Republic of the Philippines SUPREME COURT Manila EN BANC 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 certiorari contending 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-

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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. Republic of the Philippines SUPREME COURT Manila EN BANC 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. CARSON, J.: The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery company from the defendant machinery company, and executed a chattel mortgage thereon to secure payment of the purchase price. It included in the mortgage deed the building of strong materials in which the machinery was installed, without any reference to the land on which it stood. The indebtedness secured by this instrument not having been paid when it fell due, the mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage instrument, and was bought in by the machinery company. The mortgage was registered in the chattel mortgage registry, and the sale of the property to the machinery company in satisfaction of the mortgage was annotated in the same registry on December 29, 1913.

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A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina" executed a deed of sale of the land upon which the building stood to the machinery company, but this deed of sale, although executed in a public document, was not registered. This deed makes no reference to the building erected on the land and would appear to have been executed for the purpose of curing any defects which might be found to exist in the machinery company's title to the building under the sheriff's certificate of sale. The machinery company went into possession of the building at or about the time when this sale took place, that is to say, the month of December, 1913, and it has continued in possession ever since. At or about the time when the chattel mortgage was executed in favor of the machinery company, the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon the building, separate and apart from the land on which it stood, to secure payment of the balance of its indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of the mortgagor to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured judgment for that amount, levied execution upon the building, bought it in at the sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the land registry of the Province of Cavite. At the time when the execution was levied upon the building, the defendant machinery company, which was in possession, filed with the sheriff a sworn statement setting up its claim of title and demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at the sheriff's sale. This action was instituted by the plaintiff to recover possession of the building from the machinery company. The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the machinery company, on the ground that the company had its title to the building registered prior to the date of registry of the plaintiff's certificate. Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the ownership shall be transfer to the person who may have the first taken possession thereof in good faith, if it should be personal property. Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry. Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The registry her referred to is of course the registry of real property, and it must be apparent that the annotation or inscription of a deed of sale of real property in a chattel mortgage registry cannot be given the legal effect of an inscription in the registry of real property. By its express terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole purpose and object of the chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the manner and form prescribed in the statute. The building of strong materials in which the ricecleaning machinery was installed by the "Compaia 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

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land were sold to the machinery company long prior to the date of the sheriff's sale to the plaintiff. It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express terms, in relation to "possession" and "title," but contain no express requirement as to "good faith" in relation to the "inscription" of the property on the registry, it must be presumed that good faith is not an essential requisite of registration in order that it may have the effect contemplated in this article. We cannot agree with this contention. It could not have been the intention of the legislator to base the preferential right secured under this article of the code upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section would open wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription in a public record presupposes the good faith of him who enters such inscription; and rights created by statute, which are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad faith," to the benefit of the person who thus makes the inscription. Construing the second paragraph of this article of the code, the supreme court of Spain held in its sentencia of the 13th of May, 1908, that: This rule is always to be understood on the basis of the good faith mentioned in the first paragraph; therefore, it having been found that the second purchasers who record their purchase had knowledge of the previous sale, the question is to be decided in accordance with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.) Although article 1473, in its second paragraph, provides that the title of conveyance of ownership of the real property that is first recorded in the registry shall have preference, this provision must always be understood on the basis of the good faith mentioned in the first paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just to comply with a mere formality which, in given cases, does not obtain even in real disputes between third persons. (Note 2,

art. 1473, Civ. Code, issued by the publishers of the La Revista de los Tribunales, 13th edition.) The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery company had bought the building from plaintiff's judgment debtor; that it had gone into possession long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The execution of an indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of course, the subsequent inscription of the sheriff's certificate of title must be held to have been tainted with the same defect. Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to the plaintiff was not made in good faith, we should not be understood as questioning, in any way, the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola Filipina." The truth is that both the plaintiff and the defendant company appear to have had just and righteous claims against their common debtor. No criticism can properly be made of the exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover the amount of his claim from the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of execution upon the factory building and in buying it at the sheriff's sale, he considered that he was doing no more than he had a right to do under all the circumstances, and it is highly possible and even probable that he thought at that time that he would be able to maintain his position in a contest with the machinery company. There was no collusion on his part with the common debtor, and no thought of the perpetration of a fraud upon the rights of another, in the ordinary sense of the word. He may have hoped, and doubtless he did hope, that the title of the machinery company would not stand the test of an action in a court of law; and if later developments had confirmed his unfounded hopes, no one could question the legality of the propriety of the course he adopted.

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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, Avancea and Fisher, JJ., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-26278 August 4, 1927

LEON SIBAL , plaintiff-appellant, vs. EMILIANO J. VALDEZ ET AL., defendants. EMILIANO J. VALDEZ, appellee. J. E. Blanco for appellant. Felix B. Bautista and Santos and Benitez for appellee. JOHNSON, J.: The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th day of December 1924. The facts are about as conflicting as it is possible for facts to be, in the trial causes. As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the Court of First Instance of Pampanga, attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by the plaintiff and his tenants on seven parcels of land described in the complaint in the third paragraph of the first cause of action; that within one year from the date of the attachment and sale the plaintiff offered to redeem said sugar cane and tendered to the defendant Valdez the amount sufficient to cover the price paid by the latter, the interest thereon and any

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assessments or taxes which he may have paid thereon after the purchase, and the interest corresponding thereto and that Valdez refused to accept the money and to return the sugar cane to the plaintiff. As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was attempting to harvest the palay planted in four of the seven parcels mentioned in the first cause of action; that he had harvested and taken possession of the palay in one of said seven parcels and in another parcel described in the second cause of action, amounting to 300 cavans; and that all of said palay belonged to the plaintiff. Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano J. Valdez his attorneys and agents, restraining them (1) from distributing him in the possession of the parcels of land described in the complaint; (2) from taking possession of, or harvesting the sugar cane in question; and (3) from taking possession, or harvesting the palay in said parcels of land. Plaintiff also prayed that a judgment be rendered in his favor and against the defendants ordering them to consent to the redemption of the sugar cane in question, and that the defendant Valdez be condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the two parcels above-mentioned ,with interest and costs. On December 27, 1924, the court, after hearing both parties and upon approval of the bond for P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for in the complaint. The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each and every allegation of the complaint and step up the following defenses: (a) That the sugar cane in question had the nature of personal property and was not, therefore, subject to redemption; (b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and (d) That he never attempted to harvest the palay in parcels 4 and 5. The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots (puntas de cana dulce) palay in said parcels of land, representing a loss to him of P8,375.20 and that, in addition thereto, he suffered damages amounting to P3,458.56. He prayed, for a judgment (1) absolving him from all liability under the complaint; (2) declaring him to be the absolute owner of the sugar cane in question and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of P11,833.76, representing the value of the sugar cane and palay in question, including damages. Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing the evidence, and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a judgment against the plaintiff and in favor of the defendants (1) Holding that the sugar cane in question was personal property and, as such, was not subject to redemption; (2) Absolving the defendants from all liability under the complaint; and (3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum of P9,439.08 as follows: (a) P6,757.40, the value of the sugar cane; (b) 1,435.68, the value of the sugar-cane shoots; (c) 646.00, the value of palay harvested by plaintiff; (d) 600.00, the value of 150 cavans of palay which the defendant was not able to raise by reason of the

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injunction, at P4 cavan. 9,439.08 From that judgment the plaintiff appealed and in his assignments of error contends that the lower court erred: (1) In holding that the sugar cane in question was personal property and, therefore, not subject to redemption; (2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7 and 8, and that the palay therein was planted by Valdez; (3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40 from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana dulce); (4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was unable to raise palay on the land, which would have netted him the sum of P600; and. (5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08. It appears from the record: (1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of execution in civil case No. 20203 of the Court of First Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied an attachment on eight parcels of land belonging to said Leon Sibal, situated in the Province of Tarlac, designated in the second of attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A). (2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at the auction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93, having paid for the said parcels separately as follows (Exhibit C, and 2-A): Parcel

1 .................................................. P1.00 ................... 2 .................................................. 2,000.00 ................... 3 .................................................. 120.93 ................... 4 .................................................. 1,000.00 ................... 5 .................................................. 1.00 ................... 6 .................................................. 1.00 ................... 7 with the thereon .......................... house 150.00

8 .................................................. 1,000.00 ====== ................... ==== 4,273.93 (3) That within one year from the sale of said parcel of land, and on the 24th day of September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc., for the account of the redemption price of said parcels of land, without specifying the particular parcels to which said amount was to applied. The redemption price said eight parcels was reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit C and 2). The record further shows: (1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs. Leon Sibal 1. the same parties in the present case), attached the personal property of said

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Leon Sibal located in Tarlac, among which was included the sugar cane now in question in the seven parcels of land described in the complaint (Exhibit A). (2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A). (3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also attached the real property of said Leon Sibal in Tarlac, including all of his rights, interest and participation therein, which real property consisted of eleven parcels of land and a house and camarin situated in one of said parcels (Exhibit A). (4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin, were bought by Emilio J. Valdez at the auction held by the sheriff for the sum of P12,200. Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11. The house and camarin were situated on parcel 7 (Exhibit A). (5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12, and 13, were released from the attachment by virtue of claims presented by Agustin Cuyugan and Domiciano Tizon (Exhibit A). (6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J. Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired by it at public auction held by the deputy sheriff of Tarlac in connection with civil case No. 20203 of the Court of First Instance of Manila, as stated above. Said amount represented the unpaid balance of the redemption price of said eight parcels, after payment by Leon Sibal of P2,000 on September 24, 1923, fro the account of the redemption price, as stated above. (Exhibit C and 2). The foregoing statement of facts shows:

(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels of land described in the first cause of action of the complaint at public auction on May 9 and 10, 1924, for P600. (2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land situated in the Province of Tarlac belonging to Leon Sibal and that on September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption price of said parcels. (3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rights and interest in the said eight parcels of land. (4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest which Leon Sibal had or might have had on said eight parcels by virtue of the P2,000 paid by the latter to Macondray. (5) That Emilio J. Valdez became the absolute owner of said eight parcels of land. The first question raised by the appeal is, whether the sugar cane in question is personal or real property. It is contended that sugar cane comes under the classification of real property as "ungathered products" in paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334 enumerates as real property the following: Trees, plants, and ungathered products, while they are annexed to the land or form an integral part of any immovable property." That article, however, has received in recent years an interpretation by the Tribunal Supremo de Espaa, which holds that, under certain conditions, growing crops may be considered as personal property. (Decision of March 18, 1904, vol. 97, Civil Jurisprudence of Spain.) Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the Civil Code, in view of the recent decisions of the supreme Court of Spain, admits that growing crops are sometimes considered and treated as personal property. He says:

8 CASE NO. 1

No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocante a la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa frecuente con la uvay y la naranja), y a la de lenas, considerando ambas como muebles. El Tribunal Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un contrato de arrendamiento de un predio rustico, resuelve que su terminacion por desahucio no extingue los derechos del arrendario, para recolectar o percibir los frutos correspondientes al ao agricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su vez el importe de la renta integra correspondiente, aun cuando lo haya sido por precepto legal durante el curso del juicio, fundandose para ello, no solo en que de otra suerte se daria al desahucio un alcance que no tiene, sino en que, y esto es lo interesante a nuestro proposito, la consideracion de inmuebles que el articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les priva del caracter de productos pertenecientes, como tales, a quienes a ellos tenga derecho, Ilegado el momento de su recoleccion. xxx xxx xxx

An examination of the decisions of the Supreme Court of Louisiana may give us some light on the question which we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees not gathered, and trees before they are cut down, are likewise immovable, and are considered as part of the land to which they are attached." The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases "standing crops" may be considered and dealt with as personal property. In the case of Lumber Co. vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by article 465 of the Civil Code it is provided that 'standing crops and the fruits of trees not gathered and trees before they are cut down . . . are considered as part of the land to which they are attached, but the immovability provided for is only one in abstracto and without reference to rights on or to the crop acquired by others than the owners of the property to which the crop is attached. . . . The existence of a right on the growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering the crop movable quoad the right acquired therein. Our jurisprudence recognizes the possible mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.) "It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761) that "article 465 of the Revised Code says that standing crops are considered as immovable and as part of the land to which they are attached, and article 466 declares that the fruits of an immovable gathered or produced while it is under seizure are considered as making part thereof, and incurred to the benefit of the person making the seizure. But the evident meaning of these articles, is where the crops belong to the owner of the plantation they form part of the immovable, and where it is seized, the fruits gathered or produced inure to the benefit of the seizing creditor. A crop raised on leased premises in no sense forms part of the immovable. It belongs to the lessee, and may be sold by him, whether it be gathered or not, and it may be sold by his judgment creditors. If it necessarily forms part of the leased premises the result would be that it could not be sold under

Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y forma de la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.) From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered products may be sold and transferred as personal property; (2) that the Supreme Court of Spain, in a case of ejectment of a lessee of an agricultural land, held that the lessee was entitled to gather the products corresponding to the agricultural year, because said fruits did not go with the land but belonged separately to the lessee; and (3) that under the Spanish Mortgage Law of 1909, as amended, the mortgage of a piece of land does not include the fruits and products existing thereon, unless the contract expressly provides otherwise.

9 CASE NO. 1

execution separate and apart from the land. If a lessee obtain supplies to make his crop, the factor's lien would not attach to the crop as a separate thing belonging to his debtor, but the land belonging to the lessor would be affected with the recorded privilege. The law cannot be construed so as to result in such absurd consequences. In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said: If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be destructive of the very objects of the act, it would render the pledge of the crop objects of the act, it would render the pledge of the crop impossible, for if the crop was an inseparable part of the realty possession of the latter would be necessary to that of the former; but such is not the case. True, by article 465 C. C. it is provided that "standing crops and the fruits of trees not gathered and trees before they are cut down are likewise immovable and are considered as part of the land to which they are attached;" but the immovability provided for is only one in abstracto and without reference to rights on or to the crop acquired by other than the owners of the property to which the crop was attached. The immovability of a growing crop is in the order of things temporary, for the crop passes from the state of a growing to that of a gathered one, from an immovable to a movable. The existence of a right on the growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering the crop movable quoad the right acquired thereon. The provision of our Code is identical with the Napoleon Code 520, and we may therefore obtain light by an examination of the jurisprudence of France. The rule above announced, not only by the Tribunal Supremo de Espaa but by the Supreme Court of Louisiana, is followed in practically every state of the Union. From an examination of the reports and codes of the State of California and other states we find that the settle doctrine followed in said states in connection with the attachment of property and execution of judgment is, that growing crops raised by yearly labor and cultivation are considered personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs.

Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.) Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and then title will vest in the buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next cast of a fisherman's net; or fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold, however, must be specific and identified. They must be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].) It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of the Code of Civil Procedure as well as by Act No. 1508, the Chattel Mortgage Law. Said section 450 enumerates the property of a judgment debtor which may be subjected to execution. The pertinent portion of said section reads as follows: "All goods, chattels, moneys, and other property, both real and personal, * * * shall be liable to execution. Said section 450 and most of the other sections of the Code of Civil Procedure relating to the execution of judgment were taken from the Code of Civil Procedure of California. The Supreme Court of California, under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has held, without variation, that growing crops were personal property and subject to execution. Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal property. Section 2 of said Act provides: "All personal property shall be subject to mortgage, agreeably to the provisions of this Act, and a mortgage executed in pursuance thereof

10 CASE NO. 1

shall be termed a chattel mortgage." Section 7 in part provides: "If growing crops be mortgaged the mortgage may contain an agreement stipulating that the mortgagor binds himself properly to tend, care for and protect the crop while growing. It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that "growing crops" are personal property. This consideration tends to support the conclusion hereinbefore stated, that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered products" as mentioned in said article of the Civil Code have the nature of personal property. In other words, the phrase "personal property" should be understood to include "ungathered products." At common law, and generally in the United States, all annual crops which are raised by yearly manurance and labor, and essentially owe their annual existence to cultivation by man, . may be levied on as personal property." (23 C. J., p. 329.) On this question Freeman, in his treatise on the Law of Executions, says: "Crops, whether growing or standing in the field ready to be harvested, are, when produced by annual cultivation, no part of the realty. They are, therefore, liable to voluntary transfer as chattels. It is equally well settled that they may be seized and sold under execution. (Freeman on Executions, vol. p. 438.) We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that, for the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered products" have the nature of personal property. The lower court, therefore, committed no error in holding that the sugar cane in question was personal property and, as such, was not subject to redemption. All the other assignments of error made by the appellant, as above stated, relate to questions of fact only. Before entering upon a discussion of said assignments of error, we deem it opportune to take special notice of the failure of the plaintiff to appear at the trial during the presentation of evidence by the defendant. His absence from the trial and his failure to cross-examine the defendant have

lent considerable weight to the evidence then presented for the defense. Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the complaint, the plaintiff made a futile attempt to show that said two parcels belonged to Agustin Cuyugan and were the identical parcel 2 which was excluded from the attachment and sale of real property of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the description of parcel 2 in the certificate of sale by the sheriff (Exhibit A) and the description of parcels 1 and 2 of the complaint will readily show that they are not the same. The description of the parcels in the complaint is as follows: 1. La caa dulce sembrada por los inquilinos del ejecutado Leon Sibal 1. en una parcela de terreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas poco mas o menos de superficie. 2. La caa dulce sembrada por el inquilino del ejecutado Leon Sibal 1., Ilamado Alejandro Policarpio, en una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." The description of parcel 2 given in the certificate of sale (Exhibit A) is as follows: 2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados de superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con Francisco Dizon, Felipe Mau and others; al S. con Alejandro Dayrit, Isidro Santos and Melecio Mau; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador amillarado P4,200 pesos. On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the complaint were included among the parcels bought by Valdez from Macondray on June 25, 1924, and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and were also included among the parcels bought by Valdez at the auction of the real property of Leon Sibal on June 25, 1924, and corresponded to parcel 3 in the certificate of sale made by the

11 CASE NO. 1

sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows: Parcels No. 4. Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio of Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Mao y Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990. Tax No. 2856. As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at the trial when the defendant offered his evidence, we are inclined to give more weight to the evidence adduced by him that to the evidence adduced by the plaintiff, with respect to the ownership of parcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the complaint belong to the defendant, having acquired the same from Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal on the same date. It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190 cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of the crop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court. As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds to parcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the certificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as above stated (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interest of both Macondray and Sibal in said parcel. With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second cause of action, it appears from the testimony of the plaintiff himself that said parcel corresponds to parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the deed of sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of said

parcel, having acquired the interest of both Macondray and Sibal therein. In this connection the following facts are worthy of mention: Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under said execution. Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923. Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the redemption of said parcels of land. (See Exhibits B and C ). Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including the sugar cane in question. (Exhibit A) The said personal property so attached, sold at public auction May 9 and 10, 1924. April 29, 1924, the real property was attached under the execution in favor of Valdez (Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A). June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction on the 30th day of July, 1923, to Valdez. As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that the sugar cane in question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have yielded an average crop of 1039 picos and 60 cates; that one-half of the quantity, or 519 picos and 80 cates would have corresponded to the defendant, as owner; that during the season the sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant, as owner, would have netted P 6,757.40 from the sugar cane in question. The evidence also shows that the defendant could have taken from the sugar cane 1,017,000 sugarcane shoots (puntas de cana) and not 1,170,000 as computed by the lower court. During the season the shoots were selling at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would have netted P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by the lower court. As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190 cavans, one-half of said quantity should belong to the plaintiff, as stated above, and the other half to the defendant. The court erred in awarding the whole crop to the

12 CASE NO. 1

defendant. The plaintiff should therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by the lower court. The evidence also shows that the defendant was prevented by the acts of the plaintiff from cultivating about 10 hectares of the land involved in the litigation. He expected to have raised about 600 cavans of palay, 300 cavans of which would have corresponded to him as owner. The lower court has wisely reduced his share to 150 cavans only. At P4 a cavan, the palay would have netted him P600. In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to the defendant jointly and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower court, as follows: P6,757.40 1,220.40 323.00 600.00 8,900.80 ======= ===== In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered. Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur. for the sugar cane; for the sugar cane shoots; for the palay harvested by plaintiff in parcels 1 and 2; for the palay which defendant could have raised.

G.R. No. L-17870

September 29, 1962

MINDANAO BUS COMPANY, petitioner, vs. THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City, respondents. Binamira, Barria and Irabagon for petitioner. Vicente E. Sabellina for respondents. LABRADOR, J.: This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment hereunder referred to. Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment. In the Court of Tax Appeals the parties submitted the following stipulation of facts: Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts: 1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the Public Service Commission; 2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province; 3. That the machineries sought to be assessed by the respondent as real properties are the following:

Republic of the Philippines SUPREME COURT Manila EN BANC

13 CASE NO. 1

(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A"; (b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B"; (c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C"; (d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D"; (e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E"; (f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex "F"; and (g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G". 4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached photographs which form part of this agreed stipulation of facts; 5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be serviceable in the TPU land transportation business it operates; 6. That these machineries have never been or were never used as industrial equipments to produce finished products for sale, nor to repair machineries, parts and the like offered to the general public indiscriminately for business or commercial purposes for which petitioner has never engaged in, to date.1awphl.nt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied a motion for reconsideration, petitioner brought the case to this Court assigning the following errors: 1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the questioned assessments are valid; and that said tools, equipments or machineries are immovable taxable real properties. 2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code, and holding that pursuant thereto the movable equipments are taxable realties, by reason of their being intended or destined for use in an industry. 3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City Assessor's power to assess and levy real estate taxes on machineries is further restricted by section 31, paragraph (c) of Republic Act No. 521; and 4. The Tax Court erred in denying petitioner's motion for reconsideration. Respondents contend that said equipments, tho movable, are immobilized by destination, in accordance with paragraph 5 of Article 415 of the New Civil Code which provides: Art. 415. The following are immovable properties: 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 on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works. (Emphasis ours.) Note that the stipulation expressly states that the equipment are placed on wooden or cement platforms. They can be moved

14 CASE NO. 1

around and about in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said: Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to "machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry." If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in character because, as essential and principle elements of a sugar central, without them the sugar central would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be permanent. (Emphasis ours.) So that movable equipments to be immobilized in contemplation of the law must first be "essential and principal elements" of an industry or works without which such industry or works would be "unable to function or carry on the industrial purpose for which it was established." We may here distinguish, therefore, those movable which become immobilized by destination because they are essential and principal elements in the industry for those which may not be so considered immobilized because they are merely incidental, not essential and principal. Thus, cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals and are not and should not be considered immobilized by destination, for these businesses can continue or carry on their functions without these equity comments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential to said

industries; but the delivery trucks and adding machines which they usually own and use and are found within their industrial compounds are merely incidental and retain their movable nature. Similarly, the tools and equipments in question in this instant case are, by their nature, not essential and principle municipal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They are merely incidentals acquired as movables and used only for expediency to facilitate and/or improve its service. Even without such tools and equipments, its business may be carried on, as petitioner has carried on, without such equipments, before the war. The transportation business could be carried on without the repair or service shop if its rolling equipment is repaired or serviced in another shop belonging to another. The law that governs the determination of the question at issue is as follows: Art. 415. The following are immovable property: 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 on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (Civil Code of the Phil.) Aside from the element of essentiality the above-quoted provision also requires that the industry or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a building constructed on the land. A sawmill would also be installed in a building on land more or less permanently, and the sawing is conducted in the land or building. But in the case at bar the equipments in question are destined only to repair or service the transportation business, which is not carried on in a building or permanently on a piece of land, as demanded by the law. Said equipments may not, therefore, be deemed real property.

15 CASE NO. 1

Resuming what we have set forth above, we hold that the equipments in question are not absolutely essential to the petitioner's transportation business, and petitioner's business is not carried on in a building, tenement or on a specified land, so said equipment may not be considered real estate within the meaning of Article 415 (c) of the Civil Code. WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in question declared not subject to assessment as real estate for the purposes of the real estate tax. Without costs. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur. Regala, Concepcion and Barrera JJ., took no part.

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al., with costs. In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its decision in question which will be discussed in the course of this decision. The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the lower court erred in declaring that the additional machinery and equipment, as improvement incorporated with the central are subject to the mortgage deed executed in favor of the defendants Cu Unjieng e Hijos. It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots." On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by buying additional machinery and equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost of said additional machinery and equipment was approximately P100,000. In order to carry out this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of P25,750

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-41643 July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant, vs. CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees. Briones and Martinez for appellant. Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos. No appearance for the other appellees. VILLA-REAL, J.:

16 CASE NO. 1

and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now in litigation. On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the additional machinery and equipment acquired by said B.A. Green and installed in the sugar central after the execution of the original mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said loan. B.A. Green failed to obtain said loan. Article 1877 of the Civil Code provides as follows. ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not collected when the obligation falls due, and the amount of any indemnities paid or due the owner by the insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the declarations, amplifications, and limitations established by law, whether the estate continues in the possession of the person who mortgaged it or whether it passes into the hands of a third person. In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following doctrine: 1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES. It is a rule, established by the Civil Code and also by the Mortgage Law, with which the decisions of the courts of the United States are in accord, that in a mortgage of real estate, the improvements on the same are included; therefore, all objects permanently attached to a mortgaged building or land, although they may have been placed there after the mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].) 2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may be understood that the machinery and

other objects placed upon and used in connection with a mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that the improvements, buildings, and machinery that existed thereon were also comprehended, it is indispensable that the exclusion thereof be stipulated between the contracting parties. The appellant contends that the installation of the machinery and equipment claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof, made it appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor, said B.A. Green binding himself not to mortgage nor encumber them to anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him. Upon acquiring the machinery and equipment in question with money obtained as loan from the plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter became owner of said machinery and equipment, otherwise B.A. Green, as such president, could not have offered them to the plaintiff as security for the payment of his credit. Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry. If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in character because, as essential and principal elements of a sugar central, without them the sugar central would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be permanent.

17 CASE NO. 1

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said machinery and equipment as security for the payment of the latter's credit and to refrain from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed therefor, is not incompatible with the permanent character of the incorporation of said machinery and equipment with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as security at least under a second mortgage. As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and equipment had been incorporated, was transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos under the first mortgage. For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of the new machinery and equipment has bound himself to the person supplying him the purchase money to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or otherwise encumbering them does not alter the permanent character of the incorporation of said machinery and equipment with the central; and (3) that the sale of the machinery and equipment in question by the purchaser who was supplied the purchase money, as a loan, to the person who supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest the creditor with ownership of said machinery and equipment but simply with the right of redemption. Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the appellant. So ordered. Malcolm, Imperial, Butte, and Goddard, JJ., concur.

EN BANC 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. LABRABOR, J.: chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library On August 15, 1959, upon petition, the Court of First Instance issued a writ of execution.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library Petitioner now contends that the respondent Judge exceeded in his jurisdiction in rendering the execution without valid and formal notice of the decision.chanroblesvirtualawlibrary chanrobles virtual law library A compromise agreement is binding between the parties and becomes the law between them. (Gonzales vs. Gonzales G.R. No. L1254, May 21, 1948, 81 Phil. 38; Martin vs. Martin, G.R. No. L-12439,

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May 22, 1959) .chanroblesvirtualawlibrary chanrobles virtual law library 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) chanrobles virtual law library 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) chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library IT IS 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.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library 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).chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library 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

19 CASE NO. 1

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.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library 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

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mail, a copy of the decision.chanroblesvirtualawlibrary chanrobles virtual law library 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.chanroblesvirtualawlibrary chanrobles virtual law library 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 chanrobles virtual law library

Article 415(5) above-quoted of the Civil Code of the Philippines.chanroblesvirtualawlibrary chanrobles virtual law library 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 chanrobles virtual law library

(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

(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 void.chanroblesvirtualawlibrary chanrobles virtual law library and

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

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EN BANC G.R. No. L-19527 March 30, 1963

RICARDO PRESBITERO, in his capacity as Executor of the Testate Estate of EPERIDION PRESBITERO, Petitioner, vs. THE HON. JOSE F. FERNANDEZ, HELEN CARAM NAVA, and the PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, Respondents. REYES, J.B.L., J.: chanrobles virtual law library Petition for a writ of certiorari against the Court of First Instance of Negros Occidental.chanroblesvirtualawlibrary chanrobles virtual law library It appears that during the lifetime of Esperidion Presbitero, judgment was rendered against him by the Court of Appeals on October 14, 1959, in CA-G.R. No. 20879, ... to execute in favor of the plaintiff, within 30 days from the time this judgment becomes final, a deed of reconveyance of Lot No. 788 of the cadastral survey of Valladolid, free from all liens and encumbrances, and another deed of reconveyance of a 7-hectare portion of Lot No. 608 of the same cadastral survey, also free from all liens and encumbrances, or, upon failure to do so, to pay to the plaintiff the value of each of the said properties, as may be determined by the Court a quo upon evidence to be presented by the parties before it. The defendant is further adjudged to pay to the plaintiff the value of the products received by him from the 5hectare portion equivalent to 20 cavans of palay per hectare every year, or 125 cavans yearly, at the rate of P10.00 per cavan, from 1951 until possession of the said 5-hectare portion is finally delivered to the plaintiff with legal interest thereon from the time the complaint was filed; and to pay to the plaintiff the sum of P1,000.00 by way of attorney's fees, plus costs. This judgment, which became final, was a modification of a decision of the Court of First Instance of Negros Occidental, in its Civil Case No. 3492, entitled "Helen Caram Nava, plaintiff, versus Esperidion Presbitero, defendant." chanrobles virtual law library

Thereafter, plaintiff's counsel, in a letter dated December 8, 1959, sought in vain to amicably settle the case through petitioner's son, Ricardo Presbitero. When no response was forthcoming, said counsel asked for, and the court a quo ordered on June 9, 1960, the issuance of a partial writ of execution for the sum of P12,250.00. On the following day, June 10, 1960, said counsel, in another friendly letter, reiterated his previous suggestion for an amicable settlement, but the same produced no fruitful result. Thereupon, on June 21, 1960, the sheriff levied upon and garnished the sugar quotas allotted to plantation audit Nos. 26-237, 26-238, 26-239, 26-240 and 26-241 adhered to the Ma-ao Mill District and "registered in the name of Esperidion Presbitero as the original plantation-owner", furnishing copies of the writ of execution and the notice of garnishment to the manager of the Ma-ao Sugar Central Company, Bago, Negros Occidental, and the Sugar Quota Administration at Bacolod City, but without presenting for registration copies thereof to the Register of Deeds.chanroblesvirtualawlibrary chanrobles virtual law library Plaintiff Helen Caram Nava (herein respondent) then moved the court, on June 22, 1960, to hear evidence on the market value of the lots; and after some hearings, occasionally protracted by postponements, the trial court, on manifestation of defendant's willingness to cede the properties in litigation, suspended the proceedings and ordered him to segregate the portion of Lot 608 pertaining to the plaintiff from the mass of properties belonging to the defendant within a period to expire on August 24, 1960, and to effect the final conveyance of the said portion of Lot 608 and the whole of Lot 788 free from any lien and encumbrance whatsoever. Because of Presbitero's failure to comply with this order within the time set forth by the court, the plaintiff again moved on August 25, 1960 to declare the market value of the lots in question to be P2,500.00 per hectare, based on uncontradicted evidence previously adduced. But the court, acting on a prayer of defendant Presbitero, in an order dated August 27, 1960, granted him twenty (20) days to finalize the survey of Lot 608, and ordered him to execute a reconveyance of Lot 788 not later than August 31, 1960. Defendant again defaulted; and so plaintiff, on September 21, 1960, moved the court for payment by the defendant of the sum of P35,000.00 for the 14 hectares of land at P2,500.00 to the hectare, and the court, in its order dated September 24, 1960, gave the defendant until October 15, 1960 either to pay the value of the 14 hectares at the rate given or to deliver the clean titles of the lots. On October 15, 1960, the defendant finally delivered Certificate of Title No. T-28046 covering

22 CASE NO. 1

Lot 788, but not the title covering Lot 608 because of an existing encumbrance in favor of the Philippine National Bank. In view thereof, Helen Caram Nava moved for, and secured on October 19, 1960, a writ of execution for P17,500.00, and on the day following wrote the sheriff to proceed with the auction sale of the sugar quotas previously scheduled for November 5, 1960. The sheriff issued the notice of auction sale on October 20, 1960.chanroblesvirtualawlibrary chanrobles virtual law library On October 22, 1960, death overtook the defendant Esperidion Presbitero.chanroblesvirtualawlibrary chanrobles virtual law library Proceedings for the settlement of his estate were commenced in Special Proceedings No. 2936 of the Court of First Instance of Negros Occidental; and on November 4, 1960, the special administrator, Ricardo Presbitero, filed an urgent motion, in Case No. 3492, to set aside the writs of execution, and to order the sheriff to desist from holding the auction sale on the grounds that the levy on the sugar quotas was invalid because the notice thereof was not registered with the Register of Deeds, as for real property, and that the writs, being for sums of money, are unenforceable since Esperidion Presbitero died on October 22, 1960, and, therefore, could only be enforced as a money claim against his estate.chanroblesvirtualawlibrary chanrobles virtual law library This urgent motion was heard on November 5, 1960, but the auction sale proceeded on the same date, ending in the plaintiff's putting up the highest bid for P34,970.11; thus, the sheriff sold 21,640 piculs of sugar quota to her.chanroblesvirtualawlibrary chanrobles virtual law library On November 10, 1960, plaintiff Nava filed her opposition to Presbitero's urgent motion of November 4, 1960; the latter filed on May 4, 1961 a supplement to his urgent motion; and on May 8 and 23, 1961, the court continued hearings on the motion, and ultimately denied it on November 18, 1961.chanroblesvirtualawlibrary chanrobles virtual law library On January 11, 1962, plaintiff Nava also filed an urgent motion to order the Ma-ao Sugar Central to register the sugar quotas in her name and to deliver the rentals of these quotas corresponding to the crop year 1960-61 and succeeding years to her. The court granted this motion in its order dated February 3, 1962. A motion for

reconsideration by Presbitero was denied in a subsequent order under date of March 5, 1962. Wherefore, Presbitero instituted the present proceedings for certiorari.chanroblesvirtualawlibrary chanrobles virtual law library A preliminary restraining writ was thereafter issued by the court against the respondents from implementing the aforesaid orders of the respondent Judge, dated February 3, 1960 and March 5, 1962, respectively. The petition further seeks the setting aside of the sheriff's certificate of sale of the sugar quotas made out in favor of Helen Caram Nava, and that she be directed to file the judgment credit in her favor in Civil Case No. 3492 as a money claim in the proceedings to settle the Estate of Esperidion Presbitero.chanroblesvirtualawlibrary chanrobles virtual law library The petitioner denies having been personally served with notice of the garnishment of the sugar quotas, but this disclaimer cannot be seriously considered since it appears that he was sent a copy of the notice through the chief of police of Valladolid on June 21, 1960, as certified to by the sheriff, and that he had actual knowledge of the garnishment, as shown by his motion of November 4, 1960 to set aside the writs of execution and to order the sheriff to desist from holding the auction sale.chanroblesvirtualawlibrary chanrobles virtual law library Squarely at issue in this case is whether sugar quotas are real (immovable) or personal properties. If they be realty, then the levy upon them by the sheriff is null and void for lack of compliance with the procedure prescribed in Section 14, Rule 39, in relation with Section 7, Rule 59, of the Rules of Court requiring "the filing with the register of deeds a copy of the orders together with a description of the property . . . ." chanrobles virtual law library In contending that sugar quotas are personal property, the respondent, Helen Caram Nava, invoked the test formulated by Manresa (3 Manresa, 6th Ed. 43), and opined that sugar quotas can be carried from place to place without injury to the land to which they are attached, and are not one of those included in Article 415 of the Civil Code; and not being thus included, they fall under the category of personal properties: ART. 416. The following are deemed to be personal property:

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xxx

xxx

x x x chanrobles virtual law library

4. In general, all things which can be transported from place to place without impairment of the real property to which they are fixed. Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. Respondent likewise points to evidence she submitted that sugar quotas are, in fact, transferred apart from the plantations to which they are attached, without impairing, destroying, or diminishing the potentiality of either quota or plantation. She was sustained by the lower court when it stated that "it is a matter of public knowledge and it is universal practice in this province, whose principal industry is sugar, to transfer by sale, lease, or otherwise, sugar quota allocations from one plantation to any other" and that it is "specious to insist that quotas are improvements attaching to one plantation when in truth and in fact they are no longer attached thereto for having been sold or leased away to be used in another plantation". Respondent would add weight to her argument by invoking the role that sugar quotas play in our modern social and economic life, and cites that the Sugar Office does not require any registration with the Register of Deeds for the validity of the sale of these quotas; and, in fact, those here in question were not noted down in the certificate of title of the land to which they pertain; and that Ricardo Presbitero had leased sugar quotas independently of the land. The respondent cites further that the U.S.-Philippine Trade Relations Act, approved by the United States Congress in 1946, limiting the production of unrefined sugar in the Philippines did not allocate the quotas for said unrefined sugar among lands planted to sugarcane but among "the sugar producing mills and plantation OWNERS", and for this reason Section 3 of Executive Order No. 873, issued by Governor General Murphy, authorizes the lifting of sugar allotments from one land to another by means only of notarized deeds.chanroblesvirtualawlibrary chanrobles virtual law library While respondent's arguments are thought-provoking, they cannot stand against the positive mandate of the pertinent statute. The Sugar Limitation Law (Act 4166, as amended) provides -

SEC. 9. The allotment corresponding to each piece of land under the provisions of this Act shall be deemed to be an improvement attaching to the land entitled thereto .... and Republic Act No. 1825 similarly provides - chanrobles virtual law library SEC. 4. The production allowance or quotas corresponding to each piece of land under the provisions of this Act shall be deemed to be an improvement attaching to the land entitled thereto ....chanroblesvirtualawlibrary chanrobles virtual law library And Executive Order No. 873 defines "plantation" as follows: (a) The term 'plantation' means any specific area of land under sole or undivided ownership to which is attached an allotment of centrifugal sugar. Thus, under express provisions of law, the sugar quota allocations are accessories to land, and can not have independent existence away from a plantation, although the latter may vary. Indeed, this Court held in the case of Abelarde vs. Lopez, 74 Phil. 344, that even if a contract of sale of haciendas omitted "the right, title, interest, participation, action (and) rent" which the grantors had or might have in relation to the parcels of land sold, the sale would include the quotas, it being provided in Section 9, Act 4166, that the allotment is deemed an improvement attached to the land, and that at the time the contract of sale was signed the land devoted to sugar were practically of no use without the sugar allotment.chanroblesvirtualawlibrary chanrobles virtual law library As an improvement attached to land, by express provision of law, though not physically so united, the sugar quotas are inseparable therefrom, just like servitudes and other real rights over an immovable. Article 415 of the Civil Code, in enumerating what are immovable properties, names 10. Contracts for public works, and servitudes and other real rights over immovable property. (Emphasis supplied) It is by law, therefore, that these properties are immovable or real, Article 416 of the Civil Code being made to apply only when the

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thing (res) sought to be classified is not included in Article 415.chanroblesvirtualawlibrary chanrobles virtual law library The fact that the Philippine Trade Act of 1946 (U.S. Public Law 37179th Congress) allows transfers of sugar quotas does not militate against their immovability. Neither does the fact that the Sugar Quota Office does not require registration of sales of quotas with the Register of Deeds for their validity, nor the fact that allocation of unrefined sugar quotas is not made among lands planted to sugarcane but among "the sugar producing mills and plantation OWNERS", since the lease or sale of quotas are voluntary transactions, the regime of which, is not necessarily identical to involuntary transfers or levies; and there cannot be a sugar plantation owner without land to which the quota is attached; and there can exist no quota without there being first a corresponding plantation.chanroblesvirtualawlibrary chanrobles virtual law library Since the levy is invalid for non-compliance with law, it is impertinent to discuss the survival or non-survival of claims after the death of the judgment debtor, gauged from the moment of actual levy. Suffice it to state that, as the case presently stands, the writs of execution are not in question, but the levy on the quotas, and, because of its invalidity, the levy amount to no levy at all. Neither is it necessary, or desirable, to pass upon the conscionableness or unconscionableness of the amount produced in the auction sale as compared with the actual value of the quotas inasmuch as the sale must necessarily be also illegal.chanroblesvirtualawlibrary chanrobles virtual law library As to the remedial issue that the respondents have presented: that certiorari does not lie in this case because the petitioner had a remedy in the lower court to "suspend" the auction sale, but did not avail thereof, it may be stated that the latter's urgent motion of November 4, 1960, a day before the scheduled sale (though unresolved by the court on time), did ask for desistance from holding the sale.chanroblesvirtualawlibrary chanrobles virtual law library WHEREFORE, the preliminary injunction heretofore granted is hereby made permanent, and the sheriff's certificate of sale of the sugar quotas in question declared null and void. Costs against respondent Nava.

Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon and Regala, JJ., concur. Makalintal, J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC 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

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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, Espaa 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-) 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,

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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 crossarms 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).

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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 term poles, the logical question posited is whether they constitute real properties, so that they can be subject to a real property tax. The tax law does not provide for a definition of real property; but Article 415 of the Civil Code does, by stating the following are immovable property: (1) Land, buildings, roads, and constructions of all kinds adhered to the soil; xxx xxx xxx

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.

(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

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