purchaser in good faith and for
value who now has a better right than EVERTEX.
To the contrary, however, are the factual
findings and conclusions of the trial court that she is
not a purchaser in good faith. Well-settled is the rule
that the person who asserts the status of a purchaser
in good faith and for value has the burden of proving
such assertion.18 Petitioner Tsai failed to discharge this
burden persuasively.
Moreover, a purchaser in good faith and for
value is one who buys the property of another without
notice that some other person has a right to or interest
in such property and pays a full and fair price for the
same, at the time of purchase, or before he has notice
of the claims or interest of some other person in the
property.19 Records reveal, however, that when Tsai
purchased the controverted 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 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.
Petitioner Tsai's defense of indefeasibility of
Torrens Title of the lot where the disputed properties
are located is equally unavailing. This defense refers to
sale of lands and not to sale of properties situated
therein. Likewise, the mere fact that the lot where the
factory and the disputed properties stand is in PBCom's
name does not automatically make PBCom the owner
of everything found therein, especially in view of
EVERTEX's letter to Tsai enunciating its claim.
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
disputed properties was filed within the reglementary
period. Here, in our view, the doctrine of laches does
not apply. Note that upon petitioners' adamant refusal
to heed EVERTEX's claim, respondent company
immediately filed an action to recover possession and
ownership of the disputed properties. There is no
evidence showing any failure or neglect on its part, for
an unreasonable and unexplained length of time, to do
that which, by exercising due diligence, could or should
have been done earlier. The doctrine of stale demands
would apply only where by reason of the lapse of time,
it would be inequitable to allow a party to enforce his
legal rights. Moreover, except for very strong reasons,
this Court is not disposed to apply the doctrine of
laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested
damages are the actual compensation, representing
rentals for the contested units of machinery, the
exemplary damages, and attorney's fees.
As regards said actual compensation, the RTC
awarded P100,000.00 corresponding to the unpaid
rentals of the contested properties based on the
testimony of John Chua, who testified that the
P100,000.00 was based on the accepted practice in
banking and finance, business and investments that
the rental price must take into account the cost of
money used to buy them. The Court of Appeals did not
give full credence to Chua's projection and reduced the
award to P20,000.00.
Basic is the rule that to recover actual
damages, the amount of loss must not only be capable
of proof but must actually be proven with reasonable
degree of certainty, premised upon competent proof or
best evidence obtainable of the actual amount
thereof.23 However, the allegations of respondent
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 proof and on the best evidence obtainable
regarding the actual amount of loss.24 However, we
are not prepared to disregard the following dispositions
of the respondent appellate court:
. . . In the award of actual damages
under scrutiny, there is nothing on
record warranting the said award of
P5,200,000.00, representing monthly
rental income of P100,000.00 from
November 1986 to February 1991, and
the additional award of P100,000.00
per month thereafter.
As pointed out by appellants, the
testimonial evidence, consisting of the
testimonies of Jonh (sic) Chua and
MamertoVillaluz, is shy of what is
necessary to substantiate the actual
damages allegedly sustained by
appellees, by way of unrealized rental
income of subject machineries and
equipments.
The testimony of John Cua (sic) is
nothing but an opinion or projection
based on what is claimed to be a
practice in business and industry. But
such a testimony cannot serve as the
sole basis for assessing the actual
damages complained of. What is more,
there is no showing that had appellant
Tsai not taken possession of the
machineries and equipments in
question, somebody was willing and
ready to rent the same for
P100,000.00 a month.
xxx xxx xxx
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 MamertoVillaluz, the same
would have been a gross income.
Therefrom should be deducted or
removed, expenses for maintenance
and repairs . . . Therefore, in the
determination of the actual damages or
unrealized rental income sued upon,
there is a good basis to calculate that
at least four months in a year, the
machineries in dispute would have
been idle due to absence of a lessee or
while being repaired. In the light of the
foregoing 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
As to exemplary damages, the RTC awarded
P200,000.00 to EVERTEX which the Court of Appeals
deleted. But according to the CA, there was no clear
showing that petitioners acted malevolently, wantonly
and oppressively. The evidence, however, shows
otherwise.It is a requisite to award exemplary
damages that the wrongful act must be accompanied
by bad faith,26 and the guilty acted in a wanton,
fraudulent, oppressive, reckless or malevolent
manner.27 As previously stressed, petitioner Tsai's act
of purchasing the controverted properties despite her
knowledge of EVERTEX's claim was oppressive and
subjected the already insolvent respondent to gross
disadvantage. Petitioner PBCom also received the
same letters of Atty. Villaluz, responding thereto on
March 24, 1987.28 Thus, PBCom's 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.
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.
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant, vs.
APRONIANO G. CASTILLO and DAVAO LIGHT &
POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo
and DelfinJoven for appellant.
J.W. Ferrier for appellees.
DECISION
MALCOLM, J.:
The issue in this case, as announced in the
opening sentence of the decision in the trial court and
as set forth by counsel for the parties on appeal,
involves the determination of the nature of the
properties described in the complaint. The trial judge
found that those properties were personal in nature,
and as a consequence absolved the defendants from
the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a
lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in
the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon
which the business was conducted belonged to another
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 which were
placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and
the owner of the land there appeared the following
provision:
That on the expiration of the period
agreed upon, all the improvements and
buildings introduced and erected by
the party of the second part shall pass
to the exclusive ownership of the party
of the first 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
stipulated, the improvements and
buildings shall likewise pass to the
ownership of the party of the first part
as though the time agreed upon had
expired: Provided, however, That the
machineries and accessories are not
included in the improvements which
will pass to the party of the first part
on the expiration or abandonment of
the land leased.
In another action, wherein the Davao Light &
Power Co., Inc., was the plaintiff and the Davao, Saw,
Mill Co., Inc., was the defendant, a judgment was
rendered in favor of the plaintiff in that action against
the defendant in that action; a writ of execution issued
thereon, and the properties now in question were
levied upon as personalty by the sheriff. No third party
claim was filed for such properties at the time of the
sales thereof as is borne out by the record made by
the plaintiff herein. Indeed the bidder, which was the
plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession
of the machinery and other properties described in the
corresponding certificates of sale executed in its favor
by the sheriff of Davao.
As connecting up with the facts, it should
further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery
as personal property by executing chattel mortgages in
favor of third persons. One of such persons is the
appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil
Code, is in point. According to the Code, real property
consists of —
1. Land, buildings, roads and constructions of
all kinds adhering to the soil;
x xx x xx x xx
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.
Appellant emphasizes the first paragraph, and
appellees the last mentioned paragraph. We entertain
no doubt that the trial judge and appellees are right in
their appreciation of the legal doctrines flowing from
the facts.
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 conclusive,
the characterization of the property as chattels by the
appellant is indicative of intention and impresses upon
the property the character determined by the parties.
In this connection the decision of this court in the case
of Standard Oil Co. of New York vs. Jaramillo ( [1923],
44 Phil., 630), whether obiter dicta or not, furnishes
the key to such a situation.
It is, however not necessary to spend overly
must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover,
machinery not intended by the owner of any building
or land for use in connection therewith, but intended
by a lessee for use in a building erected on the land by
the latter to be returned to the lessee on the expiration
or abandonment of the lease.
A similar question arose in Puerto Rico, and on
appeal being taken to the United States Supreme
Court, it was held 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. In the opinion
written by Chief Justice White, whose knowledge of the
Civil Law is well known, it was in part said:
To determine this question involves
fixing the nature and character of the
property from the point of view of the
rights of Valdes and its nature and
character from the point of view of
Nevers & Callaghan as a judgment
creditor of the Altagracia Company and
the rights derived by them from the
execution levied on the machinery
placed by the corporation in the plant.
Following the Code Napoleon, the Porto
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 destination to which it
is applied. "Things," says section 334
of the Porto Rican Code, "may be
immovable either by their own nature
or by their destination or the object to
which they are applicable." Numerous
illustrations are given in the fifth
subdivision of section 335, which is as
follows: "Machinery, vessels,
instruments or implements intended by
the owner of the tenements for the
industrial or works that they may carry
on in any building or upon any land
and which tend directly to meet the
needs of the said industry or works."
(See also Code Nap., articles 516,
518 et seq. to and inclusive of article
534, recapitulating the things which,
though in themselves movable, may be
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 machinery which is
movable in its nature only becomes
immobilized when placed in a plant by
the owner of the property or plant.
Such result would not be
accomplished, therefore, by the placing
of machinery in a plant by a tenant or
a usufructuary or any person having
only a temporary right. (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 or
enjoyment of property is not presumed
by the law to have applied movable
property belonging to 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.
x xx x xx x xx
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-47943 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF BATANGAS
and PROVINCIAL ASSESSOR OF
BATANGAS, respondents.
SYNOPSIS
Petitioner installed two storage tanks on a lot it leased
from Caltex (Phil.) for storing fuel oil for its power
plants. The tanks are made of steel plates welded and
assembled on the spot and pipelines installed on the
sides of each tank. They are not attached to the land
but merely sit on concrete foundations. On assessment
made by the Provincial Assessor in 1970, the Municipal
Treasurer of Bauan, Batangas required petitioner to
pay realty taxes on the two tanks. Payment of the
realty taxes was upheld by the Batangas Board of
Assessment Appeals and subsequently by the Central
Board of Assessment Appeals. A motion for
reconsideration was filed with the Board but the same
was denied Hence, the present petition. Petitioner
claims that said oil storage tanks do not fall within any
of the kinds of real property enumerated in Article 415
of the Civil Code.
On review, the Supreme Court held that while the two
storage tanks are not embedded in the land, they may
be considered as improvements on the land, enhancing
its utility and rendering it useful to the oil industry,
which are taxable under the provisions of the Real
Property Tax Code.
SYLLABUS
1. ADMINISTRATIVE LAW; TAXATION; REALTY TAX;
PROPERTIES SUBJECT THERETO. — 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 provision is reproduced with
some modification in the Real Property Tax Code which
provides in Section 38 thereof that "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, machinery and other
improvements affixed or attached to real property not
hereinafter specifically exempted."
2. ID.; ID.; ID.; ID.; STORAGE TANKS NOT
EMBEDDED IN THE LAND CONSIDERED TAXABLE
IMPROVEMENTS UNDER SECTION 3(k) OF THE REAL
PROPERTY TAX CODE. — While the two storage tanks
are not embedded in the land, they may, nevertheless,
be considered as taxable improvements on the land,
enhancing its utility and rendering it useful to the oil
industry as defined under Section 3 (k) of the Real
Property Tax Code. It is undeniable that the two tanks
have been installed with some degree of permanence
at receptacles for the considerable qualities of oil
needed by Meralco for its operations. Oil storage tanks
were held to be taxable realty in Standard Oil Co. of
New Jersy versus Atlantic City, 15 Atl. 2nd 271.
3. ID.; ID.; REAL PROPERTY FOR PURPOSES OF
TAXATION MAY INCLUDE THINGS GENERALLY
REGARDED AS PERSONAL PROPERTY. — For purposes
of taxation, the term "real property" may include
things which generally should be regarded as personal
property (84 C.J.S. 171, Note 8). 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 v. Jaramillo. 44 Phil. 630, 633).
DECISION
AQUINO, J.:
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
tanks are within the Caltex refinery compound. They
have a total capacity of 566,000 barrels. They are used
for storing fuel oil for Meralco's power plants.
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 as
the intermediate layer and a two-inch thick bituminous
asphalt stratum as the top layer. The bottom of each
tank is in contact with the asphalt layer,
The steel sides of the tank are directly
supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank
from sliding. Hence, according to Meralco, the tank is
not attached to its foundation. It is not anchored or
welded to the concrete circular wall. Its bottom plate is
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 feet deep.
(pp. 29-30, Rollo.)
On the other hand, according to the hearing
commissioners of the Central Board of Assessment
Appeals, the area where the two tanks are located is
enclosed with earthen dikes with electric steel 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.
Tank No. 2 is supported by a concrete
foundation with an asphalt lining about an inch thick.
Pipelines 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.
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 the basis
of an assessment made by the provincial assessor,
required Meralco to pay realty taxes on the two tanks.
For the five-year period from 1970 to 1974, the tax
and penalties amounted to P431,703.96 (p. 27, Rollo).
The Board required Meralco to pay the tax and
penalties as a condition for entertaining its appeal from
the adverse decision of the Batangas board of
assessment appeals.
The Central Board of Assessment Appeals
(composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente
Abad Santos and Secretary of Local Government and
Community Development Jose Roño as members) in its
decision dated November 5, 1976 ruled that the tanks
together with the foundation, walls, dikes, steps,
pipelines and other appurtenances constitute taxable
improvements.
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.
On March 15, 1978, Meralco filed this special
civil action of certiorari to annul the Board's decision
and resolution. It contends that the Board acted
without jurisdiction and committed a grave error of law
in 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
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 is one of those highly controversial,
borderline or penumbral cases on the classification of
property where strong divergent opinions are
inevitable. The issue raised by Meralco has to be
resolved in the 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.
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
provision is reproduced with some modification in the
Real Property Tax Code which provides:
Sec. 38. Incidence of Real
Property Tax. — They shall be
levied, assessed and collected
in all provinces, cities and
municipalities an annual ad
valorem tax on real property,
such as land, buildings,
machinery and
other improvements affixed or
attached to real property not
hereinafter specifically
exempted.

The Code contains the following definition in its section
3:
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
enhance its value, beauty or
utility or to adapt it for new or
further purposes.
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 for the
considerable quantities of oil needed by Meralco for its
operations.
Oil storage tanks were held to be taxable
realty in Standard Oil Co. of New Jersey vs. Atlantic
City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real
property" may include things which should generally
be regarded as personal property(84 C.J.S. 171, Note
8). 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).
The case of Board of Assessment Appeals vs.
Manila Electric Company, 119 Phil. 328, wherein
Meralco's steel towers were held not to be subject to
realty tax, is not in point because in that case the steel
towers were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover,
the steel towers were not attached to any land or
building. They were removable from their 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.
SO ORDERED.
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and
CITY ASSESSOR OF PASAY, respondents.
SYNOPSIS
Petitioner installed underground tanks, elevated tanks,
elevated water tanks, water tanks, gasoline and
computing pumps, car washers, car and tire hoists, air
compressors and tireflators in its gasoline stations
located on leased land. They were attached to the
pavement covering the entire lot. The said machines
were loaned by petitioner to gas station operators
under lease contracts to be returned to petitioner upon
demand. The city assessor of Pasay City treated the
said machines as taxable realty and imposed real tax
thereon. The city board of tax appeals ruled that they
are personality not subject to realty tax, but the
Central Board of Assessment Appeals reversed the
ruling and found that the machines and equipment
were real property within the meaning of Section 3(k)
and (m) and 38 of the Real Property Tax Code,
Presidential Decree 464, 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. Hence,
this petition.
The Supreme Court, on review, held that the
equipment and machinery necessary to the operation
of a gas station and which are attachejd or affixed
permanently thereto or embedded therein are taxable
improvements and machinery within the meaning of
the Assessment Law and the Real Property Tax Code.
Petition dismissed and the questioned decision and
resolution of the Central Board of Assessment Appeals
are affirmed.
SYLLABUS
1. ADMINISTRATIVE LAW; TAXATION; REALTY TAX;
EQUIPMENT AND MACHINERY PERMANENTLY AFFIXED
TO GAS STATION SUBJECT THEREOF AS
IMPROVEMENT. — 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 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.
2. ID.; ID.; PROPERTY SUBJECT THERETO;
IMPROVEMENTS ON LAND COMMONLY TAXED AS A
REALTY. — Improvements on land are commonly taxed
as realty even though for some purposes they might
be considered personality (84 C.J.S. 181-2, Notes 40
and 41). It is a familiar phenomenon to see things in
classed as real property for purposes of taxation which
on general principle might be considered personal
property (Standard Oil Co. of New York v. Jaramillo, 44
Phil. 630, 633).
DECISION
AQUINO, J.:
 This case is about the realty tax on machinery
and equipment installed by Caltex (Philippines) Inc. in
its gas stations located on leased land.
The machines and equipment consists of
underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing
pumps, water pumps, car washer, car hoists, truck
hoists, air compressors and tireflators. The city
assessor described the said equipment and machinery
in this manner:
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 attached in the wall of
the shed or at the concrete wall fence.
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 and other combustible oil are
very inflammable.
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 cement pad is imbedded
in the pavement under the shed, and
evidence that the gasoline
underground tank is attached and
connected to the shed or building
through the pipe to the pump and the
pump is attached and affixed to the
cement pad and pavement covered by
the roof of the building or shed.
The building or shed, the elevated
water tank, the car hoist under a
separate shed, the air compressor, 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.
As to whether the subject properties
are attached and affixed to the
tenement, it is clear they are, for 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.
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 underground gasoline tank is
attached to the shed by the steel pipe
to the pump, so with the 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 station is
grossly erroneous. (pp. 58-60, Rollo).
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
tear excepted.
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 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
Assessment Appeals.
The Board, which was composed of Secretary
of Finance Cesar Virata as chairman, Acting Secretary
of Justice CatalinoMacaraig, Jr. and Secretary of Local
Government and Community Development Jose Roño,
held in its decision of June 3, 1977 that the said
machines and equipment are real property within the
meaning of sections 3(k) & (m) and 38 of the Real
Property Tax Code, Presidential Decree 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.
The decision was reiterated by the Board
(Minister Vicente Abad Santos took Macaraig's place) in
its resolution of January 12, 1978, denying Caltex's
motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari
petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said
machines and equipment are personal property not
subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the
Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic
act No. 1125 created the Tax Court in 1954, there was
as yet no Central Board of Assessment Appeals.
Section 7(3) of that law in providing that the Tax Court
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 assessment
appeals and is, therefore, in the same category as the
Tax Court.
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 does not provide for the review of the Board's
decision by this Court.
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 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 Law
and the Real Property Tax Code.
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
provision is reproduced with some modification in the
Real Property Tax Code which provides:
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,
machinery and other
improvements affixed or
attached to real property not
hereinafter specifically
exempted.
The Code contains the following definitions in its
section 3:
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
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.
Nor are Caltex's gas station equipment and
machinery the same as tools and equipment in the
repair 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).
The Central Board of Assessment Appeals did
not commit a grave abuse of discretion in upholding
the city assessor's is imposition of the realty tax on
Caltex's gas station and equipment.
WHEREFORE, the questioned decision and
resolution of the Central Board of Assessment Appeals
are affirmed. The petition for certiorari is dismissed for
lack of merit. No costs.
SO ORDERED.
G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY
ASSESSOR and CITY TREASURER OF QUEZON
CITY, petitioners, vs. MANILA ELECTRIC
COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
SYLLABUS
1. TAXATION; REAL PROPERTY TAX; STEEL TOWERS
OF MERALCO EXEMPT UNDER ITS FRANCHISE. — The
tax exemption privilege of the Meralco on its poles, as
granted by its franchise (Act No. 484), is held to
include its steel towers.
2. ID.; ID.; TERM "POLE" INCLUDES STEEL TOWER. —
The term "pole" refers to an upright standard to the
top of which something is affixed or by which
something is supported, and includes a steel tower of
an electric power company, like the Meralco.
3. ID.; ID.; STEEL TOWERS OF ELECTRIC COMPANY
NOT REAL PROPERTY. — The steel towers of an electric
company do not constitute real property for the
purpose of the real property tax.
4. ID.; ID.; REFUND; CITY TREASURER HELD
RESPONSIBLE. — The City Treasurer of Quezon City is
held responsible for the refund of real property taxes,
despite his contention that Quezon City, which was not
made a party to the suit, is the real party in interest
not only because this question was not raised in the
lower court but also because, factually, it was he who
had insisted that the taxpayer pay the taxes now to be
refunded.
DECISION
PAREDES, J.:
From the stipulation of facts and evidence adduced
during the hearing, the following appear:
On October 20, 1902, the Philippine
Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to
construct, maintain and operate an electric street
railway and electric light, heat and power system in
the City of Manila and its suburbs to the person or
persons making the most favorable bid. Charles M.
Swift was awarded the said franchise on March 1903,
the 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.
Meralco's electric power is generated by its
hydro-electric plant located at Botocan Falls, Laguna
and is transmitted to the City of Manila by means of
electric transmission wires, running from the province
of Laguna to the said City. These electric transmission
wires which carry high voltage current, are fastened to
insulators attached on steel towers constructed by
respondent at intervals, from its hydro-electric plant in
the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these steel
towers within Quezon City, on land belonging to it. A
photograph of one of these steel towers is attached to
the petition for review, marked Annex A. Three steel
towers were inspected by the lower court and parties
and the following were the descriptions given there of
by said court:
The first steel tower is located in South
Tatalon, España Extension, Quezon
City. The findings were as follows: the
ground around one of the four posts
was excavated to a depth of about
eight (8) feet, with an opening of about
one (1) meter in diameter, decreased
to about a quarter of a meter as it we
deeper until it reached the bottom of
the post; at the bottom of the post
were two parallel steel bars attached to
the leg means of bolts; the tower
proper was attached to the leg three
bolts; with two cross metals to prevent
mobility; there was no concrete
foundation but there was adobe stone
underneath; as the bottom of the
excavation was covered with water
about three inches high, it could not be
determined with certainty to whether
said adobe stone was placed purposely
or not, as the place abounds with this
kind of stone; and the tower carried
five high voltage wires without cover or
any insulating materials.
The second tower inspected was
located in Kamuning Road, K-F,
Quezon City, on land owned by the
petitioner approximate more than one
kilometer from the first tower. As in
the first tower, the ground around one
of the four legs was excavate from
seven to eight (8) feet deep and one
and a half (1-½) meters wide. There
being very little water at the bottom, it
was seen that there was no concrete
foundation, but there soft adobe
beneath. The leg was likewise provided
with two parallel steel bars bolted to a
square metal frame also bolted to each
corner. Like the first one, the second
tower is made up of metal rods joined
together by means of bolts, so that by
unscrewing the bolts, the tower could
be dismantled and reassembled.
The third tower examined is located
along Kamias Road, Quezon City. As in
the first two towers given 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 resting on
soft adobe, which, probably due to
high humidity, looks like mud or clay.
It was also found that the square metal
frame supporting the legs were not
attached to any material or foundation.
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 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 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 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.
In upholding the cause of respondents, the
CTA held that: (1) the steel towers come within the
term "poles" which are declared exempt from taxes
under part II paragraph 9 of respondent's franchise;
(2) the steel towers are personal properties and are
not subject to real property tax; and (3) the City
Treasurer of Quezon City is held responsible for the
refund of the amount paid. These are assigned as
errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted
hereunder:
PAR 9. The grantee shall be liable to
pay the same taxes upon its real
estate, buildings, plant (not including
poles, wires, transformers, and
insulators), machinery and personal
property as other persons are or may
be hereafter required by law to pay ...
Said percentage shall be due and
payable at the time stated in
paragraph nineteen of Part One hereof,
... and shall be in lieu of all taxes and
assessments of whatsoever nature and
by whatsoever authority upon the
privileges, earnings, income, franchise,
and poles, wires, transformers, and
insulators of the grantee from which
taxes and assessments the grantee is
hereby expressly exempted. (Par. 9,
Part Two, Act No. 484 Respondent's
Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively
slender usually cylindrical piece of wood or timber, as
typically the stem of a small tree stripped of its
branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The
term also refers to "an upright standard to the top of
which something is affixed or by which something is
supported; as a dovecote set on a pole; telegraph
poles; a tent pole; sometimes, specifically a vessel's
master (Webster's New International Dictionary 2nd
Ed., p. 1907.) Along the streets, in the City of Manila,
may be seen cylindrical metal poles, cubical concrete
poles, and poles of the PLDT Co. which are made of
two steel bars joined together by an interlacing metal
rod. They are called "poles" notwithstanding the fact
that they are no made of wood. It must be noted from
paragraph 9, above quoted, that the concept of the
"poles" for 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 dedicated. In accordance with the
definitions, pole is not restricted to a long cylindrical
piece of wood or metal, but includes "upright
standards to the top of which something is affixed or
by which something is supported. As heretofore
described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound
by steel cross-arms atop of which are cross-arms
supporting five high voltage transmission wires (See
Annex A) and their sole function is to support or carry
such wires.
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
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.
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
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 and Dallas Light
Co. (Tex) 212 S.W. 222, 224; 32-A Words and
Phrases, p. 365.)
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 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 with criss-
cross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage
electricity. In form and structure, they are like the
steel towers in question. (Salt River Valley Users' Ass'n
v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel
towers of an electric company engaged in the
generation of hydro-electric power generated from its
plant to the Tower of Oxford and City of Waterbury.
These steel towers are about 15 feet square at the
base and extended to a height of about 35 feet to a
point, and are embedded in the cement foundations
sunk in the earth, the top of which extends above the
surface of the soil in the tower of Oxford, and to the
towers are attached insulators, arms, and other
equipment capable of carrying wires for the
transmission of electric power (Connecticut Light and
Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the
structure on which a certain person met his death was
built for the purpose of supporting a transmission wire
used for carrying high-tension electric power, but
claimed that the steel towers on which it is carried
were so large that their wire took their structure out of
the definition of a pole line. It was held that in defining
the word pole, one should not be governed by the wire
or material of the support used, but was considering
the danger from any elevated wire carrying electric
current, and that regardless of the size or material
wire of its individual members, any continuous series
of structures intended and used solely or primarily for
the purpose of supporting wires carrying electric
currents is a pole line (Inspiration Consolidation
Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles",
as used in Act No. 484 and incorporated in the
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 termpoles, 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;
x xx x xx x xx
(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;
x xx x xx x xx
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an 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;
 x xx x xx x xx
The steel towers or supports in question, do
not come within the objects mentioned in paragraph 1,
because they do not constitute buildings or
constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to the
soil. As per description, given by the lower court, they
are 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 breaking the
material or causing deterioration upon the object to
which they are attached. Each of these steel towers or
supports consists of steel bars or metal strips, joined
together by means of bolts, which can be disassembled
by unscrewing the bolts and reassembled by screwing
the same. These steel towers or supports do not also
fall under paragraph 5, for they are not machineries,
receptacles, instruments or implements, and even if
they were, they are not intended for industry or works
on the land. Petitioner is not engaged in an industry or
works in the land in which the steel supports or towers
are constructed.
It is finally contended that the CTA erred in
ordering the City Treasurer of Quezon City to refund
the sum of P11,651.86, despite the fact that Quezon
City is not a party to the case. It is argued that as the
City Treasurer is not the real party in interest, but
Quezon City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he
should not be ordered to effect the refund. This
question has not been raised in the court below, and,
therefore, it cannot be properly raised for the first time
on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any;
for factually, it was he (City Treasurer) whom had
insisted that respondent herein pay the real estate
taxes, which respondent paid under protest. Having
acted in his official capacity as City Treasurer of
Quezon City, he would surely know what to do, under
the circumstances.
IN VIEW HEREOF, the decision appealed from
is hereby affirmed, with costs against the petitioners.
G.R. No. 137705 August 22, 2000
SERGS PRODUCTS, INC., and SERGIO T.
GOQUIOLAY, petitioners, vs.
PCI LEASING AND FINANCE,
INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating
that a real or immovable property be considered
as personal or movable, a party is estopped from
subsequently claiming otherwise.Hence, such
property is a proper subject of a writ of replevin
obtained by the other contracting party.
The Case
Before us is a Petition for Review on
Certiorari assailing the January 6, 1999
Decision[1] of the Court of Appeals (CA)[2] in CA-
GR SP No. 47332 and its February 26, 1999
Resolution[3] denying reconsideration. The
decretal portion of the CA Decision reads as
follows:
WHEREFORE, premises considered, the
assailed Order dated February 18,
1998 and Resolution dated March 31,
1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of
preliminary injunction issued on June
15, 1998 is hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the
Regional Trial Court (RTC) of Quezon City (Branch
218)[6] issued a Writ of Seizure.[7] The March 18,
1998 Resolution[8] denied petitioners Motion for
Special Protective Order, praying that the deputy
sheriff be enjoined from seizing immobilized or
other real properties in (petitioners) factory in
Cainta, Rizal and to return to their original place
whatever immobilized machineries or equipments
he may have removed.[9]
The Facts
The undisputed facts are summarized by the
Court of Appeals as follows:[10]
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 replevin (Annex B) directing its sheriff to seize
and deliver the machineries and equipment to PCI
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
power of the court to control the conduct of its officers
and amend and control its processes, praying for a
directive for the sheriff to defer enforcement of the
writ of replevin.
This motion was opposed by PCI Leasing
(Annex F), on the ground that the properties [were]
still 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
argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating
these machineries as personal because the 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.
On April 7, 1998, they went to [the CA] via an
original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the
appellate court held that the subject machines
were personal property, and that they had only
been leased, not owned, by petitioners. It also
ruled that the words of the contract are clear and
leave no doubt 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:
Furthermore, to accord merit to
this petition would be to preempt the
trial court in ruling upon the case
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]
validity is attacked by the other a
matter x xx which respondent court is
in the best position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the
following issues for our consideration:
A. Whether or not the machineries purchased and
imported by SERGS became real property by virtue of
immobilization.
B. Whether or not the contract between the parties is a
loan or a lease.[12]
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.
The Court’s Ruling
The Petition is not meritorious.
Preliminary Matter: Procedural Questions
Respondent contends that the Petition failed
to indicate expressly whether it was being filed
under Rule 45 or Rule 65 of the Rules of Court. It
further alleges that the Petition erroneously
impleaded Judge Hilario Laqui as respondent.
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 Certiorari.[13]
While Judge Laqui should not have been
impleaded as a respondent,[14] substantial justice
requires that such lapse by itself should not
warrant the dismissal of the present Petition. In
this light, the Court deems it proper to
remove, motuproprio, the name of Judge Laqui
from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject
machines used in their factory were not proper
subjects of the Writ issued by the RTC, because
they were in fact real property. Serious policy
considerations, they argue, militate against a
contrary characterization.
Rule 60 of the Rules of Court provides that writs
of replevin are issued for the recovery of personal
property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of
such affidavit and approval of the
bond, the court shall issue an order
and the corresponding writ of replevin
describing the personal property
alleged to be wrongfully detained and
requiring the sheriff forthwith to take
such property into his custody.
On the other hand, Article 415 of the Civil
Code enumerates immovable or real property as
follows:
ART. 415. The following are immovable
property:
 x x x....................................x x
x....................................x xx
(5) Machinery, receptacles,
instruments or implements intended by
the owner of the tenement for an
industry or works which may be carried
on in a building or on a piece of land,
and which tend directly to meet the
needs of the said industry or works;
x x x....................................x x
x....................................x xx
In the present case, the machines that were
the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own
land. Indisputably, they were essential and
principal elements of their chocolate-making
industry. Hence, although each of them was
movable or personal property on its own, all of
them have become immobilized by destination
because they are essential and principal elements
in the industry.[16] In that sense, petitioners are
correct in arguing that the said machines are real,
not personal, property pursuant to Article 415 (5)
of the Civil Code.[17]
Be that as it may, we disagree with the
submission of the petitioners that the said
machines are not proper subjects of the Writ of
Seizure.
The Court has held that contracting parties
may validly stipulate that a real property be
considered as personal.[18] After agreeing to such
stipulation, they are consequently estopped from
claiming otherwise. Under the principle of
estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material
fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court
upheld the intention of the parties to treat
a house as a personal property because it had
been made the subject of a chattel mortgage. The
Court ruled:
x xx. 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 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
stand by claiming otherwise.
Applying Tumalad, the Court in Makati
Leasing and Finance Corp. v. Wearever Textile
Mills[20] 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
Court’ s ruling are reproduced hereunder:
x xx. 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 parties to the contract
so agree and no innocent third party
will be prejudiced thereby, there is
absolutely no reason why a machinery,
which is movable in its nature and
becomes immobilized only by
destination or 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.
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:[21]
12.1 The PROPERTY is, and shall at all
times be and remain, personal
property notwithstanding that the
PROPERTY or any part thereof may
now be, or hereafter become, in any
manner affixed or attached to or
embedded in, or permanently resting
upon, real property or any building
thereon, or attached in any manner to
what is permanent.
Clearly then, petitioners are estopped from
denying the characterization of the subject
machines as personal property. Under the
circumstances, they are proper subjects of the
Writ of Seizure.
It should be stressed, however, that our
holding -- that the machines should be deemed
personal property pursuant to the Lease
Agreement is good only insofar as the contracting
parties are concerned.[22] 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.[23] In any event, there is no showing
that any specific third party would be adversely
affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend
that the Agreement is a loan and not a
lease.[24] Submitting documents supposedly
showing that they 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 parties
and the validity of the lease agreement
itself.[25] In their Reply to respondents Comment,
they further allege that the Agreement is
invalid.[26]
These arguments are unconvincing. The
validity and the nature of the contract are
the lismota of the civil action pending before the
RTC. A resolution of these questions, therefore, is
effectively a resolution of the merits of the
case. Hence, they should be threshed out in the
trial, not in the proceedings involving the issuance
of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the
Court explained that the policy under Rule 60 was
that questions involving title to the subject
property questions which petitioners are now
raising -- should be determined in the trial. In
that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of the
plaintiff’s bond. They were not allowed, however,
to invoke the title to the subject property. The
Court ruled:
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.[28]
Besides, these questions require a he may, at any time before the
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.[29]
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[30] 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 xx. 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
xx
Alleged Injustice Committed on the Part
of Petitioners
Petitioners contend that if the Court allows
these machineries to be seized, then its workers
would be out of work and thrown into the
streets.[31] They also allege that the seizure would
nullify all efforts to rehabilitate the corporation.
Petitioners’ arguments do not preclude the
implementation of the Writ. As earlier discussed,
law and jurisprudence support its
propriety. Verily, the above-mentioned
consequences, if they come true, should not be
blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under
Section 5 of Rule 60, which allows the filing of a
counter-bond. The provision states:
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 does not so object,
delivery of the property to the
applicant, require the return thereof,
by filing with the court where the
action is pending a bond executed to
the applicant, in double the value of
the property as stated in the applicants
affidavit for the delivery thereof to the
applicant, if such delivery be adjudged,
and for the payment of such sum to
him as may be recovered against the
adverse party, and by serving a copy
bond on the applicant.
WHEREFORE, the Petition is DENIED and the
assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.