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.

FACTS: Spouses Fernando and Teodula Magcale secured a loan of P70, 000.00 from
Prudential Bank. To secure payment of loan, the spouses executed a deed of Real
Estate Mortgage that a 2-STOREY, SEMI-CONCRETE, residential building with
warehouse spaces containing 263 sq. meters, constructed of mixed hard wood and
concrete materials in the name of FERNANDO MAGCALE with assessed value of
P35,290.00; and THE PROPERTY by way of MORTGAGE includes the right of
occupancy on which described as a first class residential land containing an area of 465
sq. m. more or less, in the name of FERNANDO MAGCALE.

Apart from the stipulations in the deed of mortgage, there appears at the bottom of the
reverse side of the document which reads: “AND IT IS FURTHER AGREED that in the
event the Sales Patent on the lot applied for by the Mortgagors is released or issued by
the Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to hold the
Registration of same until cancelled, or to annotate this encumbrance on the Title upon
authority from the Secretary of Agriculture and Natural Resources, which title with
annotation shall be released in favor of the herein Mortgage.

On May 2, 1973, spouses Magcale secured additional loan from Prudential Bank in the
sum of P20, 000.00. To secure payment of this additional loan, Spouses Magcale
executed another deed of Real Estate Mortgage in favor of the said Bank over the same
properties previously mortgaged. This second deed of Real Estate Mortgage was
likewise registered with the Registry of Deeds in Olongapo City.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent over
the parcel of land, possessory rights over which were mortgaged to Prudential Bank, in
favor of the spouses on the basis of the aforesaid patent.

For failure of spouses Magcale to pay their obligation to Bank after it became due, the
deed of Real Estate Mortgage were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to Bank as the highest
bidder in a public auction sale.

ISSUE1: WHETHER THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID;

Ruling: 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."

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. 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.

ISSUE2: WHETHER A VALID REAL ESTATE MORTGAGE CAN BE CONSTITUTED

ON THE BUILDING ERECTED ON THE LAND BELONGING TO ANOTHER.

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. It is not within the competence of any citizen to barter away what public policy by
law was to preserve.

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.

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.

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.

Facts: 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.

A few weeks, 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.

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.

Ruling: 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 she referred to is 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.

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.

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.

But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of ownership
was well founded, he cannot be said to have been an innocent purchaser for value. He
took the risk and must stand by the consequences; and it is in this sense that we find
that he was not a purchaser in good faith.

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

Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.

Torres, Avanceña and Fisher, JJ., took no part.

G.R. No. L-32917 July 18, 1988

JULIAN S. YAP, petitioner,

vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS INTERNATIONAL (PHIL.),
INC., respondents.

Paterno P. Natinga for private respondent.

NARVASA, J.:

The petition for review on certiorari at bar involves two (2) Orders of respondent Judge Tañada 1 in Civil Case No. 10984. The first, dated
September 16, 1970, denied petitioner Yap's motion to set aside execution sale and to quash alias writ of execution. The second, dated
November 21, 1970, denied Yap's motion for reconsideration. The issues concerned the propriety of execution of a judgment claimed to be
"incomplete, vague and non-final," and the denial of petitioner's application to prove and recover damages resulting from alleged irregularities
in the process of execution.

The antecedents will take some time in the telling. The case began in the City Court of Cebu with the
filing by Goulds Pumps International (Phil.), Inc. of a complaint 2 against Yap and his wife 3 seeking
recovery of P1,459.30 representing the balance of the price and installation cost of a water pump in
the latter's premises. 4 The case resulted in a judgment by the City Court on November 25, 1968,
reading as follows:

When this case was called for trial today, Atty. Paterno Natinga appeared for the
plaintiff Goulds and informed the court that he is ready for trial. However, none of the
defendants appeared despite notices having been served upon them.

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidence ex-
parte.

After considering the evidence of the plaintiff, the court hereby renders judgment in
favor of the plaintiff and against the defendant (Yap), ordering the latter to pay to the
former the sum of Pl,459.30 with interest at the rate of 12% per annum until fully
paid, computed from August 12, 1968, date of the filing of the complaint; to pay the
sum of P364.80 as reasonable attorney's fees, which is equivalent " to 25% of the
unpaid principal obligation; and to pay the costs, if any.
Yap appealed to the Court of First Instance. The appeal was assigned to the sala of respondent
Judge Tañada. For failure to appear for pre-trial on August 28, 1968, this setting being intransferable
since the pre-trial had already been once postponed at his instance, 5 Yap was declared in default by
Order of Judge Tañada dated August 28, 1969, 6 reading as follows:

When this case was called for pre-trial this morning, the plaintiff and counsel
appeared, but neither the defendants nor his counsel appeared despite the fact that
they were duly notified of the pre-trial set this morning. Instead he filed an Ex-Parte
Motion for Postponement which this Court received only this morning, and on petition
of counsel for the plaintiff that the Ex-Parte Motion for Postponement was not filed in
accordance with the Rules of Court he asked that the same be denied and the
defendants be declared in default; .. the motion for the plaintiff being well- grounded,
the defendants are hereby declared in default and the Branch Clerk of Court ..is
hereby authorized to receive evidence for the plaintiff and .. submit his report within
ten (10) days after reception of evidence.

Goulds presented evidence ex parte and judgment by default was rendered the following day by
Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30 representing the unpaid balance of the
pump purchased by him; (2) interest of 12% per annum thereon until fully paid; and (3) a sum
equivalent to 25% of the amount due as attorney's fees and costs and other expenses in prosecuting
the action. Notice of the judgment was served on Yap on September 1, 1969. 7

On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted that his motion for
postponement should have been granted since it expressed his desire to explore the possibility of an
amicable settlement; that the court should give the parties time to arrive at an amicable settlement
failing which, he should be allowed to present evidence in support of his defenses (discrepancy as to
the price and breach of warranty). The motion was not verified or accompanied by any separate
affidavit. Goulds opposed the motion. Its opposition 9 drew attention to the eleventh-hour motion for
postponement of Yap which had resulted in the cancellation of the prior hearing of June 30, 1969
despite Goulds' vehement objection, and the re-setting thereof on August 28, 1969 with
intransferable character; it averred that Yap had again sought postponement of this last hearing by
another eleventh-hour motion on the plea that an amicable settlement would be explored, yet he had
never up to that time ever broached the matter, 10 and that this pattern of seeking to obtain last-
minute postponements was discernible also in the proceedings before the City Court. In its
opposition, Goulds also adverted to the examination made by it of the pump, on instructions of the
City Court, with a view to remedying the defects claimed to exist by Yap; but the examination had
disclosed the pump's perfect condition. Yap's motion for reconsideration was denied by Order dated
October 10, 1969, notice of which was received by Yap on October 4, 1969. 11

On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for Issuance of Writ of
Execution dated October 14, 1969, declaring the reasons therein alleged to be meritorious. 12 Yap
forthwith filed an "Urgent Motion for Reconsideration of Order" dated October 17, 1969, 13 contending
that the judgment had not yet become final, since contrary to Goulds' view, his motion for
reconsideration was not pro forma for lack of an affidavit of merit, this not being required under
Section 1 (a) of Rule 37 of the Rules of Court upon which his motion was grounded. Goulds
presented an opposition dated October 22, 1969. 14 It pointed out that in his motion for
reconsideration Yap had claimed to have a valid defense to the action, i.e., ".. discrepancy as to
price and breach of seller's warranty," in effect, that there was fraud on Goulds' paint; Yap's motion
for reconsideration should therefore have been supported by an affidavit of merit respecting said
defenses; the absence thereof rendered the motion for reconsideration fatally defective with the
result that its filing did not interrupt the running of the period of appeal. The opposition also drew
attention to the failure of the motion for reconsideration to specify the findings or conclusions in the
judgment claimed to be contrary to law or not supported by the evidence, making it a pro
forma motion also incapable of stopping the running of the appeal period. On October 23, 1969,
Judge Tañada denied Yap's motion for reconsideration and authorized execution of the
judgment.15 Yap sought reconsideration of this order, by another motion dated October 29,
1969. 16 This motion was denied by Order dated January 26, 1970. 17 Again Yap moved for
reconsideration, and again was rebuffed, by Order dated April 28, 1970. 18

In the meantime the Sheriff levied on the water pump in question, 19 and by notice dated November
4, 1969, scheduled the execution sale thereof on November 14, 1969. 20 But in view of the pendency
of Yap's motion for reconsideration of October 29, 1969, suspension of the sale was directed by
Judge Tañada in an order dated November 6, 1969.21

Counsel for the plaintiff is hereby given 10 days time to answer the Motion, dated
October 29, 1969, from receipt of this Order and in the meantime, the Order of
October 23, 1969, insofar as it orders the sheriff to enforce the writ of execution is
hereby suspended.

It appears however that a copy of this Order was not transmitted to the Sheriff "through oversight,
inadvertence and pressure of work" of the Branch Clerk of Court. 22 So the Deputy Provincial Sheriff
went ahead with the scheduled auction sale and sold the property levied on to Goulds as the highest
bidder. 23 He later submitted the requisite report to the Court dated November 17, 1969, 24 as well as
the "Sheriffs Return of Service" dated February 13, 1970, 25 in both of which it was stated that
execution had been "partially satisfied." It should be observed that up to this time, February, 1970,
Yap had not bestirred himself to take an appeal from the judgment of August 29, 1969.

On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution on Gould's ex
parte motion therefor. 26 Yap received notice of the Order on June 11. Twelve (1 2) days later, he
filed a "Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution." 27 As regards
the original, partial execution of the judgment, he argued that —

1) "the issuance of the writ of execution on October 16, 1969 was contrary to law, the judgment
sought to be executed not being final and executory;" and

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New Rules of Court,"
i.e., notice by publication in case of execution sale of real property, the pump and its accessories
being immovable because attached to the ground with character of permanency (Art. 415, Civil
Code).

And with respect to the alias writ, he argued that it should not have issued because —

1) "the judgment sought to be executed is null and void" as "it deprived the defendant of his day in
court" and "of due process;"

2) "said judgment is incomplete and vague" because there is no starting point for computation of the
interest imposed, or a specification of the "other expenses incurred in prosecuting this case" which
Yap had also been ordered to pay;

3) "said judgment is defective because it contains no statement of facts but a mere recital of the
evidence; and

4) "there has been a change in the situation of the parties which makes execution unjust and
inequitable" because Yap suffered damages by reason of the illegal execution.

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by Order dated
September 16, 1970. Judge Tañada pointed out that the motion had "become moot and academic"
since the decision of August 29, 1969, "received by the defendant on September 1, 1969 had long
become final when the Order for the Issuance of a Writ of Execution was promulgated on October
15, 1969." His Honor also stressed that —
 The defendant's Motion for Reconsideration of the Courts decision was in reality one
for new trial. Regarded as motion for new trial it should allege the grounds for new
trial, provided for in the Rules of Court, to be supported by affidavit of merits; and this
the defendant failed to do. If the defendant sincerely desired for an opportunity to
submit to an amicable settlement, which he failed to do extra judicially despite the
ample time before him, he should have appeared in the pre- trial to achieve the same
purpose.

Judge Tañada thereafter promulgated another Order dated September 21, 1970 granting a motion of
Goulds for completion of execution of the judgment of August 29, 1969 to be undertaken by the City
Sheriff of Cebu. Once more, Yap sought reconsideration. He submitted a "Motion for
Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the setting aside not only of this
Order of September 21, 1970 but also that dated September 16, 1970, denying his motion to set
aside execution dated June 23, 1970. He contended that the Order of September 21, 1970
(authorizing execution by the City Sheriff) was premature, since the 30-day period to appeal from the
earlier order of September 16, 1970 (denying his motion to set aside) had not yet expired. He also
reiterated his view that his motion for reconsideration dated September 15, 1969 did not require that
it be accompanied by an affidavit of merits. This last motion was also denied for "lack of merits," by
Order dated November 21, 1970. 29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to appeal to the
Supreme Court on certiorari only on questions of law, "from the Order ... of September 16, 1970 ...
and from the Order ... of November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No.
5440." He filed his petition for review with this Court on January 5, 1971, after obtaining an extension
therefor. 30

The errors of law he attributes to the Court a quo are the following: 31

1) refusing to invalidate the execution pursuant to its Order of October 16, 1969 although the
judgment had not then become final and executory and despite its being incomplete and vague;

2) ignoring the fact that the execution sale was carried out although it (the Court) had itself ordered
suspension of execution on November 6, 1969;

3) declining to annul the execution sale of the pump and accessories subject of the action although
made without the requisite notice prescribed for the sale of immovables; and

4) refusing to allow the petitioner to prove irregularities in the process of execution which had
resulted in damages to him.

Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His motion for
reconsideration thereof was filed 15 days thereafter, on September 16, 1969. Notice of the Order
denying the motion was received by him on October 14, 1969. The question is whether or not the
motion for reconsideration — which was not verified, or accompanied by an affidavit of merits
(setting forth facts constituting his meritorious defenses to the suit) or other sworn statement (stating
facts excusing his failure to appear at the pre-trial was pro forma and consequently had not
interrupted the running of the period of appeal. It is Yap's contention that his motion was notpro
forma for lack of an affidavit of merits, such a document not being required by Section 1 (a) of Rule
37 of the Rules of Court upon which his motion was based. This is incorrect.

Section 2, Rule 37 precisely requires that when the motion for new trial is founded on Section 1 (a),
it should be accompanied by an affidavit of merit.

xxx xxx xxx

 When the motion is made for the causes mentioned in subdivisions (a) and (b) of the
preceding section, it shall be proved in the manner provided for proof of
motions. Affidavit or affidavits of merits shall also be attached to a motion for the
cause mentioned in subdivision (a) which may be rebutted by counter-affidavits.

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on Section 1 (a) of Rule
37, 33 i.e., fraud, accident, mistake or excusable negligence which ordinary prudence could not have
guarded against and by reason of which ... (the) aggrieved party has probably been impaired in his
rights" — this being in any event clear from a perusal of the motion which theorizes that he had
"been impaired in his rights" because he was denied the right to present evidence of his defenses
(discrepancy as to price and breach of warranty) — it was a fatal omission to fail to attach to his
motion an affidavit of merits, i.e., an affidavit "showing the facts (not conclusions) constituting the
valid x x defense which the movant may prove in case a new trial is granted." 34 The requirement of
such an affidavit is essential because obviously "a new trial would be a waste of the court's time if
the complaint turns out to be groundless or the defense ineffective." 35

In his motion for reconsideration, Yap also contended that since he had expressed a desire to
explore the possibility of an amicable settlement, the Court should have given him time to do so,
instead of declaring him in default and thereafter rendering judgment by default on Gould's ex
parte evidence.

The bona fides of this desire to compromise is however put in doubt by the attendant circumstances.
It was manifested in an eleventh-hour motion for postponement of the pre-trial which had been
scheduled with intransferable character since it had already been earlier postponed at Yap's
instance; it had never been mentioned at any prior time since commencement of the litigation; such
a possible compromise (at least in general or preliminary terms) was certainly most appropriate for
consideration at the pre-trial; in fact Yap was aware that the matter was indeed a proper subject of a
pre-trial agenda, yet he sought to avoid appearance at said pre-trial which he knew to be
intransferable in character. These considerations and the dilatory tactics thus far attributable to him-
seeking postponements of hearings, or failing to appear therefor despite notice, not only in the Court
of First Instance but also in the City Court — proscribe belief in the sincerity of his avowed desire to
negotiate a compromise. Moreover, the disregard by Yap of the general requirement that "(n)otice of
a motion shall be served by the applicant to all parties concerned at least three (3) days before the
hearing thereof, together with a copy of the motion, and of any affidavits and other papers
accompanying it," 36 for which no justification whatever has been offered, also militates against
the bona fides of Yap's expressed wish for an amicable settlement. The relevant circumstances do
not therefore justify condemnation, as a grave abuse of discretion, or a serious mistake, of the
refusal of the Trial Judge to grant postponement upon this proferred ground.

The motion for reconsideration did not therefore interrupt the running of the period of appeal. The
time during which it was pending before the court — from September 16, 1969 when it was filed with
the respondent Court until October 14, 1969 when notice of the order denying the motion was
received by the movant — could not be deducted from the 30-day period of appeal. 37 This is the
inescapable conclusion from a consideration of Section 3 of Rule 41 which in part declares that,
"The "time during which a motion to set aside the judgment or order or for a new trial has been
pending shall be deducted, unless such motion fails to satisfy the requirements of Rule 37. 38

Notice of the judgment having been received by Yap on September 1, 1969, and the period of
appeal therefrom not having been interrupted by his motion for reconsideration filed on September
16, 1969, the reglementary period of appeal expired thirty (30) days after September 1, 1969, or on
October 1, 1969, without an appeal being taken by Yap. The judgment then became final and
executory; Yap could no longer take an appeal therefrom or from any other subsequent orders; and
execution of judgment correctly issued on October 15, 1969, "as a matter of right." 39
The next point discussed by Yap, that the judgment is incomplete and vague, is not well taken. It is
true that the decision does not fix the starting time of the computation of interest on the judgment
debt, but this is inconsequential since that time is easily determinable from the opinion, i.e., from the
day the buyer (Yap) defaulted in the payment of his obligation, 40 on May 31, 1968. 41 The absence of
any disposition regarding his counterclaim is also immaterial and does not render the judgment
incomplete. Yap's failure to appear at the pre-trial without justification and despite notice, which
caused the declaration of his default, was a waiver of his right to controvert the plaintiff s proofs and
of his right to prove the averments of his answer, inclusive of the counterclaim therein pleaded.
Moreover, the conclusion in the judgment of the merit of the plaintiff s cause of action was
necessarily and at the same time a determination of the absence of merit of the defendant's claim of
untenability of the complaint and of malicious prosecution.

Yap's next argument that the water pump had become immovable property by its being installed in
his residence is also untenable. The Civil Code considers as immovable property, among others,
anything "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." 42 The pump does not fit this
description. It could be, and was in fact separated from Yap's premises without being broken or
suffering deterioration. Obviously the separation or removal of the pump involved nothing more
complicated than the loosening of bolts or dismantling of other fasteners.

Yap's last claim is that in the process of the removal of the pump from his house, Goulds' men had
trampled on the plants growing there, destroyed the shed over the pump, plugged the exterior
casings with rags and cut the electrical and conduit pipes; that he had thereby suffered actual-
damages in an amount of not less than P 2,000.00, as well as moral damages in the sum of P
10,000.00 resulting from his deprivation of the use of his water supply; but the Court had refused to
allow him to prove these acts and recover the damages rightfully due him. Now, as to the loss of his
water supply, since this arose from acts legitimately done, the seizure on execution of the water
pump in enforcement of a final and executory judgment, Yap most certainly is not entitled to claim
moral or any other form of damages therefor.

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the Orders of September
16, 1970 and November 21, 1970 subject thereof, AFFIRMED in toto. Costs against petitioner.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

1 Then presiding Judge of Branch V of the Court of First Instance of Cebu City.

2 Annex E, petition, pp. 34-35, Rollo.

3 However Mrs. Minerva V. Yap was subsequently dropped from the complaint.

4 Yap's answer (rollo, pp. 36 et seq put up the defense that the purchase document
did not reflect his real agreement with Goulds, and he had made several complaints
about the pump to no avail. Gould'sclaim is that the examination of the pump showed
it to be in good working order, but the Yaps had refused to attest thereto despite
being present during the examination (rollo, pp. 72 et seq).

5 Infra: footnote No. 1, p. 3.

6 Rollo, p. 188.
7 Id., P. 10.

8 Id., pp. 41-42.

9 Id., pp. 43 et seq. An additional ground for postponement was that he would be in
Barili, Cebu, on the date of the pre-trial.

10 It appears that the pump was delivered and installed at the Yaps' premises in
December, 1967: Rollo, pp. 34 et seq.

11 Rollo, p. 10.

12 Id ,p. 114.

13 Id., p. 115.

14 Id., P. 117.

15 Id., p. 11.

16 Id., p. 124 et seq. The motion reiterated prior arguments and in addition,
contained a "Specification of findings not supported by evidence" and a
"Specification of conclusions contrary to law." An opposition thereto was filed under
date of Nov. 27, 1969 (Rollo, p. 128)

17 Id., p. 133.

18 Id., p. 135.

19 Id., pp. 52, 53.

20 Id., p. 54.

21 Id., p. 56, SEE paragraphs 18 and 19, petition.

22 Rollo, pp. 137, 134,

23 Id., p. 131. The Certificate of Sale is dated November 14,1969.

24 Id p. 123.

25 Id., p. 57.

26 Par. 21, petition, p. 12, Rollo.

27 Rollo, pp. 22, et seq.

28 Id., pp. 30 et seq.

29 Id., p. 142. Page 472

30 Granted by Resolution dated January 4, 1971, for 15 days from December 8

(Rollo, p. 5)
 31 Rollo, pp. 5-6.

32 Emphasis supplied.

33 SEE footnote No. 14, supra.

34 SEE Coombs v. Santos, 24 Phil. 446, 451, cited in Feria, Civil Procedure. 1969
ed., p. 514; see, too, Moran, Comments on the Rules, 1979 ed., Vol. 2, pp. 214-215,
citing numerous cases; parenthetical insertion supplied.

35 Moran, op. cit., p. 215, citing Vda. de Yulo v. Chua Chuco et al., 48 O.G. 5.54;
Baguieran v. Court of Appeals, L-14551 July 31, 1961, 2 SCRA 873.

36 SEE Sections 4, 5 and 6, Rule 15; Manila Surety & Fidelity Co. v. Batu
Construction Co., L-1 6636, June 24, 1965; Fulton Insurance Co. v. Manila Railroad
Co., L-24263, November 18, 1967, cited in Moran, op cit., p. 214.

37 BP No. 129 has since reduced the period of appeal to 15 days except in special
proceedings or cases where multiple appeals are allowed.

38 Emphasis supplied; see Coombs v. Santos, 24 Phil. 446, 461, and Alfonso v.
Bustamante, 98 Phil. 158, cited in Feria, op. cit, pp. 514515; and Capinpin et al. v.
Isip, L-14018, Aug. 31, 1959, cited in Moran, op. cit.

39 Sec. 1, Rule 39; See Amor v. Jugo et al., 77 Phil. 703.

40 Rollo, p. 39.

41 Id., pp. 35, 193

42 ART. 415, par. (3).42 ART. 415, par. (3).

G.R. No. L-18456 November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,

vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Tañedo, Jr. for plaintiff-appellee.

Renato A. Santos for defendants-appellants.

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married to
Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6
months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and
Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house, having a
floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo.
San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor Vehicle
Registration Certificate No. A-171806. Both mortgages were contained in one instrument, which was
registered in both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made on them,
failed to pay. They, however, asked and were granted extension up to June 30, 1960, within which to
pay. Came June 30, defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension, defendant Pineda in a
document entitled "Promise", categorically stated that in the remote event he should fail to make
good the obligation on such date (July 30, 1960), the defendant would no longer ask for further
extension and there would be no need for any formal demand, and plaintiff could proceed to take
whatever action he might desire to enforce his rights, under the said mortgage contract. In spite of
said promise, defendants, failed and refused to pay the obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on the
principal, effective on the date of maturity, until fully paid.

Defendants, answering the complaint, among others, stated —

Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First
Cause of Action which states that the defendants unreasonably failed and refuse to pay their
obligation to the plaintiff the truth being the defendants are hard up these days and pleaded
to the plaintiff to grant them more time within which to pay their obligation and the plaintiff
refused;

WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to pay
their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum as
interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated damages;
that the instrument had been registered in the Registry of Property and Motor Vehicles Office, both
of the province of Tarlac; that the only issue in the case is whether or not the residential house,
subject of the mortgage therein, can be considered a Chattel and the propriety of the attorney's fees.

On February 24, 1961, the lower court held —

... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon Reyes,
to pay jointly and severally and within ninety (90) days from the receipt of the copy of this
decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said principal sum and interests
are fully paid, plus P500.00 as liquidated damages and the costs of this suit, with the warning
that in default of said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage
debt, interests, liquidated damages and costs, in accordance with the pertinent provisions of
Act 3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
 (c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to the
Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A", immediately
after the lapse of the ninety (90) days above-mentioned, in default of such payment.

The above judgment was directly appealed to this Court, the defendants therein assigning only a
single error, allegedly committed by the lower court, to wit —

In holding that the deed of real estate and chattel mortgages appended to the complaint is
valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was made
the subject of the chattel mortgage, for the reason that it is erected on a land that belongs to
a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building; the
fact that the land belongs to another is immaterial, it is enough that the house adheres to the land;
that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner of the land, the only criterion
being the union or incorporation with the soil. In other words, it is claimed that "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, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the
case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue that since only
movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the mortgage in
question which is the basis of the present action, cannot give rise to an action for foreclosure,
because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838,
May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on
the ground that the house mortgaged was erected on the land which belonged to a third person, but
also and principally on the doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed materials of sawali and
wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to arts. 415 and
416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that under
certain conditions, "a property may have a 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" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-
633)."There can not be any question that a building of mixed materials may be the subject of a
chattel mortgage, in which case, it is considered as between the parties as personal property. ... The
matter depends on the circumstances and the intention of the parties". "Personal property may retain
its character as such where it is so agreed by the parties interested even though annexed to the
realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18,
1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee 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 principles of estoppel ..." (Evangelista
v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage 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 (Evangelista v. Abad [CA];36 O.G. 2913), for it is now
well settled that an object placed on land by one who has only a temporary right to the same, such
as a lessee or usufructuary, does not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. 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 is so stipulated in the document of mortgage. (Evangelista v.
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, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The
doctrine, therefore, gathered from these cases is that although in some instances, a house of mixed
materials has been considered as a chattel between them, has been recognized, it has been a
constant criterion nevertheless that, with respect to third persons, who are not parties to the contract,
and specially in execution proceedings, the house is considered as an immovable property (Art.
1431, New Civil Code).

In the case at bar, the house in question was treated as personal or movable property, by the parties
to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda conveyed by
way of "Chattel Mortgage" "my personal properties", a residential house and a truck. The mortgagor
himself grouped the house with the truck, which is, inherently a movable property. The house which
was not even declared for taxation purposes was small and made of light construction materials: G.I.
sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached permanently to
the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the parties to the contract of mortgages
who assailed its validity.

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Barrera, Dizon, Regala, and Makalintal,
JJ., concur.

G.R. No. L-4637 June 30, 1952

JOSE A. LUNA, petitioner,

vs.
DEMETRIO B. ENCARNACION, Judge of First Instance of Rizal, TRINIDAD REYES and THE
PROVINCIAL SHERIFF OF RIZAL, respondents.

Jose S. Fineza for petitioner.

BAUTISTA ANGELO, J.:

On September 25, 1948, a deed designated as chattel mortgage was executed by Jose A. Luna in
favor of Trinidad Reyes whereby the former conveyed by way of first mortgage to the latter a certain
house of mixed materials stated in barrio San Nicolas, municipality of Pasig, Province of Rizal, to
secure the payment of a promissory note in the amount of P1,500, with interest at 12 per cent per
annum. The document was registered in the office of the register of deeds for the Province of Rizal.
The mortgagor having filed to pay the promissory note when it fell due, the mortgage requested the
sheriff of said province to sell the house at public auction so that with its proceeds the amount
indebted may be paid notifying the mortgagor in writing of the time and place of the sale as required
by law. The sheriff acceded to the request and sold the property to the mortgagee for the amount
covering the whole indebtedness with interest and costs. The certificate of sale was issued by the
sheriff on May 28, 1949. After the period for the redemption of the property had expired without the
mortgagor having exercised his right to repurchase, the mortgagee demanded from the mortgagor
the surrender of the possession of the property, but the later refused and so on October 13, 1950,
she filed a petition in the Court of First Instance of Rizal praying that the provincial sheriff be
authorized to place her in possession of the property invoking in her favor the provisions of Act No.
3135, as amended by Act No. 4118.

When the petition came up for hearing before the court on October 25, 1950, Jose A. Luna, the
mortgagor, opposed the petition on the following grounds: (1) that Act No. 3135 as amended by Act
No. 4118 is applicable only to a real estate mortgage; (2) that the mortgage involved herein is a
chattel mortgage; and (3) that even if the mortgage executed by the parties herein be considered as
real estate mortgage, the extra-judicial sale made by the sheriff of the property in question was valid
because the mortgage does not contain an express stipulation authorizing the extra-judicial sale of
the property. After hearing, at which both parties have expressed their views in support of their
respective contentions, respondent judge, then presiding the court, overruled the opposition and
granted the petition ordering the provincial sheriff of Rizal, or any of this disputives, to immediately
place petitioner in possession of the property in question while at the same time directing the
mortgagor Jose A. Luna to vacate it and relinquish it in favor of petitioner. It is from this order that
Jose A. Luna desires now to obtain relief by filing this petition for certioraricontending that the
respondent judge has acted in excess of his jurisdiction.

The first question which petitioner poses in his petition for certiorari is that which relates to the
validity of the extra-judicial sale made by the provincial sheriff of Rizal of the property in question in
line with the request of the mortgagee Trinidad Reyes. It is contended that said extra-judicial sale
having been conducted under the provisions of Act No. 3135, as amended by Act No. 4118, is
invalid because the mortgage in question is not a real estate mortgage and, besides, it does not
contain an express stipulation authorizing the mortgagee to foreclose the mortgage extra-judicially.

There is merit in this claim. As may be gleaned from a perusal of the deed signed by the parties
(Annex "C"), the understanding executed by them is a chattel mortgage, as the parties have so
expressly designated, and not a real estate mortgage, specially when it is considered that the
property given as security is a house of mixed materials which by its very nature is considered as
personal property. Such being the case, it is indeed a mistake for the mortgagee to consider this
transaction in the light of Act No. 3135, as amended by Act No. 4118, as was so considered by her
when she requested to provincial sheriff to sell it extra-judicially in order to secure full satisfaction of
the indebtedness still owed her by the mortgagor. It is clear that Act No. 3135, as amended, only
covers real estate mortgages and is intended merely to regulate the extra-judicial sale of the
property mortgaged if and when the mortgagee is given a special power or express authority to do
so in the deed itself, or in a document annexed thereto. These conditions do not here obtain. The
mortgage before us is not a real estate mortgage nor does it contain an express authority or power
to sell the property extra-judicially.

But regardless of what we have heretofore stated, we find that the validity of the sale in question
may be maintained, it appearing that the mortgage in question is a chattel mortgage and as such it is
covered and regulated by the Chattel Mortgage Law, Act No. 1508. Section 14 of this Act allows the
mortgagee 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. We are not prepared to state if these requirements of the law had
been complied with in the case for the record before us is not complete and there is no showing to
that effect. At any rate, this issue is not how important because the same can be treshed out when
the opportunity comes for its determination, nor is it necessary for us to consider it in reaching a
decision in the present case. Suffice it to state that for the present we are not expressing any opinion
on this matter which concerns the validity of the sale in question for the reason that this opinion will
only be limited to a matter of procedure relative to the step taken by the mortgagee in securing the
possession of the property involved.

In the supposition that the sale of the property made by the sheriff has been made in accordance
with law, and the question he is confronted is how to deliver the possession of the property to the
purchaser in case of refusal to surrender its possession on the part of the debtor or mortgagor, the
remedy of the purchaser according to the authorities, is to bring an ordinary action for recovery of
possession (Continental Gin Co. vs. Pannell, 160 P., 598; 61 Okl., 102; 14 C.J.S., pp. 1027, 1028).
The purchaser cannot take possession of the property by force either directly or through the sheriff.
And the reason for this is "that the creditor's right of possession is conditioned upon the fact of
default, and the existence of this fact may naturally be the subject of controversy" (Bachrah Motor
Co. vs. Summers, 42 Phil., 3, 6). The creditor cannot merely file a petition for a writ of possession as
was done by Trinidad Reyes in this case. Her remedy is to file an ordinary action for recovery of
possession in ordered that the debtor may be given an opportunity to be heard not only in regarding
possession but also regarding the obligation covered by the mortgage. The petition she has filed in
the lower court, which was not even docketed, is therefore improper and should be regarded.

Wherefore, the order subject of the present petition for certiorari is hereby set aside, with costs
against respondent Trinidad Reyes.

Bengzon, Tuason, Padilla and Pablo, JJ., concur in the result.

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.

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.

Barredo (Chairman), Guerrero, De Castro and Escolin, JJ., concur.

Concepcion, Jr., J., is on leave.

Justice Abad Santos, J., took no part.

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 Delfin Joven for appellant.
J.W. Ferrier for appellees.

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;

xxx xxx xxx

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.

xxx xxx xxx

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

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

G.R. No. L-17898 October 31, 1962

PASTOR D. AGO, petitioner,

vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of First
Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK
ENGINEERING, INC., respondents.

Jose M. Luison for petitioner.

Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.

LABRABOR, J.:

Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No. 26723-R
entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part reads:

In this case for certiorari and prohibition with preliminary injunction, it appears from the
records that the respondent Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959, basing said judgment on a
compromise agreement between the parties.

On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.

Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his
counsel, did not receive a formal and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of November 14, 1959.

Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering
the execution without valid and formal notice of the decision.

A compromise agreement is binding between the parties and becomes the law between
them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin,
G.R. No. L-12439, May 22, 1959) .

It is a general rule in this jurisdiction that a judgment based on a compromise agreement is

not appealable and is immediately executory, unless a motion is filed on the ground fraud,
mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena vs. Morfe, G.R. No. L-
10089, July 31, 1957)

Petitioner's claim that he was not notified or served notice of the decision is untenable. The
judgment on the compromise agreement rendered by the court below dated January 28,
1959, was given in open court. This alone is a substantial compliance as to notice. (De los
Reyes vs. Ugarte, supra)

IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its jurisdiction
in ordering the execution of the judgment. The petition for certiorari is hereby dismissed and
the writ of preliminary injunction heretofore dissolved, with costs against the petitioner.

IT IS SO ORDERED.

The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought
sawmill machineries and equipments from respondent Grace Park Engineer domineering, Inc.,
executing a chattel mortgage over said machineries and equipments to secure the payment of
balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on installment
basis.

Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering, Inc.
instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said foreclosure,
petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance of Agusan. The
parties to the case arrived at a compromise agreement and submitted the same in court in writing,
signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A. Ortiz, Judge of
the Court of First Instance of Agusan, then presiding, dictated a decision in open court on January
28, 1959.

Petitioner continued to default in his payments as provided in the judgment by compromise, so

Grace Park Engineering, Inc. filed with the lower court a motion for execution, which was granted by
the court on August 15, 1959. A writ of execution, dated September 23, 1959, later followed.

The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued by the
lower court, levied upon and ordered the sale of the sawmill machineries and equipments in
question. These machineries and equipments had been taken to and installed in a sawmill building
located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom,
petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of the lower
court but before levy by the Sheriff).

Having been advised by the sheriff that the public auction sale was set for December 4, 1959,
petitioner, on December 1, 1959, filed the petition for certiorari and prohibition with preliminary
injunction with respondent Court of Appeals, alleging that a copy of the aforementioned judgment
given in open court on January 28, 1959 was served upon counsel for petitioner only on September
25, 1959 (writ of execution is dated September 23, 1959); that the order and writ of execution having
been issued by the lower court before counsel for petitioner received a copy of the judgment, its
resultant last order that the "sheriff may now proceed with the sale of the properties levied
constituted a grave abuse of discretion and was in excess of its jurisdiction; and that the respondent
Provincial Sheriff of Surigao was acting illegally upon the allegedly void writ of execution by levying
the same upon the sawmill machineries and equipments which have become real properties of the
Golden Pacific sawmill, Inc., and is about to proceed in selling the same without prior publication of
the notice of sale thereof in some newspaper of general circulation as required by the Rules of
Court.

The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the
sheriff but it turned out that the latter had already sold at public auction the machineries in question,
on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc. was the only
bidder for P15,000.00, although the certificate sale was not yet executed. The Court of Appeals
constructed the sheriff to suspend the issuance of a certificate of sale of the said sawmill
machineries and equipment sold by him on December 4, 1959 until the final decision of the case. On
November 9, 1960 the Court of Appeals rendered the aforequoted decision.

Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the rendition of
judgment on compromise in open court on January 1959 was a sufficient notice; and (2) in not
resolving the other issues raised before it, namely, (a) the legality of the public auction sale made by
the sheriff, and (b) the nature of the machineries in question, whether they are movables or
immovables.

The Court of Appeals held that as a judgment was entered by the court below in open court upon the
submission of the compromise agreement, the parties may be considered as having been notified of
said judgment and this fact constitutes due notice of said judgment. This raises the following legal
question: Is the order dictated in open court of the judgment of the court, and is the fact the petitioner
herein was present in open court was the judgment was dictated, sufficient notice thereof? The
provisions of the Rules of Court decree otherwise. Section 1 of Rule 35 describes the manner in
which judgment shall be rendered, thus:

SECTION 1. How judgment rendered. — All judgments determining the merits of cases shall
be in writing personally and directly prepared by the judge, and signed by him, stating clearly
and distinctly the facts and the law on which it is based, filed with the clerk of the court.
The court of first instance being a court of record, in order that a judgment may be considered as
rendered, must not only be in writing, signed by the judge, but it must also be filed with the clerk of
court. The mere pronouncement of the judgment in open court with the stenographer taking note
thereof does not, therefore, constitute a rendition of the judgment. It is the filing of the signed
decision with the clerk of court that constitutes rendition. While it is to be presumed that the
judgment that was dictated in open court will be the judgment of the court, the court may still modify
said order as the same is being put into writing. And even if the order or judgment has already been
put into writing and signed, while it has not yet been delivered to the clerk for filing it is still subject to
amendment or change by the judge. It is only when the judgment signed by the judge is actually filed
with the clerk of court that it becomes a valid and binding judgment. Prior thereto, it could still be
subject to amendment and change and may not, therefore, constitute the real judgment of the court.

Regarding the notice of judgment, the mere fact that a party heard the judge dictating the judgment
in open court, is not a valid notice of said judgment. If rendition thereof is constituted by the filing
with the clerk of court of a signed copy (of the judgment), it is evident that the fact that a party or an
attorney heard the order or judgment being dictated in court cannot be considered as notice of the
real judgment. No judgment can be notified to the parties unless it has previously been rendered.
The notice, therefore, that a party has of a judgment that was being dictated is of no effect because
at the time no judgment has as yet been signed by the judge and filed with the clerk.

Besides, the Rules expressly require that final orders or judgments be served personally or by
registered mail. Section 7 of Rule 27 provides as follows:

SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be served
either personally or by registered mail.

In accordance with this provision, a party is not considered as having been served with the judgment
merely because he heard the judgment dictating the said judgment in open court; it is necessary that
he be served with a copy of the signed judgment that has been filed with the clerk in order that he
may legally be considered as having been served with the judgment.

For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the judgment in
open court, is not sufficient to constitute the service of judgement as required by the above-quoted
section 7 of Rule 2 the signed judgment not having been served upon the petitioner, said judgment
could not be effective upon him (petitioner) who had not received it. It follows as a consequence that
the issuance of the writ of execution null and void, having been issued before petitioner her was
served, personally or by registered mail, a copy of the decision.

The second question raised in this appeal, which has been passed upon by the Court of Appeals,
concerns the validity of the proceedings of the sheriff in selling the sawmill machineries and
equipments at public auction with a notice of the sale having been previously published.

The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill machineries
and equipments he assigned the same to the Golden Pacific Sawmill, Inc. in payment of his
subscription to the shares of stock of said corporation. Thereafter the sawmill machinery and
equipments were installed in a building and permanently attached to the ground. By reason of such
installment in a building, the said sawmill machineries and equipment became real estate properties
in accordance with the provision of Art. 415 (5) of the Civil Code, thus:

ART. 415. The following are immovable property:

xxx xxx xxx

 (5) Machinery, receptacles, instruments or implements tended 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;

This Court in interpreting a similar question raised before it in the case of Berkenkotter vs. Cu
Unjieng e Hijos, 61 Phil. 683, held that the installation of the machine and equipment in the central of
the Mabalacat Sugar Co., Inc. for use in connection with the industry carried by the company,
converted the said machinery and equipment into real estate by reason of their purpose.
Paraphrasing language of said decision we hold that by the installment of the sawmill machineries in
the building of the Gold Pacific Sawmill, Inc., for use in the sawing of logs carried on in said building,
the same became a necessary and permanent part of the building or real estate on which the same
was constructed, converting the said machineries and equipments into real estate within the
meaning of Article 415(5) above-quoted of the Civil Code of the Philippines.

Considering that the machineries and equipments in question valued at more than P15,000.00
appear to have been sold without the necessary advertisement of sale by publication in a
newspaper, as required in Sec. 16 of Rule 39 of the Rules of Court, which is as follows:

SEC. 16. Notice of sale of property on execution. — Before the sale of property on
execution, notice thereof must be given as follows:

xxx xxx xxx

(c) In case of real property, by posting a similar notice particularly describing the property for
twenty days in three public places in the municipality or city where the property is situated,
and also where the property is to be sold, and, if the assessed value of the property exceeds
four hundred pesos, by publishing a copy of the notice once a week, for the same period, in
some newspaper published or having general circulation in the province, if there be one. If
there are newspapers published in the province in both the English and Spanish languages,
then a like publication for a like period shall be made in one newspaper published in the
English language, and in one published in the Spanish language.

the sale made by the sheriff must be declared null and void.

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside and
We declare that the issuance of the writ of execution in this case against the sawmill machineries
and equipments purchased by petitioner Pastor D. Ago from the Grace Park Engineering, Inc., as
well as the sale of the same by the Sheriff of Surigao, are null and void. Costs shall be against the
respondent Grace Park Engineering, Inc.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Padilla, J., took no part.

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.

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;

xxx xxx xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;

xxx xxx xxx

(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;

xxx xxx xxx

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.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Regala,
JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.

G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and
assigned several receivables with the former under a Receivable Purchase Agreement. To secure
the collection of the receivables assigned, private respondent executed a Chattel Mortgage over
certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering
Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed
to gain entry into private respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the
lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to
break open the premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why
all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ of certiorari. It is contended by private
respondent, however, that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.

The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition has
been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended
by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:
 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. Moreover, the subject house
stood on a rented lot to which defendants-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 personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung
Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the
validity of the chattel mortgage, 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 personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as
the appellate court did, the present case from the application of the abovequoted pronouncement. 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 rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the ownership of the land on
which the house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that
the parties to a contract may by agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as personal property but was merely required
and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable or immovable
was never placed in issue before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,

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

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

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

Abad Santos, J., concurs in the result.