Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON

CITY,petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.

Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the Municipal Board of
Manila to grant a franchise to construct, maintain and operate an electric street railway and electric light, heat and
power system in the City of Manila and its suburbs to the person or persons making the most favorable bid.
Charles M. Swift was awarded the said franchise on March 1903, the terms and conditions of which were
embodied in Ordinance No. 44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short),
became the transferee and owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna and is
transmitted to the City of Manila by means of electric transmission wires, running from the province of Laguna to
the said City. These electric transmission wires which carry high voltage current, are fastened to insulators
attached on steel towers constructed by respondent at intervals, from its hydro-electric plant in the province of
Laguna to the City of Manila. The respondent Meralco has constructed 40 of these steel towers within Quezon
City, on land belonging to it. A photograph of one of these steel towers is attached to the petition for review,
marked Annex A. Three steel towers were inspected by the lower court and parties and the following were the
descriptions given there of by said court:

The first steel tower is located in South Tatalon, Espaa Extension, Quezon City. The findings were as follows:
the ground around one of the four posts was excavated to a depth of about eight (8) feet, with an opening of
about one (1) meter in diameter, decreased to about a quarter of a meter as it we deeper until it reached the
bottom of the post; at the bottom of the post were two parallel steel bars attached to the leg means of bolts; the
tower proper was attached to the leg three bolts; with two cross metals to prevent mobility; there was no concrete
foundation but there was adobe stone underneath; as the bottom of the excavation was covered with water about
three inches high, it could not be determined with certainty to whether said adobe stone was placed purposely or
not, as the place abounds with this kind of stone; and the tower carried five high voltage wires without cover or
any insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land owned by the petitioner
approximate more than one kilometer from the first tower. As in the first tower, the ground around one of the four
legs was excavate from seven to eight (8) feet deep and one and a half (1-) meters wide. There being very little
water at the bottom, it was seen that there was no concrete foundation, but there soft adobe beneath. The leg
was likewise provided with two parallel steel bars bolted to a square metal frame also bolted to each corner. Like
the first one, the second tower is made up of metal rods joined together by means of bolts, so that by unscrewing
the bolts, the tower could be dismantled and reassembled.

Property 1
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.

Property 2
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;

xxx xxx xxx

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

xxx xxx xxx

Property 3
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or
works which may be carried in a building or on a piece of land, and which tends directly to meet the needs of the
said industry or works;

xxx xxx xxx

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

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

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

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

Property 4
Board of Assessment Appeals, Q.C. vs Meralco
10 SCRA 68
GR No. L-15334
January 31, 1964

FACTS
On November 15, 1955, the QC City Assessor declared the MERALCO's steel towers subject to real property tax.
After the denial of MERALCO's petition to cancel these declarations, an appeal was taken to the QC Board of
Assessment Appeals, which required respondent to pay P11,651.86 as real property tax on the said steel towers
for the years 1952 to 1956.

MERALCO paid the amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA) which
rendered a decision ordering the cancellation of the said tax declarations and the refunding to MERALCO by the
QC City Treasurer of P11,651.86.

ISSUE
Are the steel towers or poles of the MERALCO considered real or personal properties?

HELD
Pole long, comparatively slender, usually cylindrical piece of wood, timber, object of metal or the like; an upright
standard to the top of which something is affixed or by which something is supported.

MERALCO's steel supports consists of a framework of 4 steel bars/strips which are bound by steel cross-arms
atop of which are cross-arms supporting 5 high-voltage transmission wires, and their sole function is to
support/carry such wires. The exemption granted to poles as quoted from Part II, Par.9 of respondent's franchise
is determined by the use to which such poles are dedicated.

It is evident 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 should be taken and understood as part of MERALCO's electric power system for the
conveyance of electric current to its consumers.

Art. 415 of the NCC classifies the following as immovable property:

(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;

xxx

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

xxx

(5) Machinery, receptacles, instruments or implements intended by the owner pf the tenement for an
industry ot 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;

Following these classifications, MERALCO's steel towers should be considered personal property. It should be
noted that the steel towers:

Property 5
 (a) are neither buildings or constructions adhered to the soil;

(b) are not attached to an immovable in a fixed manner they can be separated without breaking the
material or deterioration of the object;

are not machineries, receptacles or instruments, and even if they are, they are not intended for an
industry to be carried on in the premises.

FACTS:
City Assessor of QC declared the steel towers for real property tax under Tax Declarations. After denying the
respondents petition to cancel these declarations, an appeal was taken with the CTA which held that the steel
towers come under the exception of poles under the franchise given to MERALCO; the steel towers are
personal properties; and the City Treasurer is liable for the refund of the amount paid.

HELD:
The steel towers of an electric company dont constitute real property for the purposes of real property tax.

Property 6
 EN BANC

[G.R. No. L-30173. September 30, 1971.]

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, Plaintiffs-Appellees, v. ALBERTA VICENCIO and

EMILIANO SIMEON, Defendants-Appellants.

Castelo & Suck for Plaintiffs-Appellees.

Jose Q. Calingo, for Defendants-Appellants.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; UNLAWFUL DETAINER; CLAIM OF OWNERSHIP IS A

MATTER OF DEFENSE THEREIN. In detainer cases the claim of ownership "is a matter of defense and raises an
issue of fact which should be determined from the evidence at the trial."cralaw virtua1aw library

2. CIVIL LAW; CONTRACTS; FRAUD OR DECEIT RENDERS CONTRACT VOIDABLE, NOT VOID AB
INITIO. 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.

3. ID.; ID.; PARTIES THERETO MAY TREAT AS PERSONAL PROPERTY THAT WHICH IS REAL PROPERTY.
In the case of Manarang and Manarang v. Ofilada (99 Phil. 109), 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 v. Jaramillo (44 Phil. 632).

4. ID.; ID.; ID.; CASE AT BAR. 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 the property together with its leasehold rights over the lot on which it is
constructed and participation . . ." 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.

5. ID.; ID.; PARTIES ESTOPPED TO ASSAIL VALIDITY THEREOF. 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.

6. ID.; ID.; MORTGAGE; FORECLOSURE; MORTGAGOR MAY BE ALLOWED POSSESSION DURING THE
ONE-YEAR PERIOD OF REDEMPTION. Section 6 of the Act referred to (Act No. 3135) 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 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. 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.

Property 7
7. ID.; ID.; ID.; ID.; PURCHASER RECEIVING RENTALS DURING REDEMPTION PERIOD IS
ACCOUNTABLE TO MORTGAGOR; RATIONALE. "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 or 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." (Italics supplied)

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

Property 8
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

Property 9
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 ..." 24Although there is no specific statement referring to the subject house as personal property, yet
by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have
meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now
be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented
lot to which defendats-appellants merely had a temporary right as lessee, and although this can not in itself alone

Property 10
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.

Property 11
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.

Property 12
TUMALAD V. VICENCIO
Although a building is an immovable; the parties to a contract may by agreement treat as personal
property that which by nature is a real property however they are estopped from subsequently
claiming otherwise.

FACTS:

Alberta Vicencio and Emiliano Simeon received a loan of P4, 800 from Gavino and Generosa Tumalad.
To guaranty said loan, Vicencio executed a chattel mortgage in favor of Tumalad over their house of
strong materials which stood on a land which was rented from the Madrigal & Company, Inc. When
Vicencio defaulted in paying, the house was extrajudicially foreclosed, pursuant to their contract. It was
sold to Tumalad and they instituted a Civil case in the Municipal Court of Manila to have Vicencio
vacate the house and pay rent.

The MTC decided in favor of Tumalad ordering Vicencio to vacate the house and pay rent until they
have completely vacated the house. Vicencio is questioning the legality of the chattel mortgage on the
ground that 1) the signature on it was obtained thru fraud and 2) the mortgage is a house of strong
materials which is an immovable therefore can only be the subject of a REM. On appeal, the CFI found
in favor of Tumalad, and since the Vicencio failed to deposit the rent ordered, it issued a writ of
execution, however the house was already demolished pursuant to an order of the court in an ejectment
suit against Vicencio for non-payment of rentals. Thus the case at bar.

ISSUE:

Whether or not the chattel mortgage is void since its subject is an immovable

HELD: NO.

Although a building is by itself an immovable property, parties to a

contract may treat as personal property that which by nature would be real
property and it would be valid and good only insofar as the contracting
parties are concerned. By principle of estoppel, the owner declaring his
house to be a chattel may no longer subsequently claim otherwise.

When Vicencio executed the Chattel Mortgage, it specifically provides that the mortgagor cedes, sells
and transfers by way of Chattel mortgage. They intended to treat it as chattel therefore are now estopped
from claiming otherwise. Also the house stood on rented land which was held in previous jurisprudence
to be personalty since it was placed on the land by one who had only temporary right over the property
thus it does not become immobilized by attachment.

Property 13
[Vicencio though was not made to pay rent since the action was instituted during the period of
redemption therefore Vicencio still had a right to remain in possession of the property]

TUMALAD V. VICENCIO
41 SCRA 143

FACTS:

Vicencio and Simeon executed a chattel mortgage in favor of plaintiffs Tumalad over their house, which
was being rented by Madrigal and company. This was executed to guarantee a loan, payable in one year
with a 12% per annum interest.

The mortgage was extrajudicially foreclosed upon failure to pay the loan. The house was sold at a
public auction and the plaintiffs were the highest bidder. A corresponding certificate of sale was issued.
Thereafter, the plaintiffs filed an action for ejectment against the defendants, praying that the latter
vacate the house as they were the proper owners.

ISSUE:

W/N the chattel mortgage was null and void ab initio because only personal properties can be subject of
a chattel mortgage.

HELD:

Certain deviations have been allowed from the general doctrine that buildings are immovable property
such as when through stipulation, parties may agree to treat as personal property those by their nature
would be real property. This is partly based on the principle of estoppel wherein the principle is
predicated on statements by the owner declaring his house as chattel, a conduct that may conceivably
stop him from subsequently claiming otherwise.

In the case at bar, though there be no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property through chattel mortgage could only have
meant that defendant conveys 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.

Property 14
TUMALAD VS. VICENCIO (G.R. NO. L-30173,
SEPTEMBER 30, 1971)
FACTS:

Some time in 1955, Alberta Vicencio and Emiliano Simeon loaned 4,800 pesos from Gavino and Generosa
Tumalad. As guarantee, they executed a chattel mortgage over their house in Quiapo which, at that time, was
being rented from Madrigal and Company, Inc.

The mortgage was registered in the Registry of Deeds of Manila. It was also agreed that default in the payment of
any of the amortizations will make the unpaid balance immediately due and demandable.

The defendants-appellants thus defaulted in paying and the mortgage was extrajudicially foreclosed. The house
was auctioned and bought by the Tumalads as the highest bidder.

They then commenced an ejectment case in the MTC which ruled in favor of Tumalad. The defendants-appellants
then appealed to the RTC questioning the legality of the chattel mortgage.

While pending, the MTC issued a writ of execution but cannot be carried because the house has already been
demolished 10 days before pursuant to an order in another ejectment case against the defendants.

The RTC ruled then in favor of Tumalad and ordered the defendants to pay the rent. This was appealed to the CA
which, in turn, certified the case to the SC as only questions of law are involved.

Defendants-appellants contend that the chattel mortgage was void because the subject matter 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.

Property 15
ISSUE: Can defendants claim that the house is an immovable property?

RULING: No.

The parties to a contract may, by agreement, treat as personal property that which by nature would be a real
property if it was so expressly and specifically designated. This is based on the principle of estoppel.

A mortgaged house 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.

It is now settled that an object placed on land by one who had only a temporary right to the same does not become
immobilized by attachment.

In the contract, the house was expressly designated as chattel mortgage which provides that: the mortgagor
voluntarily cedes, sells and transfers by way of chattel mortgage

Although there is no specific statement referring to the house as personal property, the defendants-appellants
could only have meant to convey the house as chattek or intended to treat the same as such sk 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 cannot in itself alone determine the status of the property, it does so when combined with
other factors to sustain the interpretation of the parties.

The SC, however, reversed the decision appealed from on the ground that the purchaser of the house is not yet
entitled, as a matter of right, to its possession as there is a 1-year period within which the mortgagor may redeem
the property.

The period of redemption had not yet expired when action was instituted in the court of origin. The original
complaint stated no cause of action and was prematurely filed.

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.

Facts:

On Sep 1, 1955, Vicencio and Simeon executed a chattel mortgage in favor of Tumalad over their house
of strong materials located at Quiapo, Manila over Lot Nos 6B and 7B, Block 2554, which were being
rented from Madrigal & Company, Inc. It was also agreed that in default the payment of any
amortizations would cause the remaining unpaid balance to become immediately due and payable, the
Sheriff of the City of Manila or any of his deputies is empowered and authorized to sell all the
mortgagors property after the necessary publication in order to settle the financial debts, plus interest
and yearly fees.

When Vicencio & Simeon defaulted in paying, the mortgage was extrajudicially foreclosed, and on 27
Mar 1956, the house was sold at public auction pursuant to the sent contract. As highest bidder,

Property 16
Tumalad were issued corresponding certificate of sale. Municipal court eventually rendered a decision
ordering defendants to vacate the premises described in the complaint.

During the pendency of the appeal to the CFI, Vicencio and Simeon failed to deposit rent for Nov 1956.
As a result, the court granted Tumalads motion for execution, and it was issued Jan 1957. However,
the judgement regarding the surrender of possession to Tumalad could not be executed because the
subject house had been already demolished on Jan 1957 pursuant to the order of court in a separate civil
case for ejectment against the present defendants for non-payment of rentals on the land where the
house was constructed.

Vicencio & Simeon predicate their theory of nullity of the chattel mortgage on two grounds: a) that
their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery, and b) that the
subject matter of mortgage is a house o strong materials, and being an immovable, it can only be the
subject of a real estate mortgage and not a chattel mortgage.

Issue:

Whether the subject of chattel mortgage, which is a house of strong material and being an immovable, is
valid.

Held:

Yes. The subject matter of chattel mortgage is valid.

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, the property
together with its leasehold rights over the lot on which it is constructed. 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, Vicencio & Simeon 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 be allowed to make an
inconsistent stand by claiming otherwise.

Moreover, the subject house stood on a rented lot to which Vicencio and Simeon merely had a
temporary right as lessee, although this cannot in itself alone determine the status of the property, it does
so when combined with other factors to sustain the interpretation that the parties intended to treat the
house as personal property.

Finally, it is Vicencio and Simeon themselves who are attacking the validity of the chattel mortgage in
this case. The doctrine therefore applies to the herein defendants, having treated the subject house as
personal property.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one entered,
dismissing the complaint. With costs against plaintiffs-appellees.

FIRST DIVISION

Property 17
 [G.R. No. L-55729. March 28, 1983.]

ANTONIO PUNSALAN, JR., Petitioner, v. REMEDIOS VDA. DE LACSAMANA and THE HONORABLE
JUDGE RODOLFO A. ORTIZ, Respondents.

Benjamin S. Benito & Associates for Petitioner.

Expedito Yummul for Private Respondent.

SYLLABUS

1. CIVIL LAW; PROPERTY; BUILDING ALWAYS CONSIDERED IMMOVABLE NOTWITHSTANDING THAT

PARTIES TO A CONTRACT TREAT IT APART PROM THE LAND IT STANDS. The warehouse claimed to be
owned by petitioner it an immovable or real property as provided in Article 415(1) of the Civil Code. Buildings are
always immovable under the Code. A building treated separately from the land on which it stood it immovable
property and the mere fact that the parties to a contract seem to have dealt with it separate and apart from the land on
which it stood in no wise changed its character as immovable property.

2. REMEDIAL LAW; ACTION; ANNULMENT OF SALE OF REAL PROPERTY, A REAL ACTION, WHEN
PRIMARY AND FUNDAMENTAL OBJECTIVE IS RECOVERY OF OWNERSHIP. While it true that petitioner
does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale
and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is
considered immovable property, the recovery of which it petitioners primary objective. The prevalent doctrine is that
an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and
prime objective and nature of the case, which is to recover said real property. It is a real action. Respondent Court,
therefore, did not err in dismissing the case on the ground of improper venue, (Section 2, Rule 4) which was timely
raised. (Section 1, Rule 16)

3. ID.; ID.; INDISPENSABLE PARTY; JOINDER ESSENTIAL FOR THE COURT TO PROCEED WITH THE
TRIAL OF A CASE. Petitioners other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore, issues had already
been joined, is likewise untenable. Respondent PNB is an indispensable party as the validity of the Amended Contract
of Sale between the former and respondent Lacsamana is in issue. It would, indeed, be futile to proceed with the case
against respondent Lacsamana alone.

DECISION

MELENCIO-HERRERA, J.:

The sole issue presented by petitioner for resolution is whether or not respondent Court erred in denying
the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de Lacsamana as the case
had been dismissed on the ground of improper venue upon motion of co-respondent Philippine National
Bank (PNB).

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land
consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land to
respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount, the
property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the highest

Property 18
bidder in said foreclosure proceedings. However, the bank secured title thereto only on December 14,
1977.

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with
the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from the
Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said
warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then leased
the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975.

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and
respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly to
include in the sale, the building and improvement thereon. By virtue of said instruments, respondent -
Lacsamana secured title over the property in her name (TCT No. 173744) as well as separate tax
declarations for the land and building. 1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages"
against herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal,
Branch XXXI, Quezon City, essentially impugning the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection, petitioner alleged:

xxx xxx xxx

22. That defendant, Philippine National Bank, through its Branch Manager ... by virtue of the request of
defendant ... executed a document dated July 31, 1978, entitled Amendment to Deed of Absolute Sale ...
wherein said defendant bank as Vendor sold to defendant Lacsamana the building owned by the plaintiff
under Tax Declaration No. 5619, notwithstanding the fact that said building is not owned by the bank
either by virtue of the public auction sale conducted by the Sheriff and sold to the Philippine National
Bank or by virtue of the Deed of Sale executed by the bank itself in its favor on September 21, 1977 ...;

23. That said defendant bank fraudulently mentioned ... that the sale in its favor should likewise have
included the building, notwithstanding no legal basis for the same and despite full knowledge that the
Certificate of Sale executed by the sheriff in its favor ... only limited the sale to the land, hence, by
selling the building which never became the property of defendant, they have violated the principle
against 'pactum commisorium'.

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared
null and void and that damages in the total sum of P230,000.00, more or less, be awarded to him.2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of lack of
cause of action in that she was a purchaser for value and invoked the principle in Civil Law that the
"accessory follows the principal".3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was
improperly laid considering that the building was real property under article 415 (1) of the New Civil
Code and therefore section 2(a) of Rule 4 should apply. 4

Property 19
Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale
with damages is in the nature of a personal action, which seeks to recover not the title nor possession of
the property but to compel payment of damages, which is not an action affecting title to real property.

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows:

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated March 13, 1980,
considered against the plaintiff's opposition thereto dated April 1, 1980, including the reply therewith of
said defendant, this Court resolves to DISMISS the plaintiff's complaint for improper venue considering
that the plaintiff's complaint which seeks for the declaration as null and void, the amendment to Deed of
Absolute Sale executed by the defendant Philippine National Bank in favor of the defendant Remedios
T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly owned and constructed by the
plaintiff on the land of the defendant Philippine National Bank situated in the Municipality of Bamban,
Province of Tarlac, which warehouse is an immovable property pursuant to Article 415, No. 1 of the
New Civil Code; and, as such the action of the plaintiff is a real action affecting title to real property
which, under Section 2, Rule 4 of the New Rules of Court, must be tried in the province where the
property or any part thereof lies.5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title to property but is limited to the validity of the deed
of sale and emphasized that the case should proceed with or without respondent PNB as respondent
Lacsamana had already filed her Answer to the Complaint and no issue on venue had been raised by the
latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined with the filing of respondent Lacsamana's Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as the
case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in

article 415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A building treated
separately from the land on which it stood is immovable property and the mere fact that the parties to a
contract seem to have dealt with it separate and apart from the land on which it stood in no wise
changed its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of title or possession of the property in
question, his action for annulment of sale and his claim for damages are closely intertwined with the
issue of ownership of the building which, under the law, is considered immovable property, the recovery
of which is petitioner's primary objective. The prevalent doctrine is that an action for the annulment or

Property 20
rescission of a sale of real property does not operate to efface the fundamental and prime objective and
nature of the case, which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
(Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore,
issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as the
validity of the Amended Contract of Sale between the former and respondent Lacsamana is in issue. It
would, indeed, be futile to proceed with the case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner
Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.

Property 21
PUNZALAN V. LACSAMANA
Buildings are always treated as immovable or real property under the Code even if it was dealt
with separately from the land upon which it stood

FACTS:

Some land belonging to Antonio Punzalan was foreclosed by the Philippine National Bank Tarlac,
Branch in failure of the former to pay the mortgaged fee amounting to P10 grand Since PNB was the
highest bidder, the land went to PNB.

Sometime 1974, while the property was still in the possession of Punzalan, Punzalan constructed a
warehouse on the said land by virtue of the permit secured from the Municipal Mayor of Bamban,
Tarlac. Subsequently, in 1978, a contract of sale was entered into by PNB and Remedios Vda. De
Lacsamana, whom in lieu of the said sale secured a title over the property involving the warehouse
allegedly owned and constructed by the plaintiff.

Punzalan filed a suit for annulment of the Deed of Sale with damages against PNB and Lacsamana
before the Court of First Instance of Rizal, Branch 31, impugning the validity of the sale of the building,
requesting the same to be declared null and void and that damages in the total sum of P23, 200 more or
less be awarded to him.

Respondent Lacsamana in his answer averred the affirmative defense of lack of cause of action
contending that she was a purchaser for value, while, PNB filed a Motion to Dismiss on the ground of
improper venue, invoking that the building was a real property under Article 415 of the Civil Code, and
therefore, Section 4 (a) of the Rules of Court should apply.

Punzalan filed a Motion for Reconsideration asserting that the action he filed is limited to the annulment
of sale and that, it does not involved ownership of or title to property but denied by the court for lack of
merit. A motion for pre-trial was also set by Punzalan but was also denied by the court invoking that the
case was already dismissed.

Hence, a petition for certiorari was filed by the petitioner.

ISSUE:

Whether or not the judgment rendered by the court is proper.

HELD:

While it is true that the petitioner does not directly seek the recovery of the title or possession of the
property in question, his action for annulment of sale and his claim for damages are closely intertwined
with the issue of ownership of the building, which, under the law, is considered immovable property, the
recovery of which is petitioners primary objective. The prevalent doctrine is that an action for the

Property 22
annulment or rescission of a sale of real property does not operate to efface the objective and nature of
the case, which is to recover said property. It is a real action. Respondent Court did not err in dismissing
the case on the ground of improper venue under Section 12 Rule 4 which was timely raised under
Section 1 Rule 16 of the Rules of Court.

Personal Observation: The venue was improperly laid by the petitioner in the case at bar. Such ground
was sufficient to render dismissal of the case, as the same is one of the grounds provided for under Rule
16 (c) of the Rules of Court.

The Denial of Motion to Dismiss rendered by the court in the instant case is appealable. If such denial
constitute grave abuse of discretion on the part of the court , Punzalan may file either Prohibition or
Certiorari under Rule 65 of the Rules of Court.

PUNSALAN, JR. V. VDA. DE LACSAMANA G.R. No. L-55729 March 28, 1983

Immovable Property Case

FACTS:

Punsalan was the owner of a piece of land, which he mortgaged in favor of PNB. Due to his failure to
pay, the mortgage was foreclosed and the land was sold in a public auction to which PNB was the
highest bidder.

On a relevant date, while Punsalan was still the possessor of the land, it secured a permit for the
construction of a warehouse.

A deed of sale was executed between PNB and Punsalan. This contract was amended to include the
warehouse and the improvement thereon. By virtue of these instruments, respondent Lacsamana secured
title over the property in her name.

Petitioner then sought for the annulment of the deed of sale. Among his allegations was that the bank
did not own the building and thus, it should not be included in the said deed.

Petitioners complaint was dismissed for improper venue. The trial court held that the action being filed
in actuality by petitioner is a real action involving his right over a real property.

ISSUE:

W/N the trial court erred in dismissing the case on the ground of improper venue.
W/N the warehouse is an immovable and must be tried in the province where the property lies.

HELD:

Warehouse claimed to be owned by petitioner is an immovable or real property. Buildings are always

Property 23
immovable under the Code. A building treated separately from the land on which it is stood is
immovable property and the mere fact that the parties to a contract seem to have dealt with it separate
and apart from the land on which it stood in no wise changed its character as immovable property.

Property 24
 SECOND DIVISION

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

MAKATI LEASING and FINANCE CORPORATION, Petitioner, v. 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.

SYLLABUS

1. REMEDIAL LAW; PETITION FOR REVIEW; NOT RENDERED MOOT AND ACADEMIC; WHERE RIGHT
TO QUESTION DECISION, TIMELY RESERVED. 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 respondents
representative. 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.

2. CIVIL LAW; PROPERTY; MACHINERY THOUGH IMMOBILIZED BY DESTINATION IF TREATED BY THE

PARTIES AS A PERSONALTY FOR PURPOSES OF A CHATTEL MORTGAGE LEGAL, WHERE NO THIRD
PARTY IS PREJUDICED. 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. Examining the records of the
instance case, the Supreme Court found no logical justification to exclude and rule out, as the appellate court did, the
present case from the application of the pronouncement in the TUMALAD v. VICENCIO CASE (41 SCRA 143)
where a similar, if not identical issue was raised. If a house of strong materials, like what was involved in the 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.

3. ID.; ID.; ID.; COURT SHOULD NOT MAKE DISTINCTIONS, WHERE THE LAW DOES NOT. In rejecting
petitioners 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 the Supreme Court should not lay
down distinctions not contemplated by law.

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

5. CIVIL LAW; ESTOPPEL; REPRESENTING OR AGREEING ON THE CONSTITUTION OF A PROPERTY AS

CHATTEL; A CASE THEREOF. Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit he considered as personal property but was merely required and

Property 25
dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank format 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 machine as movable or immovable was never placed in issue before the lower court and the Court
of Appeals except ins supplemental memorandum in support of the petition filed in the appellate court.

6. ID.; CONTRACT; TREATING A MACHINERY AS A CHATTEL; AGREEMENT DEEMED VALID UNLESS

ANNULLED OR VOIDED IN A PROPER ACTION. 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.

7. ID.; ID.; UNDUE BENEFIT OVER A CONTRACT AT THE EXPENSE OF ANOTHER NOT COUNTENANCED
BY EQUITY. 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, he allowed to impugn the efficacy of the chattel mortgage after it has benefited
therefrom.

DECISION

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court)
promulgation 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 well as the resolution dated September 22, 1981 of the said appellate court, denying petitioners 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 respondents 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 respondents
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 petitioners application for replevin, the lower court issued a writ of seizure, the enforcement of which was
however subsequently restrained upon private respondents 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 respondents 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

Property 26
means of bolts and the only way to remove it from respondents plant would be to drill out or destroy the concrete
floor, the reason why all that the sheriff could do to enforce the writ was to take the main drive motor of said
machinery. The appellate court rejected petitioners 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 petitioners act of returning the subject motor drive of respondents
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 respondents 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 personalty, 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 Personalty. Finally, unlike in the Iya cases, Lopez v. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee v.
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
personalty."

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 petitioners assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the
fact that the house involved therein was built on a land that did not belong to the owner of such house. But the law
makes no distinction with respect to the ownership of the land on which the house is built and We should not lay down
distinctions not contemplated by law.

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

Property 27
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.

Property 28
Makati Leasing and Finance Corp., vs Wearever Textile Mills, Inc.,
GR No. L-58469
May 16, 1983

FACTS

Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati Leasing and Finance
Corporation covering certain raw materials and machinery. Upon default, Makati Leasing fi led a petition for
judicial foreclosure of the properties mortgaged. Acting on Makati Leasings application for replevin, the lower
court issued a writ of seizure. Pursuant thereto, the sheriff enforcing the seizure order seized the machinery
subject matter of the mortgage. In a petition for certiorari and prohibition, the Court of Appeals ordered the return
of the machinery on the ground that the same can-not be the subject of replevin because it is a real property
pursuant to Article415 of the new Civil Code, the same being attached to the ground by means of bolts and the
only way to remove it from Wearever textiles plant would be to drill out or destroy the concrete fl oor. When the
motion for reconsideration of Makati Leasing was denied by the Court of Appeals, Makati Leasing elevated the
matter to the Supreme Court.

ISSUE

Whether the machinery in suit is real or personal property from the point of view of the parties.

HELD

There is no logical justification to exclude the rule out the present case from the application of the pronouncement
in Tumalad v Vicencio, 41 SCRA 143. If a house of strong materials, like what was involved in
the 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 becomesimmobilized only by
destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is
estopped from the denying the existence of the chattel mortgage.

In rejecting petitioners assertion on the applicability of the Tumalad doctrine, the CA 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 by the private respondent is indicative of the
intention and impresses upon the property the character determined by the parties. As stated in Standard Oil Co.
of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may, by agreement, treat as
personal property that which by nature would be a real property as long as no interest of third parties would be
prejudiced thereby.

The status of the subject matter as movable or immovable property was not raised as an issue before the lower
court and the CA, except in a supplemental memorandum in support of the petition filed in the appellate court.
There is no record showing that the mortgage has been annulled, or that steps were taken to nullify the same. On
the other hand, respondent has benefited from the said contract.

Property 29
Equity dictates that one should not benefit at the expense of another.

As such, private respondent could no longer be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom.

Therefore, the questioned machinery should be considered as personal property.

MAKATI LEASING AND FINANCE CORP. V. WEAREVER TEXTILE MILLS, INC.

Parties to a contract may by agreement treat as personal property that which by nature is a real property,
as long as no interest of 3rd party would be prejudiced.

FACTS:

To obtain financial accommodations from Makati Leasing, Wearever Textile discounted and assigned several
receivables under a Receivable Purchase Agreement with Makati Leasing. To secure the collection of
receivables, it executed a chattel mortgage over several raw materials and a machinery Artos Aero Dryer
Stentering Range (Dryer).

Wearever defaulted thus the properties mortgaged were extrajudicially foreclosed. The sheriff, after the
restraining order was lifted, was able to enter the premises of Wearever and removed the drive motor of the
Dryer. The CA reversed the order of the CFI, ordering the return of the drive motor since it cannot be the subject
of a replevin suit being an immovable bolted to the ground. Thus the case at bar.

ISSUE:

Whether the dryer is an immovable property

HELD: NO

The SC relied on its ruling in Tumalad v. Vicencio, that if a house of strong materials can be the subject of a
Chattel Mortgage as long as the parties to the contract agree and no innocent 3rd party will be prejudiced then
moreso that a machinery may treated as a movable since it is movable by nature and becomes immobilized only
by destination. And treating it as a chattel by way of a Chattel Mortgage, Wearever is estopped from claiming
otherwise.

Property 30
 SECOND DIVISION

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

MERALCO SECURITIES INDUSTRIAL CORPORATION, Petitioner, v. CENTRAL BOARD OF

ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF LAGUNA and PROVINCIAL
ASSESSOR OF LAGUNA, Respondents.

Camilo D. Quiason for Petitioner.

Francisco A. Donato for Respondents.

SYNOPSIS

Petitioner, pursuant to a pipeline concession, installed a pipeline system from Batangas to Manila consisting of
cylindrical steel pipes joined together and buried not less than one meter below the surface along the shoulder of the
public highway. The pipes are embedded in the soil and are firmly and solidly welded together. However, segments of
the pipeline can be moved from one place to another. The provincial assessor of Laguna treated the pipeline as
machinery or improvements under the Assessment Law, and issued corresponding tax declarations containing the
assessed values of portions of the pipeline. The Board of Assessment Appeals of Laguna and the Central Board of
Assessment Appeals affirmed the ruling of the provincial assessor. Petitioner filed a motion for reconsideration but the
same was denied. Hence, this petition.

The Supreme Court held that the pipeline system, a construction adhering to the soil, is real property under Article
415(1) and (3) of the Civil Code and a machinery within the meaning of the Assessment Law and the Real Property
Tax Code insofar as the pipeline uses valve, pumps and control devices to maintain the flow of oil and therefore
subject to realty tax.

Petition dismissed. Questioned decision and resolution affirmed.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; CERTIORARI; POWER TO REVIEW DEClSION OF A

BOARD OR OFFICER EXERCISING JUDICIAL OR QUASI-JUDICIAL FUNCTIONS. Certiorari was
properly assailed in this case. It is a writ issued by a superior court to an inferior court, board or officer exercising
judicial or quasi-judicial functions whereby the record of a particular case ordered to be elevated for review and
correction in matters of law (14 C.J.S. 121.122; 14 Am Jur. 2nd 777). The rule is that as to administrative agencies
exercising quasi-judicial power there is an underlying power in the courts to scrutinize the acts of such agencies on
questions of law and jurisdiction even though no right of review is given by the statute. (73 C.J.S. 506, note 56).

Property 31
2. ID.; ID.; ID.; PURPOSE OF JUDICIAL REVIEW. The purpose of judicial review is to keep the administrative
agency within its jurisdiction and protect substantial rights of parties affected by its decisions (73 C.J.S. 507, Sec. 165).
The review is part of the system of checks and balances which is a limitation on the separation of powers and which
for stalls arbitrary and unjust adjudications.

3. ADMINISTRATIVE LAW; TAXATION; REALTY TAX; PROPERTIES SUBJECT THERETO. Section 2

of the Assessment Law provides that the realty tax is due "on real property, including land, buildings, machinery and
other improvements" not specifically exempted in Section 3 thereof. This provision is reproduced with some
modification in Section 38 of the Real Property Tax Code which provides; "There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real property such as land, buildings.
machinery and other improvements affixed or attached to real property not hereinafter specifically exempted."

4. CIVIL LAW; PROPERTY; CLASSIFICATION; PIPELINE SYSTEM IS REAL PROPERTY. Article

415(1) and (3) provides that real property may consist of constructions of all kinds adhered to the soil and everything
attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object. The pipeline in question is indubitably a construction adhering to the soil. It is
attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which were
welded to form the pipeline.

5. ADMINISTRATIVE LAW; TAXATION; REALTY TAX; PROPERTIES SUBJECT THERETO; PIPELINE

SYSTEM HELD SUBJECT TO REALTY TAX IN CASE AT BAR. Pipeline mean sa line of pipe connected to
pumps, valves and control devices conveying liquids, gases or finely divided solids. It is a line of the pipe running
upon or in the earth, carrying with it the right to the use of the soil in which it is placed (Note 21(10), 54 C.J.S. 561).
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil, it is in a sense machinery
within the meaning of the Real Property Tax Code. It is incontestable that the pipeline of Meralco Securities does not
fall within any of the classes of exempt real property enumerated in Section 3 of the Assessment Law and Section 40 of
the Real Property Tax Code. A pipe-line for conveying petroleum has been regarded as real property for tax purposes.

6. ID.; ID.; ID.; A TAX OF GENERAL APPLICATION; MERALCO SECURITIES AS CONCESSIONAIRE

UNDER THE PETROLEUM ACT IS NOT EXEMPT FROM PAYMENT THEREOF. Under Article 102 of
the petroleum Act, Meralco Securities, as concessionaire thereunder, is exempt from payment of local taxes or levies
but not of such taxes as are of general application. It is, however, untenable for Meralco Securities to argue that it is
exempt from payment of realty tax on the ground that said tax is a local tax or levy, because the realty tax has always
been imposed by the lawmaking body and later by the President of the Philippines in the exercise of his lawmaking
powers, as shown in Sections 342 et seq. of the Revised Administrative Code, Act No. 3995, Commonwealth Act No.
470 and Presidential Decree No. 464. The realty tax is enforced throughout the Philippines and not merely in a
particular municipality or city but the proceeds of the tax accrue to the province, city, municipality and barrio where
the realty taxed is situated (Sec. 186, P.D. No. 464). In contrast, a local tax is imposed by the municipal or city council
by virtue of the Local Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197).

AQUINO, J.:

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

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

Property 32
The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with a maximum capacity of
75,000 barrels daily. The pipes for fuel and black oil measure sixteen inches by forty-eight feet with a maximum
capacity of 100,000 barrels daily.

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

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

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

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

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

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

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

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

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

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

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

Property 33
We hold that certiorari was properly availed of in this case. It is a writ issued by a superior court to an inferior
court, board or officer exercising judicial or quasi-judicial functions whereby the record of a particular case is
ordered to be elevated for review and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).

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

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

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

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

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

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

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

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

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

Article 415[l] and [3] provides that real property may consist of constructions of all kinds adhered to the soil and
everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom
without breaking the material or deterioration of the object.

Property 34
The pipeline system in question is indubitably a construction adhering to the soil (Exh. B, p. 39, Rollo). It is
attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which
were welded to form the pipeline.

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

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

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

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

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

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

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

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

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

SO ORDERED.

Property 35
Meralco Securities v. Central Board of Assessment Appeals
G.R. No. L-46245 May 31, 1982
Aquino, J.:

Facts:
Petitioner questions the decision of the respondent which held that petitioners pipeline is subject to realty tax.
Pursuant to a concession, petitioner installed a pipeline system from Manila to Batangas. Meanwhile, the provincial
assessor of Laguna treated the pipeline as real property. So, petitioner appealed the assessments to the Board of
Assessment Appeals of Laguna. The board upheld the assessments and the decision became final and executory after
the lapse of fifteen days from the date of receipt of a copy of the decision by the appellant. Meralco Securities contends
that the Court of Tax Appeals has no jurisdiction to review the decision of the Central Board of Assessment Appeals
and no judicial review of the Board's decision is provided for in the Real Property Tax Code. Hence, the petitioners
recourse to file a petition for certiorari.

Held:
It was held that certiorari was properly availed of in this case. It is a writ issued by a superior court to an inferior court,
board or officer exercising judicial or quasi-judicial functions whereby the record of a particular case is ordered to be
elevated for review and correction in matters of law.

The rule is that as to administrative agencies exercising quasi-judicial power there is an underlying power in the courts
to scrutinize the acts of such agencies on questions of law and jurisdiction even though no right of review is given by
the statute. The purpose of judicial review is to keep the administrative agency within its jurisdiction and protect
substantial rights of parties affected by its decisions. The review is a part of the system of checks and balances which is
a limitation on the separation of powers and which forestalls arbitrary and unjust adjudications. Judicial review of the
decision of an official or administrative agency exercising quasi-judicial functions is proper in cases of lack of
jurisdiction, error of law, grave abuse of discretion, fraud or collusion or in case the administrative decision is corrupt,
arbitrary or capricious.

Property 36
 SECOND DIVISION

[G.R. No. L-47943. May 31, 1982.]

MANILA ELECTRIC COMPANY, Petitioner, v. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD

OF ASSESSMENT APPEALS OF BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

Quiason, De Guzman, Makalintal, Veneracion and Barot for Petitioner.

Acting Solicitor General Vicente V . Mendoza, Assistant Solicitor General Nathanael P. de Pano, Jr. and
Solicitor Jesus P. Mapuno for Respondents.

SYNOPSIS

Petitioner installed two storage tanks on a lot it leased from Caltex (Phil.) for storing fuel oil for its power plants. The
tanks are made of steel plates welded and assembled on the spot and pipelines installed on the sides of each tank. They
are not attached to the land but merely sit on concrete foundations. On assessment made by the Provincial Assessor in
1970, the Municipal Treasurer of Bauan, Batangas required petitioner to pay realty taxes on the two tanks. Payment of
the realty taxes was upheld by the Batangas Board of Assessment Appeals and subsequently by the Central Board of
Assessment Appeals. A motion for reconsideration was filed with the Board but the same was denied Hence, the
present petition. Petitioner claims that said oil storage tanks do not fall within any of the kinds of real property
enumerated in Article 415 of the Civil Code.

On review, the Supreme Court held that while the two storage tanks are not embedded in the land, they may be
considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry, which are
taxable under the provisions of the Real Property Tax Code.

SYLLABUS

1. ADMINISTRATIVE LAW; TAXATION; REALTY TAX; PROPERTIES SUBJECT THERETO. Section 2 of the
Assessment Law provides that the realty tax is due on "real property, including land, buildings, machinery, and other
improvements" not specifically exempted in Section 3 thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides in Section 38 thereof that "There shall be levied, assessed and collected in
all provinces, cities and municipalities an annual ad valorem tax on real property such as land, buildings, machinery
and other improvements affixed or attached to real property not hereinafter specifically exempted."

2. ID.; ID.; ID.; ID.; STORAGE TANKS NOT EMBEDDED IN THE LAND CONSIDERED TAXABLE
IMPROVEMENTS UNDER SECTION 3(k) OF THE REAL PROPERTY TAX CODE. While the two storage
tanks are not embedded in the land, they may, nevertheless, be considered as taxable improvements on the land,
enhancing its utility and rendering it useful to the oil industry as defined under Section 3 (k) of the Real Property Tax
Code. It is undeniable that the two tanks have been installed with some degree of permanence at receptacles for the
considerable qualities of oil needed by Meralco for its operations. Oil storage tanks were held to be taxable realty in
Standard Oil Co. of New Jersy versus Atlantic City, 15 Atl. 2nd 271.

3. ID.; ID.; REAL PROPERTY FOR PURPOSES OF TAXATION MAY INCLUDE THINGS GENERALLY
REGARDED AS PERSONAL PROPERTY. For purposes of taxation, the term "real property" may include things
which generally should be regarded as personal property (84 C.J.S. 171, Note 8). It is a familiar phenomenon to see
things classed as real property for purposes of taxation which on general principle might be considered personal
property (Standard Oil Co. of New York v. Jaramillo. 44 Phil. 630, 633).

Property 37
AQUINO, J.:

This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by Manila Electric
Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within
the Caltex refinery compound. They have a total capacity of 566,000 barrels. They are used for storing fuel oil for
Meralco's power plants.

According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot. Their
bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous asphalt stratum as the top layer. The bottom of each tank is in
contact with the asphalt layer,

The steel sides of the tank are directly supported underneath by a circular wall made of concrete, eighteen inches
thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is not attached to its foundation. It is
not anchored or welded to the concrete circular wall. Its bottom plate is not attached to any part of the foundation
by bolts, screws or similar devices. The tank merely sits on its foundation. Each empty tank can be floated by
flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)

On the other hand, according to the hearing commissioners of the Central Board of Assessment Appeals, the
area where the two tanks are located is enclosed with earthen dikes with electric steel poles on top thereof and is
divided into two parts as the site of each tank. The foundation of the tanks is elevated from the remaining area.
On both sides of the earthen dikes are two separate concrete steps leading to the foundation of each tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines were
installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises Industrial
Corporation whose buildings and pumping station are near Tank No. 2.

The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and the walls, dikes
and steps, which are integral parts of the tanks, are affixed to the land while the pipelines are attached to the
tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an assessment
made by the provincial assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period
from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco to
pay the tax and penalties as a condition for entertaining its appeal from the adverse decision of the Batangas
board of assessment appeals.

The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and Community
Development Jose Roo as members) in its decision dated November 5, 1976 ruled that the tanks together with
the foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements.

Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a motion for
reconsideration which the Board denied in its resolution of November 25, 1977, a copy of which was received by
Meralco on February 28, 1978.

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and resolution.
It contends that the Board acted without jurisdiction and committed a grave error of law in holding that its storage
tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property enumerated in
article 415 of the Civil Code and, therefore, they cannot be categorized as realty by nature, by incorporation, by
destination nor by analogy. Stress is laid on the fact that the tanks are not attached to the land and that they were
placed on leased land, not on the land owned by Meralco.

Property 38
This is one of those highly controversial, borderline or penumbral cases on the classification of property where
strong divergent opinions are inevitable. The issue raised by Meralco has to be resolved in the light of the
provisions of the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.

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

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

The Code contains the following definition in its section 3:

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

We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that the
two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of
oil needed by Meralco for its operations.

Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd
271.

For purposes of taxation, the term "real property" may include things which should generally be regarded as
personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property (Standard Oil Co. of New
York vs. Jaramillo, 44 Phil. 630, 633).

The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein Meralco's steel
towers were held not to be subject to realty tax, is not in point because in that case the steel towers were
regarded as poles and under its franchise Meralco's poles are exempt from taxation. Moreover, the steel towers
were not attached to any land or building. They were removable from their metal frames.

Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where the
tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held not
subject to realty tax because they were personal property.

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

SO ORDERED.

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

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

Justice Abad Santos, J., took no part.

Property 39
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.

AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas
stations located on leased land.

The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks,
gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and
tireflators. The city assessor described the said equipment and machinery in this manner:

A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is any is
placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is attached in the
wall of the shed or at the concrete wall fence.

The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet more or less, a
few meters away from the shed. This is done to prevent conflagration because gasoline and other combustible oil
are very inflammable.

This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is commonly
placed or constructed under the shed. The footing of the pump is a cement pad and this cement pad is imbedded
in the pavement under the shed, and evidence that the gasoline underground tank is attached and connected to
the shed or building through the pipe to the pump and the pump is attached and affixed to the cement pad and
pavement covered by the roof of the building or shed.

The building or shed, the elevated water tank, the car hoist under a separate shed, the air compressor, the
underground gasoline tank, neon lights signboard, concrete fence and pavement and the lot where they are all
placed or erected, all of them used in the pursuance of the gasoline service station business formed the entire
gasoline service-station.

As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for the
tenement we consider in this particular case are (is) the pavement covering the entire lot which was constructed
by the owner of the gasoline station and the improvement which holds all the properties under question, they are
attached and affixed to the pavement and to the improvement.

The pavement covering the entire lot of the gasoline service station, as well as all the improvements, machines,
equipments and apparatus are allowed by Caltex (Philippines) Inc. ...

Property 40
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the water tank it is
connected also by a steel pipe to the pavement, then to the electric motor which electric motor is placed under
the shed. So to say that the gasoline pumps, water pumps and underground tanks are outside of the service
station, and to consider only the building as the service station is grossly erroneous. (pp. 58-60, Rollo).

The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease
agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex
the machines and equipment in good condition as when received, ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines and
equipment installed therein. Caltex retains the ownership thereof during the term of the lease.

The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable
realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax
appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals.

The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of Justice
Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose Roo, held in its
decision of June 3, 1977 that the said machines and equipment are real property within the meaning of sections
3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974,
and that the definitions of real property and personal property in articles 415 and 416 of the Civil Code are not
applicable to this case.

The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its resolution of
January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was received by its lawyer on
April 2, 1979.

On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's decision
and for a declaration that t he said machines and equipment are personal property not subject to realty tax (p. 16,
Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this case
is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as yet no Central Board of
Assessment Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by appeal
decisions of provincial or city boards of assessment appeals had in mind the local boards of assessment appeals
but not the Central Board of Assessment Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals and is, therefore, in the same category
as the Tax Court.

Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment Appeals
shall become final and executory after the lapse of fifteen days from the receipt of its decision by the appellant.
Within that fifteen-day period, a petition for reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.

Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board of
Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by Caltex
(Philippines), Inc.

The issue is whether the pieces of gas station equipment and machinery already enumerated are subject to realty
tax. This issue has to be resolved primarily under the provisions of the Assessment Law and the Real Property
Tax Code.

Property 41
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is reproduced
with some modification in the Real Property Tax Code which provides:

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

The Code contains the following definitions in its section 3:

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

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

We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by
Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station,
for without them the gas station would be useless, and which have been attached or affixed permanently to the
gas station site or embedded therein, are taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code.

Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when placed in a
plant by the owner of the property or plant but not when so placed by a tenant, a usufructuary, or any person
having only a temporary right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs.
Castillo, 61 Phil 709).

That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that becomes
real property by destination. In the Davao Saw Mills case the question was whether the machinery mounted on
foundations of cement and installed by the lessee on leased land should be regarded as real property
forpurposes of execution of a judgment against the lessee. The sheriff treated the machinery as personal
property. This Court sustained the sheriff's action. (Compare with Machinery & Engineering Supplies, Inc. vs.
Court of Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its gas
station and pavement (which are indubitably taxable realty) should be subject to the realty tax. This question is
different from the issue raised in the Davao Saw Mill case.

Improvements on land are commonly taxed as realty even though for some purposes they might be considered
personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real property
for purposes of taxation which on general principle might be considered personal property" (Standard Oil Co. of
New York vs. Jaramillo, 44 Phil. 630, 633).

This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119 Phil. 328,
where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its franchise which
exempts its poles from taxation. The steel towers were considered personalty because they were attached to
square metal frames by means of bolts and could be moved from place to place when unscrewed and
dismantled.

Property 42
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair shop of a
bus company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501).

The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the city
assessor's is imposition of the realty tax on Caltex's gas station and equipment.

WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are affirmed.
The petition for certiorari is dismissed for lack of merit. No costs.

SO ORDERED.

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

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

Property 43
Caltex vs Central Board of Assessment Appeals & City Assessor of Pasay
GR No. L-50466
May 31, 1982

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc., in its gas
stations located on leased land.

FACTS
Caltex loaned machines and equipment to gas station operators under an appropriate lease agreement or
receipt. The lease contract stipulated that upon demand, the operators shall return to Caltex the machines and
equipment in good condition as when received, ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the machines and
equipment installed therein. Caltex retains the ownership thereof during the term of the lease.

The City Assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable
realty. However, the City Board of Tax Appeals ruled that they are personalty. The Assessor appealed to the
Central Board of Assessment Appeals.

The Board held on June 3, 1977 that the said machines are real property within the meaning of Ses. 3(k) & (m)
and 38 of the Real Property Tax Code, PD 464, and that the Civil Code definitions of real and personal property in
Articles 415 and 416 are not applicable in this case.

ISSUE
WON the pieces of gas station equipment and machinery permanently affixed by Caltex to its gas station and
pavement should be subject to realty tax.

HELD
Sec.2 of the Assessment Law provides that the realty tax is due on real property, including land, buildings,
machinery, and other improvements not specifically exempted in Sec.3 thereof.

Sec.3 of the Real Property Tax Code provides the following definitions:

k) Improvements a valuable addition made to property or an amelioration in its conditionmore than

mere repairs or replacement of wasteintended to enhance its value, beauty, or utility

Property 44
 m) Machinery machines, mechanical contrivances, instruments, appliances, and apparatus attached to
the real estateincludes the physical facilities available for productioninstallation and appurtenant
service facilities.
The subject machines and equipment are taxable improvement and machinery within the meaning of the
Assessment Law and the Real Property Tax Code, because the same are necessary to the operation of the gas
station and have been attached/affixed/embedded permanently to the gas station site.

Improvements on land are commonly taxed as realty even though they might be considered
personalty. It is a familiar phenomenon to see things classified as real property for purposes of taxation which
on general principle might be considered personal property (Standard Oil Co., vs Jaramillo, 44 PHIL 630).

This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., (119 Phil. 328)
where Meralco's steel towers were exempted from taxation. The steel towers were considered personalty
because they were attached to square metal frames by means of bolts and could be moved from place to place
when unscrewed and dismantled.

Nor are Caltex's gas station equipment and machinery the same as the tools and equipment in the repair shop of
a bus company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501).

The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the City
Assessor's imposition of the realty tax on Caltex's gas station and equipment.

Property 45
FACTS:
The City Assessor characterized the items in gas stations of petitioner as taxable realty. These items
included underground tanks, elevated tank, elevated water tanks, water tanks, gasoline pumps, computing
pumps, etc. These items are not owned by the lessor of the land wherein the
equipment are installed. Upon expiration of the lease agreement, the equipment should be returned in
good condition.

HELD:
The equipment and machinery as appurtenances to the gas station building or shed owned by Caltex and which
fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and
which have been attached and fixed permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code.

Property 46
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

PRUDENTIAL BANK, petitioner,

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

PARAS, J.:

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

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

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

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

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

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

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

Property 47
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).

Property 48
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

Property 49
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.

Footnotes

* Penned by Judge Domingo D. Panis.

Property 50
FACTS:
Spouses Magcale secured a loan from Prudential Bank. To secure payment, they executed a real estate
mortgage over a residential building. The mortgage included also the right to occupy the lot and the information
about the sales patent applied for by the spouses for the lot to which the building stood. After securing the first
loan, the spouses secured another from the same bank. To secure payment, another real estate mortgage
was executed over the same properties.

The Secretary of Agriculture then issued a Miscellaneous Sales Patent over the land which was later on
mortgaged to the bank.

The spouses then failed to pay for the loan and the REM was extrajudicially foreclosed and sold in public auction
despite opposition from the spouses. The respondent court held that the REM was null and void.

HELD:
A real estate mortgage can be constituted on the building erected on the land belonging to another.

The inclusion of building distinct and separate from the land in the Civil Code can only mean that the
building itself is an immovable property.

While it is true that a mortgage of land necessarily includes in the absence of stipulation of the improvements
thereon, buildings, still a building in itself may be mortgaged by itself apart from the land on which it is built.
Such a mortgage would still be considered as a REM for the building would
still be considered as immovable property even if dealt with separately and apart from the land.

The original mortgage on the building and right to occupancy of the land was executed before the issuance of
the sales patent and before the government was divested of title to the land. Under the foregoing, it is
evident that the mortgage executed by private respondent on his own
building was a valid mortgage.

As to the second mortgage, it was done after the sales patent was issued and thus prohibits pertinent provisions
of the Public Land Act.

Property 51
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 106041 January 29, 1993

BENGUET CORPORATION, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF ZAMBALES,
PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF SAN
MARCELINO, respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

CRUZ, J.:

The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on the
petitioner's tailings dam and the land thereunder over its protest.

The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said properties as
taxable improvements. The assessment was appealed to the Board of Assessment Appeals of the Province of
Zambales. On August 24, 1988, the appeal was dismissed mainly on the ground of the petitioner's "failure to pay
the realty taxes that fell due during the pendency of the appeal."

The petitioner seasonably elevated the matter to the Central Board of Assessment Appeals, 1 one of the herein
respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the appeal but, on the
merits, agreed that "the tailings dam and the lands submerged thereunder (were) subject to realty tax."

For purposes of taxation the dam is considered as real property as it comes within the object mentioned in
paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a construction adhered to the soil which cannot
be separated or detached without breaking the material or causing destruction on the land upon which it is
attached. The immovable nature of the dam as an improvement determines its character as real property, hence
taxable under Section 38 of the Real Property Tax Code. (P.D. 464).

Although the dam is partly used as an anti-pollution device, this Board cannot accede to the request for tax
exemption in the absence of a law authorizing the same.

xxx xxx xxx

We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax
Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for Zambales which was
reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No
serious attempt was made by Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e., that
the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and

Property 52
unconscionable. Hence, we find no cause to disturb the market value applied by Respondent Appellee Provincial
Assessor of Zambales on the properties of Petitioner-Appellant Benguet Corporation covered by Tax Declaration
Nos. 002-0260 and 002-0266.

This petition for certiorari now seeks to reverse the above ruling.

The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it is not an
"improvement" upon the land within the meaning of the Real Property Tax Code. More particularly, it is claimed

(1) as regards the tailings dam as an "improvement":

(a) that the tailings dam has no value separate from and independent of the mine; hence, by itself it cannot be
considered an improvement separately assessable;

(b) that it is an integral part of the mine;

(c) that at the end of the mining operation of the petitioner corporation in the area, the tailings dam will benefit the
local community by serving as an irrigation facility;

(d) that the building of the dam has stripped the property of any commercial value as the property is submerged
under water wastes from the mine;

(e) that the tailings dam is an environmental pollution control device for which petitioner must be commended
rather than penalized with a realty tax assessment;

(f) that the installation and utilization of the tailings dam as a pollution control device is a requirement imposed by
law;

(2) as regards the valuation of the tailings dam and the submerged lands:

(a) that the subject properties have no market value as they cannot be sold independently of the mine;

(b) that the valuation of the tailings dam should be based on its incidental use by petitioner as a water reservoir
and not on the alleged cost of construction of the dam and the annual build-up expense;

(c) that the "residual value formula" used by the Provincial Assessor and adopted by respondent CBAA is
arbitrary and erroneous; and

(3) as regards the petitioner's liability for penalties for

non-declaration of the tailings dam and the submerged lands for realty tax purposes:

(a) that where a tax is not paid in an honest belief that it is not due, no penalty shall be collected in addition to the
basic tax;

(b) that no other mining companies in the Philippines operating a tailings dam have been made to declare the
dam for realty tax purposes.

The petitioner does not dispute that the tailings dam may be considered realty within the meaning of Article 415. It
insists, however, that the dam cannot be subjected to realty tax as a separate and independent property because
it does not constitute an "assessable improvement" on the mine although a considerable sum may have been
spent in constructing and maintaining it.

Property 53
To support its theory, the petitioner cites the following cases:

1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates
constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond.

2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road constructed by the
timber concessionaire in the area, where this Court did not impose a realty tax on the road primarily for two
reasons:

In the first place, it cannot be disputed that the ownership of the road that was constructed by appellee belongs to
the government by right of accession not only because it is inherently incorporated or attached to the timber
land . . . but also because upon the expiration of the concession said road would ultimately pass to the national
government. . . . In the second place, while the road was constructed by appellee primarily for its use and benefit,
the privilege is not exclusive, for . . . appellee cannot prevent the use of portions of the concession for
homesteading purposes. It is also duty bound to allow the free use of forest products within the concession for
the personal use of individuals residing in or within the vicinity of the land. . . . In other words, the government has
practically reserved the rights to use the road to promote its varied activities. Since, as above shown, the road in
question cannot be considered as an improvement which belongs to appellee, although in part is for its benefit, it
is clear that the same cannot be the subject of assessment within the meaning of Section 2 of C.A.
No. 470.

Apparently, the realty tax was not imposed not because the road was an integral part of the lumber concession
but because the government had the right to use the road to promote its varied activities.

3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared that the
reservoir dam went with and formed part of the reservoir and that the dam would be "worthless and useless
except in connection with the outlet canal, and the water rights in the reservoir represent and include whatever
utility or value there is in the dam and headgates."

4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case involved drain
tunnels constructed by plaintiff when it expanded its mining operations downward, resulting in a constantly
increasing flow of water in the said mine. It was held that:

Whatever value they have is connected with and in fact is an integral part of the mine itself. Just as much so as
any shaft which descends into the earth or an underground incline, tunnel, or drift would be which was used in
connection with the mine.

On the other hand, the Solicitor General argues that the dam is an assessable improvement because it enhances
the value and utility of the mine. The primary function of the dam is to receive, retain and hold the water coming
from the operations of the mine, and it also enables the petitioner to impound water, which is then recycled for
use in the plant.

There is also ample jurisprudence to support this view, thus:

. . . The said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex
(as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for
without them the gas station would be useless and which have been attached or affixed permanently to the gas
station site or embedded therein, are taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296).

We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that the

Property 54
two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of
oil needed by MERALCO for its operations. (Manila Electric Co. v. CBAA, 114 SCRA 273).

The pipeline system in question is indubitably a construction adhering to the soil. It is attached to the land in such
a way that it cannot be separated therefrom without dismantling the steel pipes which were welded to form the
pipeline. (MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA 261).

The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate. (Flax-Pond Water Co. v.
City of Lynn, 16 N.E. 742).

The oil tanks are structures within the statute, that they are designed and used by the owner as permanent
improvement of the free hold, and that for such reasons they were properly assessed by the respondent taxing
district as improvements. (Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)

The Real Property Tax Code does not carry a definition of "real property" and simply says that the realty tax is
imposed on "real property, such as lands, buildings, machinery and other improvements affixed or attached to
real property." In the absence of such a definition, we apply Article 415 of the Civil Code, the pertinent portions of
which state:

Art. 415. The following are immovable property.

(1) Lands, buildings and constructions of all kinds adhered to the soil;

xxx xxx xxx

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

Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is due "on the
real property, including land, buildings, machinery and other improvements" not specifically exempted in Section
3 thereof. A reading of that section shows that the tailings dam of the petitioner does not fall under any of the
classes of exempt real properties therein enumerated.

Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines
improvement as follows:

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

The term has also been interpreted as "artificial alterations of the physical condition of the ground that
arereasonably permanent in character." 2

The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not be
operated without the aid of the drain tunnels, which were indispensable to the successful development and
extraction of the minerals therein. This is not true in the present case.

Even without the tailings dam, the petitioner's mining operation can still be carried out because the primary
function of the dam is merely to receive and retain the wastes and water coming from the mine. There is no
allegation that the water coming from the dam is the sole source of water for the mining operation so as to make
the dam an integral part of the mine. In fact, as a result of the construction of the dam, the petitioner can now
impound and recycle water without having to spend for the building of a water reservoir. And as the petitioner

Property 55
itself points out, even if the petitioner's mine is shut down or ceases operation, the dam may still be used for
irrigation of the surrounding areas, again unlike in the Ontario case.

As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water reservoir
dams used for different purposes and for the benefit of the surrounding areas. By contrast, the tailings dam in
question is being used exclusively for the benefit of the petitioner.

Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just as
vigorously contends that at the end of the mining operation the tailings dam will serve the local community as an
irrigation facility, thereby implying that it can exist independently of the mine.

From the definitions and the cases cited above, it would appear that whether a structure constitutes an
improvement so as to partake of the status of realty would depend upon the degree of permanence intended in
its construction and use. The expression "permanent" as applied to an improvement does not imply that the
improvement must be used perpetually but only until the purpose to which the principal realty is devoted has
been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is
annexed is still used for the said purpose.

The Court is convinced that the subject dam falls within the definition of an "improvement" because it is
permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the immovable
nature of the dam defines its character as real property under Article 415 of the Civil Code and thus makes it
taxable under Section 38 of the Real Property Tax Code.

The Court will also reject the contention that the appraisal at P50.00 per square meter made by the Provincial
Assessor is excessive and that his use of the "residual value formula" is arbitrary and erroneous.

Respondent Provincial Assessor explained the use of the "residual value formula" as follows:

A 50% residual value is applied in the computation because, while it is true that when slime fills the dike, it will
then be covered by another dike or stage, the stage covered is still there and still exists and since only one face
of the dike is filled, 50% or the other face is unutilized.

In sustaining this formula, the CBAA gave the following justification:

We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax
Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for San Marcelino, Zambales,
which is fifty (50.00) pesos per square meter for third class industrial land (TSN, page 17, July 5, 1989) and
Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of
Finance in the 1981-1982 general revision. No serious attempt was made by Petitioner-Appellant Benguet
Corporation to impugn its reasonableness, i.e, that the P50.00 per square meter applied by Respondent-Appellee
Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market
value applied by Respondent-Appellee Provincial Assessor of Zambales on the properties of Petitioner-Appellant
Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266.

It has been the long-standing policy of this Court to respect the conclusions of quasi-judicial agencies like the
CBAA, which, because of the nature of its functions and its frequent exercise thereof, has developed expertise in
the resolution of assessment problems. The only exception to this rule is where it is clearly shown that the
administrative body has committed grave abuse of discretion calling for the intervention of this Court in the
exercise of its own powers of review. There is no such showing in the case at bar.

We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of the issue of the
propriety of the penalties imposed upon it, which was raised by the petitioner for the first time only on appeal. The

Property 56
CBAA held that this "is an entirely new matter that petitioner can take up with the Provincial Assessor (and) can
be the subject of another protest before the Local Board or a negotiation with the local sanggunian . . ., and in
case of an adverse decision by either the Local Board or the local sanggunian, (it can) elevate the same to this
Board for appropriate action."

There is no need for this time-wasting procedure. The Court may resolve the issue in this petition instead of
referring it back to the local authorities. We have studied the facts and circumstances of this case as above
discussed and find that the petitioner has acted in good faith in questioning the assessment on the tailings dam
and the land submerged thereunder. It is clear that it has not done so for the purpose of evading or delaying the
payment of the questioned tax. Hence, we hold that the petitioner is not subject to penalty for its
non-declaration of the tailings dam and the submerged lands for realty tax purposes.

WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of respondent Central
Board of Assessment Appeals is tainted with grave abuse of discretion except as to the imposition of penalties
upon the petitioner which is hereby SET ASIDE. Costs against the petitioner. It is so ordered.

Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo
and Campos, Jr., JJ., concur.

Feliciano, J., took no part.

# Footnotes

1 Secretary of Finance Jesus Estanislao as chairman with Secretary of Justice Franklin M. Drilon and Secretary
of Local Government Luis T. Santos as members.

2 Francisco, Philippine Mining Law, Vol. 1, 2nd Ed., p. 274.

Property 57
 THIRD DIVISION

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

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

DECISION
PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be considered as

personal or movable, a party is estopped from subsequently claiming otherwise.Hence, such property is
a proper subject of a writ of replevin obtained by the other contracting party.

The Case

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

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

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

The Facts

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

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

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

Property 58
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]

Property 59
 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

Property 60
 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

Property 61
 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.

Property 62
 Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed, law
and jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the petitioners for failing to avail themselves of the remedy
under Section 5 of Rule 60, which allows the filing of a counter-bond. The provision states:

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

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Property 63
Sergs Products, Inc. vs. PCI Leasing G.R. No. 137705. August 22, 2000

FACTS:
PCI Leasing and Finance filed a complaint for sum of money, with an application for a writ of replevin.
Judge issued a writ of replevin 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.
The sheriff proceeded to petitioner's factory, seized one machinery, with word that he would return for other
machineries.
Petitioner (Sergs Products) filed a motion for special protective order to defer enforcement of the writ of replevin.
PCI Leasing opposed the motion on the ground that the properties were still personal and therefore can still be
subjected to seizure and writ of replevin.
Petitioner asserted that properties sought to be seized were immovable as defined in Article 415 of the Civil
Code.
Sheriff was still able to take possession of two more machineries
In its decision on the original action for certiorari filed by the Petitioner, the appellate court, Citing the Agreement
of the parties, held that the subject machines were personal property, and that they had only been leased, not
owned, by petitioners; and ruled that the "words of the contract are clear and leave no doubt upon the true
intention of the contracting parties."

ISSUE: Whether or not the machineries became real property by virtue of immobilization.

Ruling:
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.

Writ of Replevin: Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of
personal property only.

Article 415 (5) of the Civil Code provides that 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

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.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.

However, contracting parties may validly stipulate that a real property be considered as personal. 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.

Section 12.1 of the Agreement between the parties provides 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.

The machines are personal property and they are proper subjects of the Writ of Replevin

Property 64
 FIRST DIVISION

[G.R. No. 106812. June 10, 1997]

TAGAYTAY-TAAL TOURIST DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS

(SPECIAL NINTH DIVISION) and THE CITY OF TAGAYTAY, respondents.

DECISION
KAPUNAN, J.:

The instant petition for review on certiorari seeks to reverse the decision[1] of respondent Court of Appeals in
CA-G.R. CV No. 24933 entitled "City of Tagaytay vs. Tagaytay-Taal Tourist Development Corporation"
promulgated on November 11, 1991 and the Resolution of the Court of Appeals dated August 24, 1992 denying
petitioner's motion for reconsideration.
The Court of Appeals' decision sought to be reviewed affirmed the decision of the Regional Trial Court of
Cavite, Branch XVIII, dated December 5, 1989[2] granting respondent City's unnumbered "Petition for Entry of
New Certificate of Title," and ordering the issuance in its name of new certificates of title over certain properties it
acquired through public auction to satisfy petitioner's alleged real estate tax delinquency.
It appears that petitioner was the registered owner of four (4) parcels of land with an aggregate area of 220
hectares and covered by TCT Nos. T-9816, T-9817, T-9818 and T-9819 supposed to be of the Register of Deeds
of Tagaytay City. The properties were mortgaged on June 7, 1976 to Filipinas Manufacturers Bank and Trust
Company by Benjamin Osias, representing himself as President and Chairman of the Board of petitioner. Two of
the parcels of land, Lot 10-A and Lot 10-B of Subd. Plan (LRC) Psd-229279 and covered by TCT No. T-9816 and
TCT No. 9817, respectively, are more particularly described as follows:

TECHNICAL DESCRIPTION
TCT No. 9816
CITY OF TAGAYTAY

A parcel of land (Lot 10-A of the subdivision plan (LRC) Psd-229279, being portion of Lot 10, Psu-82838, Amd. 4
L.R.C. Record No. 43057, situated in the Barrio of Birinayan, Municipality of Talisay, Province of Batangas, island
of Luzon. Bounded on the NW., and NE., points 7 to 1 and 1 to 2 Lot 10-B on the SE., points 3 to 4, Lot 1-C both
of the subdivision plan; and on the SW., points 4 to 7 by property of Agapito Rodriguez x x x x containing an area
of SEVENTY FOUR THOUSAND THREE HUNDRED FORTY (74,340) SQUARE METERS, more or less xxx.

TECHNICAL DESCRIPTION
TCT No. 9817
CITY OF TAGAYTAY

A parcel of land (Lot 10-B, of the subdivision plan (LRC) Psd-229279, being a portion of Lot 10, Psu-82838, Amd.
4., L.R.C. Record No. 49057), situated in the Barrio of Birinayan, Municipality of Talisay, Province of Batangas,
Island of Luzon. Bounded on the NE., points 14 to 1 and 1 to 4 by property of Angel T. Limjoco; on the SE., points
4 to 5 by Lot 10-B, on the SW., and SE., points 5 to 7 by Lot 10-A, both of the subdivision plan; on the SW., points
7 to 9 by property of Agapito Rodriguez; and on the NW., points 9 to 12 by Lot 11, points 12 to 13 by Lot 9, and
points 13 to 14 containing an area of NINE HUNDRED THIRTY SEVEN THOUSAND AND EIGHT HUNDRED
FOURTEEN (937,814) SQUARE METERS, more or less xxx.

Property 65
 Owing to a dispute regarding the composition of its set of corporate officers and board of directors, petitioner
in June of 1976, filed a complaint to nullify the aforesaid mortgage with the Regional Trial Court of Cavite,
docketed as Civil Case No. TG-346, with prayer for the issuance of a writ of preliminary injunction. The trial court
forthwith issued a temporary restraining order enjoining the Register of Deeds from registering the mortgage and
directing it to hold for safekeeping the four (4) titles covering the properties until further orders.

On August 13, 1979, the trial court rendered a decision [3] dismissing the complaint for lack of jurisdiction
stating that the subject matter thereof involved the determination of who were the legitimate officers of petitioner,
a question falling within the jurisdiction of the Securities and Exchange Commission. Said decision was
subsequently upheld by this Court in G.R. No. 55521 in Tagaytay-Taal Tourist Development Corporation vs.
Judge Alfredo B. Concepcion, et al.
In the meantime, the parcels of land covered by TCT Nos. T-9816 and T-9817 allegedly became delinquent
in the payment of real estate taxes corresponding to the years 1976-1983 in the amounts of P131,465.20
and P950,616.11, respectively, resulting in the sale of the said properties in a public auction on November 28,
1983 to satisfy the taxes. Respondent City itself was the successful bidder in the public auction sale and was
issued a Certificate of Sale on the same date.
On June 30, 1989, respondent City registered the final bills of sale over the lots covered by TCT Nos. T-9816
and T-9817.
On July 14, 1989, respondent City filed before the Regional Trial Court of Cavite City, sitting as land
registration court, an unnumbered petition for the entry of new certificates of title over the lots in its name. Said
petition was opposed by herein petitioner, alleging that the tax delinquency sale was null and void for lack of valid
and proper notice to petitioner. [4]
On December 5, 1989, the trial court rendered its decision holding that whatever rights and interests
petitioners may have had in the subject properties had long been lost through prescription or laches, the
dispositive portion of the decision reads:

WHEREFORE, finding the petition to be meritorious and sufficiently sustained with preponderant, legal and
factual basis, this Court hereby gives its imprimatur to it and grants the same, dismissing in the process, the
Opposition filed by Tagaytay-Taal Tourist Development Corporation. Accordingly, the Register of Deeds of
Tagaytay City is hereby ordered to allow the City to consolidate the titles covering the properties in question (TCT
Nos. T-9816 and T-9817), by issuing in its favor, and under its name, new Transfer Certificates of Titles and
cancelling as basis thereof, the said TCT Nos. 9816 and 9817 in the name of Tagaytay-Taal Tourist Development
Corporation, all of which, being hereby declared null and void, henceforth.

Not satisfied with the above decision, petitioner appealed to the Court of Appeals, docketed as CA-G.R. CV
No. 24933, citing the following errors:

I. THE TRIAL COURT ERRED IN GIVING DUE COURSE TO THE PETITION FROM WHICH THE PRESENT
APPEAL AROSE DESPITE ITS BEING PREDICATED ON A MISPLACED LEGAL BASIS.

II. THE TRIAL COURT ERRED IN FINDING THAT THE ENFORCEMENT OF WHATEVER RIGHTS THE
APPELLANT HAS OVER THE SUBJECT PROPERTIES HAD ALREADY PRESCRIBED.

On July 19, 1991, during the pendency of CA-G.R. CV No. 24933, petitioner filed with the Regional Trial
Court of Cavite, sitting as a regular court, a petition entitled "Tagaytay-Taal Tourist Development Corporation vs.
City of Tagaytay, Municipality of Laurel (formerly Talisay), Province of Batangas, Register of Deeds of Batangas,
and Register of Deeds of the City of Tagaytay," docketed as Civil Case No. TG-1196, [5] assailing the authority of
respondent City to levy real estate tax on the properties covered by TCT Nos. T-9816 and T-9817 on the ground
that said properties are located in the Province of Batangas, and not in Tagaytay City. The case was assigned to
Branch XVIII of the RTC.

Property 66
 On October 21, 1991, petitioner filed a Motion to Suspend Proceedings in CA-G.R. CV No. 24933, [6] until the
termination of TG-1196 arguing that should the RTC in Civil Case No. TG-1196 rule that respondent City is
without authority to levy realty taxes on the properties in question, then the decision of the RTC of December 5,
1989, subject of appeal in the Court of Appeals, directing the issuance of new certificates of titles in the name of
respondent City over the properties would have no legal basis. The Court of Appeals did not resolve the motion.
On September 24, 1991, the Regional Trial Court of Cavite in Civil Case No. TG-1196 granted petitioner's
application for writ of preliminary injunction, enjoining respondents therein from taking physical possession of the
properties and/or offering the same for sale.[7]

On November 11, 1991, the Court of Appeals promulgated a decision [8] affirming the judgment of the
Regional Trial Court in the petition for the entry of new certificates of title.Petitioner's motion for reconsideration
was denied in a Resolution of the Court of Appeals dated August 24, 1992. [9]
Thus, on October 16, 1992, petitioner filed the instant petition on the following grounds:

xxx. The Regional Trial Court of Cavite (Tagaytay City) sitting as a land registration/cadastral court did not have
any jurisdiction to hear and decide respondent City's petition for entry of new certificate of title. The respondent
appellate Court, therefore, erred in affirming the decision of the lower court dated December 5, 1989. Assuming
that the lower court has jurisdiction, the petition of respondent City should have been denied considering that the
public auction sale of herein petitioner's properties was conducted without due and valid notice; and

xxx. In any event, the decision of the respondent Court is premature. The issue of authority of respondent City to
levy real estate taxes on petitioner's properties, to declare herein petitioner a tax delinquent and to sell the
properties in question is still pending determination by the Regional Trial Court of Tagaytay City in Civil Case No.
TG-1196. The determination of such authority constitutes a prejudicial issue which must be resolved ahead of
respondent City's petition for entry of a new title.

In the meantime, on October 21, 1994, the Regional Trial Court of Cavite rendered a decision in Civil Case
No. TG-1196,[10] the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered granting the instant petition and as a consequence, the public
auction sale of the properties of the petitioner, both covered by TCT Nos. T-9816 and T-9817 of the Register of
Deeds of Tagaytay City, as well as the Certificate of Sale and the Final Bills of Sale of said properties in favor of
the respondent City of Tagaytay City, and all proceedings held in connection therewith are hereby annulled and
set aside, and the respondent Register of Deeds of the City of Tagaytay is hereby directed to cancel Entries Nos.
21951/T-9816 and 21984/T-9816 annotated and appearing on TCT No. T-9816 and Entries Nos. 21950/T-9817
and 30087/T-9817 annotated and appearing on TCT No. T-9817 regarding the sale of the lots described therein in
favor of the City of Tagaytay.

Moreover, the writ of preliminary injunction issued by this Court on September 24 is hereby made permanent.

SO ORDERED.

No appeal having been taken from the above cited decision by any of the parties, the same had become
final and executory.
Asserting that the decision of the Regional Trial Court in Civil Case No. TG-1196 is material to the resolution
of the petition at bar, petitioner on May 31, 1995 filed a Supplemental Petition dated May 24, 1995 principally
anchored on the following grounds:

xxx. In addition or as supplement to the grounds relied upon in the petition, petitioner seeks the reversal of the
decision (Annex 'A', Petition) and resolution (Annex 'B', Petition) promulgated in CA-G.R. CV No. 24933 on
November 11, 1991 and August 24, 1992, respectively, on the basis of the following: By a decision (now final and
conclusive on respondent City of Tagaytay and the petitioner) rendered by the Regional Trial Court of Cavite on

Property 67
October 21, 1994 in Civil Case No. TG-1196 entitled 'Tagaytay Taal Tourist Development Corporation vs. City of
Tagaytay, et al.' the respondent City of Tagaytay had been found without authority to levy real estate taxes on the
properties. The public auction sale at which respondent City of Tagaytay allegedly purchased the properties
subject of the petition was annulled and set aside. Similarly, the certificates of sale and the final bills of sale
covering said properties were annulled and set aside. Hence, there is clearly no basis for the decision (Annex 'A',
Petition) and Resolution (Annex 'B', Petition) of respondent Court of Appeals promulgated on November 11, 1991
and August 24, 1992 in CA-G.R. CV No. 24933.[11]

After respondent City filed its comment on the supplemental petition, followed by petitioner's reply thereto,
this Court gave due course to the petition and required the parties to file their respective memoranda.
We grant the petition.
The issues in the instant petition are: (a) whether or not the Regional Trial Court of Cavite, sitting as a land
registration or cadastral court, had jurisdiction to hear and decide respondent City's petition for the cancellation of
TCT No. T-9816 and TCT No. T-9817 in the name of petitioner and the issuance of new ones in the name of
respondent City despite serious opposition by petitioner; (b) whether or not respondent City had the right to levy
real estate tax over the properties covered by TCT Nos. T-9816 and T-9817.
We answer both issues in the negative.
I
Respondent City's unnumbered petition filed on July 14, 1989 with the Regional Trial Court of Cavite sitting
as land registration or cadastral court for the entry of new certificates of title over the properties in its name, is
pursuant to Section 75, Presidential Decree No. 1529, [12] which provides as follows:

SEC. 75. Application for new certificate upon the expiration of redemption period. Upon the expiration of the time,
if any, allowed by law for redemption after registered land has been sold on execution taken or sold for the
enforcement of a lien of any description, except a mortgage lien, the purchaser at such sale or anyone claiming
under him may petition the court for the entry of a new certificate of title to him.

Before the entry of a new certificate of title, the registered owner may pursue all legal and equitable remedies to
impeach or annul such proceedings.

It is crystal from the above-quoted provision that upon the expiration of time allowed by law for redemption of
a registered land sold on execution, the purchaser at such sale may petition for the issuance of a new certificate
of title to him, subject to the condition that "before entry of a new certificate of title the registered owner may
pursue all legal and equitable remedies to impeach or annul such proceedings." (underscoring ours).
Here, petitioner had the right to avail of its legal and equitable remedies to nullify the delinquency sale
because, firstly, there was lack of notice to it, and therefore, it was deprived of due process; secondly, the
properties in question became subject of serious controversy brought about by the filing of a complaint in June of
1976 with the RTC of Cavite in Civil Case No. TG-346 to nullify the contract of mortgage over the properties for
lack of authority to execute the contract, as well as the pendency before the SEC of the dispute as to who were
the duly elected directors and officers of petitioner, which directly affected the validity of their dealing and
disposition of the subject properties, all of which matters were ventilated in petitioner's opposition to respondent
City's petition for issuance of new certificates of title in its name; and thirdly, respondent City had no authority to
impose realty tax on petitioner as the properties alleged to have been delinquent are actually located in Talisay,
Batangas.
Thus, in the opposition of petitioner to the issuance of new certificates of title to respondent City, it was
vigorously argued that:

That herein oppositor, as owner, should be named as a necessary party or given notice in such a petition is
implicit in the said provision of the law. Were this not so, the provision giving the registered owner the opportunity

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to pursue all legal and equitable remedies to impeach or annul proceedings wherein the entry of a new certificate
of title is sought would be rendered negatory.

The present petition is very clearly a case in point for the simple reason that herein oppositor was not even
named as a party and notice thereof came to it purely by chance. Had it not come to know of the petition, herein
oppositor would have been deprived of the change to have recourse to the remedies allows it by law.

Herein oppositor to the present petition is essentially anchored upon the fact that the suppose sale at public
auction of the properties in question on November 28, 1983 to the City Government of Tagaytay was null and void
considering that it was effected without any previous legally valid and effective notice to the owner thereof, herein
oppositor.

While it may appear in the records of the Office of the Treasurer of Tagaytay City that a notice or notices were
sent, the same could not have been considered properly addressed to and received by herein oppositor to
warrant the conduct of said sale.

It must be pointed out that this Honorable Court, in its decision dated August 13, 1979, in Civil Case No. TG-346
disclaimed jurisdiction in that case and thereby tossed the question of the determination of the lawful directors
and officers of oppositor corporation to the Securities and Exchange Commission. At the time the Tagaytay City
Treasurer moved to seek the satisfaction of the delinquent taxes of oppositor corporation on its aforementioned
properties, there was yet nobody who could validly act for and in its behalf. Any notice covering the scheduled
sale of its properties therefore could not have been deemed effective notice as it must necessarily have been
sent to someone who had no legal personality or capacity to act for it and if said notice was, in fact, received by
anybody, such notice and receipt thereof could not have validly bound oppositor corporation for failure to act
accordingly.

Being aware of the then situation of oppositor corporation which was frozen to immobility by the decision of this
Honorable Court in the aforementioned Civil Case No. TG-346, the Treasurer of Tagaytay City should have
deferred action on oppositor corporation's property tax delinquency until such time that it could already perform
acts as a juridical person through its officers and directors certified and recognized as such by the SEC. That is
proceeded with the auction sale after a notice which is invalid rendered the same null and void.

And consequently, the present petition has no valid and legal basis. [13]

The issues raised before the RTC sitting as a land registration or cadastral court, without question, involved
substantial or controversial matters and, consequently, beyond said court's jurisdiction. The issues may be
resolved only by a court of general jurisdiction.

In Re: Balanga vs. Court of Appeals,[14] we emphatically held:

xxx. While it is true that Section 78 of Act. 496 on which the petition is based provides that upon the failure of the
judgment-debtor to redeem the property sold at public auction the purchaser of the land may be granted a new
certificate of title, the exercise of such function is qualified by the provision that 'at any time prior to the entry of a
new certificate the registered owner may pursue all his lawful remedies to impeach or annul proceedings under
executions or to enforce liens of any description.' The right, therefore, to petition for a new certificate under said
section is not absolute but subject to the determination of any objection that may be interposed relative to the
validity of the proceedings leading to the transfer of the land subject thereof which should be threshed out in a
separate appropriate action. This is the situation that obtains herein. Teopista Balanga, the judgment-debtor, is
trying to impeach or annul the execution and sale of the properties in question by alleging that they are conjugal
in nature and the house erected on the land has been constituted as a family home which under the law is
exempt from execution. These questions should first be determined by the court in an ordinary action before entry
of a new certificate may be decreed.

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This pronouncement is also in line with the interpretation we have placed on Section 112 of the same Act to the
effect that although cadastral courts are empowered to order the cancellation of a certificate of title and the
issuance of a new one in favor of the purchaser of the land covered by it, such relief can only be granted if there
is unanimity among the parties, or no serious objection is interposed by a party in interest. As this Court has aptly
said: 'While this section, (112) among other things, authorizes a person in interest to ask the court for any
erasure, alteration, or amendment of a certificate of title x x x and apparently the petition comes under its scope,
such relief can only be granted if there is unanimity among the parties, or there is no adverse claim or serious
objection on the part of any party in interest; otherwise the case becomes controversial and should be threshed
out in an ordinary case or in the case where the incident properly belongs' (Angeles v. Razon, G.R. No. L-13679,
October 26, 1959, and cases cited therein). x x x.

From the foregoing ruling, it is clear that petitions under Section 75 and Section 108 of P.D. 1529 (formerly
Sec. 78 and Sec. 112 of Act 496) can be taken cognizance of by the RTC sitting as a land registration or
cadastral court. Relief under said sections can only be granted if there is unanimity among the parties, or that
there is no adverse claim or serious objection on the part of any party in interest; otherwise, the case becomes
controversial and should be threshed out in an ordinary case or in the case where the incident properly belongs.
[15]

Petitioner also questioned the validity of the delinquency sale for lack of notice, the effect of which was to
vitiate the sale. Indeed, there is nothing on record to show to whom the notice of the delinquency sale was sent
and who received the same, which is a critical issue considering that at that time there was a question as to who
were the lawful directors and officers of petitioner, the determination of which was disclaimed by the Regional
Trial Court in Civil Case No. TG-346 and was thereby thrown into the lap of the Securities and Exchange
Commission.In other words, at the time of the delinquency sale, there was no definite person yet who was
clothed with authority to act for and in behalf of petitioner. There being no evidence that petitioner was notified of
the delinquency sale, the omission rendered the sale null and void.

The assailed decision of the appellate court declares that the prescribed procedure in auction sales of property
for tax delinquency being in derogation of property rights should be followed punctiliously. Strict adherence to the
statues governing tax sales is imperative not only for the protection of the taxpayers, but also to allay any
possible suspicion of collusion between the buyer and the public officials called upon to enforce such laws. Notice
of sale to the delinquent land owners and to the public in general is an essential and indispensable requirement
of law, the non-fulfillment of which vitiates the sale.

We give our stamp of approval on the aforementioned ruling of the respondent court. x x x. [16]

The Court of Appeals, in affirming the decision of the Regional Trial Court, reasoned out that petitioner was
barred by prescription and laches in questioning the lack of notice of the delinquency sale because it knew of
such sale "at least on 27 November 1984 when it secured from the Honorable Supreme Court, through its
President Eduardo L. Santos, telegraphic restraining order enjoining petitioner-appellee from consolidating title
over the subject properties."[17]
Precisely, the capacity of Eduardo L. Santos as director and corporate officer of petitioner corporation has
been questioned by the other stockholders of petitioner who asserted that Santos and others made it appear that
they are stockholders by virtue of shares traceable from the unissued shares, which were nullified by the SEC.
[18]
On June 15, 1990, petitioner, et al., filed with the SEC an action for "Injunction and Damages, with Preliminary
Injunction and Enforcement of SEC Decision" against Eduardo L. Santos and others, [19] praying principally that
Eduardo L. Santos and his co-respondents be declared "not stockholders of the corporation and are unlawful
usurpers of the positions of directors and corporate officers of the Corporation." [20]
Consequently, knowledge of Eduardo L. Santos of the delinquency sale could not have been considered as
notice to petitioners.

Property 70
 Considering, therefore, that the Regional Trial Court of Cavite acted without jurisdiction over the case so that
its decision is null and void, it necessarily follows that the decision of the Court of Appeals affirming the RTC's
decision has no leg to stand on.
II
The Regional Trial Court of Cavite, sitting as a land registration or cadastral court, could not have ordered
the issuance of new certificates of title over the properties in the name of respondent City if the delinquency sale
was invalid because said properties are actually located in the municipality of Talisay, Batangas, not in Tagaytay
City. Stated differently, respondent City could not have validly collected real taxes over properties that are outside
its territorial jurisdiction. This is clear from P.D. 464, otherwise known as the Real Property Tax Code, the
pertinent provisions of which state:

SEC. 5. Appraisal of Real Property. All real property, whether taxable or exempt, shall be appraised at the
current and fair market value prevailing in the locality where the property is situated.

x x x.

SEC. 39. Rates of Levy. The provincial, city or municipal board or council shall fix a uniform rate of real property
tax applicable to their respective localities as follows:

x x x.

SEC. 47. Special Levy by Local Governments. The provincial, city, municipal boards or councils may, by
ordinance, provide for the imposition and collection of a special levy on the lands comprised within the province,
city or municipality or parts thereof. x x x.

x x x.

SEC. 57. Collection of Tax to be the Responsibility of Treasurers. The collection of the real property tax and
all penalties accruing thereto, and the enforcement of the remedies provided for in this Code or any applicable
laws, shall be the responsibility of the treasurer of the province, city or municipality where the property is situated.

The Regional Trial Court of Cavite in Civil Case No. TG-1196 rendered a decision on October 21, 1994 ruling
that the properties in question are actually situated in Talisay, Batangas, [21]hence, the assessment of real estate
taxes thereon by respondent City and the auction sale of the properties on November 28, 1983, as well as the
Certificate of Sale and Final Bill of Sale in favor of respondent City are null and void. We quote with favor portions
of said decision:

As earlier stated herein, the portion of Barrio of Birinayan, Municipality of Talisay, Province of Batangas, by virtue
of the provisions of Commonwealth Act No. 338 corresponds to Exhibit '1-B' of the Plan of Mendez-Nuez marked
as Exhibit '1', and it is noted that Exhibit '1-B' or that portion of the Municipality of Talisay, Province of Batangas
given to the respondent City under Commonwealth Act No. 338 is located below the Tagaytay Ridge which was
the boundary between the Provinces of Cavite and Batangas before the enactment of Commonwealth Act No.
338. Thus, taking into account the above-quoted portion of the explanatory note of Republic Act No. 1418, there
can be no doubt that what had been ordered returned by the law to the Municipality of Talisay, Province of
Batangas does not extend only to the portion annexed to the respondent City by virtue of Executive Order No.
336 but also the portion mentioned under Commonwealth Act No. 338. Besides, the same explanatory note
mentions specifically the return of the two (2) barrios of Talisay, Batangas, and not merely portions thereof, hence
the conclusion is inescapable that Republic Act No. 1418 intended the return of the entire barrios of Caloocan
and Birinayan to the same municipality.

It is beyond my doubt, therefore, that Lots 10-A and 10-B of TCT Nos. T-9816 and T-9817 of petitioner, which are
located in Barrio Binirayan, Municipality of Talisay, Province of Batangas, at the time Republic Act No. 1418 took

Property 71
effect, are no longer within the territorial jurisdiction of the respondent City of Tagaytay and since there is no
dispute that under the law, the City of Tagaytay may only subject to the payment of real estate tax properties that
are situated within its territorial boundaries (See Sections 27 & 30, Commonwealth Act No. 338; Presidential
Decree No. 464; and 1991 Local Government Code), the assessment of real estate taxes imposed by the
respondent City on the same properties in the years 1976 up to 1983 appears to be legally unwarranted. In the
same manner, the public auction sale, which was conducted by the same respondent on November 28, 1989, for
deficiencies on the part of the petitioner to pay real estate taxes on the same years, as well as the certificates of
sale and the final bills issued and executed in connection with such auction sale, and all proceedings taken by the
respondent City in connection therewith are all considered by this Court as illegal, and null and void.

In fine, this Court finds from the evidence adduced on record that petitioner has preponderantly established its
entitlement to the reliefs mentioned in its petition.

WHEREFORE, judgment is hereby rendered granting the instant petition and as a consequence, the public
auction sale of the properties of the petitioner, both covered by TCT Nos. T-9816 and T-9817 of the Registry of
Deeds of Tagaytay City, as well as the Certificates of Sale and the Final Bills of Sale of said properties in favor of
the respondent Tagaytay City, and all proceedings held in connection therewith are hereby annulled and set
aside, and the respondent Register of Deeds of the City of Tagaytay is hereby directed to cancel Entries Nos.
21951/T-9816, 21984/T-9816 annotated and appearing on TCT No. T-9816 and Entries Nos. 21950/T-98917 and
30087/T-9817 annotated and appearing on TCT No. T-9817 regarding the sale of the lots described therein in
favor of the City of Tagaytay.

The above-cited decision has not been appealed and is now final and executory. [22]
WHEREFORE, the decision of respondent Court of Appeals promulgated on November 11, 1991 and its
resolution of August 24, 1992, and the decision of the Regional Trial Court of Cavite dated December 5, 1989 are
hereby REVERSED and SET ASIDE. The "Petition for Entry of New Certificates of Title" of respondent City of
Tagaytay is DENIED.
SO ORDERED.
Bellosillo, and Hermosisima, Jr., JJ., concur.
Padilla, (Chairman), J., on leave.
Vitug, J., In the result.

Property 72