ARTICLE 415.

IMMOVABLE PROPERTIES

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.

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 rice-cleaning 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 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.

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.



































































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner,
vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay
for respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of
Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the
same province, dropped at Lopez' house and invited him to make an investment in the theatre
business. It was intimated that Orosa, his family and close friends were organizing a
corporation to be known as Plaza Theatre, Inc., that would engage in such venture. Although
Lopez expressed his unwillingness to invest of the same, he agreed to supply the lumber
necessary for the construction of the proposed theatre, and at Orosa's behest and assurance
that the latter would be personally liable for any account that the said construction might incur,
Lopez further agreed that payment therefor would be on demand and not cash on delivery
basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was used for the
construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of
the total cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus
leaving a balance of P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an
area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the
corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of
the remaining unpaid obligation, the latter and Belarmino Rustia, the president of the
corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza
Theatre., out of which said amount of P41,771.35 would be satisfied, to which assurance
Lopez had to accede. Unknown to him, however, as early as November, 1946, the corporation
already got a loan for P30,000 from the Philippine National Bank with the Luzon Surety
Company as surety, and the corporation in turn executed a mortgage on the land and building
in favor of said company as counter-security. As the land at that time was not yet brought
under the operation of the Torrens System, the mortgage on the same was registered on
November 16, 1946, under Act No. 3344. Subsequently, when the corporation applied for the
registration of the land under Act 496, such mortgage was not revealed and thus Original
Certificate of Title No. O-391 was correspondingly issued on October 25, 1947, without any
encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa,
Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock
of the Plaza Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the
creditor, and as the obligation still remained unsettled, Lopez filed on November 12, 1947, a
complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which later
became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be
sentenced to pay him jointly and severally the sum of P41,771.35, with legal interest from the
firing of the action; that in case defendants fail to pay the same, that the building and the land
covered by OCT No. O-391 owned by the corporation be sold at public auction and the
proceeds thereof be applied to said indebtedness; or that the 420 shares of the capital stock of
the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public
auction for the same purpose; and for such other remedies as may be warranted by the
circumstances. Plaintiff also caused the annotation of a notice of lis pendens on said
properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first
denying that the materials were delivered to him as a promoter and later treasurer of the
corporation, because he had purchased and received the same on his personal account; that
the land on which the movie house was constructed was not charged with a lien to secure the
payment of the aforementioned unpaid obligation; and that the 420 shares of stock of the
Plaza Theatre, Inc., was not assigned to plaintiff as collaterals but as direct security for the
payment of his indebtedness. As special defense, this defendant contended that as the 420
shares of stock assigned and conveyed by the assignor and accepted by Lopez as direct
security for the payment of the amount of P41,771.35 were personal properties, plaintiff was
barred from recovering any deficiency if the proceeds of the sale thereof at public auction
would not be sufficient to cover and satisfy the obligation. It was thus prayed that he be
declared exempted from the payment of any deficiency in case the proceeds from the sale of
said personal properties would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense
by alleging that the building materials delivered to Orosa were on the latter's personal account;
and that there was no understanding that said materials would be paid jointly and severally by
Orosa and the corporation, nor was a lien charged on the properties of the latter to secure
payment of the same obligation. As special defense, defendant corporation averred that while
it was true that the materials purchased by Orosa were sold by the latter to the corporation,
such transactions were in good faith and for valuable consideration thus when plaintiff failed to
claim said materials within 30 days from the time of removal thereof from Orosa, lumber
became a different and distinct specie and plaintiff lost whatever rights he might have in the
same and consequently had no recourse against the Plaza Theatre, Inc., that the claim could
not have been refectionary credit, for such kind of obligation referred to an indebtedness
incurred in the repair or reconstruction of something already existing and this concept did not
include an entirely new work; and that the Plaza Theatre, Inc., having been incorporated on
October 14, 1946, it could not have contracted any obligation prior to said date. It was,
therefore, prayed that the complaint be dismissed; that said defendant be awarded the sum P
5,000 for damages, and such other relief as may be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered
under the Torrens System and that there was a notice of lis pendens thereon, filed on August
17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for
review of the decree of the land registration court dated October 18, 1947, which was made
the basis of OCT No. O-319, in order to annotate the rights and interests of the surety
company over said properties (Land Registration Case No. 17 GLRO Rec. No. 296).
Opposition thereto was offered by Enrique Lopez, asserting that the amount demanded by him
constituted a preferred lien over the properties of the obligors; that the surety company was
guilty of negligence when it failed to present an opposition to the application for registration of
the property; and that if any violation of the rights and interest of said surety would ever be
made, same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court,
after making an exhaustive and detailed analysis of the respective stands of the parties and
the evidence adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza
Theatre, Inc., were jointly liable for the unpaid balance of the cost of lumber used in the
construction of the building and the plaintiff thus acquired the materialman's lien over the
same. In making the pronouncement that the lien was merely confined to the building and did
not extend to the land on which the construction was made, the trial judge took into
consideration the fact that when plaintiff started the delivery of lumber in May, 1946, the land
was not yet owned by the corporation; that the mortgage in favor of Luzon Surety Company
was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the old
Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings
which are also classified as real properties, upon which said refection was made. It was,
however, declared that plaintiff's lien on the building was superior to the right of the surety
company. And finding that the Plaza Theatre, Inc., had no objection to the review of the
decree issued in its favor by the land registration court and the inclusion in the title of the
encumbrance in favor of the surety company, the court a quo granted the petition filed by the
latter company. Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay
jointly the amount of P41,771.35 with legal interest and costs within 90 days from notice of
said decision; that in case of default, the 420 shares of stock assigned by Orosa to plaintiff be
sold at public auction and the proceeds thereof be applied to the payment of the amount due
the plaintiff, plus interest and costs; and that the encumbrance in favor of the surety company
be endorsed at the back of OCT No. O-391, with notation I that with respect to the building,
said mortgage was subject to the materialman's lien in favor of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation
of therein defendants was joint instead of solidary, and that the lien did not extend to the land,
but same was denied by order the court of December 23, 1952. The matter was thus appealed
to the Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In
this instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value
of the materials used in the construction of a building attaches to said structure alone and
does not extend to the land on which the building is adhered to; and (2) whether the lower
court and the Court of Appeals erred in not providing that the material mans liens is superior to
the mortgage executed in favor surety company not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part
of the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of
P41,771.35, so We will not take up or consider anything on that point. Appellant, however,
contends that the lien created in favor of the furnisher of the materials used for the
construction, repair or refection of a building, is also extended to the land which the
construction was made, and in support thereof he relies on Article 1923 of the Spanish Civil
Code, pertinent law on the matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the
following are preferred:

x x x x x x x x x

5. Credits for refection, not entered or recorded, with respect to the estate upon which the
refection was made, and only with respect to other credits different from those mentioned in
four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property,
and inasmuch as said provision does not contain any specification delimiting the lien to the
building, said article must be construed as to embrace both the land and the building or
structure adhering thereto. We cannot subscribe to this view, for while it is true that generally,
real estate connotes the land and the building constructed thereon, it is obvious that the
inclusion of the building, separate and distinct from the land, in the enumeration of what may
constitute real properties1 could mean only one thing that a building is by itself an
immovable property, a doctrine already pronounced by this Court in the case of Leung Yee vs.
Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence of any specific
provision of law to the contrary, a building is an immovable property, irrespective of whether or
not said structure and the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant reveals that the
law gives preference to unregistered refectionary credits only with respect to the real estate
upon which the refection or work was made. This being so, the inevitable conclusion must be
that the lien so created attaches merely to the immovable property for the construction or
repair of which the obligation was incurred. Evidently, therefore, the lien in favor of appellant
for the unpaid value of the lumber used in the construction of the building attaches only to said
structure and to no other property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged
only to the building for which the credit was made or which received the benefit of refection,
the lower court was right in, holding at the interest of the mortgagee over the land is superior
and cannot be made subject to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is
hereby affirmed, with costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.


Footnotes

1 Article 415 of the new Civil Code (Art. 334 of the old) enumerates what are considered
immovable property, among which are land, buildings, roads and constructions of all kinds
adhered to the soil.





































































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance
of Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents.



PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court
of First Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses
Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential
Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in
favor of petitioner bank are null and void.

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut
Magcale secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To
secure payment of this loan, plaintiffs executed in favor of defendant on the aforesaid date a
deed of Real Estate Mortgage over the following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces
containing a total floor area of 263 sq. meters, more or less, generally constructed of mixed
hard wood and concrete materials, under a roofing of cor. g. i. sheets; declared and assessed
in the name of FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the
Assessor of Olongapo City with an assessed value of P35,290.00. This building is the only
improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of
occupancy on the lot where the above property is erected, and more particularly described
and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite
Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m.
more or less, declared and assessed in the name of FERNANDO MAGCALE under Tax
Duration No. 19595 issued by the Assessor of Olongapo City with an assessed value of
P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as visible
limits. ( Exhibit "A, " also Exhibit "1" for defendant).

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

AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the
Mortgagors as herein stated is released or issued by the Bureau of Lands, the Mortgagors
hereby authorize the Register of Deeds to hold the Registration of same until this Mortgage is
cancelled, or to annotate this encumbrance on the Title upon authority from the Secretary of
Agriculture and Natural Resources, which title with annotation, shall be released in favor of the
herein Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank)
was at the outset aware of the fact that the mortgagors (plaintiffs) have already filed a
Miscellaneous Sales Application over the lot, possessory rights over which, were mortgaged to
it.

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the
Registry of Deeds of Zambales on November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the
sum of P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of
the said defendant another deed of Real Estate Mortgage over the same properties previously
mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This second deed of
Real Estate Mortgage was likewise registered with the Registry of Deeds, this time in
Olongapo City, on May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776
over the parcel of land, possessory rights over which were mortgaged to defendant Prudential
Bank, in favor of plaintiffs. On the basis of the aforesaid Patent, and upon its transcription in
the Registration Book of the Province of Zambales, Original Certificate of Title No. P-2554 was
issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of
Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were
extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties therein
mortgaged to defendant as the highest bidder in a public auction sale conducted by the
defendant City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held
despite written request from plaintiffs through counsel dated March 29, 1978, for the defendant
City Sheriff to desist from going with the scheduled public auction sale (Exhibit "D")."
(Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53),
opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated
January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit.
Hence, the instant petition (Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated
May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the
parties were required to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid.,
P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID;
AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE
RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972
UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-
2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL
ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).
This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted
on the building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this
Court ruled that, "it is obvious that the inclusion of "building" separate and distinct from the
land, in said provision of law can only mean that a building is by itself an immovable property."
(Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc.
vs. Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation
of the improvements thereon, buildings, still a building by itself may be mortgaged apart from
the land on which it has been built. Such a mortgage would be still a real estate mortgage for
the building would still be considered immovable property even if dealt with separately and
apart from the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner,
this Court has also established that possessory rights over said properties before title is
vested on the grantee, may be validly transferred or conveyed as in a deed of mortgage (Vda.
de Bautista vs. Marcos, 3 SCRA 438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage
deed on the 2-storey semi-concrete residential building with warehouse and on the right of
occupancy on the lot where the building was erected, was executed on November 19, 1971
and registered under the provisions of Act 3344 with the Register of Deeds of Zambales on
November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24,
1972, on the basis of which OCT No. 2554 was issued in the name of private respondent
Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage
was executed before the issuance of the final patent and before the government was divested
of its title to the land, an event which takes effect only on the issuance of the sales patent and
its subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs.
Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado,
L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing
considerations, it is evident that the mortgage executed by private respondent on his own
building which was erected on the land belonging to the government is to all intents and
purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be
noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired
under the Public Land Act, or any improvement thereon and therefore have no application to
the assailed mortgage in the case at bar which was executed before such eventuality.
Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on the face of private
respondent's title has likewise no application in the instant case, despite its reference to
encumbrance or alienation before the patent is issued because it refers specifically to
encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties
on May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of
Deeds of Olongapo City on the same date. Relative thereto, it is evident that such mortgage
executed after the issuance of the sales patent and of the Original Certificate of Title, falls
squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act
and Section 2 of Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five
years, voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may
be annotated, without requiring the bank to get the prior approval of the Ministry of Natural
Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation
of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections
118, 120, 122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not
be invoked to defeat the policy of the State neither may the doctrine of estoppel give a
validating effect to a void contract. Indeed, it is generally considered that as between parties to
a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public
policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what
public policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino
supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not
pass upon any new contract between the parties (Ibid), as in the case at bar. It should not
preclude new contracts that may be entered into between petitioner bank and private
respondents that are in accordance with the requirements of the law. After all, private
respondents themselves declare that they are not denying the legitimacy of their debts and
appear to be open to new negotiations under the law (Comment; Rollo, pp. 95-96). Any new
transaction, however, would be subject to whatever steps the Government may take for the
reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales &
Olongapo City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for
P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an additional loan of
P20,000.00 is null and void, without prejudice to any appropriate action the Government may
take against private respondents.

SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.







































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.

PAREDES, J.:

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

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

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

Defendants, answering the complaint, among others, stated

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

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

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

On February 24, 1961, the lower court held

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

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

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

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to
the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A",
immediately after the lapse of the ninety (90) days above-mentioned, in default of such
payment.

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

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

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

The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely
on the ground that the house mortgaged was erected on the land which belonged to a third
person, but also and principally on the doctrine of estoppel, in that "the parties have so
expressly agreed" in the mortgage to consider the house as chattel "for its smallness and
mixed materials of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil
Code (corresponding to arts. 415 and 416, N.C.C.), for purposes of the application of the
Chattel Mortgage Law, it was held that under certain conditions, "a property may have a
character different from that imputed to it in said articles. It is undeniable that the parties to a
contract may by agreement, treat as personal property that which by nature would be real
property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any
question that a building of mixed materials may be the subject of a chattel mortgage, in which
case, it is considered as between the parties as personal property. ... The matter depends on
the circumstances and the intention of the parties". "Personal property may retain its character
as such where it is so agreed by the parties interested even though annexed to the realty ...".
(42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18,
1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree
to consider a house as personal property for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is based partly, upon the principles of
estoppel ..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage
house built on a rented land, was held to be a personal property, not only because the deed of
mortgage considered it as such, but also because it did not form part of the land (Evangelista
v. Abad [CA];36 O.G. 2913), for it is now well settled that an object placed on land by one who
has only a temporary right to the same, such as a lessee or usufructuary, does not become
immobilized by attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill
Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands on a
rented land belonging to another person, it may be mortgaged as a personal property is so
stipulated in the document of mortgage. (Evangelista v. Abad, supra.) It should be noted,
however, that the principle is predicated on statements by the owner declaring his house to be
a chattel, a conduct that may conceivably estop him from subsequently claiming otherwise
(Ladera, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered
from these cases is that although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it has been a constant criterion
nevertheless that, with respect to third persons, who are not parties to the contract, and
specially in execution proceedings, the house is considered as an immovable property (Art.
1431, New Civil Code).

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

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

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

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




ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20329 March 16, 1923

THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.

Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

STREET, J.:

This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo,
register of deeds of the City of Manila, to an original petition of the Standard Oil Company of
New York, seeking a peremptory mandamus to compel the respondent to record in the proper
register a document purporting to be a chattel mortgage executed in the City of Manila by
Gervasia de la Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.

It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera,
was the lessee of a parcel of land situated in the City of Manila and owner of the house of
strong materials built thereon, upon which date she executed a document in the form of a
chattel mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold
interest in said lot and the building which stands thereon.

The clauses in said document describing the property intended to be thus mortgage are
expressed in the following words:

Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of
mortgage, the following described personal property, situated in the City of Manila, and now in
possession of the mortgagor, to wit:

(1) All of the right, title, and interest of the mortgagor in and to the contract of lease
hereinabove referred to, and in and to the premises the subject of the said lease;

(2) The building, property of the mortgagor, situated on the aforesaid leased premises.

After said document had been duly acknowledge and delivered, the petitioner caused the
same to be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of
Manila, for the purpose of having the same recorded in the book of record of chattel
mortgages. Upon examination of the instrument, the respondent was of the opinion that it was
not a chattel mortgage, for the reason that the interest therein mortgaged did not appear to be
personal property, within the meaning of the Chattel Mortgage Law, and registration was
refused on this ground only.

We are of the opinion that the position taken by the respondent is untenable; and it is his duty
to accept the proper fee and place the instrument on record. The duties of a register of deeds
in respect to the registration of chattel mortgage are of a purely ministerial character; and no
provision of law can be cited which confers upon him any judicial or quasi-judicial power to
determine the nature of any document of which registration is sought as a chattel mortgage.

The original provisions touching this matter are contained in section 15 of the Chattel
Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred
to section 198 of the Administrative Code, where they are now found. There is nothing in any
of these provisions conferring upon the register of deeds any authority whatever in respect to
the "qualification," as the term is used in Spanish law, of chattel mortgage. His duties in
respect to such instruments are ministerial only. The efficacy of the act of recording a chattel
mortgage consists in the fact that it operates as constructive notice of the existence of the
contract, and the legal effects of the contract must be discovered in the instrument itself in
relation with the fact of notice. Registration adds nothing to the instrument, considered as a
source of title, and affects nobody's rights except as a specifies of notice.

Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between
real property and personal property for purpose of the application of the Chattel Mortgage
Law. Those articles state rules which, considered as a general doctrine, are law in this
jurisdiction; but it must not be forgotten that under given conditions property may have
character different from that imputed to it in said articles. It is undeniable that the parties to a
contract may by agreement treat as personal property that which by nature would be real
property; and it is a familiar phenomenon to see things classed as real property for purposes
of taxation which on general principle might be considered personal property. Other situations
are constantly arising, and from time to time are presented to this court, in which the proper
classification of one thing or another as real or personal property may be said to be doubtful.

The point submitted to us in this case was determined on September 8, 1914, in an
administrative ruling promulgated by the Honorable James A. Ostrand, now a Justice of this
Court, but acting at that time in the capacity of Judge of the fourth branch of the Court of First
Instance of the Ninth Judicial District, in the City of Manila; and little of value can be here
added to the observations contained in said ruling. We accordingly quote therefrom as follows:

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

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor
continued:

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

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

In the light of what has been said it becomes unnecessary for us to pass upon the point
whether the interests conveyed in the instrument now in question are real or personal; and we
declare it to be the duty of the register of deeds to accept the estimate placed upon the
document by the petitioner and to register it, upon payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date of the
notification hereof, the respondent shall interpose a sufficient answer to the petition, the writ of
mandamus will be issued, as prayed, but without costs. So ordered.

Araullo, C.J., Malcolm, Avancea, Ostrand, Johns, and Romualdez, JJ., concur.
























































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16218 November 29, 1962

ANTONIA BICERRA, DOMINGO BICERRA, BERNARDO BICERRA, CAYETANO
BICERRA, LINDA BICERRA, PIO BICERRA and EUFRICINA BICERRA, plaintiffs-
appellants,
vs.
TOMASA TENEZA and BENJAMIN BARBOSA, defendants-appellees.

Agripino Brillantes and Alberto B. Bravo for plaintiffs-appellants.
Ernesto Parol for defendants-appellees.

MAKALINTAL, J.:

This case is before us on appeal from the order of the Court of First Instance of Abra
dismissing the complaint filed by appellants, upon motion of defendants-appellate on the
ground that the action was within the exclude (original) jurisdiction of the Justice of the Peace
Court of Lagangilang, of the same province.

The complaint alleges in substance that appellants were the owners of the house, worth
P200.00, built on and owned by them and situated in the said municipality Lagangilang; that
sometime in January 1957 appealed forcibly demolished the house, claiming to be the owners
thereof; that the materials of the house, after it was dismantled, were placed in the custody of
the barrio lieutenant of the place; and that as a result of appellate's refusal to restore the
house or to deliver the material appellants the latter have suffered actual damages the amount
of P200.00, plus moral and consequential damages in the amount of P600.00. The relief
prayed for is that "the plaintiffs be declared the owners of the house in question and/or the
materials that resulted in (sic) its dismantling; (and) that the defendants be orders pay the sum
of P200.00, plus P600.00 as damages, the costs."

The issue posed by the parties in this appeal is whether the action involves title to real
property, as appellants contend, and therefore is cognizable by the Court of First Instance
(Sec. 44, par. [b], R.A. 296, as amended), whether it pertains to the jurisdiction of the Justice
of the Peace Court, as stated in the order appealed from, since there is no real property
litigated, the house having ceased to exist, and the amount of the demand does exceed
P2,000.00 (Sec. 88, id.)1

The dismissal of the complaint was proper. A house is classified as immovable property by
reason of its adherence to the soil on which it is built (Art. 415, par. 1, Civil Code). This
classification holds true regardless of the fact that the house may be situated on land
belonging to a different owner. But once the house is demolished, as in this case, it ceases to
exist as such and hence its character as an immovable likewise ceases. It should be noted
that the complaint here is for recovery of damages. This is the only positive relief prayed for by
appellants. To be sure, they also asked that they be declared owners of the dismantled house
and/or of the materials. However, such declaration in no wise constitutes the relief itself which
if granted by final judgment could be enforceable by execution, but is only incidental to the real
cause of action to recover damages.

The order appealed from is affirmed. The appeal having been admitted in forma pauperis, no
costs are adjudged.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,
Paredes, Dizon and Regala, JJ., concur.


Footnotes

1 This amount, cognizable by the Justice of the Peace Court, has been increased to P5,000 in
R.A. 2613, enacted August 1, 1959.






















ARTICLE 415. IMMOVABLE PROPERTIES

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 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, transformers, and insulators of the
grantee from which taxes and assessments the grantee is hereby expressly exempted. (Par.
9, Part Two, Act No. 484 Respondent's Franchise; emphasis supplied.)

The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or
timber, as typically the stem of a small tree stripped of its branches; also by extension, a
similar typically cylindrical piece or object of metal or the like". The term also refers to "an
upright standard to the top of which something is affixed or by which something is supported;
as a dovecote set on a pole; telegraph poles; a tent pole; sometimes, specifically a vessel's
master (Webster's New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the
City of Manila, may be seen cylindrical metal poles, cubical concrete poles, and poles of the
PLDT Co. which are made of two steel bars joined together by an interlacing metal rod. They
are called "poles" notwithstanding the fact that they are no made of wood. It must be noted
from paragraph 9, above quoted, that the concept of the "poles" for which exemption is
granted, is not determined by their place or location, nor by the character of the electric current
it carries, nor the material or form of which it is made, but the use to which they are dedicated.
In accordance with the definitions, pole is not restricted to a long cylindrical piece of wood or
metal, but includes "upright standards to the top of which something is affixed or by which
something is supported. As heretofore described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound by steel cross-arms atop of which are
cross-arms supporting five high voltage transmission wires (See Annex A) and their sole
function is to support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles"
is not a novelty. Several courts of last resort in the United States have called these steel
supports "steel towers", and they denominated these supports or towers, as electric poles. In
their decisions the words "towers" and "poles" were used interchangeably, and it is well
understood in that jurisdiction that a transmission tower or pole means the same thing.

In a proceeding to condemn land for the use of electric power wires, in which the law provided
that wires shall be constructed upon suitable poles, this term was construed to mean either
wood or metal poles and in view of the land being subject to overflow, and the necessary
carrying of numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A
Words and Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires alongside
public highways. The steel supports or towers were made of iron or other metals consisting of
two pieces running from the ground up some thirty feet high, being wider at the bottom than at
the top, the said two metal pieces being connected with criss-cross iron running from the
bottom to the top, constructed like ladders and loaded with high voltage electricity. In form and
structure, they are like the steel towers in question. (Salt River Valley Users' Ass'n v.
Compton, 8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height
of about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the
top of which extends above the surface of the soil in the tower of Oxford, and to the towers are
attached insulators, arms, and other equipment capable of carrying wires for the transmission
of electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his death
was built for the purpose of supporting a transmission wire used for carrying high-tension
electric power, but claimed that the steel towers on which it is carried were so large that their
wire took their structure out of the definition of a pole line. It was held that in defining the word
pole, one should not be governed by the wire or material of the support used, but was
considering the danger from any elevated wire carrying electric current, and that regardless of
the size or material wire of its individual members, any continuous series of structures
intended and used solely or primarily for the purpose of supporting wires carrying electric
currents is a pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).

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

Granting for the purpose of argument that the steel supports or towers in question are not
embraced within the 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;

x x x x x x x x x

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

x x x x x x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried in a building or on a piece of land, and which
tends directly to meet the needs of the said industry or works;

x x x x x x x x x

The steel towers or supports in question, do not come within the objects mentioned in
paragraph 1, because they do not constitute buildings or constructions adhered to the soil.
They are not construction analogous to buildings nor adhering to the soil. As per description,
given by the lower court, they are removable and merely attached to a square metal frame by
means of bolts, which when unscrewed could easily be dismantled and moved from place to
place. They can not be included under paragraph 3, as they are not attached to an immovable
in a fixed manner, and they can be separated without breaking the material or causing
deterioration upon the object to which they are attached. Each of these steel towers or
supports consists of steel bars or metal strips, joined together by means of bolts, which can be
disassembled by unscrewing the bolts and reassembled by screwing the same. These steel
towers or supports do not also fall under paragraph 5, for they are not machineries,
receptacles, instruments or implements, and even if they were, they are not intended for
industry or works on the land. Petitioner is not engaged in an industry or works in the land in
which the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to
refund the sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is
argued that as the City Treasurer is not the real party in interest, but Quezon City, which was
not a party to the suit, notwithstanding its capacity to sue and be sued, he should not be
ordered to effect the refund. This question has not been raised in the court below, and,
therefore, it cannot be properly raised for the first time on appeal. The herein petitioner is
indulging in legal technicalities and niceties which do not help him any; for factually, it was he
(City Treasurer) whom had insisted that respondent herein pay the real estate taxes, which
respondent paid under protest. Having acted in his official capacity as City Treasurer of
Quezon City, he would surely know what to do, under the circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.

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










































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

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

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS
OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.



AQUINO, J.:

In this special civil action of certiorari, Meralco Securities Industrial Corporation assails the
decision of the Central Board of Assessment Appeals (composed of the Secretary of Finance
as chairman and the Secretaries of Justice and Local Government and Community
Development as members) dated May 6, 1976, holding that Meralco Securities' oil pipeline is
subject to realty tax.

The record reveals that pursuant to a pipeline concession issued under the Petroleum Act of
1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila a pipeline
system consisting of cylindrical steel pipes joined together and buried not less than one meter
below the surface along the shoulder of the public highway. The portion passing through
Laguna is about thirty kilometers long.

The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with a
maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil measure sixteen
inches by forty-eight feet with a maximum capacity of 100,000 barrels daily.

The pipes are embedded in the soil and are firmly and solidly welded together so as to
preclude breakage or damage thereto and prevent leakage or seepage of the oil. The valves
are welded to the pipes so as to make the pipeline system one single piece of property from
end to end.

In order to repair, replace, remove or transfer segments of the pipeline, the pipes have to be
cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating them out of
the ground where they are buried. In points where the pipeline traversed rivers or creeks, the
pipes were laid beneath the bed thereof. Hence, the pipes are permanently attached to the
land.

However, Meralco Securities notes that segments of the pipeline can be moved from one
place to another as shown in the permit issued by the Secretary of Public Works and
Communications which permit provides that the government reserves the right to require the
removal or transfer of the pipes by and at the concessionaire's expense should they be
affected by any road repair or improvement.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of
Laguna treated the pipeline as real property and issued Tax Declarations Nos. 6535-6537,
San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Bian and 15806-15810,
Calamba, containing the assessed values of portions of the pipeline.

Meralco Securities appealed the assessments to the Board of Assessment Appeals of Laguna
composed of the register of deeds as chairman and the provincial auditor as member. That
board in its decision of June 18, 1975 upheld the assessments (pp. 47-49, Rollo).

Meralco Securities brought the case to the Central Board of Assessment Appeals. As already
stated, that Board, composed of Acting Secretary of Finance Pedro M. Almanzor as chairman
and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and
Community Development Jose Roo as members, ruled that the pipeline is subject to realty
tax (p. 40, Rollo).

A copy of that decision was served on Meralco Securities' counsel on August 27, 1976.
Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on
June 1, 1974, provides that the Board's decision becomes final and executory after the lapse
of fifteen days from the date of receipt of a copy of the decision by the appellant.

Under Rule III of the amended rules of procedure of the Central Board of Assessment Appeals
(70 O.G. 10085), a party may ask for the reconsideration of the Board's decision within fifteen
days after receipt. On September 7, 1976 (the eleventh day), Meralco Securities filed its
motion for reconsideration.

Secretary of Finance Cesar Virata and Secretary Roo (Secretary Abad Santos abstained)
denied the motion in a resolution dated December 2, 1976, a copy of which was received by
appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6, 1977, Meralco Securities filed
the instant petition for certiorari.

The Solicitor General contends that certiorari is not proper in this case because the Board
acted within its jurisdiction and did not gravely abuse its discretion and Meralco Securities was
not denied due process of law.

Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction to
review the decision of the Central Board of Assessment Appeals and because no judicial
review of the Board's decision is provided for in the Real Property Tax Code, Meralco
Securities' recourse is to file a petition for certiorari.

We hold that certiorari was properly availed of in this case. It is a writ issued by a superior
court to an inferior court, board or officer exercising judicial or quasi-judicial functions whereby
the record of a particular case is ordered to be elevated for review and correction in matters of
law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).

The rule is that as to administrative agencies exercising quasi-judicial power there is an
underlying power in the courts to scrutinize the acts of such agencies on questions of law and
jurisdiction even though no right of review is given by the statute (73 C.J.S. 506, note 56).

"The purpose of judicial review is to keep the administrative agency within its jurisdiction and
protect substantial rights of parties affected by its decisions" (73 C.J.S. 507, See. 165). The
review is a part of the system of checks and balances which is a limitation on the separation of
powers and which forestalls arbitrary and unjust adjudications.

Judicial review of the decision of an official or administrative agency exercising quasi -judicial
functions is proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud
or collusion or in case the administrative decision is corrupt, arbitrary or capricious (Mafinco
Trading Corporation vs. Ople, L-37790, March 25, 1976, 70 SCRA 139, 158; San Miguel
Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of
Lemery vs. Prov. Board of Batangas, 56 Phil. 260, 268).

The Central Board of Assessment Appeals, in confirming the ruling of the provincial assessor
and the provincial board of assessment appeals that Meralco Securities' pipeline is subject to
realty tax, reasoned out that the pipes are machinery or improvements, as contemplated in the
Assessment Law and the Real Property Tax Code; that they do not fall within the category of
property exempt from realty tax under those laws; that articles 415 and 416 of the Civil Code,
defining real and personal property, have no application to this case; that even under article
415, the steel pipes can be regarded as realty because they are constructions adhered to the
soil and things attached to the land in a fixed manner and that Meralco Securities is not
exempt from realty tax under the Petroleum Law (pp. 36-40).

Meralco Securities insists that its pipeline is not subject to realty tax because it is not real
property within the meaning of article 415. This contention is not sustainable under the
provisions of the Assessment Law, the Real Property Tax Code and the Civil Code.

Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically exempted in
section 3 thereof. This provision is reproduced with some modification in the Real Property
Tax Code which provides:

SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real property,
such as land, buildings, machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted. *

It is incontestable that the pipeline of Meralco Securities does not fall within any of the classes
of exempt real property enumerated in section 3 of the Assessment Law and section 40 of the
Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control devices for conveying
liquids, gases or finely divided solids. It is a line of pipe running upon or in the earth, carrying
with it the right to the use of the soil in which it is placed (Note 21[10],54 C.J.S. 561).

Article 415[l] and [3] provides that real property may consist of constructions of all kinds
adhered to the soil and 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.

The pipeline system in question is indubitably a construction adhering to the soil (Exh. B, p.
39, Rollo). It is attached to the land in such a way that it cannot be separated therefrom
without dismantling the steel pipes which were welded to form the pipeline.

Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil, it is
in a sense machinery within the meaning of the Real Property Tax Code.

It should be borne in mind that what are being characterized as real property are not the steel
pipes but the pipeline system as a whole. Meralco Securities has apparently two pipeline
systems.

A pipeline for conveying petroleum has been regarded as real property for tax purposes (Miller
County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of Directors of
Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed. 2nd 430; 50 C. J.
750, note 86).

The other contention of Meralco Securities is that the Petroleum Law exempts it from the
payment of realty taxes. The alleged exemption is predicated on the following provisions of
that law which exempt Meralco Securities from local taxes and make it liable for taxes of
general application:

ART. 102. Work obligations, taxes, royalties not to be changed. Work obligations, special
taxes and royalties which are fixed by the provisions of this Act or by the concession for any of
the kinds of concessions to which this Act relates, are considered as inherent on such
concessions after they are granted, and shall not be increased or decreased during the life of
the concession to which they apply; nor shall any other special taxes or levies be applied to
such concessions, nor shall 0concessionaires under this Act be subject to any provincial,
municipal or other local taxes or levies; nor shall any sales tax be charged on any petroleum
produced from the concession or portion thereof, manufactured by the concessionaire and
used in the working of his concession. All such concessionaires, however, shall be subject to
such taxes as are of general application in addition to taxes and other levies specifically
provided in this Act.

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general
application. This argument is untenable because the realty tax has always been imposed by
the lawmaking body and later by the President of the Philippines in the exercise of his
lawmaking powers, as shown in section 342 et seq. of the Revised Administrative Code, Act
No. 3995, Commonwealth Act No. 470 and Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular municipality
or city but the proceeds of the tax accrue to the province, city, municipality and barrio where
the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local tax is imposed by the
municipal or city council by virtue of the Local Tax Code, Presidential Decree No. 231, which
took effect on July 1, 1973 (69 O.G. 6197).

We hold that the Central Board of Assessment Appeals did not act with grave abuse of
discretion, did not commit any error of law and acted within its jurisdiction in sustaining the
holding of the provincial assessor and the local board of assessment appeals that Meralco
Securities' pipeline system in Laguna is subject to realty tax.

WHEREFORE, the questioned decision and resolution are affirmed. The petition is dismissed.
No costs.

SO ORDERED.

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

Justice Abad Santos, Concepcion, Jr., JJ., took no part.



Footnotes

* The Real Property Tax Code contains the following definitions in its section 3:

"k) Improvements - is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it for new or further purposes. "

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







































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

August 4, 1927

G.R. No. 26278
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 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 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 house thereon .......................... 150.00
8 .....................................................................
1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel of land, and on the 24th day of
September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc., for
the account of the redemption price of said parcels of land, without specifying the particular
parcels to which said amount was to applied. The redemption price said eight parcels was
reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit C and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province of
Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga
(Emiliano J. Valdez vs. Leon Sibal 1. the same parties in the present case), attached the
personal property of said Leon Sibal located in Tarlac, among which was included the sugar
cane now in question in the seven parcels of land described in the complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid
therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also attached
the real property of said Leon Sibal in Tarlac, including all of his rights, interest and
participation therein, which real property consisted of eleven parcels of land and a house and
camarin situated in one of said parcels (Exhibit A).

(4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin,
were bought by Emilio J. Valdez at the auction held by the sheriff for the sum of P12,200. Said
eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and 11.
The house and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12,
and 13, were released from the attachment by virtue of claims presented by Agustin Cuyugan
and 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:

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.

x x x x x x x x x

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.

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 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 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 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 sugar-cane shoots (puntas de cana) and not 1,170,000 as computed by the lower
court. During the season the shoots were selling at P1.20 a thousand (Exhibits 6 and 7). The
defendant therefore would have netted P1,220.40 from sugar-cane shoots and not P1,435.68
as allowed by the lower court.

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

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

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his
sureties Cenon de la Cruz, Juan Sangalang and Marcos 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 for the sugar cane;
1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.
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.









































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120098 October 2, 2001

RUBY L. TSAI, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ,
respondents.

x---------------------------------------------------------x

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ,
respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No.
32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case
No. 89-48265. Also assailed is respondent court's resolution denying petitioners' motion for
reconsideration.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three
million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications
(PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and
Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the
chattels located therein as enumerated in a schedule attached to the mortgage contract. The
pertinent portions of the Real and Chattel Mortgage are quoted below:

MORTGAGE

(REAL AND CHATTEL)

xxx xxx xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements
now existing or which may hereafter exist thereon, situated in . . .

"Annex A"

(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications
continued)

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

Serial Numbers Size of Machines

xxx xxx xxx

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

xxx xxx xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx xxx xxx

D. Four (4) Winding Machines.

xxx xxx xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx xxx xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the
above-mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-
mentioned lot located at . . .

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.

xxx xxx xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan
was secured by a Chattel Mortgage over personal properties enumerated in a list attached
thereto. These listed properties were similar to those listed in Annex A of the first mortgage
deed.

After April 23, 1979, the date of the execution of the second mortgage mentioned above,
EVERTEX purchased various machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City,
Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation
insolvent. All its assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135,
otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in
or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice
of Sheriff's Sale was issued on December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged as
the highest bidder and a Certificate of Sale was issued in its favor on the same date. On
December 23, 1982, another public auction was held and again, PBCom was the highest
bidder. The sheriff issued a Certificate of Sale on the same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it.
In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for
P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai
for P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and
damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial
foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed
that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX,
therefore Tsai acquired no rights over such assets sold to her, and should reconvey the
assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the
contested properties, which were not included in the Real and Chattel Mortgage of November
26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties
included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . .
dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular
Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1
Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since
these were not included in the schedules attached to the mortgage contracts. The trial court
decreed:

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

1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the
personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation
through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to
be done within ten (10) days from finality of this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum
of P5,200,000.00 as compensation for the use and possession of the properties in question
from November 1986 to February 1991 and P100,000.00 every month thereafter, with interest
thereon at the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum
of P50,000.00 as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum
of P200,000.00 by way of exemplary damages;

5. Ordering the dismissal of the counterclaim of the defendants; and

6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its
decision dated August 31, 1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and
reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November
1986 until subject personal properties are restored to appellees, the judgment appealed from
is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5

Motion for reconsideration of the above decision having been denied in the resolution of April
28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.

In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:

I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT
MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED
MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER
1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL
MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT
THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF
THE MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND
APPLICABLE RULINGS OF THE SUPREME COURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING
PETITIONER A PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING
PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION
FOR WANT OF VALID FACTUAL AND LEGAL BASIS.

V

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING
AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

In G.R. No. 120098, PBCom raised the following issues:

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF
THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE
REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE
PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING
THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE
UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR
CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO
PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD
FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982
TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON
THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER
TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID
MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION
TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

The principal issue, in our view, is whether or not the inclusion of the questioned properties in
the foreclosed properties is proper. The secondary issue is whether or not the sale of these
properties to petitioner Ruby Tsai is valid.

For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by
treating the 1981 acquired units of machinery as chattels instead of real properties within their
earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage.8
Additionally, Tsai argues that respondent court erred in holding that the disputed 1981
machineries are not real properties.9 Finally, she contends that the Court of Appeals erred in
holding against petitioner's arguments on prescription and laches10 and in assessing
petitioner actual damages, attorney's fees and expenses of litigation, for want of valid factual
and legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lower court's
judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and
could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals'
pronouncement that the pieces of machinery in question were personal properties have no
factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing
damages and attorney's fees against PBCom.

In opposition, private respondents argue that the controverted units of machinery are not "real
properties" but chattels, and, therefore, they were not part of the foreclosed real properties,
rendering the lease and the subsequent sale thereof to Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid
of merit and ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law,
not of fact, unless the factual findings complained of are devoid of support by the evidence on
record or the assailed judgment is based on misapprehension of facts.13 This rule is applied
more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that are
decisive of the issues: (1) the "controverted machineries" are not covered by, or included in,
either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel
Mortgage; (2) the said machineries were not included in the list of properties appended to the
Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed
properties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy,
bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however,
does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to
look at the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal of the
contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate courts reached the same finding
that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and
equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted
below:

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as
real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel
mortgage, militates against appellants' posture. It should be noted that the printed form used
by appellant bank was mainly for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately
following the printed caption of mortgage, of the phrase "real and chattel." So also, the
"machineries and equipment" in the printed form of the bank had to be inserted in the blank
space of the printed contract and connected with the word "building" by typewritten slash
marks. Now, then, if the machineries in question were contemplated to be included in the real
estate mortgage, there would have been no necessity to ink a chattel mortgage specifically
mentioning as part III of Schedule A a listing of the machineries covered thereby. It would
have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and
building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It
refers solely to chattels. The inventory list of the mortgaged properties is an itemization of
sixty-three (63) individually described machineries while the schedule listed only machines
and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated
by the evidence on record, we find no compelling reason to depart therefrom.

Too, assuming arguendo that the properties in question are immovable by nature, nothing
detracts the parties from treating it as chattels to secure an obligation under the principle of
estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be
considered a personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage
and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to
treat all properties included therein as immovable, and (2) attached to the said contract a
separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the
conclusion that the parties' intention is to treat these units of machinery as chattels. A fortiori,
the contested after-acquired properties, which are of the same description as the units
enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as
chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling that
inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as
equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides
in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the property
described therein and not like or substituted property thereafter acquired by the mortgagor and
placed in the same depository as the property originally mortgaged, anything in the mortgage
to the contrary notwithstanding."

And, since the disputed machineries were acquired in 1981 and could not have been involved
in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff
to include subject machineries with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo
dat quod non habet, one cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a
nullity, she is nevertheless a purchaser in good faith and for value who now has a better right
than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she is
not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of
a purchaser in good faith and for value has the burden of proving such assertion.18 Petitioner
Tsai failed to discharge this burden persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a full
and fair price for the same, at the time of purchase, or before he has notice of the claims or
interest of some other person in the property.19 Records reveal, however, that when Tsai
purchased the controverted properties, she knew of respondent's claim thereon. As borne out
by the records, she received the letter of respondent's counsel, apprising her of respondent's
claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite her
knowledge of respondent's claim, she proceeded to buy the contested units of machinery on
May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and not to
sale of properties situated therein. Likewise, the mere fact that the lot where the factory and
the disputed properties stand is in PBCom's name does not automatically make PBCom the
owner of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating
its claim.

Finally, petitioners' defense of prescription and laches is less than convincing. We find no
cogent reason to disturb the consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the reglementary period. Here, in our
view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to
heed EVERTEX's claim, respondent company immediately filed an action to recover
possession and ownership of the disputed properties. There is no evidence showing any
failure or neglect on its part, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier. The doctrine of
stale demands would apply only where by reason of the lapse of time, it would be inequitable
to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court
is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22

As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages, and
attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the
unpaid rentals of the contested properties based on the testimony of John Chua, who testified
that the P100,000.00 was based on the accepted practice in banking and finance, business
and investments that the rental price must take into account the cost of money used to buy
them. The Court of Appeals did not give full credence to Chua's projection and reduced the
award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable
of proof but must actually be proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual amount thereof.23 However, the
allegations of respondent company as to the amount of unrealized rentals due them as actual
damages remain mere assertions unsupported by documents and other competent evidence.
In determining actual damages, the court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard
the following dispositions of the respondent appellate court:

. . . In the award of actual damages under scrutiny, there is nothing on record warranting the
said award of P5,200,000.00, representing monthly rental income of P100,000.00 from
November 1986 to February 1991, and the additional award of P100,000.00 per month
thereafter.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh
(sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual
damages allegedly sustained by appellees, by way of unrealized rental income of subject
machineries and equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is
claimed to be a practice in business and industry. But such a testimony cannot serve as the
sole basis for assessing the actual damages complained of. What is more, there is no showing
that had appellant Tsai not taken possession of the machineries and equipments in question,
somebody was willing and ready to rent the same for P100,000.00 a month.

xxx xxx xxx

Then, too, even assuming arguendo that the said machineries and equipments could have
generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz,
the same would have been a gross income. Therefrom should be deducted or removed,
expenses for maintenance and repairs . . . Therefore, in the determination of the actual
damages or unrealized rental income sued upon, there is a good basis to calculate that at
least four months in a year, the machineries in dispute would have been idle due to absence
of a lessee or while being repaired. In the light of the foregoing rationalization and
computation, We believe that a net unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a
requisite to award exemplary damages that the wrongful act must be accompanied by bad
faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent
manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted
properties despite her knowledge of EVERTEX's claim was oppressive and subjected the
already insolvent respondent to gross disadvantage. Petitioner PBCom also received the
same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of
taking all the properties found in the factory of the financially handicapped respondent,
including those properties not covered by or included in the mortgages, is equally oppressive
and tainted with bad faith. Thus, we are in agreement with the RTC that an award of
exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of
the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of
exemplary damages, their assessment being left to the discretion of the court in accordance
with the circumstances of each case.29 While the imposition of exemplary damages is justified
in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No.
L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion
granted to the courts in the assessment of damages must always be exercised with balanced
restraint and measured objectivity. Thus, here the award of exemplary damages by way of
example for the public good should be reduced to P100,000.00.

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

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

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
















































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-
appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court
and as set forth by counsel for the parties on appeal, involves the determination of the nature
of the properties described in the complaint. The trial judge found that those properties were
personal in nature, and as a consequence absolved the defendants from the complaint, with
costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of
the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land upon which the business was
conducted belonged to another person. On the land the sawmill company erected a building
which housed the machinery used by it. Some of the implements thus used were clearly
personal property, the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill company and the owner
of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive ownership
of the party of the first part without any obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of the second part should leave or
abandon the land leased before the time herein stipulated, the improvements and buildings
shall likewise pass to the ownership of the party of the first part as though the time agreed
upon had expired: Provided, however, That the machineries and accessories are not included
in the improvements which will pass to the party of the first part on the expiration or
abandonment of the land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao,
Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the
properties now in question were levied upon as personalty by the sheriff. No third party claim
was filed for such properties at the time of the sales thereof as is borne out by the record
made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the
defendant herein having consummated the sale, proceeded to take possession of the
machinery and other properties described in the corresponding certificates of sale executed in
its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co.,
Inc., has on a number of occasions treated the machinery as personal property by executing
chattel mortgages in favor of third persons. One of such persons is the appellee by
assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

x x x x x x x x x

5. Machinery, liquid containers, instruments or implements intended by the owner of any
building or land for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.

In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that
while not conclusive, the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character determined by the
parties. In this connection the decision of this court in the case of Standard Oil Co. of New
York vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such
a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of
any building or land for use in connection therewith, but intended by a lessee for use in a
building erected on the land by the latter to be returned to the lessee on the expiration or
abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right, unless such
person acted as the agent of the owner. In the opinion written by Chief Justice White, whose
knowledge of the Civil Law is well known, it was in part said:

To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature, that is, personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery,
vessels, instruments or implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and which tend directly to
meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq.
to and inclusive of article 534, recapitulating the things which, though in themselves movable,
may be immobilized.) So far as the subject-matter with which we are dealing machinery
placed in the plant it is plain, both under the provisions of the Porto Rican Law and of the
Code Napoleon, that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant. Such result would not be
accomplished, therefore, by the placing of machinery in a plant by a tenant or a usufructuary
or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit.
2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed.
Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to the possession or
enjoyment of property is not presumed by the law to have applied movable property belonging
to him so as to deprive him of it by causing it by an act of immobilization to become the
property of another. It follows that abstractly speaking the machinery put by the Altagracia
Company in the plant belonging to Sanchez did not lose its character of movable property and
become immovable by destination. But in the concrete immobilization took place because of
the express provisions of the lease under which the Altagracia held, since the lease in
substance required the putting in of improved machinery, deprived the tenant of any right to
charge against the lessor the cost such machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant belonging to the owner without
compensation to the lessee. Under such conditions the tenant in putting in the machinery was
acting but as the agent of the owner in compliance with the obligations resting upon him, and
the immobilization of the machinery which resulted arose in legal effect from the act of the
owner in giving by contract a permanent destination to the machinery.

x x x x x x x x x

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

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

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





























ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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:

(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:

x x x x x x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works. (Emphasis ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B.
H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property
to "machinery, liquid containers, instruments or implements intended by the owner of any
building or land for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade or industry."

If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable to function or
carry on the industrial purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment installed for carrying on the
sugar industry for which it has been established must necessarily be permanent. (Emphasis
ours.)

So that movable equipments to be immobilized in contemplation of the law must first be
"essential and principal elements" of an industry or works without which such industry or works
would be "unable to function or carry on the industrial purpose for which it was established."
We may here distinguish, therefore, those movable which become immobilized by destination
because they are essential and principal elements in the industry for those which may not be
so considered immobilized because they are merely incidental, not essential and principal.
Thus, cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters,
etc. are merely incidentals and are not and should not be considered immobilized by
destination, for these businesses can continue or carry on their functions without these equity
comments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc.
which are incidentals, not essentials, and thus retain their movable nature. On the other hand,
machineries of breweries used in the manufacture of liquor and soft drinks, though movable in
nature, are immobilized because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found within their industrial
compounds are merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principle municipal elements of petitioner's business of transporting passengers
and cargoes by motor trucks. They are merely incidentals acquired as movables and used
only for expediency to facilitate and/or improve its service. Even without such tools and
equipments, its business may be carried on, as petitioner has carried on, without such
equipments, before the war. The transportation business could be carried on without the repair
or service shop if its rolling equipment is repaired or serviced in another shop belonging to
another.

The law that governs the determination of the question at issue is as follows:

Art. 415. The following are immovable property:

x x x x x x x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works; (Civil Code of the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the
industry or works be carried on in a building or on a piece of land. Thus in the case of
Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid containers, and instruments or
implements" are found in a building constructed on the land. A sawmill would also be installed
in a building on land more or less permanently, and the sawing is conducted in the land or
building.

But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of
land, as demanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not
absolutely essential to the petitioner's transportation business, and petitioner's business is not
carried on in a building, tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the
equipment in question declared not subject to assessment as real estate for the purposes of
the real estate tax. Without costs.

So ordered.



















































































ARTICLE 415. IMMOVABLE PROPERTIES
U.S. Supreme Court

VALDES v. CENTRAL ALTAGRACIA, 225 U.S. 58 (1912)
225 U.S. 58

RAMON VALDES, Appt.,
v.
CENTRAL ALTAGRACIA, Incorporated, and Nevers & Callaghan.
No. 193.
CENTRAL ALTAGRACIA, Incorporated, Appt.,
v.
RAMON VALDES, George B. Ackerson and

No. 193 and 196. the Firm Name of Nevers & Callaghan.

No. 196.

No. 193 and 196.
Submitted March 6, 1912.
Decided May 27, 1912.

[225 U.S. 58, 59] Messrs. F. Kingsbury Curtis, Hugo Kohlmann, and Martin Travieso, Jr., for
Valdes.

Messrs. N. B. K. Pettingill and Frederick L. Cornwell for Central Altagracia.

Mr. Francis H. Dexter for Nevers & Callaghan.

Mr. Chief Justice White delivered the opinion of the court:

These cases were consolidated below, tried together, a like statement of facts was made
applicable to both, and the court disposed of them in one opinion. We shall do likewise.
Stating only things deemed to be essential as shown by the pleadings and documents
annexed to them and the finding of facts made below, the case is this: Joaquin Sanchez
owned in Porto Rico a tract of land of about 22 acres (cuerdas) on which was a sugar house
containing a mill for crushing cane and an evaporating apparatus for manufacturing the juice
of the cane into sugar. All of the machinery was antiquated and of a limited capacity. The
establishment was known as the Central Altagracia, and Sanchez, while not a cane grower,
carried on the business of a central,-that is, of acquiring cane grown by others and
manufacturing it into sugar at his factory. On the 18th day of January, 1905, Sanchez leased
his land and plant to Salvador Castello for a period of ten years. The lease gave to the tenant
(Castello), the right to install in the plant 'such machinery as he may deem convenient, which
said machinery, at the end [225 U.S. 58, 60] of the years mentioned (the term of the lease)
shall become the exclusive property' of the lessor, Sanchez. The tenant was given one year in
which to begin the work of repairing and improving the plant, and it was provided that 'upon
the expiration of this term, if the necessary improvements shall not have been begun by him
(Castello), then this contract shall be null and void, and no cause of action shall accrue to any
of the contracting parties by reason thereof.' Further agreeing on the subject of the improved
machinery which was to be placed in the plant, the contract provided: 'Upon the expiration of
the term agreed on under this contract, any improvement or machinery installed in the said
central shall remain for the benefit of Don Joaquin Sanchez, and Don Salvador Castello shall
have no right to claim anything for the improvements made.' The rental was thus provided for:
'After each crop such profits as may be produced by the Central Altagracia shall be distributed
and twenty-five per cent (25%) thereof shall be immediately paid to Don Joaquin Sanchez as
equivalent for the rental of said central and of the twenty-two (22) cuerdas of land surrounding
the same. The remaining seventy-five per cent ( 75%) shall belong to Don Salvador Castello,
who may interest therein whomsoever he may wish, either for the whole or part thereof.' It was
stipulated, however, that in fixing the profits no charge should be made for repairs of the
existing machinery or for new machinery put in, as the entire cost of these matters was to be
borne by the lessee, Castello. The lease provided, moreover, that in case of the death of
Sanchez the obligations of the contract should be binding on his heirs, and in the case of the
death of Castello, his brother, Gerardo Castello, should take his place 'and be a contracting
party if he so desired. Otherwise the plantation, in such a condition at it may be at his death,
shall immediately pass into the possession of its owner, Don Joaquin Sanchez.' In June, [225
U.S. 58, 61] 1905, by a supplementary contract, the lease was extended without change of
its terms and conditions for an additional period of ten years, making the total term twenty
years. Although executed under private signature, this lease, conformably to the laws of Porto
Rico, was produced before, a notary and made authentic, and in such form was duly
registered on the public records, as required by the Porte Rican laws.

On the 1st day of July, 1905, Salvador and Gerardo Castello transferred all their rights
acquired under the lease, as above stated, to Frederick L. Cornwell for 'the corporation to be
organized under the name of Central Altagracia, of which he is the trustee.' This transfer
bound the corporation to all the obligations in favor of the original lessor, Sanchez, provided
that the corporation should issue to Castello a certain number of paid-up shares of its capital
stock and a further number of shares as the output of sugar from the plant increased as the
result of its enlarged capacity consequent upon the improvement of the machinery by the
corporation. The lease further provided for the employment of Castello as superintendent at a
salary, for a substitution of Gerardo Castello, in the event of the absence or death of his
brother Salvador, and, for this reason, it is to be assumed Gerardo made himself a party to the
transfer of the lease. This transfer of the lease to the corporation was never put upon the
public records. The corporation was organized under the laws of the state of Maine, and under
the transfer took charge of the plant. The season for grinding cane and the manufacture of
sugar in Porto Rico usually commences 'about the month of December of each year, and
terminates in the months of May, June, or July of the year following, according to the amount
of cane to be ground.' Central factories in Porto Rico usually 'make contracts with the people
(colonos) growing cane, so that growers of cane will deliver the same to be ground, and such
contracts [225 U.S. 58, 62] are usually made and entered into in the months of June, July,
and August.' In other words, on the termination of one grinding season, in the months of June
or July, it is usual in the ensuing August to make new contracts for the cane to be delivered in
the following grinding season, which, as we have said, commences in December. The contract
transferring the lease to the Central Altagracia, Incorporated, was made in July, 1905, at the
end, therefore, of the grinding season of that year. To what extent the corporation contracted
for cane to be delivered to it for grinding during the season of 1905-06, which began in
December, 1905, does not appear. It is inferable, however, that the corporation began the
work of installing new machinery to give the plant a larger capacity within the year stipulated in
the lease from Sanchez to Castello. We say this because it is certain that in the fall of 1906
(October) the corporation borrowed from the commercial firm of Nevers & Callaghan in New
York city, the sum of twenty-five thousand dollars ($25,000) to enable the corporation to pay
for new and enlarged machinery which it had ordered, and which was placed in the factory in
time to be used in the grinding season of 1906-07, which began in December, 1906. While
such grinding season was progressing, on April 11, 1907, the corporation, through its
president, under the authority of its board of directors, sold to one Ramon Valdes all its rights
acquired under the lease transferred by Castello. This transfer expressly included all the
machinery previously placed by the corporation in the sugar house, as well as machinery
which might be thereafter installed during the term of redemption hereafter to be referred to,
and which, it was declared, conformably to the original lease, 'shall be a part of said factory for
the manufacture of sugar.' The consideration for the sale was stated in the contract to be
'thirty-five thousand dollars ($ 35,000) received by the corporation, twenty-five thousand four
hundred dol- [225 U.S. 58, 63] lars ($25,400) whereof had been paid prior to this act (of
sale), and to its entire satisfaction, and the balance of nine thousand six hundred dollars
($9,600) shall be turned over to the vendor corporation by Senor Valdes immediately upon
being required to do so by the former.' This sale was made subject to a right to redeem the
property within a year on paying Valdes the entire amount of his debt. There was a stipulation
that Valdes assumed all the obligations of the lease transferred by Castello to the company.

The undoubted purpose was not to interfere with the operation of the plant by the corporation,
since there was a provision in the contract binding Valdes to lease the property to the
corporation pending the period of redemption. This sale was passed in Porto Rico before a
notary public, but was never put upon the public records. At the time it was made there was a
very considerable sum unpaid on the debt of Nevers & Callaghan. This fact, joined with the
period when the sale with the right to redeem was made, that is, the approaching end of the
sugar-making season of 1906 and 1907, coupled with other facts to which we shall hereafter
make reference, all tend to establish that at that time, either because insufficient capital had
been put into the venture, or because the business had been carried on at a loss, the affairs of
the corporation were embarrassed, if it was not insolvent. A short while before the
commencement of the grinding season of 1907-1908, in October, 1907, in the city of New
York, the corporation, through its president, declaring himself to be authorized by the board of
directors, sanctioned by a vote of the stockholders, apparently made an absolute sale of all
the rights of the corporation under the lease, and all its title to the machinery which the
corporation had put into the plant. This sale was declared to be for a consideration of sixty-five
thousand ($65,000) dollars which the company acknowledged to have received from Valdes,
first, by the payment of the thirty- [225 U.S. 58, 64] five ($35,000) dollars cash, as stated in
the previous sale made subject to the equity of redemption, and thirty thousand ($30,000)
dollars which 'the company has received afterwards in cash from Valdes.' There was a
provision in the contract to the effect that as the purpose of the previous contract of sale,
which had been made subject to the equity of redemption, was accomplished by the new sale,
the previous sale was declared to be no longer operative.

A few days afterwards, likewise in the city of New York (on November 2, 1907), Valdes sold to
the company all the rights which he had acquired from it by the previous sale, the price being
sixty-five thousand ($65,000) dollars, payable in instalments falling due in the years 1908,
1909, 1910, and 1911, respectively. This transfer was put in the form of a conditional sale
which reserved the title in Valdes until the payment of the deferred price, and upon the
stipulation that any default by the corporation entitled Valdes ipso facto to take possession of
the property. Neither this act of sale from Valdes to the corporation nor the one made by the
corporation to Valdes were ever put upon the public records.

Prior to the making of the sales just stated, or about that time, the corporation defaulted in the
payment of a note held by Nevers & Callaghan for a portion of the money which they had
loaned the corporation under the circumstances which we have previously stated, and that
firm sued in the court below the corporation to recover the debt.

The grinding season of 1907-1908 commenced in December, 1907, and was obviously not a
successful one, for the debt of Nevers & Callaghan was not paid, and in May, 1908, a
judgment was recovered by them against the corporation for about $17,000, with interest, and
in the same month execution was issued and levied upon the machinery in the sugar house.
Previous to, or not long subsequent to, the time Nevers & Cal- [225 U.S. 58, 65] laghan
commenced their suit, the precise date not being stated in the record, the heirs of Sanchez,
the original lessor, brought a suit in the court below against the corporation. The nature of the
suit and the relief sought is not disclosed, but it is inferable from the facts stated that the suit
either sought to recover the property on the ground that there was no power in Castello to
transfer the lease, or upon the ground of default in the conditions as to payment of profits as
rental which the lease stipulated. It would seem also at about the same time either one or both
of the Castellos brought a suit against the company, presumably upon the theory that there
had been a default in the obligations assumed in their favor by the corporation at the time it
took the transfer of the lease. In the meanwhile also, probably as the result of the want of
success of the corporation, discord arose between its stockholders, and a suit growing out of
that state of things was brought in the lower court.

This litigation was commenced in June, 1908, by the bringing by Valdes of an action at law in
the court below to recover the plant on the ground that, by the default in paying one of the
instalments of the price stated in the conditional sale, the right to the relief prayed had arisen.
On the same day Valdes commenced a suit in equity against the corporation in aid of the suit
at law. The bill alleged the default of the corporation, the bringing of the suit at law, the
confusion in the affairs of the corporation, the judgment and levy of the execution by Nevers
and Callaghan, and the threat to sell the machinery under such execution; the refusal of the
corporation to deliver possession of the property, the waste and destruction of the value of the
property which would result if there was no one representing the corporation having power to
contract for cane to be delivered during the next grinding season, etc., etc. The prayer was for
the appointment of a receiver to take charge of the property, with au- [225 U.S. 58, 66] thority
to carry on the same, make the necessary contracts for cane for the future, it being prayed
that the receiver should be empowered to issue receiver's certificates to the extent necessary
to the accomplishment of the purposes which the bill had in view.

On the same day a bill was filed on behalf of the corporation against Valdes. This bill atacked
the sale made to Valdes and by him to the corporation. It was charged that the price stated to
have been paid by Valdes as a consideration of the conditional sale was fictitious, and that the
only sum he had advanced at that time was the $35,000 which it was the purpose to secure by
means of the sale with the equity of redemption. That at that time Valdes exacted as a
consideration for his loan that he be made a director and vice president of the company. The
bill then stated that, it having become evident in the following autumn that the corporation
would require more money to increase its plant, to pay off the sum due Nevers & Callaghan,
and for the operation of the plant, Valdes agreed to advance the money if he were made
president of the company at a stipulated salary, given a bonus in the stock of the company,
and upon the condition that the papers be executed embodying the socalled sale of the
company to Valdes and the practically simultaneous conditional sale by Valdes to the
company. The bill then alleged that Valdes, having thus become the president of the company,
failed to carry out his agreement to advance the money, failed to provide for the debt of
Nevers & Callaghan, mismanaged the affairs of the property in many alleged particulars, and
did various acts to the prejudice of the company and to his own wrongful enrichment, which it
is unnecessary to recapitulate. The necessity of contracting for cane during the contract
season, in order that the plant might continue during the next operating season to be a going
concern, and the waste and loss which would otherwise [225 U.S. 58, 67] be occasioned,
were fully alleged. Valdes and the firm of Nevers & Callaghan and the individual members of
that firm were made defendants. The prayer was for the appointment of a receiver and with
power to carry on the business of the central, with power, for that purpose, to contract for cane
for the coming season, with authority to issue receiver's certificates for the purpose of
borrowing the money which might be required.

The judge, being about to leave Porto Rico for a brief period, declined to appoint a permanent
receiver, but named a temporary one to keep the property together until a further hearing
could be had, interference in the meanwhile with the custodian being enjoined. Shortly
thereafter creditors of the corporation intervened and joined in the prayer made by both of the
complainants for the appointment of a receiver. In July the two suits were by order
consolidated, and after a hearing a receiver was appointed and authority given him to continue
the property as a going concern and to borrow a limited amount of money on receiver's
certificates, if necessary, to secure contracts for cane for the coming crop season. The
execution of the Nevers & Callaghan judgment was stayed pending an appeal which had been
taken to this court. The only difference which seems to have arisen concerning the
appointment of the receiver grew out of the fact that a prayer of the Central Altagracia, asking
the court to appoint as receiver Mr. Pettingill, a member of the bar and one of the counsel of
the corporation, and who was also its treasurer, was denied. Despite this, the fair inference is
that the ultimate action of the court was not objected to by anyone, because of the hope that
the result of a successful operation of the plant during the coming crop season might
ameliorate the affairs of the corporation, and thus prevent further controversies. We say this,
not only because of the conduct of the parties prior to the order appointing the receiver, but
because, [225 U.S. 58, 68] after that order, the solicitors of the Altagracia Company and
Valdes put a stipulation of record that until the following October no steps whatever should be
taken in the proceedings, and not even then unless the attorneys for both parties should be in
Porto Rico.

The hope of a beneficial result from the operation of the plant by the receiver proved delusive.
As a result of such operation there was a considerable loss represented by outstanding
receiver's certificates, with no means of paying except out of the property. Obviously, for this
reason, the record contains a statement that on July 12, 1909, a conference was had between
the court and all parties concerned, to determine what steps should be taken to meet the
situation. It appears that at that conference the counsel representing the heirs of Sanchez and
of Nevers & Callaghan stated their opposition to a continuance of the receivership.

On July 17, 1909, the court placed a memorandum on the files, indicating its purpose to bring
the litigation, receivership, etc., to an end, and to cause 'immediate issue to be raised on the
pleadings for that purpose.' This memorandum was entitled in all the pending causes
concerning the property. It directed that demurrers which had been filed in the consolidated
cause of Valdes against the corporation and of the corporation against Valdes be overruled,
and the defendants were required to answer on or before Monday, July 26, in order that upon
the following day, the 27th of July, the issues raised might be tried before the court without the
intervention of a master. It was provided in the order, however, that nothing in this direction
should prevent the parties from filing such additional pleadings as it is deemed necessary for
the protection of their rights by way of cross bill or amendment, etc. To make the order
efficacious it was declared that nothing would be done in the suit of the heirs of Sanchez
against Castello and the Altagracia, [225 U.S. 58, 69] which was pending on appeal, and that
a demurrer filed to the suit of Castello against the central would be overruled; that the
demurrer in the suit at law of Valdes would remain in abeyance to await the final action of the
court on the trial of all the issues in the equity causes, and that a stay of the Nevers &
Callaghan execution would be also disposed of when the equity cases came to be decided.
This order was followed by a memorandum opinion filed on July the 21st, stating very fully the
position of the respective suits, the necessity for action in order to preserve the property from
waste, and reiterating the view that whatever might be the rights of the Central Altagracia or of
Valdes under the lease, those rights would be subordinate to the ultimate determination of the
suit brought by the heirs of Sanchez. To the action of the court, as above stated, no objection
appears to have been made. On the contrary, between the time of that order and the perior
fixed for the commencement of a hearing, the Central Altagracia, Valdes, and Nevers &
Callaghan modified their pleadings to the extent deemed by them necessary to present for trial
the issues upon which they relied. In the case of the Central Altagracia this was done by filing,
on July 22, an amended bill of complaint in its suit against Valdes, and on July 26 its answer in
the suit of Valdes. The acceptance by Valdes of the terms of the order was shown by an
answer filed to the bill in the suit of the company and the cross bill in the same cause; and
Nevers & Callaghan manifested their acquiescence by obtaining leave to make themselves
parties, and asserting their rights by cross bill and answers, which it is unnecessary to detail.

When the consolidated cause was called for trial on the morning of July 27, the counsel for the
Central Altagracia moved a continuance in order to take the testimony of certain witnesses in
Philadelphia and New York for the purpose of proving some of the allegations of the complaint
[225 U.S. 58, 70] as to the wrongdoing of Valdes in administering the affairs of the
corporation. This application was supported by the affidavit of Mr. Pettingill, the counsel of the
corporation. The record states that the request for continuance was opposed by all the other
counsel, and the application was denied. In doing so the court stated: 'That the matter has
been pending for more than a year, and that counsel had full notice of the court's intention to
press the matters to issue and trial, and that it is not disposed to delay matters at this time,
when the admissions of the pleadings are so broad that the proofs available here in Porto Rico
are probably sufficient, and the amended complaint already on file in suit No. 565,-Valdes v.
Central Altagracia,-and the answer thereto and the answer recently filed in suit No. 564,-
Central Altagracia v. Valdes [5 Porto Rico Fed. Rep. 155],-as well as the cross bill also
recently filed in suit No. 465, make so many allegations and admissions as that the real issue
between the parties can be plainly seen, and that, in the opinion of the court, enough proof is
available here in Porto Rico.' The court thereupon declared that the Altagracia Company might
by the next day, if it so desired, file exceptions to the answer in suit 565 and an answer to the
cross complaint; indeed, that the corporation might, if it wished, treat them as filed, and
proceed with the cause and file them at any convenient time thereafter. Thereupon the record
states: 'Said counsel for the Central Altagracia stated that he desired time to file exceptions to
the answer and an answer to the cross bill in suit No. 565; and the court granted until the
morning of July 28 for such purpose. Later in the day of July 27, one of the counsel for Valdes
having requested the court to postpone the hearing of the cause until the morning of the 29th,
because of an unexpected professional engagement elsewhere, the request was
communicated by the court to the other counsel in the cause.' Thereupon the record again
recites: 'Messrs. Pettingill & [225 U.S. 58, 71] Cornwell, attorneys for the Central Altagracia,
stated that they withdrew any statement they have hitherto made in the cause in that regard,
and desired to be understood that they would not except to the answer in suit No. 565, or
plead or answer to the cross bill therein, save and except within the time which they
contended the rules governing this court of equity gave them, and would stand upon what they
considered their rights in that regard.' When the court assembled the next day, on the morning
of the 28th, a statement concerning the occurrence of the previous day as to the continuance,
etc., just reviewed, was read by the court in the presence of all the counsel, whereupon the
record recites: 'N. B. Pettingill, counsel for the Central Altagracia, in response to the same,
stated that he objected to proceeding to take any evidence in any of the causes at that time, or
the testimony of any witnesses, because the same was not at issue or in condition for the
taking of evidence, and objected to the taking of such evidence until the issues of said causes
are made up in accordance with the rules of practice applicable to equity causes.' The record
further recites: 'Which objection was overruled by the court on the ground that the action called
for thereby is not necessary. That the bill was amended within three days; an answer was
immediately filed to it and a cross bill also filed, the said cross bill making only the same
claims as were made in suit No. 563 at law, and that any way the issue could be tried on the
bill and answer in both suits.' . . . This ruling of the court having been excepted to, the trial
proceeded from day to day, the counsel for the Central Altagracia taking no part in the same,
and virtually treating the proceedings as though they did not concern that corporation.

In substance, the court decided: First, that as the result of the contracts between Valdes and
the Central Altagracia, he was not the owner of the rights of that corporation under the lease,
or of the machinery which [225 U.S. 58, 72] had been placed in the sugar house by the
Altagracia Company, or of the other assets of the corporation, but that he was merely a
secured creditor. The sum of the secured debt was fixed after making allowances for some not
very material credits which the corporation was held to be entitled to. Second, that the
judgment in favor of Nevers & Callaghan was valid, and that that firm, by virtue of its execution
and levy upon the machinery, had a prior right to Valdes. Third, the sums due to various
creditors of the corporation were fixed and the equities or priorities were classified as follows:
(a) Taxes due by the corporation and the sum of the receiver's certificates and certain costs;
(b) the judgment of Nevers & Callaghan; and (c) the debt of Valdes; (d) debts due the other
creditors. Without going into details it suffices to say that for the purpose of enforcing these
conclusions the decree directed a sale of all the rights of the Central Altagracia in and to the
lease, machinery, contract, etc., and imposed the duty upon Valdes, if he became the
purchaser, to pay enough cash to discharge the costs, taxes, receiver's certificates, and the
claim of Nevers & Callaghan.

These appeals were then prosecuted, the one by the Central Altagracia and the other by
Valdes. We shall endeavor as briefly as may be to dispose of the contentions relied upon to
secure a reversal.

1. The Central Altagracia appeal.-The alleged errors insisted on in behalf of that company
relate to the asserted arbitrary action of the court in forcing the cause to trial without affording
the time which it is insisted the corporation was entitled to under the equity rules applicable to
the subject; and, second, the refusal of the court to grant a continuance upon the affidavit as
to the absence of material witnesses.

We think all the contentions on this subject are demonstrated to be devoid of merit by the
statement of the case which we have made. In the first place, it is mani- [225 U.S. 58, 73]
fest from that statement that the proceeding leading up to the appointment of a receiver and
the power given to administer the property was largely the result of the assent of the
corporation. In the second place, when the unsuccessful financial issue of the receivership
had become manifest, we think the statement makes it perfectly clear that the steps taken by
the court for the purpose of bringing the case to a speedy conclusion, and thus avoiding the
further loss which would result to all interests concerned, were also acquiesced in by all the
parties in interest who complied with the terms of that order and took advantage of the rights
which it conferred. We think also the statement makes it apparent that the refusal on the part
of the corporation to proceed with the trial, upon the theory that the time to plead allowed by
the equity rules had not elapsed, was the result of a change of view because of the action of
the court in refusing the continuance on account of the absent witnesses,-a change of front
which was inconsistent with the rights which the corporation had exercised in accord with the
order setting the cause for trial, and with the rights of all the other parties to the cause which
had arisen from that order and from the virtual approval of it, or at least acquiescence in it, by
all concerned.

Considering the assignments of error in so far as they relate alone to overruling of the
application for continuance, based upon the absence of witnesses, it suffices to say that the
elementary rule is that the granting of a continuance of the cause was peculiarly within the
sound discretion of the court below,-a discretion not subject to be reviewed on appeal except
in case of such clear error as to amount to a plain abuse springing from an arbitrary exercise
of power. Instead of coming within this latter category, we think the facts as to the refusal to
continue and the conduct of the parties make it clear that there was not only no abuse but a
just exercise of discretion. [225 U.S. 58, 74] 2. As to the Appeal of Valdes.-Two propositions
are relied upon: First, that error was committed in treating Valdes merely as a secured
creditor, and in not holding him to be the absolute owner of the rights and property alleged to
have been transferred by the so-called conditional sale. Second, that in any event error was
committed in awarding to Nevers & Callaghan priority over Valdes.

The first proposition is supported by a reference to the Porto Rican Code and decisions of the
Supreme Court of Spain and the opinions of Spanish law writers. But the contention is not
relevant, and the authorities cited to sustain it are inapposite to the case to be here decided,
because the argument rests upon an imaginary premise; that is, that the ruling of the court
below denied that right under the Spanish law to make a conditional sale, or held that such a
sale if made would not have the effect which the argument insists it was entitled to. This is true
because the action of the court was solely based upon a premise of fact; viz., that under the
circumstances of the case, and in view of the prior sale with the equity of redemption, the
cancelation of that sale, and the transfer made by the corporation to Valdes, and the
immediate transfer of the same rights by him to the corporation in the form of a conditional
sale, the failure to register any of the contracts, and the relation of Valdes to the corporation at
the time the contracts were made, it resulted that whatever might be the mere form, in
substance and effect no conditional sale was made, but a mere contract was entered into
which the parties intended to be a mere security to Valdes for money advanced and to be
advanced by him. This being the case, it is manifest that it is wholly irrelevant to argue that
error was committed in not applying the assumed principles of the Porto Rican and Spanish
law governing in the case of a conditional sale, when the ruling which the court made
proceeded upon the conclusion that there was no conditional sale. [225 U.S. 58, 75] The
contention that, under the Porto Rican law, the form was controlling because proof of the
substance was not admissible, seems not to have been raised below, but, if it had been, is
obviously without merit, as the case as presented involved not a controversy alone between
the parties to the contract, but the effect and operation of the contract upon third parties, the
creditors of the corporation. The contention is additionally without merit, since it assumes that
the mere form of the contract excluded the power of creditors to inquire into its reality and
substance, even although the contract was never inscribed upon the public records so as to
bind third parties. That its character was such as to require inscription we shall in a few
moments demonstrate in coming to consider the second proposition; that is, upon the
hypothesis that Valdes was but a secured creditor, was error committed in subordinating his
claim to the prior claim of Nevers & Callaghan under their judgment and execution?

To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes, and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company, and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature; that is, personal property, because of the destination to which it is applied.
'Things,' says 334 of the Porto Rican Code, 'may be immovable either by their own nature or
by their destination, or the object to which they are applicable.' Numerous illustrations are
given in the 5th subdivision of article 335, which is as follows: 'Machinery, vessels,
instruments, or [225 U.S. 58, 76] implements intended by the owner of the tenements for the
industry or works that they may carry on in any building or upon any land, and which tend
directly to meet the needs of the said industry or works.' See also Code Napoleon, articles
516, 518, et seq., to and inclusive of article 534, recapitulating the things which, though in
themselves movable, may be immobilized. So far as the subject-matter with which we are
dealing,- machinery placed in the plant,-it is plain, both under the provisions of the Porto Rican
law and of the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result would
not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. Demolombe, Tit. 9, No. 203; Aubry
et Rau, Tit. 2, p. 12, 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed.
Code Napoleon, under article 522 et seq. The distinction rests, as pointed out by Demolombe,
upon the fact that one only having a temporary right to the possession or enjoyment of
property is not presumed by the law to have applied movable property belonging to him so as
to deprive him of it by causing it, by an act of immobilization, to become the property of
another. It follows that, abstractly speaking, the machinery put by the Altagracia Company in
the plant belonging to Sanchez did not lose its character of movable property and become
immovable by destination. But, in the concrete, immobilization took place because of the
express provisions of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any right to charge
against the lessor the cost of such machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant belonging to the owner without
compensation to the lessee. [225 U.S. 58, 77] Under such conditions the tenant, in putting in
the machinery, was acting but as the agent of the owner, in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal effect
from the act of the owner in giving by contract a permanent destination to the machinery. It is
true, says Aubry and Rau, vol. 2, 164, 2, p. 12, that 'the immobilization with which the article is
concerned can only arise from an act of the owner himself or his representative. Hence the
objects which are dedicated to the use of a piece of land or a building by a lessee cannot be
considered as having become immovable by destination except in the case where they have
been applied for account of the proprietor, or in execution of an obligation imposed by the
lease.' It follows that the machinery placed by the corporation in the plant, by the fact of its
being so placed, lost its character as a movable, and became united with and a part of the
plant as an immovable by destination. It also follows that as to Valdes, who claimed under the
lease, and who had expressly assumed the obligations of the lease, the machinery, for all the
purposes of the exercise of his rights, was but a part of the real estate,-a conclusion which
cannot be avoided without saying that Valdes could at one and the same time assert the
existence in himself of rights, and yet repudiate the obligations resulting from the rights thus
asserted.

Nevers & Callaghan were creditors of the corporation. They were not parties to nor had they
legal notice of the lease and its conditions from which alone it arose that machinery put in the
premises by the Altagracia became immovable property. The want of notice arose from the
failure to record the transfer from Castello to the Altagracia, or from the Altagracia to Valdes,
and from Valdes apparently conditionally back to the corporation,-a clear result of 613 of the
Civil Code of Porto Rico, providing, 'The titles of ownership or of other real rights relating [225
U.S. 58, 78] to immovables which are not properly inscribed or annotated in the registry of
property shall not be prejudicial to third parties.' It is not disputable that the duty to inscribe the
lease by necessary implication resulted from the general provisions of article 2 of the
mortgage law of Porto Rico, as stated in paragraphs 1, 2, and 3 thereof, and explicitly also
arose from the express requirement of paragraph 6, relating to the registry of 'contracts for the
lease of real property for a period exceeding six years. . . .' It is true that, in a strict sense, the
contracts between Castello and the Altagracia Company and with Valdes were not contracts of
lease, but for the transfer of a contract of that character. But such a transfer was clearly a
contract concerning real rights to immovable property within the purview of article 613 of the
Civil Code, just previously quoted. Especially is this the case in view of the stipulations of the
lease as to the immobilization of movable property placed in the plant, and the other
obligations imposed upon the lessee. 'The sale which a lessee makes to a third person to
whom he transfers his right of lease is the sale of an immovable right, and not simply a sale of
a movable one.' See numerous decisions of the courts of France, beginning with the decision
on February 2, 1842, of the court of cassation (Journal du Palais [225 U.S. 58, 1842] vol. 1,
171). See also numerous authorities collected under the heading above stated in paragraph
21, under articles 516, 517, and 518 of the Code Napoleon. Fuzier-Herman ed. of that Code,
p. 643.

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant
by the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it
follows that they had the right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes,
since as to him the property was a part of the realty, which, as the result [225 U.S. 58, 79] of
his obligations under the lease, he could not, for the purpose of collecting his debt, proceed
separately against.

As a matter of precaution we say that nothing we have said affects the rights, whatever they
may be, of the heirs of Sanchez, the original lessor.

Affirmed.



































ARTICLE 415. IMMOVABLE PROPERTIES

[G.R. No. 137705. August 22, 2000]

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING
AND FINANCE, INC., respondent.

D E C I S I O N

PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be considered as
personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such
property is a proper subject of a writ of replevin obtained by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision[1] of the
Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26, 1999 Resolution[3]
denying reconsideration. The decretal portion of the CA Decision reads as follows:

WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The
writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED.[4]

In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City (Branch
218)[6] issued a Writ of Seizure.[7] The March 18, 1998 Resolution[8] denied petitioners
Motion for Special Protective Order, praying that the deputy sheriff be enjoined from seizing
immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to return to
their original place whatever immobilized machineries or equipments he may have
removed.[9]

The Facts

The undisputed facts are summarized by the Court of Appeals as follows:[10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short)
filed with the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a
writ of replevin docketed as Civil Case No. Q-98-33500.

On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a
writ of replevin (Annex B) directing its sheriff to seize and deliver the machineries and
equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.

On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners
factory, seized one machinery with [the] word that he [would] return for the other machineries.

On March 25, 1998, petitioners filed a motion for special protective order (Annex C),
invoking the power of the court to control the conduct of its officers and amend and control its
processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin.

This motion was opposed by PCI Leasing (Annex F), on the ground that the properties
[were] still personal and therefore still subject to seizure and a writ of replevin.

In their Reply, petitioners asserted that the properties sought to be seized [were] immovable
as defined in Article 415 of the Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the agreement would be prejudicial to
innocent third parties. They further stated that PCI Leasing [was] estopped from treating these
machineries as personal because the contracts in which the alleged agreement [were]
embodied [were] totally sham and farcical.

On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession
of the remaining properties. He was able to take two more, but was prevented by the workers
from taking the rest.

On April 7, 1998, they went to [the CA] via an original action for certiorari.

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled
that the words of the contract are clear and leave no doubt upon the true intention of the
contracting parties. Observing that Petitioner Goquiolay was an experienced businessman
who was not unfamiliar with the ways of the trade, it ruled that he should have realized the
import of the document he signed. The CA further held:

Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon
the case below, since the merits of the whole matter are laid down before us via a petition
whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part
of the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are
proper subjects of a full-blown trial, necessitating presentation of evidence by both parties.
The contract is being enforced by one, and [its] validity is attacked by the other a matter x x
x which respondent court is in the best position to determine.

Hence, this Petition.[11]

The Issues

In their Memorandum, petitioners submit the following issues for our consideration:

A. Whether or not the machineries purchased and imported by SERGS became real
property by virtue of immobilization.

B. Whether or not the contract between the parties is a loan or a lease.[12]

In the main, the Court will resolve whether the said machines are personal, not immovable,
property which may be a proper subject of a writ of replevin. As a preliminary matter, the
Court will also address briefly the procedural points raised by respondent.

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

Respondent contends that the Petition failed to indicate expressly whether it was being filed
under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously
impleaded Judge Hilario Laqui as respondent.

There is no question that the present recourse is under Rule 45. This conclusion finds support
in the very title of the Petition, which is Petition for Review on Certiorari.[13]

While Judge Laqui should not have been impleaded as a respondent,[14] substantial justice
requires that such lapse by itself should not warrant the dismissal of the present Petition. In
this light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui from
the caption of the present case.

Main Issue: Nature of the Subject Machinery

Petitioners contend that the subject machines used in their factory were not proper subjects of
the Writ issued by the RTC, because they were in fact real property. Serious policy
considerations, they argue, militate against a contrary characterization.

Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.[15] Section 3 thereof reads:

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall
issue an order and the corresponding writ of replevin describing the personal property alleged
to be wrongfully detained and requiring the sheriff forthwith to take such property into his
custody.

On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows:

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works;

x x x....................................x x x....................................x x x

In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land. Indisputably, they were essential and
principal elements of their chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become immobilized by destination
because they are essential and principal elements in the industry.[16] In that sense,
petitioners are correct in arguing that the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.[17]

Be that as it may, we disagree with the submission of the petitioners that the said machines
are not proper subjects of the Writ of Seizure.

The Court has held that contracting parties may validly stipulate that a real property be
considered as personal.[18] After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is
ordinarily precluded from denying the truth of any material fact found therein.

Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to treat a
house as a personal property because it had been made the subject of a chattel mortgage.
The Court ruled:

x x x. Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise.

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile
Mills[20] also held that the machinery used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:

x x x. If a house of strong materials, like what was involved in the above Tumalad case, may
be considered as personal property for purposes of executing a chattel mortgage thereon as
long as the parties to the contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise treated as such.
This is really because one who has so agreed is estopped from denying the existence of the
chattel mortgage.

In the present case, the Lease Agreement clearly provides that the machines in question are
to be considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:[21]

12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become, in
any manner affixed or attached to or embedded in, or permanently resting upon, real property
or any building thereon, or attached in any manner to what is permanent.

Clearly then, petitioners are estopped from denying the characterization of the subject
machines as personal property. Under the circumstances, they are proper subjects of the
Writ of Seizure.

It should be stressed, however, that our holding -- that the machines should be deemed
personal property pursuant to the Lease Agreement is good only insofar as the contracting
parties are concerned.[22] Hence, while the parties are bound by the Agreement, third
persons acting in good faith are not affected by its stipulation characterizing the subject
machinery as personal.[23] In any event, there is no showing that any specific third party
would be adversely affected.

Validity of the Lease Agreement

In their Memorandum, petitioners contend that the Agreement is a loan and not a lease.[24]
Submitting documents supposedly showing that they own the subject machines, petitioners
also argue in their Petition that the Agreement suffers from intrinsic ambiguity which places in
serious doubt the intention of the parties and the validity of the lease agreement itself.[25] In
their Reply to respondents Comment, they further allege that the Agreement is invalid.[26]

These arguments are unconvincing. The validity and the nature of the contract are the lis
mota of the civil action pending before the RTC. A resolution of these questions, therefore, is
effectively a resolution of the merits of the case. Hence, they should be threshed out in the
trial, not in the proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy under Rule 60
was that questions involving title to the subject property questions which petitioners are now
raising -- should be determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of
the plaintiffs bond. They were not allowed, however, to invoke the title to the subject property.
The Court ruled:

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

Besides, these questions require a determination of facts and a presentation of evidence, both
of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for
review in this Court under Rule 45.[29]

Reliance on the Lease Agreement

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

Makati Leasing and Finance Corporation[30] is also instructive on this point. In that case, the
Deed of Chattel Mortgage, which characterized the subject machinery as personal property,
was also assailed because respondent had allegedly been required to sign a printed form of
chattel mortgage which was in a blank form at the time of signing. The Court rejected the
argument and relied on the Deed, ruling as follows:

x x x. Moreover, even granting that the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled. Neither is it disclosed that
steps were taken to nullify the same. x x x

Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that if the Court allows these machineries to be seized, then its workers
would be out of work and thrown into the streets.[31] They also allege that the seizure would
nullify all efforts to rehabilitate the corporation.

Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed,
law and jurisprudence support its propriety. Verily, the above-mentioned consequences, if
they come true, should not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the filing of a counter-
bond. The provision states:

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the
applicants bond, or of the surety or sureties thereon, he cannot immediately require the return
of the property, but if he does not so object, he may, at any time before the delivery of the
property to the applicant, require the return thereof, by filing with the court where the action is
pending a bond executed to the applicant, in double the value of the property as stated in the
applicants affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and
for the payment of such sum to him as may be recovered against the adverse party, and by
serving a copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.

SO ORDERED.








































































ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 168557 February 16, 2007

FELS ENERGY, INC., Petitioner,
vs.
THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

x----------------------------------------------------x

G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in
his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated
June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9,
2005 Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491.
Both petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30
MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five
years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes,
import duties, fees, charges and other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be
or become subject to or in relation to the performance of their obligations under this
agreement (other than (i) taxes imposed or calculated on the basis of the net income of
POLAR and Personal Income Taxes of its employees and (ii) construction permit fees,
environmental permit fees and other similar fees and charges) and (b) all real estate taxes and
assessments, rates and other charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC
initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges
from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise
covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the
matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It
then gave NPC the full power and authority to represent it in any conference regarding the real
property assessment of the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial
Assessors decision to assess real property taxes on the power barges. However, the motion
was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the
assessment.8 This prompted NPC to file a petition with the Local Board of Assessment
Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as
non-taxable items; it also prayed that should LBAA find the barges to be taxable, the
Provincial Assessor be directed to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real
property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that
the Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is
clearly stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in
the amount of P56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes because
they are installed at a specific location with a character of permanency. The LBAA also
pointed out that the owner of the bargesFELS, a private corporationis the one being taxed,
not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes
and assessments will not justify the exemption of FELS; such a privilege can only be granted
to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was
filed out of time.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals
(CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and
Warrant by Distraint13 over the power barges, seeking to collect real property taxes
amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially
served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14,
1996, praying that the Provincial Assessor be further restrained by the CBAA from enforcing
the disputed assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any
resolution or judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings
before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the
event that the judgment be unfavorable to them). The bonds were duly approved by the
CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of
Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-
00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of
Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC;
since they are actually, directly and exclusively used by it, the power barges are covered by
the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue,
the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax
exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a
motion for reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its
earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19,
2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No.
67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No.
67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion
for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who
should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division
of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the
ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of
the appellate courts decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed
as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The
petition was, however, denied in this Courts Resolution25 of November 8, 2004, for NPCs
failure to sufficiently show that the CA committed any reversible error in the challenged
decision. NPC filed a motion for reconsideration, which the Court denied with finality in a
Resolution26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the
right to question the assessment of the Provincial Assessor had already prescribed upon the
failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by
law. Since FELS had lost the right to question the assessment, the right of the Provincial
Government to collect the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the
February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier
denied for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,
raising the following issues:

A.

Whether power barges, which are floating and movable, are personal properties and therefore,
not subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from
real estate tax under Section 234 of the Local Government Code ("LGC").

C.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or
not it should be NPC which should be made to pay the same under the law.

D.

Assuming arguendo that the subject power barges are real properties, whether or not the
same is subject to depreciation just like any other personal properties.

E.

Whether the right of the petitioner to question the patently null and void real property tax
assessment on the petitioners personal properties is imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No.
170628), indicating the following errors committed by the CA:

I

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE
LBAA WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER
BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH
LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit
their respective Memoranda within 30 days from notice. Almost a year passed but the parties
had not submitted their respective memoranda. Considering that taxesthe lifeblood of our
economyare involved in the present controversy, the Court was prompted to dispense with
the said pleadings, with the end view of advancing the interests of justice and avoiding further
delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-
barred. FELS argues that when NPC moved to have the assessment reconsidered on
September 7, 1995, the running of the period to file an appeal with the LBAA was tolled. For
its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from
its receipt of the denial of its motion for reconsideration.

Petitioners contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
provides:

SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or municipal
assessor in the assessment of his property may, within sixty (60) days from the date of receipt
of the written notice of assessment, appeal to the Board of Assessment Appeals of the
province or city by filing a petition under oath in the form prescribed for the purpose, together
with copies of the tax declarations and such affidavits or documents submitted in support of
the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August
7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of
receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition
under oath on the form prescribed for the purpose, together with copies of ARP/Tax
Declaration and such affidavits or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted
to file a motion for reconsideration of the Provincial Assessors decision, a remedy not
sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with regard to the taxability of the
subject real properties falls within its power to assess properties for taxation purposes subject
to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R.
SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of
the Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action
of the local assessor on a particular assessment shall be the notice of assessment; it is this
last action which gives the owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as
follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their
appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their
respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow
this procedure would indeed invite corruption in the system of appraisal and assessment. It
conveniently courts a graft-prone situation where values of real property may be initially set
unreasonably high, and then subsequently reduced upon the request of a property owner. In
the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact
can conveniently take place. Such occasion for mischief must be prevented and excised from
our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the
owner or lawful possessor of real property of its revised assessed value, the former shall no
longer have any jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by
law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs
without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to
collect the taxes due with respect to the taxpayers property becomes absolute upon the
expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to
question the assessment in the LBAA renders the assessment of the local assessor final,
executory and demandable, thus, precluding the taxpayer from questioning the correctness of
the assessment, or from invoking any defense that would reopen the question of its liability on
the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed
out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both
mandatory and jurisdictional, and failure in this regard renders the decision final and
executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is
barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there
was a final determination on the issue of prescription), effectively precludes the claims herein;
and that the filing of the instant petition after an adverse judgment in G.R. No. 165113
constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it
was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that
it did not participate in the aforesaid proceeding, and the Supreme Court never acquired
jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping
could have been committed since the elements of litis pendentia or res judicata are not
present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and necessity,
which makes it to the interest of the

State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on
the individual of being vexed twice for the same cause nemo debet bis vexari et eadem
causa. A conflicting doctrine would subject the public peace and quiet to the will and
dereliction of individuals and prefer the regalement of the litigious disposition on the part of
suitors to the preservation of the public tranquility and happiness.41 As we ruled in Heirs of
Trinidad De Leon Vda. de Roxas v. Court of Appeals:42

x x x An existing final judgment or decree rendered upon the merits, without fraud or
collusion, by a court of competent jurisdiction acting upon a matter within its authority is
conclusive on the rights of the parties and their privies. This ruling holds in all other actions or
suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points
or matters in issue in the first suit.

x x x

Courts will simply refuse to reopen what has been decided. They will not allow the same
parties or their privies to litigate anew a question once it has been considered and decided
with finality. Litigations must end and terminate sometime and somewhere. The effective and
efficient administration of justice requires that once a judgment has become final, the
prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the
same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject
matter and the parties; (3) the judgment must be on the merits; and (4) there must be between
the first and the second actions, identity of parties, subject matter and causes of action. The
application of the doctrine of res judicata does not require absolute identity of parties but
merely substantial identity of parties. There is substantial identity of parties when there is
community of interest or privity of interest between a party in the first and a party in the second
case even if the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding
regarding real property assessment. Therefore, when petitioner NPC filed its petition for
review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of
FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was
the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the
petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the
principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as to
warrant the application of res judicata. FELSs argument that it is not bound by the erroneous
petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists
when, as a result of an adverse judgment in one forum, a party seeks another and possibly
favorable judgment in another forum other than by appeal or special civil action or certiorari.
There is also forum shopping when a party institutes two or more actions or proceedings
grounded on the same cause, on the gamble that one or the other court would make a
favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are
not present in the cases at bar; however, as already discussed, res judicata may be properly
applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and
170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one
court to another trying to get a favorable decision from one of the tribunals which allowed them
to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is
the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should
not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions
or complaints constitutes abuse of court processes, which tends to degrade the administration
of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the
heavily burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties
as represent the same interests in both actions, (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts, and (c) the identity of the two preceding
particulars is such that any judgment rendered in the pending case, regardless of which party
is successful, would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for
the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and are
thus subject to real property tax. This is also the inevitable conclusion, considering that G.R.
No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax
assessments by tax examiners are presumed correct and made in good faith, with the
taxpayer having the burden of proving otherwise.48 Besides, factual findings of administrative
bodies, which have acquired expertise in their field, are generally binding and conclusive upon
the Court; we will not assume to interfere with the sensible exercise of the judgment of men
especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound
policy to leave the assessment undisturbed.49 We find no reason to depart from this rule in
this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 a
power company brought an action to review property tax assessment. On the citys motion to
dismiss, the Supreme Court of New York held that the barges on which were mounted gas
turbine power plants designated to generate electrical power, the fuel oil barges which
supplied fuel oil to the power plant barges, and the accessory equipment mounted on the
barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which,
though floating, are intended by their nature and object to remain at a fixed place on a river,
lake, or coast" are considered immovable property. Thus, power barges are categorized as
immovable property by destination, being in the nature of machinery and other implements
intended by the owner for an industry or work which may be carried on in a building or on a
piece of land and which tend directly to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply,
generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated
under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which
have been supplied by it at its own cost. POLAR shall operate, manage and maintain the
Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking
its exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

x x x

(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by
the government owned or controlled corporation; nevertheless, petitioner FELS still cannot find
solace in this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply
of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate
the Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would
seek to be thus privileged must justify it by words too plain to be mistaken and too categorical
to be misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax
exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we
hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The
covenant is between FELS and NPC and does not bind a third person not privy thereto, in this
case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the
local governments deprivation of revenues. The power to tax is an incident of sovereignty and
is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security
against its abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who are to pay for it.57 The right of local government units to collect
taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent
with the State policy to guarantee the autonomy of local governments58 and the objective of
the Local Government Code that they enjoy genuine and meaningful local autonomy to
empower them to achieve their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions
AFFIRMED.

SO ORDERED.







ARTICLE 415. IMMOVABLE PROPERTIES

Republic of the Philippines
SUPREME COURT
Manila

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.

San Juan, Africa and Benedicto and Hilado and Hilado for petitioner.
Paredes, Poblador, Cruz and Nazareno and Manuel Soriano for respondents.

REYES, J.B.L., J.:

Petition for a writ of certiorari against the Court of First Instance of Negros Occidental.

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 5-hectare
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."

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.

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 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.

On October 22, 1960, death overtook the defendant Esperidion Presbitero.

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.

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.

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.

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.

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.

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.

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 . . . ."

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:

x x x x x x x x x

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. 1wph1.t

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.

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

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 ....

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.

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 thing (res) sought to be classified is not included in Article
415.

The fact that the Philippine Trade Act of 1946 (U.S. Public Law 371-79th 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.

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.

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.

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.