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 decision
1
of the Court of Appeals in CA-G.R. CV No. 32986,
affirming the decision
2
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 xxx
3

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 laches
10
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 tochattels. 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 1986
31
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
G.R. No. 137705 August 22, 2000
SERG'S 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.1wphi1 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.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

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 Decision
1
of
the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution
2
dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005 Decision
3
and
November 23, 2005 Resolution
4
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 Agreement
5
(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 letter
7
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 opinion
10
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 Resolution
11
denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount ofP56,184,088.40, 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 Distraint
13
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 Order
14
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 Intervention
15
dated August 7, 1998 in the proceedings before
the CBAA. This was approved by the CBAA in an Order
16
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 Decision
17
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 Resolution
20
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 Resolution
22
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 Resolution
23
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 Resolution
25
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 Resolution
26
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 Resolution
27
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 Resolution
28
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 Resolution
31
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 governments
58
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.
ROMEO J. CALLEJO, SR.
Associate Justice

























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.


















G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.

DE CASTRO, J .:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and
Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned
several receivables with the former under a Receivable Purchase Agreement. To secure the
collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain
raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to
gain entry into private respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court
of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower
court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement
of which was however subsequently restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order
lifting the restraining order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of bolts and the only way to remove
it from respondent's plant would be to drill out or destroy the concrete floor, the reason why all that
the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ of certiorari. It is contended by private
respondent, however, that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by respondent's
representative.
1
Considering that petitioner has reserved its right to question the propriety of the
Court of Appeals' decision, the contention of private respondent that this petition has been mooted by
such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery in suit
is real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by
said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not
now be allowed to make an inconsistent stand by claiming otherwise. Moreover,
the subject house stood on a rented lot to which defendants-appellants merely
had a temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with other factors
to sustain the interpretation that the parties, particularly the mortgagors, intended
to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs.
Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel mortgage, it
is the defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-appellants, having treated
the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out,
as the appellate court did, the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise treated
as such. This is really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong
to the owner of such house. But the law makes no distinction with respect to the ownership of
the land on which the house is built and We should not lay down distinctions not
contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by the
parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the
parties to a contract may by agreement treat as personal property that which by nature would be real
property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as personal property but was merely required
and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable or immovable was
never placed in issue before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract.
Equity dictates that one should not benefit at the expense of another. Private respondent could not
now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited
therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery
and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to
the case at bar, the nature of the machinery and equipment involved therein as real properties never
having been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly,
the Tumalad case bears more nearly perfect parity with the instant case to be the more controlling
jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed
and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private
respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.
Abad Santos, J., concurs in the result.
















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 Yorkvs. 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.























G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.

REYES, J.B.L., J .:
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that only
questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal court of Manila in
Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to the court
a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive portion of
which follows:
WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and
against the defendants, ordering the latter to pay jointly and severally the former
a monthly rent of P200.00 on the house, subject-matter of this action, from March
27, 1956, to January 14, 1967, with interest at the legal rate from April 18, 1956,
the filing of the complaint, until fully paid, plus attorney's fees in the sum of
P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants executed a chattel
mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550 Int. 3,
Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being
rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of
Manila on 2 September 1955. The herein mortgage was executed to guarantee a loan of P4,800.00
received from plaintiffs-appellees, payable within one year at 12% per annum. The mode of payment
was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150 was
payable on or before August, 1956. It was also agreed that default in the payment of any of the
amortizations, would cause the remaining unpaid balance to becomeimmediately due and Payable
and
the Chattel Mortgage will be enforceable in accordance with the provisions of
Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or
any of his deputies is hereby empowered and authorized to sell all the
Mortgagor's property after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees...
2

When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and on
27 March 1956, the house was sold at public auction pursuant to the said contract. As highest bidder,
plaintiffs-appellees were issued the corresponding certificate of sale.
3
Thereafter, on 18 April 1956,
plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila, praying, among
other things, that the house be vacated and its possession surrendered to them, and for defendants-
appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time the possession is
surrendered.
4
On 21 September 1956, the municipal court rendered its decision
... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit.
5

Defendants-appellants, in their answers in both the municipal court and court a quo impugned the
legality of the chattel mortgage, claiming that they are still the owners of the house; but they waived
the right to introduce evidence, oral or documentary. Instead, they relied on their memoranda in
support of their motion to dismiss, predicated mainly on the grounds that: (a) the municipal court did
not have jurisdiction to try and decide the case because (1) the issue involved, is ownership, and (2)
there was no allegation of prior possession; and (b) failure to prove prior demand pursuant to Section
2, Rule 72, of the Rules of Court.
6

During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January 1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees could not be executed because the subject house had
been already demolished on 14 January 1957 pursuant to the order of the court in a separate civil
case (No. 25816) for ejectment against the present defendants for non-payment of rentals on the land
on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and
withdrawal of deposited rentals was denied for the reason that the liability therefor was disclaimed
and was still being litigated, and under Section 8, Rule 72, rentals deposited had to be held until final
disposition of the appeal.
7

On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive portion
of which is quoted earlier. The said decision was appealed by defendants to the Court of Appeals
which, in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief and this appeal
was submitted for decision without it.
Defendants-appellants submitted numerous assignments of error which can be condensed into two
questions, namely: .
(a) Whether the municipal court from which the case originated had jurisdiction to
adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year provided by law for the redemption of
the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which the
case originated, and consequently, the appellate jurisdiction of the Court of First Instance a quo, on
the theory that the chattel mortgage is void ab initio; whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent auction sale, are also void. Thus, the ownership of the
house still remained with defendants-appellants who are entitled to possession and not plaintiffs-
appellees. Therefore, it is argued by defendants-appellants, the issue of ownership will have to be
adjudicated first in order to determine possession. lt is contended further that ownership being in
issue, it is the Court of First Instance which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds, which
are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery;
and (b) that the subject matter of the mortgage is a house of strong materials, and, being an
immovable, it can only be the subject of a real estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants'
contentions as not supported by evidence and accordingly dismissed the charge,
8
confirming the
earlier finding of the municipal court that "the defense of ownership as well as the allegations of fraud
and deceit ... are mere allegations."
9

It has been held in Supia and Batiaco vs. Quintero and Ayala
10
that "the answer is a mere statement
of the facts which the party filing it expects to prove, but it is not evidence;
11
and further, that when
the question to be determined is one of title, the Court is given the authority to proceed with the
hearing of the cause until this fact is clearly established. In the case of Sy vs. Dalman,
12
wherein the
defendant was also a successful bidder in an auction sale, it was likewise held by this Court that in
detainer cases the aim of ownership "is a matter of defense and raises an issue of fact which should
be determined from the evidence at the trial." What determines jurisdiction are the allegations or
averments in the complaint and the relief asked for.
13

Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the contract voidable or annullable pursuant to Article
1390 of the New Civil Code, by a proper action in court.
14
There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the basis of a voidable contract which has not been
voided fails.
It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and void ab initio because only personal properties can be
subject of a chattel mortgage. The rule about the status of buildings as immovable property is stated
in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,
15
cited in Associated Insurance Surety Co., Inc. vs.
Iya, et al.
16
to the effect that
... it is obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties (art. 415, New
Civil Code) could only mean one thing that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case of Manarang and
Manarang vs. Ofilada,
17
this Court stated that "it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo.
18
In the latter case, the mortgagor conveyed and transferred to
the mortgagee by way of mortgage "the following described personal property."
19
The "personal
property" consisted of leasehold rights and a building. Again, in the case of Luna vs.
Encarnacion,
20
the subject of the contract designated as Chattel Mortgage was a house of mixed
materials, and this Court hold therein that it was a valid Chattel mortgage because it was so expressly
designated and specifically that the property given as security "is a house of mixed materials, which
by its very nature is considered personal property." In the later case of Navarro vs. Pineda,
21
this
Court stated that
The view that parties to a deed of chattel mortgage may agree to consider a
house as personal property for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is based, partly, upon the
principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In
a case, a mortgaged house built on a rented land was held to be a personal
property, not only because the deed of mortgage considered it as such, but also
because it did not form part of the land (Evangelists vs. Abad, [CA]; 36 O.G.
2913), for it is now settled that an object placed on land by one who had only a
temporary right to the same, such as the lessee or usufructuary, does not
become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S. 58,
cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property as so stipulated in the
document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted,
however that the principle is predicated on statements by the owner declaring his
house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G.
5374):
22

In the contract now before Us, the house on rented land is not only expressly designated as Chattel
Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage
23
the property together with its leasehold rights over the lot
on which it is constructed and participation ..."
24
Although there is no specific statement referring to
the subject house as personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which
defendats-appellants merely had a temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with other factors to sustain the
interpretation that the parties, particularly the mortgagors, intended to treat the house as personalty.
Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc.
25
and Leung Yee vs. F. L.
Strong Machinery and Williamson,
26
wherein third persons assailed the validity of the chattel
mortgage,
27
it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the
validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personalty.
(b) Turning to the question of possession and rentals of the premises in question. The Court of First
Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged house had
been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the lessor of the
land on which the house stood. For this reason, the said court limited itself to sentencing the erstwhile
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when the chattel
mortgage was foreclosed and the house sold) until 14 January 1957 (when it was torn down by the
Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled to remain in possession
without any obligation to pay rent during the one year redemption period after the foreclosure sale,
i.e., until 27 March 1957. On this issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508.
28
Section
14 of this Act allows the mortgagee to have the property mortgaged sold at public auction through a
public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No.
4118, provided that the requirements of the law relative to notice and registration are complied
with.
29
In the instant case, the parties specifically stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of Special Act No. 3135 ... ."
30
(Emphasis supplied).
Section 6 of the Act referred to
31
provides that the debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the date of the auction sale, redeem the property sold
at the extra judicial foreclosure sale. Section 7 of the same Act
32
allows the purchaser of the property
to obtain from the court the possession during the period of redemption: but the same provision
expressly requires the filing of a petition with the proper Court of First Instance and the furnishing of a
bond. It is only upon filing of the proper motion and the approval of the corresponding bond that the
order for a writ of possession issues as a matter of course. No discretion is left to the court.
33
In the
absence of such a compliance, as in the instant case, the purchaser can not claim possession during
the period of redemption as a matter of right. In such a case, the governing provision is Section 34,
Rule 39, of the Revised Rules of Court
34
which also applies to properties purchased in extrajudicial
foreclosure proceedings.
35
Construing the said section, this Court stated in the aforestated case
of Reyes vs. Hamada.
In other words, before the expiration of the 1-year period within which the
judgment-debtor or mortgagor may redeem the property, the purchaser thereof is
not entitled, as a matter of right, to possession of the same. Thus, while it is true
that the Rules of Court allow the purchaser to receive the rentals if the purchased
property is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount so received
and the same will be duly credited against the redemption price when the said
debtor or mortgagor effects the redemption.Differently stated, the rentals
receivable from tenants, although they may be collected by the purchaser during
the redemption period, do not belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to secure for the benefit of the
debtor or mortgagor, the payment of the redemption amount and the consequent
return to him of his properties sold at public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe.
36

Since the defendants-appellants were occupying the house at the time of the auction sale, they are
entitled to remain in possession during the period of redemption or within one year from and after 27
March 1956, the date of the auction sale, and to collect the rents or profits during the said period.
It will be noted further that in the case at bar the period of redemption had not yet expired when action
was instituted in the court of origin, and that plaintiffs-appellees did not choose to take possession
under Section 7, Act No. 3135, as amended, which is the law selected by the parties to govern the
extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation to that effect. Since
plaintiffs-appellees' right to possess was not yet born at the filing of the complaint, there could be no
violation or breach thereof. Wherefore, the original complaint stated no cause of action and was
prematurely filed. For this reason, the same should be ordered dismissed, even if there was no
assignment of error to that effect. The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision of the cases.
37

It follows that the court below erred in requiring the mortgagors to pay rents for the year following the
foreclosure sale, as well as attorney's fees.
FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
entered, dismissing the complaint. With costs against plaintiffs-appellees.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.







G.R. Nos. L-10837-38 May 30, 1958
ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY.
INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co., Inc.
FELIX, J .:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house
of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan,
Rizal, which they purchased on installment basis from the Philippine Realty Corporation. On
November 6, 1951, to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a
bond in the sum of P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insurance
and Surety Co., Inc., and as counter-guaranty therefor, the spouses Valino executed an
alleged chattel mortgage on the aforementioned house in favor of the surety company, which
encumbrance was duly registered with the Chattel Mortgage Register of Rizal on December 6, 1951.
It is admitted that at the time said undertaking took place, the parcel of land on which the house is
erected was still registered in the name of the Philippine Realty Corporation. Having completed
payment on the purchase price of the lot, the Valinos were able to secure on October 18, 1958, a
certificate of title in their name (T.C.T. No. 27884). Subsequently, however, or on October 24, 1952,
the Valinos, to secure payment of an indebtedness in the amount of P12,000.00, executed a real
estate mortgage over the lot and the house in favor of Isabel Iya, which was duly registered and
annotated at the back of the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety
company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety
company demanded reimbursement from the spouses Valino, and as the latter likewise failed to do
so, the company foreclosed the chattel mortgage over the house. As a result thereof, a public sale
was conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the property was
awarded to the surety company for P8,000.00, the highest bid received therefor. The surety company
then caused the said house to be declared in its name for tax purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage
over the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said surety
company instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano and
Lucia Valino and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of
the residential house from the real estate mortgage in favor of defendant Iya and the declaration and
recognition of plaintiff's right to ownership over the same in virtue of the award given by the Provincial
Sheriff of Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the
Court to sentence the spouses Valino to pay said surety moral and exemplary damages, attorney's
fees and costs. Defendant Isabel Iya filed her answer to the complaint alleging among other things,
that in virtue of the real estate mortgage executed by her co-defendants, she acquired a real right
over the lot and the house constructed thereon; that the auction sale allegedly conducted by the
Provincial Sheriff of Rizal as a result of the foreclosure of the chattel mortgage on the house was null
and void for non-compliance with the form required by law. She, therefore, prayed for the dismissal of
the complaint and anullment of the sale made by the Provincial Sheriff. She also demanded the
amount of P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as
crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and denied the
others. They, however, prayed for the dismissal of the action for lack of cause of action, it being
alleged that plaintiff was already the owner of the house in question, and as said defendants admitted
this fact, the claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company
(Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the contract of
mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan of
P12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in
4 years, extendible for only one year; that to secure payment thereof, said defendants mortgaged the
house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park Subdivision,
Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party
defendant because it claimed to have an interest on the residential house also covered by said
mortgage; that it was stipulated in the aforesaid real estate mortgage that default in the payment of
the interest agreed upon would entitle the mortgagee to foreclose the same even before the lapse of
the 4-year period; and as defendant spouses had allegedly failed to pay the interest for more than 6
months, plaintiff prayed the Court to order said defendants to pay the sum of P12,000.00 with interest
thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to
20% of the total obligation as damages, and for costs. As an alternative in case such demand may
not be met and satisfied plaintiff prayed for a decree of foreclosure of the land, building and other
improvements thereon to be sold at public auction and the proceeds thereof applied to satisfy the
demands of plaintiff; that the Valinos, the surety company and any other person claiming interest on
the mortgaged properties be barred and foreclosed of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged property
would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the building, arguing
that as the lot on which the house was constructed did not belong to the spouses at the time the
chattel mortgage was executed, the house might be considered only as a personal property and that
the encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the
provisions of the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that said
building be excluded from the real estate mortgage and its right over the same be declared superior
to that of plaintiff, for damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the mortgage
upon the land but assailed the allegation that the building was included thereon, it being contended
that it was already encumbered in favor of the surety company before the real estate mortgage was
executed, a fact made known to plaintiff during the preparation of said contract and to which the latter
offered no objection. As a special defense, it was asserted that the action was premature because the
contract was for a period of 4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same on a
stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the
chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and
superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled that
as the Valinos were not yet the registered owner of the land on which the building in question was
constructed at the time the first encumbrance was made, the building then was still a personality and
a chattel mortgage over the same was proper. However, as the mortgagors were already the owner
of the land at the time the contract with Isabel Iya was entered into, the building was transformed into
a real property and the real estate mortgage created thereon was likewise adjudged as proper. It is to
be noted in this connection that there is no evidence on record to sustain the allegation of the
spouses Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told or
knew that part of the mortgaged property, i.e., the house, had previously been mortgaged to the
surety company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel
Iya, although the latter could exercise the right of a junior encumbrance. So the spouses Valino were
ordered to pay the amount demanded by said mortgagee or in their default to have the parcel of land
subject of the mortgage sold at public auction for the satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate mortgage;
however, as the building constructed thereon has been the subject of 2 mortgages; controversy arise
as to which of these encumbrances should receive preference over the other. The decisive factor in
resolving the issue presented by this appeal is the determination of the nature of the structure
litigated upon, for where it be considered a personality, the foreclosure of the chattel mortgage and
the subsequent sale thereof at public auction, made in accordance with the Chattel Mortgage Law
would be valid and the right acquired by the surety company therefrom would certainly deserve prior
recognition; otherwise, appellant's claim for preference must be granted. The lower Court, deciding in
favor of the surety company, based its ruling on the premise that as the mortgagors were not the
owners of the land on which the building is erected at the time the first encumbrance was made, said
structure partook of the nature of a personal property and could properly be the subject of a chattel
mortgage. We find reason to hold otherwise, for as this Court, defining the nature or character of a
building, has said:
. . . while it is true that generally, real estate connotes the land and the building constructed
thereon, it is obvious that the inclusion of the building, separate and distinct from the land,
in the enumeration of what may constitute real properties (Art. 415, new Civil Code) could
only mean one thing that a building is byitself an immovable property . . . Moreover, and
in view of the absence of any specific provision to the contrary, a building is an immovable
property irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner. (Lopez vs. Orosa, G.R. Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land on which it
is constructed belongs to another. To hold it the other way, the possibility is not remote that it would
result in confusion, for to cloak the building with an uncertain status made dependent on the
ownership of the land, would create a situation where a permanent fixture changes its nature or
character as the ownership of the land changes hands. In the case at bar, as personal properties
could only be the subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in
question is not one, the execution of the chattel mortgage covering said building is clearly invalid and
a nullity. While it is true that said document was correspondingly registered in the Chattel Mortgage
Register of Rizal, this act produced no effect whatsoever for where the interest conveyed is in the
nature of a real property, the registration of the document in the registry of chattels is merely a futile
act. Thus, the registration of the chattel mortgage of a building of strong materials produce no effect
as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we
give any consideration to the contention of the surety that it has acquired ownership over the property
in question by reason of the sale conducted by the Provincial Sheriff of Rizal, for as this Court has
aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties, acquires no right thereto by
virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the
rights of the surety company, over the building superior to that of Isabel Iya and excluding the building
from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to foreclose
not only the land but also the building erected thereon is hereby recognized, and the proceeds of the
sale thereof at public auction (if the land has not yet been sold), shall be applied to the unsatisfied
judgment in favor of Isabel Iya. This decision however is without prejudice to any right that the
Associated Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino
on account of the mortgage of said building they executed in favor of said surety company. Without
pronouncement as to costs. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., and Endencia, JJ., concur.







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.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
Gonzalo D. David for petitioner.
Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J .:
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No.
8235 of the Court of First, Instance of Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a
sum of money. On the same date, he obtained a writ of attachment, which levied upon a house, built
by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the
corresponding notice of attachment with the Office of the Register of Deeds of Manila, on June 8,
1949. In due course, judgment was rendered in favor of Evangelista, who, on October 8, 1951,
bought the house at public auction held in compliance with the writ of execution issued in said case.
The corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of
the period of redemption. When Evangelista sought to take possession of the house, Rivera refused
to surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance Co.,
Inc. respondent herein and that the latter is now the true owner of said property. It appears that
on May 10, 1952, a definite deed of sale of the same house had been issued to respondent, as the
highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution
issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co.,
Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of
money, had been rendered in favor respondent herein, as plaintiff therein. Hence, on June 13, 1953,
Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of
establishing his (Evangelista) title over said house, securing possession thereof, apart from
recovering damages.
In its answer, respondent alleged, in substance, that it has a better right to the house, because the
sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and May 10,
1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite deed of sale in
his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter.
Rivera, in effect, joined forces with respondent. After due trial, the Court of First Instance of Manila
rendered judgment for Evangelista, sentencing Rivera and respondent to deliver the house in
question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from
October, 1952, until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved
said respondent from the complaint, upon the ground that, although the writ of attachment in favor of
Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of
respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied
as if the house in question were immovable property, although in the opinion of the Court of Appeals,
it is "ostensibly a personal property." As such, the Court of Appeals held, "the order of attachment . . .
should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the
Rules of Court, reading:
The property of the defendant shall be attached by the officer executing the order in the
following manner:
(e) Debts and credits, and other personal property not capable of manual delivery, by
leaving with the person owing such debts, or having in his possession or under his control,
such credits or other personal property, or with, his agent, a copy of the order, and a notice
that the debts owing by him to the defendant, and the credits and other personal property in
his possession, or under his control, belonging to the defendant, are attached in pursuance
of such order. (Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera
should have been attached in accordance with subsection (c) of said section 7, as "personal property
capable of manual delivery, by taking and safely keeping in his custody", for it declared that
"Evangelists could not have . . . validly purchased Ricardo Rivera's house from the sheriff as the latter
was not in possession thereof at the time he sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this
connection, it is not disputed that although the sale to the respondent preceded that made to
Evangelists, the latter would have a better right if the writ of attachment, issued in his favor before the
sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon
whether the house of Ricardo Rivera is real property or not. In the affirmative case, the applicable
provision would be subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the
attachment should be made "by filing with the registrar of deeds a copy of the order, together with a
description of the property attached, and a notice that it is attached, and by leaving a copy of such
order, description, and notice with the occupant of the property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal
property, the levy upon which must be made in conformity with subsections (c) and (e) of said section
7 of Rule 59. Hence, the main issue before us is whether a house, constructed the lessee of the land
on which it is built, should be dealt with, for purpose, of attachment, as immovable property, or as
personal property.
It is, our considered opinion that said house is not personal property, much less a debt, credit or other
personal property not capable of manual delivery, but immovable property. As explicitly held, in
Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on the soil) is
immovable or real property, whether it is erected by the owner of the land or by usufructuary
or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong Machinery Company, 37
Phil., 644. And it is amply supported by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal
property for purposes of said contract (Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co.
of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464). However,
this view is good only insofar as thecontracting parties are concerned. It is based, partly, upon the
principle of estoppel. Neither this principle, nor said view, is applicable to strangers to said contract.
Much less is it in point where there has been no contractwhatsoever, with respect to the status of the
house involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52 Off.
Gaz., 3954), we held:
The question now before us, however, is: Does the fact that the parties entering into a
contract regarding a house gave said property the consideration of personal property in
their contract, bind the sheriff in advertising the property's sale at public auction as personal
property? It is to be remembered that in the case at bar the action was to collect a loan
secured by a chattel mortgage on the house. It is also to be remembered that in practice it
is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy
upon in execution, and the judgment creditor in the case at bar is the party in whose favor
the owner of the house had conveyed it by way of chattel mortgage and, therefore, knew its
consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not allow,
and, we should notinterpret them in such a way as to allow, the special consideration that
parties to a contract may have desired to impart to real estate, for example, as personal
property, when they are, not ordinarily so. Sales on execution affect the public and third
persons. The regulation governing sales on execution are for public officials to follow. The
form of proceedings prescribed for each kind of property is suited to its character, not to the
character, which the parties have given to it or desire to give it. When the rules speak of
personal property, property which is ordinarily so considered is meant; and when real
property is spoken of, it means property which is generally known as real property. The
regulations were never intended to suit the consideration that parties may have privately
given to the property levied upon. Enforcement of regulations would be difficult were the
convenience or agreement of private parties to determine or govern the nature of the
proceedings. We therefore hold that the mere fact that a house was the subject of the
chattel mortgage and was considered as personal property by the parties does not make
said house personal property for purposes of the notice to be given for its sale of public
auction. This ruling is demanded by the need for a definite, orderly and well defined
regulation for official and public guidance and would prevent confusion and
misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on execution,
although subject of a contract of chattel mortgage between the owner and a third person, is
real property within the purview of Rule 39, section 16, of the Rules of Court as it has
become a permanent fixture of the land, which, is real property. (42 Am. Jur. 199-200;
Leung Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil.,
544; Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for the levy of attachment, for it
similarly affects the public and third persons.
It is argued, however, that, even if the house in question were immovable property, its attachment by
Evangelista was void or ineffective, because, in the language of the Court of Appeals, "after
presenting a Copy of the order of attachment in the Office of the Register of Deeds, the person who
might then be in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or other
copies thereof." This finding of the Court of Appeals is neither conclusive upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, in
paragraph 3 of the complaint, that he acquired the house in question "as a consequence of the levy of
an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First Instance of
Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment execution of judgment.
He alleged, however, by way a of special defense, that the title of respondent "is superior to that of
plaintiff because it is based on a public instrument," whereas Evangelista relied upon a "promissory
note" which "is only a private instrument"; that said Public instrument in favor of respondent
"is superior also to the judgment in Civil Case No. 8235"; and that plaintiff's claim against Rivera
amounted only to P866, "which is much below the real value" of said house, for which reason it would
be "grossly unjust to acquire the property for such an inadequate consideration." Thus, Rivera
impliedly admitted that his house had been attached, that the house had been sold to Evangelista
in accordance with the requisite formalities, and that said attachment was valid, although allegedly
inferior to the rights of respondent, and the consideration for the sale to Evangelista was claimed to
be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only " for the
reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the
final deed executed by the sheriff in favor of respondent, the same became the "legitimate owner of
the house" in question; (2) that respondent "is a buyer in good faith and for value"; (3) that respondent
"took possession and control of said house"; (4) that "there was no valid attachment by the plaintiff
and/or the Sheriff of Manila of the property in question as neither took actual or constructive
possession or control of the property at any time"; and (5) "that the alleged registration of plaintiff's
attachment, certificate of sale and final deed in the Office of Register of Deeds, Manila, if there was
any, is likewise, not valid as there is no registry of transactions covering houses erected on land
belonging to or leased from another." In this manner, respondent claimed a better right, merely under
the theory that, in case of double sale of immovable property, the purchaser who first obtains
possession in good faith, acquires title, if the sale has not been "recorded . . . in the Registry of
Property" (Art. 1544, Civil Code of the Philippines), and that the writ of attachment and the notice of
attachment in favor of Evangelista should be considered unregistered, "as there is no registry of
transactions covering houses erected on land belonging to or leased from another." In fact, said
article 1544 of the Civil Code of the Philippines, governing double sales, was quoted on page 15 of
the brief for respondent in the Court of Appeals, in support of its fourth assignment of error therein, to
the effect that it "has preference or priority over the sale of the same property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of attachment had been
served on Rivera. No evidence whatsoever, to the effect that Rivera had not been served with copies
of said writ and notice, was introduced in the Court of First Instance. In its brief in the Court of
Appeals, respondent did not aver, or even, intimate, that no such copies were served by the sheriff
upon Rivera. Service thereof on Rivera had been impliedly admitted by the defendants, in their
respective answers, and by their behaviour throughout the proceedings in the Court of First Instance,
and, as regards respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein (p.
26) that copies of said writ and notice were delivered to Rivera, simultaneously with copies of the
complaint, upon service of summons, prior to the filing of copies of said writ and notice with the
register deeds, andthe truth of this assertion has not been directly and positively challenged or denied
in the brief filed before us by respondent herein. The latter did not dare therein to go beyond making a
statement for the first time in the course of these proceedings, begun almost five (5) years ago
(June 18, 1953) reproducing substantially the aforementioned finding of the Court of Appeals and
then quoting the same.
Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an
issue on whether or not copies of the writ of attachment and notice of attachment had been served
upon Rivera; that the defendants had impliedly admitted-in said pleadings and briefs, as well as by
their conduct during the entire proceedings, prior to the rendition of the decision of the Court of
Appeals that Rivera had received copies of said documents; and that, for this reason, evidently, no
proof was introduced thereon, we, are of the opinion, and so hold that the finding of the Court of
Appeals to the effect that said copies had not been served upon Rivera is based upon a
misapprehension of the specific issues involved therein and goes beyond the range of such issues,
apart from being contrary to the aforementioned admission by the parties, and that, accordingly, a
grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate.
Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered
affirming that of the Court of First Instance of Manila, with the costs of this instance against
respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
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; Crinevs. 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.





















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.