B.H.
BERKENKOTTER, plaintiff-appellant, the original mortgage deed, on April 27, 1927, together with whatever additional equipment
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE
COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF
PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of
First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al.,
with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by the trial court
in its decision in question which will be discussed in the course of this decision.
The first question to be decided in this appeal, which is raised in the first assignment of alleged
error, is whether or not the lower court erred in declaring that the additional machinery and
equipment, as improvement incorporated with the central are subject to the mortgage deed
executed in favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the
sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e
Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its
buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and
whatever forms part or is necessary complement of said sugar-cane mill, steel railway, telephone
line, now existing or that may in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co.,
Inc., decided to increase the capacity of its sugar central by buying additional machinery and
equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost
of said additional machinery and equipment was approximately P100,000. In order to carry out
this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter,
to advance the necessary amount for the purchase of said machinery and equipment, promising
to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein
defendants Cu Unjieng e Hijos. Having agreed to said proposition made in a letter dated October
5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year, delivered the sum of
P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by
him to said B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of
P22,000 against said corporation for unpaid salary. With the loan of P25,750 and said credit of
P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now
in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng
e Hijos for an additional loan of P75,000 offering as security the additional machinery and
equipment acquired by said B.A. Green and installed in the sugar central after the execution of
acquired with said loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing
fruits, and rents not collected when the obligation falls due, and the amount of any
indemnities paid or due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate continues in the
possession of the person who mortgaged it or whether it passes into the hands of a
third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with
approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following
doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS
AND FIXTURES. It is a rule, established by the Civil Code and also by the
Mortgage Law, with which the decisions of the courts of the United States are in
accord, that in a mortgage of real estate, the improvements on the same are included;
therefore, all objects permanently attached to a mortgaged building or land, although
they may have been placed there after the mortgage was constituted, are also included.
(Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S.
Supreme Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and
Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that
it may be understood that the machinery and other objects placed upon and used in
connection with a mortgaged estate are excluded from the mortgage, when it was
stated in the mortgage that the improvements, buildings, and machinery that existed
thereon were also comprehended, it is indispensable that the exclusion thereof be
stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment claimed by him in
the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character
inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof,
made it appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional
loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become
security therefor, said B.A. Green binding himself not to mortgage nor encumber them to
anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter
became owner of said machinery and equipment, otherwise B.A. Green, as such president, could
not have offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery,
liquid containers, instruments or implements intended by the owner of any building or land for
use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.

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

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold
said machinery and equipment as security for the payment of the latter's credit and to refrain
from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed
therefor, is not incompatible with the permanent character of the incorporation of said
machinery and equipment with the sugar central of the Mabalacat Sugar Co., Inc., as nothing
could prevent B.A. Green from giving them as security at least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they
had been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and
while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force,
only the right of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with
which said machinery and equipment had been incorporated, was transferred thereby, subject to
the right of the defendants Cu Unjieng e Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of
a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for
the purpose of carrying out the industrial functions of the latter and increasing production,
constitutes a permanent improvement on said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that
the purchaser of the new machinery and equipment has bound himself to the person supplying
him the purchase money to hold them as security for the payment of the latter's credit, and to
refrain from mortgaging or otherwise encumbering them does not alter the permanent character
of the incorporation of said machinery and equipment with the central; and (3) that the sale of
the machinery and equipment in question by the purchaser who was supplied the purchase
money, as a loan, to the person who supplied the money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor with ownership of said machinery and
equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to
the appellant. So ordered.

Malcolm, Imperial, Butte, and Goddard, JJ., concur.


MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-Appellants, vs.
MACARIO M. OFILADA, Sheriff of the City of Manila and ERNESTO
ESTEBAN, Respondents-Appellees.
DECISION
LABRADOR, J.:
On September 8, 1951, Petitioner Lucia D. Manarang obtained a loan of P200 from Ernesto
Esteban, and to secure its payment she executed a chattel mortgage over a house of mixed
materials erected on a lot on Alvarado Street, Manila. As Manarang did not pay the loan as
agreed upon, Esteban brought an action against her in the municipal court of Manila for its
recovery, alleging that the loan was secured by a chattel mortgage on her property. Judgment
having been entered in Plaintiffs favor, execution was issued against the same property
mortgaged.
Before the property could be sold Manarang offered to pay the sum of P277, which represented
the amount of the judgment of P250, the interest thereon, the costs, and the sheriffs fees, but
the sheriff refused the tender unless the additional amount of P260 representing the publication
of the notice of sale in two newspapers be paid also. So Defendants therein brought this suit to
compel the sheriff to accept the amount of P277 as full payment of the judgment and to annul
the published notice of sale.
It is to be noted that in the complaint filed in the municipal court, a copy of the chattel mortgage
is attached and mention made of its registration, and in the prayer request is made that the house
mortgaged be sold at public auction to satisfy the debt. It is also important to note that the house
mortgaged was levied upon at Plaintiffs request (Exhibit E). never intended to suit the consideration that parties, may have privately given to the property
On the basis of the above facts counsel for Manarang contended in the court below that the
house in question should be considered as personal property and the publication of the notice of
its sale at public auction in execution considered unnecessary. The Court of First Instance held
that although real property may sometimes be considered as personal property, the sheriff was
in duty bound to cause the publication of the notice of its sale in order to make the sale valid or
to prevent its being declared void or voidable, and he did not, therefore, err in causing such
publication of the notice. So it denied the petition.
There cannot be any question that a building of mixed materials may be the subject of a chattel
mortgage, in which case it is considered as between the parties as personal property. We held
so expressly in the cases of Luna vs. Encarnacion, et al., * 48 Off. Gaz., No. 7, p. 2664; chan
roblesvirtualawlibraryStandard Oil Co. of New York vs. Jaranillo, 44 Phil., 630; chan
roblesvirtualawlibraryand De Jesus vs. Guan Dee Co., Inc., 72 Phil., 464. The matter depends
on the circumstances and the intention of the parties.
cralaw The general principle of law is that a building permanently fixed to the freehold
becomes a part of it, that prima facie a house is real estate, belonging to the owner of the land
on which it stands, even though it was erected against the will of the landowner, or without his
consent cralaw . The general rule is otherwise, however, where the improvement is made with
the consent of the landowner, and pursuant to an understanding either expressed or implied that
it shall remain personal property. Nor does the general rule apply to a building which is
wrongfully removed from the land and placed on the land of the person removing it. (42 Am.
Jur. 199-200.)
cralaw Among the principal criteria for determining whether property remains personally or
becomes realty are annexation to the soil, either actual or construction, and the intention of the
parties cralaw
Personal property may retain its character as such where it is so agreed by the parties interested
even though annexed to the realty, or where it is affixed in the soil to be used for a particular
purpose for a short period and then removed as soon as it has served its purpose cralaw . (Ibid.,
209-210.)
The question now before us, however, is:chanroblesvirtuallawlibrary Does the fact that the
parties entering into a contract regarding a house gave said property the consideration of
personal property in their contract, bind the sheriff in advertising the propertys sale at public
auction as personal property? It is to be remembered that in the case at bar the action was to
collect a loan secured by a chattel mortgage on the house. It is also to be remembered that in
practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is
to levy upon in execution, and the judgment creditor in the case at bar is the party in whose
favor the owner of the house and conveyed it by way of chattel mortgage and, therefore, knew
its consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not allow, and we
should not interpret them in such a way as to allow, the special consideration that parties to a
contract may have desired to impart to real estate, for example, as personal property, when they
are not ordinarily so. Sales on execution affect the public and third persons. The regulation
governing sales on execution are for public officials to follow. The form of proceedings
prescribed for each kind of property is suited to its character, not to the character which the
parties have given to it or desire to give it. When the rules speak of personal property, property
which is ordinarily so considered is meant; chan roblesvirtualawlibraryand when real property
is spoken of, it means property which is generally known as real property. The regulations were
levied upon. Enforcement of regulations would be difficult were the convenience or agreement
of private parties to determine or govern the nature of the proceedings. We, therefore, hold that
the mere fact that a house was the subject of a chattel mortgage and was considered as personal
property by the parties does not make said house personal property for purposes of the notice to
be given for its sale at public auction. This ruling is demanded by the need for a definite, orderly
and well- defined regulation for official and public guidance and which would prevent confusion
and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on execution, although
subject of a contract of chattel mortgage between the owner and a third person, is real property
within the purview of Rule 39, section 16, of the Rules of Court as it has become a permanent
fixture on the land, which is real property. (42 Am. Jur. 199-200; chan
roblesvirtualawlibraryLeung Yee vs. Strong Machinery Co., 37 Phil., 644; chan
roblesvirtualawlibraryRepublic vs. Ceniza, et al., 90 Phil., 544; chan
roblesvirtualawlibraryLadera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz., 5374.).
The judgment appealed from is hereby affirmed, with costs. SO ORDERED.

GOVERNMENT SERVICE INSURANCE SYSTEM, plaintiff-appellee,
vs.
CALSONS, INC., CESARIO P. CALANOC, and NENITA GODINEZ, defendants-
appellants.
The Government Corporate Counsel for plaintiff-appellee.
Juan T. David and Clemente M. Soriano for defendants-appellants.
MAKALINTAL., J.:
Appeal from the decision of the Court of First Instance of Manila..
On April 11, 1957 appellant CALSONS, INC. applied for a loan of P2,000,000.00 to appellee
to pay the balance of the purchase price of certain parcels of land situated at the corner of Globo
de Oro and Elizondo Streets, Quiapo, Manila, and to finance the construction of a two-storey
textile market building on said land. The application was approved by appellee's Board of
Trustees on August 26, 1957. In connection with said loan appellants executed on October 31,
1957 a promissory note binding themselves jointly and severally to pay appellee the sum of
P2,000,000.00, with interest at the rate of 7% per annum compounded monthly, in 120 equal
monthly installments of P23,221.69 each. Under said note "the first installment shall be due and
payable beginning the month following the last release and/or the month following the
expiration of the period for the construction of the textile market building, whichever is earlier,
and the rest on the 7th day of every month thereafter until the principal of TWO MILLION
PESOS (P2,000,000.00) and the interest shall have been fully paid." To secure payment of the
note "and/or the interest thereon and/or other obligations arising thereunder", appellants
executed on the same date a first mortgage in favor of appellee on five (5) parcels of land
particularly described in the mortgage contract, "together with all the buildings and
improvements now existing thereon or which may hereafter be constructed on the mortgaged
property (ies) of which MORTGAGOR is the absolute owner, free from all liens and
encumbrances." The aforementioned five (5) parcels of land were among the properties acquired
by appellant CALSONS, INC., from Tuason & Sampedro, Inc., for and in consideration of the
sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1,100,000.00) under a Deed
of Assignment dated October 29, 1957.1vvphi1.nt
The conditions of the mortgage contract which are relevant to this case are the following:
2. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner
encumber the mortgaged property (ies) without the prior written consent of the
MORTGAGOR.
4. If the MORTGAGOR shall, at any time, fail or refuse to pay any of the
amortizations on the indebtedness, or the interest when due, or whatever other
obligation herein agreed, then all the amortizations and other obligations of the
MORTGAGOR of any nature, shall become due, payable and defaulted and the
MORTGAGEE may immediately foreclose this mortgage judicially or extrajudicially
under Act 3135, as amended and/or under C.A. 186, as amended, and/or Act No. 1508,
as amended....
14. This mortgage shall furthermore be subject to the following ADDITIONAL
CONDITIONS:
1) That the applicant shall pay to the system P23,221.70 monthly, including
principal and interest.
2) That the first release of P819,000.00 on this loan shall be made only after:
xxx xxx xxx
b. The submission of evidence showing payment on realty taxes
up to and including that of the current year; .
c. The submission of evidence showing the reduction of
applicant's account on the lot to at least P819,000.00; .
d. The submission of the certificates of title in the name of the
applicant to the property offered as collateral for this loan;
provided, that if the said certificates of title could not be secured
without paying the balance of the purchase price, said balance
shall be paid first from the first release of this loan;
3) That the check covering the obligation of applicant on the lots offered as
collateral shall be drawn in favor of the vendor of said lots;
4) That subsequent releases on this loan shall be controlled in such manner
that the amount to be released shall depend on the progress of the work done
on the proposed building but in no case shall the amount to be released and
the amounts already released exceed 60% of the appraised value of the lots
and the existing improvements thereon as of every release;
xxx xxx xxx
6) That the proposed building shall be completed within twelve (12) months
from the date the first release of this loan is made;
The first release in the amount of P819,000.00 was made on November 7, 1957, while the second
(and last) release in the amount of P30,000.00 was made on May 15, 1958. The checks covering
both releases were drawn in favor of the vendor of the mortgaged properties.
In accordance with the agreement between the parties, the old building standing on the
mortgaged properties was insured for P300,000.00 on December 1, 1959. Appellee advanced
the sum of P5,628.00 for the annual premium, but appellants failed to reimburse the same.
Appellee filed a complaint for the foreclosure of the mortgage with the Court of First Instance
of Manila on August 11, 1958, alleging a number of violations of the mortgage contract, to wit:
(1) that the mortgaged properties had not been freed by the mortgagor from certain liens and
encumbrances other than the mortgage itself; (2) that without the prior written consent of
plaintiff defendants removed and disposed of the complete band sawmill and filing machine
which formed part of the properties mortgaged; (3) that defendant Calsons, Inc., failed to submit
to appellee evidence showing the reduction of defendant's account on the lot to at least
P819,000.00; (4) and that Calsons, Inc., failed to begin, much less complete, the construction of
the supermarket building on the mortgaged properties. On August 11, 1959, plaintiff filed
supplemental complaint, which was admitted without opposition. Two additional grounds for
the foreclosure of the mortgage were alleged, namely: (1) that defendants failed, despite
demands therefor, to pay the amortizations due and payable, including accrued interest and
surcharges, on the portion of the loan released to them; and (2) that defendants failed to complete
the construction of the textile market building on the mortgaged properties within 12 months
from November 7, 1957, the date of the first release of P819,000.00.
Judgment was rendered on March 3, 1962 in favor of plaintiff, and defendants brought this
appeal directly to this Court in view of the amount involved.
In their brief, appellants make the following assignment of errors:
1. The Trial Court erred in holding that it is not true that defendants have not defaulted
in any of their obligations under the mortgage contract.
2. The Trial Court erred in ruling that with respect to the liens and encumbrances, the
defendants' failure to pay the balance of the purchase price of the mortgaged properties
from their original owners subjected the said properties to a vendor's lien.
3. The Trial Court erred in holding that the machineries on the mortgaged properties
are part of the mortgage and that the removal and subsequent disposal of the same
therefrom by the defendants violated the said mortgage contract.
4. The Trial Court erred in holding that defendant Calsons, Inc., has failed to reduce
its account on the loan to at least P819,000.00 and that such failure is a clear violation
of a contract of mortgage.
5. The Trial Court erred in holding that the defendants failed despite demand therefor,
to pay the amortization due and payable, including interests and surcharges on the
portion of the loan released to them.
6. The Trial Court erred in rendering judgment for plaintiff and against the defendants
ordering the latter to pay jointly and severally the plaintiff of the sum of (1)
P819,000.00 with interests at the rate of 7% per annum compounded monthly from
November 8, 1957 until the same is fully paid; (2) P30,000.00 with interests at the
rate of 7% per annum compounded monthly, from May 16, 1958 until the same is
fully paid; (3) P5,628.00 yearly insurance premium with interests of 7% per annum
compounded monthly, from December, 1959 until the same is fully paid; (4) the sum
equivalent to 10% of the foregoing sums as expenses of collection and attorney's fees,
plus the costs of this action.
7. The Trial Court erred in failing and/or neglecting to act and pass upon the
counterclaim of the defendants-appellants notwithstanding the fact that said
counterclaim is fully established by the evidence on records.
The second and fourth errors assigned are interrelated and will first be taken up. The two
certificates of title covering the mortgaged properties do not show any lien or encumbrance
thereon other than the mortgage itself. This is admitted by both parties. Appellee refers,
however, to the vendor's lien in favor of the former owners, representing the unpaid balance of
P280,000.00 on the purchase price of the lots mortgaged. The lien, appellee point out, is a legal
encumbrance and therefore effective, although not recorded. On the other hand, appellants
contend that appellee is estopped from invoking its right to have the mortgaged properties free
from the vendor's lien on two grounds, namely: (1) that appellant had previous knowledge of
said lien as evidenced by the two releases of P819,000 and P30,000 directly to the vendor of the
mortgaged properties, and (2) that appellant committed itself to pay to the said vendor the
amount of P280,000.00, balance on the purchase price, within a period of six (6) months from
October 28, 1957.
The contention cannot be sustained on the first ground. One of the reasons why appellant
Calsons, Inc., applied for the P2,000,000.00 loan was precisely to use part thereof to pay the
balance of the purchase price of five (5) parcels of land it mortgaged to appellee. And to assure
itself that no vendor's lien attached to the said properties appellee caused the following
conditions to be added to the original terms of the mortgage contract:
2) That the first release of P819,000.00 on this loan shall be made only after:
e. The submission of evidence showing the reduction of applicant's account
on the lot to at least P819,000.00;
d. The submission of the certificates of title in the name of the applicant to
the property offered as collateral for this loan; provided, that if the said
certificates of title could not be secured without paying the balance of the
purchase price, said balance shall be paid first from the first release of this
loan;
3) That the check covering the obligation of applicant on the lots offered as collateral
shall be drawn in favor of the vendor of said lots;
Pursuant to the foregoing conditions the check covering the first release of P819,000.00 was
drawn in favor of the vendor of the properties, and the release was made upon submission of the
two transfer certificates of title already in the name of appellant Calsons, Inc., as vendee, without
any annotation thereon of any lien or encumbrance except the mortgage itself in favor of
appellee. It turned out, however, that appellants had failed to reduce their account on the lot to
P819,000.00, as stipulated in the mortgage contract, since there was still a balance of P280,000
on the purchase price. With respect to the second release of P30,000.00, the check was also
drawn in favor of the vendor with the understanding that it would be used to pay the real estate
taxes due on said properties and thus remove the corresponding tax lien imposed by law.
The steps taken by appellee negate any inference that it agreed to waive its right to have the
properties "free from all liens and encumbrances," as provided in the mortgage contract.
Estoppel is invoked by appellants on the basis of a letter dated October 28, 1957, sent by the
Manager of appellee's Real Estate Department to the vendor of the properties, to the effect that
the balance of the purchase price in the amount of P280,000.00 would be released within six (6)
months from the date of the said letter. The commitment of said Manager was not recognized
by the Board of Trustees of the appellee as shown by the fact that it was not incorporated in the
mortgage contract, which was executed on a later date October 31, 1957. While the schedule
of subsequent releases was clearly defined in the mortgage contract, no mention was made about
the said commitment. Thus, Paragraph 14 (4) of the mortgage contract states:
(4) .That subsequent releases on this loan shall be controlled in such manner that the
amount to be released shall depend in the progress of the work done on the proposed
building but in no case shall the amount to be released and the amounts already
released exceed 60% of the appraised value of the lots and the existing improvements
thereon as of every release;
As previously mentioned, the mortgage contract provides that the proposed building should be
completed within twelve (12) months from the date of the first release. Said release having been
made on November 7, 1957, the construction period of 12 months expired on November 7, 1958;
hence, the first installment became due one month thereafter or on December 7, 1958, and the
rest on the 7th day of every month thereafter. Appellants' failure to pay the amortizations,
interest and surcharges demanded of them by appellee, therefore, constitutes a violation of the
mortgage contract and is sufficient ground for the foreclosure of the mortgage.
IN VIEW OF THE FOREGOING, the sixth and seventh assignments of error are without merit.
The judgment appealed from is hereby affirmed, with costs against appellants.

Regarding the third error assigned, appellants do not deny the fact that they removed and
disposed of the machineries installed in the building which were standing on the mortgaged
properties. However, they contend that the said machineries were not included in the mortgage.
The contention is groundless.

The mortgage was on the lands "together with all the buildings and improvements now existing
or which may hereafter be constructed" thereon. And the machineries, as found by the trial court,
were permanently attached to the property, and installed there by the former owner to meet the
needs of certain works or industry therein. They were therefore part of the immovable pursuant
to Article 415 of the Civil Code, and need not be the subject of a separate chattel mortgage in
order to be deemed duly encumbered in favor of appellee.

Under the fifth assignment of error, appellants point out that there is no time specified in the
mortgage contract within which the amortizations on the loan should begin to be paid, and
conclude that they should begin only from the time the proposed building started earning rentals.
The provision of Paragraph 14 (13) of the mortgage contract is invoked, to wit:

That rentals from the proposed building equivalent to the monthly amortization on
this loan shall be assigned in favor of and made payable to the System.

As a corollary argument, appellants add that since the present action was instituted three (3)
months before the expiration of the twelve-month period (from November 7, 1957) within which
the construction of the supermarket building should be completed the premature institution of
the suit rendered the construction of said building impossible, and hence no default in payment
was incurred.

Again this contention of appellants is without merit. The promissory note executed by them
clearly provides when the first installment, as well as subsequent ones, would become due, thus:

The first installment shall be due and payable beginning the month following the last
release and/or the month following the expiration of the period for the construction of
the textile market building, whichever is earlier, and the rest on the 7th day of every
month thereafter until the principal of TWO MILLION PESOS (P2,000,000.00) and
the interest shall have been fully paid.

MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan
de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No.
710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax
on its maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition
for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting
rates approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains
Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur;
Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are
the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph,
marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked
Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph,
marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph,
marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked
Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached
photograph, marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph,
marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be seen
in the attached photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage
for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with
these machineries which are placed therein, its TPU trucks are made; body
constructed; and same are repaired in a condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or were never used as industrial equipments
to produce finished products for sale, nor to repair machineries, parts and the like
offered to the general public indiscriminately for business or commercial purposes for
which petitioner has never engaged in, to date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having
denied a motion for reconsideration, petitioner brought the case to this Court assigning the
following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention
that the questioned assessments are valid; and that said tools, equipments or
machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New
Civil Code, and holding that pursuant thereto the movable equipments are taxable
realties, by reason of their being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on machineries
is further restricted by section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:
 Art. 415. The following are immovable properties: equipments, its business may be carried on, as petitioner has carried on, without such
equipments, before the war. The transportation business could be carried on without the repair
xxx xxx xxx or service shop if its rolling equipment is repaired or serviced in another shop belonging to
another.
(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 The law that governs the determination of the question at issue is as follows:
of land, and which tend directly to meet the needs of the said industry or works.
(Emphasis ours.) Art. 415. The following are immovable property:

Note that the stipulation expressly states that the equipment are placed on wooden or cement xxx xxx xxx
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said: (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
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of of land, and which tend directly to meet the needs of the said industry or works; (Civil
real property to "machinery, liquid containers, instruments or implements intended by Code of the Phil.)
the owner of any building or land for use in connection with any industry or trade
being carried on therein and which are expressly adapted to meet the requirements of Aside from the element of essentiality the above-quoted provision also requires that the industry
such trade or industry." or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs.
Cu Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found
If the installation of the machinery and equipment in question in the central of the in a building constructed on the land. A sawmill would also be installed in a building on land
Mabalacat Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its more or less permanently, and the sawing is conducted in the land or building.
sugar and industry, converted them into real property by reason of their purpose, it
cannot be said that their incorporation therewith was not permanent in character But in the case at bar the equipments in question are destined only to repair or service the
because, as essential and principle elements of a sugar central, without them the sugar transportation business, which is not carried on in a building or permanently on a piece of land,
central would be unable to function or carry on the industrial purpose for which it as demanded by the law. Said equipments may not, therefore, be deemed real property.
was established. Inasmuch as the central is permanent in character, the necessary
machinery and equipment installed for carrying on the sugar industry for which it has
been established must necessarily be permanent. (Emphasis ours.) Resuming what we have set forth above, we hold that the equipments in question are not
absolutely essential to the petitioner's transportation business, and petitioner's business is not
carried on in a building, tenement or on a specified land, so said equipment may not be
So that movable equipments to be immobilized in contemplation of the law must first be considered real estate within the meaning of Article 415 (c) of the Civil Code.
"essential and principal elements" of an industry or works without which such industry or works
would be "unable to function or carry on the industrial purpose for which it was established."
We may here distinguish, therefore, those movable which become immobilized by destination WHEREFORE, the decision subject of the petition for review is hereby set aside and the
because they are essential and principal elements in the industry for those which may not be so equipment in question declared not subject to assessment as real estate for the purposes of the
considered immobilized because they are merely incidental, not essential and principal. Thus, real estate tax. Without costs.
cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are
merely incidentals and are not and should not be considered immobilized by destination, for So ordered.
these businesses can continue or carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries
of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but the delivery trucks and adding
machines which they usually own and use and are found within their industrial compounds are
merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principle municipal elements of petitioner's business of transporting passengers
and cargoes by motor trucks. They are merely incidentals acquired as movables and used
only for expediency to facilitate and/or improve its service. Even without such tools and

PASTOR D. AGO, petitioner,
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court
of First Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE
PARK ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court of Appeals in CA-G.R. No.
26723-R entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al." which in part
reads:
In this case for certiorari and prohibition with preliminary injunction, it appears from
the records that the respondent Judge of the Court of First Instance of Agusan rendered
judgment (Annex "A") in open court on January 28, 1959, basing said judgment on a
compromise agreement between the parties.
On August 15, 1959, upon petition, the Court of First Instance issued a writ of
execution.
Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or his
counsel, did not receive a formal and valid notice of said decision, which motion for
reconsideration was denied by the court below in the order of November 14, 1959.
Petitioner now contends that the respondent Judge exceeded in his jurisdiction in
rendering the execution without valid and formal notice of the decision.
A compromise agreement is binding between the parties and becomes the law between
them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38; Martin
vs. Martin, G.R. No. L-12439, May 22, 1959) .
It is a general rule in this jurisdiction that a judgment based on a compromise
agreement is not appealable and is immediately executory, unless a motion is filed on
the ground fraud, mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505; Lapena
vs. Morfe, G.R. No. L-10089, July 31, 1957)
Petitioner's claim that he was not notified or served notice of the decision is untenable.
The judgment on the compromise agreement rendered by the court below dated
January 28, 1959, was given in open court. This alone is a substantial compliance as
to notice. (De los Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its
jurisdiction in ordering the execution of the judgment. The petition for certiorari is
hereby dismissed and the writ of preliminary injunction heretofore dissolved, with
costs against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D. Ago bought
sawmill machineries and equipments from respondent Grace Park Engineer domineering, Inc.,
executing a chattel mortgage over said machineries and equipments to secure the payment of
balance of the price remaining unpaid of P32,000.00, which petitioner agreed to pay on
installment basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park Engineering,
Inc. instituted extra-judicial foreclosure proceedings of the mortgage. To enjoin said
foreclosure, petitioner herein instituted Special Civil Case No. 53 in the Court of First Instance
of Agusan. The parties to the case arrived at a compromise agreement and submitted the same
in court in writing, signed by Pastor D. Ago and the Grace Park Engineering, Inc. The Hon.
Montano A. Ortiz, Judge of the Court of First Instance of Agusan, then presiding, dictated a
decision in open court on January 28, 1959.
Petitioner continued to default in his payments as provided in the judgment by compromise, so
Grace Park Engineering, Inc. filed with the lower court a motion for execution, which was
granted by the court on August 15, 1959. A writ of execution, dated September 23, 1959, later
followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of execution issued
by the lower court, levied upon and ordered the sale of the sawmill machineries and equipments
in question. These machineries and equipments had been taken to and installed in a sawmill
building located in Lianga, Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to
whom, petitioner alleges, he had sold them on February 16, 1959 (a date after the decision of
the lower court but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set for December 4, 1959,
petitioner, on December 1, 1959, filed the petition for certiorari and prohibition with
preliminary injunction with respondent Court of Appeals, alleging that a copy of the
aforementioned judgment given in open court on January 28, 1959 was served upon counsel for
petitioner only on September 25, 1959 (writ of execution is dated September 23, 1959); that the
order and writ of execution having been issued by the lower court before counsel for petitioner
received a copy of the judgment, its resultant last order that the "sheriff may now proceed with
the sale of the properties levied constituted a grave abuse of discretion and was in excess of its
jurisdiction; and that the respondent Provincial Sheriff of Surigao was acting illegally upon the
allegedly void writ of execution by levying the same upon the sawmill machineries and
equipments which have become real properties of the Golden Pacific sawmill, Inc., and is about
to proceed in selling the same without prior publication of the notice of sale thereof in some
newspaper of general circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction against the
sheriff but it turned out that the latter had already sold at public auction the machineries in
question, on December 4, 1959, as scheduled. The respondent Grace Park Engineering, Inc. was
the only bidder for P15,000.00, although the certificate sale was not yet executed. The Court of
Appeals constructed the sheriff to suspend the issuance of a certificate of sale of the said sawmill
machineries and equipment sold by him on December 4, 1959 until the final decision of the
case. On November 9, 1960 the Court of Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding that the
rendition of judgment on compromise in open court on January 1959 was a sufficient notice;
and (2) in not resolving the other issues raised before it, namely, (a) the legality of the public
auction sale made by the sheriff, and (b) the nature of the machineries in question, whether they
are movables or immovables.
The Court of Appeals held that as a judgment was entered by the court below in open court upon
the submission of the compromise agreement, the parties may be considered as having been
notified of said judgment and this fact constitutes due notice of said judgment. This raises the
following legal question: Is the order dictated in open court of the judgment of the court, and is
the fact the petitioner herein was present in open court was the judgment was dictated, sufficient
notice thereof? The provisions of the Rules of Court decree otherwise. Section 1 of Rule 35
describes the manner in which judgment shall be rendered, thus:
SECTION 1. How judgment rendered. All judgments determining the merits of
cases shall be in writing personally and directly prepared by the judge, and signed by
him, stating clearly and distinctly the facts and the law on which it is based, filed with
the clerk of the court.
The court of first instance being a court of record, in order that a judgment may be considered
as rendered, must not only be in writing, signed by the judge, but it must also be filed with the
clerk of court. The mere pronouncement of the judgment in open court with the stenographer
taking note thereof does not, therefore, constitute a rendition of the judgment. It is the filing of
the signed decision with the clerk of court that constitutes rendition. While it is to be presumed
that the judgment that was dictated in open court will be the judgment of the court, the court
may still modify said order as the same is being put into writing. And even if the order or
judgment has already been put into writing and signed, while it has not yet been delivered to the
clerk for filing it is still subject to amendment or change by the judge. It is only when the
judgment signed by the judge is actually filed with the clerk of court that it becomes a valid and
binding judgment. Prior thereto, it could still be subject to amendment and change and may not,
therefore, constitute the real judgment of the court.
Regarding the notice of judgment, the mere fact that a party heard the judge dictating the
judgment in open court, is not a valid notice of said judgment. If rendition thereof is constituted
by the filing with the clerk of court of a signed copy (of the judgment), it is evident that the fact
that a party or an attorney heard the order or judgment being dictated in court cannot be
considered as notice of the real judgment. No judgment can be notified to the parties unless it
has previously been rendered. The notice, therefore, that a party has of a judgment that was
being dictated is of no effect because at the time no judgment has as yet been signed by the
judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be served personally or by
registered mail. Section 7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. Final orders or judgments shall be
served either personally or by registered mail.
In accordance with this provision, a party is not considered as having been served with the
judgment merely because he heard the judgment dictating the said judgment in open court; it is
necessary that he be served with a copy of the signed judgment that has been filed with the clerk
in order that he may legally be considered as having been served with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial judge dictating the
judgment in open court, is not sufficient to constitute the service of judgement as required by
the above-quoted section 7 of Rule 2 the signed judgment not having been served upon the
petitioner, said judgment could not be effective upon him (petitioner) who had not received it.
It follows as a consequence that the issuance of the writ of execution null and void, having been
issued before petitioner her was served, personally or by registered mail, a copy of the decision.
The second question raised in this appeal, which has been passed upon by the Court of Appeals,
concerns the validity of the proceedings of the sheriff in selling the sawmill machineries and
equipments at public auction with a notice of the sale having been previously published.
The record shows that after petitioner herein Pastor D. Ago had purchased the sawmill
machineries and equipments he assigned the same to the Golden Pacific Sawmill, Inc. in
payment of his subscription to the shares of stock of said corporation. Thereafter the sawmill
machinery and equipments were installed in a building and permanently attached to the ground.
By reason of such installment in a building, the said sawmill machineries and equipment became
real estate properties in accordance with the provision of Art. 415 (5) of the Civil Code, thus:
ART. 415. The following are immovable property:
xxx xxx xxx
 (5) Machinery, receptacles, instruments or implements tended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece
of land, and which tend directly to meet the needs of the said industry or works;

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

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

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

xxx xxx xxx

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

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

WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby set aside
and We declare that the issuance of the writ of execution in this case against the sawmill
machineries and equipments purchased by petitioner Pastor D. Ago from the Grace Park
Engineering, Inc., as well as the sale of the same by the Sheriff of Surigao, are null and void.
Costs shall be against the respondent Grace Park Engineering, Inc.
 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, 1998Order,[5] the Regional Trial Court (RTC) of Quezon
City (Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998
Resolution[8] denied petitioners Motion for Special Protective Order, praying that
the deputy sheriff be enjoined from seizing immobilized or other real properties in
(petitioners) factory in Cainta, Rizal and to return to their original place whatever
immobilized machineries or equipments he may have removed.[9]
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:[10]
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ
of replevin docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ
of replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment
to PCI Leasing after 5 days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory,
seized one machinery with [the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking
the power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were]
still personal and therefore still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties agreement to the contrary
notwithstanding. They argued that to give effect to the agreement would be prejudicial to
innocent third parties. They further stated that PCI Leasing [was] estopped from treating these
machineries as personal because the contracts in which the alleged agreement [were] embodied
[were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
the remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned,
by petitioners. It also ruled that the words of the contract are clear and leave no
doubt upon the true intention of the contracting parties. Observing that Petitioner
Goquiolay was an experienced businessman who was not unfamiliar with the ways
of the trade, it ruled that he should have realized the import of the document he
signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon
the case below, since the merits of the whole matter are laid down before us via a petition whose
sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of the
[RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper subjects
of a full-blown trial, necessitating presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a matter x x x which respondent court
is in the best position to determine.
Hence, this Petition.[11]
The Issues
 In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by SERGS became real property by
virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease. [12]
In the main, the Court will resolve whether the said machines are personal,
not immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised
by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it
was being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges
that the Petition erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is Petition for Review
on Certiorari.[13]
While Judge Laqui should not have been impleaded as a
respondent,[14] substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court deems it proper
to remove, motu proprio, the name of Judge Laqui from the caption of the present
case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not
proper subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue
an order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or
real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and which
tend directly to meet the needs of the said industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure
were placed by petitioners in the factory built on their own land. Indisputably, they
were essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them
have become immobilized by destination because they are essential and principal
elements in the industry.[16] In that sense, petitioners are correct in arguing that the
said machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the
said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real
property be considered as personal.[18] After agreeing to such stipulation, they are
consequently estopped from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the truth of any material
fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties
to treat a house as a personal property because it had been made the subject of a
chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject house as personal property,
yet by ceding, selling or transferring a property by way of chattel mortgage defendants-
appellants could only have meant to convey the house as chattel, or at least, intended to treat the
same as such, so that they should not now be allowed to make an inconsistent stand by claiming
otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills[20] also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a writ of
replevin because it was treated as personal property in a contract. Pertinent portions
of the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as
the parties to the contract so agree and no innocent third party will be prejudiced thereby, there
is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines
in question are to be considered as personal property. Specifically, Section 12.1 of
the Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding
that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed
or attached to or embedded in, or permanently resting upon, real property or any building
thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should
be deemed personal property pursuant to the Lease Agreement is good only insofar
as the contracting parties are concerned.[22] Hence, while the parties are bound by
the Agreement, third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event, there is no
showing that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and
not a lease.[24] Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention of the parties and the
validity of the lease agreement itself.[25] In their Reply to respondents Comment,
they further allege that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the nature of the contract
are the lis mota of the civil action pending before the RTC. A resolution of these
questions, therefore, is effectively a resolution of the merits of the case. Hence, they
should be threshed out in the trial, not in the proceedings involving the issuance of
the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy
under Rule 60 was that questions involving title to the subject property questions
which petitioners are now raising -- should be determined in the trial. In that case,
the Court noted that the remedy of defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of the plaintiffs bond. They were not
allowed, however, to invoke the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve or discharge
the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds
relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put
at issue the matter of the title or right of possession over the specific chattel being replevied, the
policy apparently being that said matter should be ventilated and determined only at the trial on
the merits.[28]
Besides, these questions require a determination of facts and a presentation of
evidence, both of which have no place in a petition for certiorari in the CA under
Rule 65 or in a petition for review in this Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In
fact, petitioners assailed it first only in the RTC proceedings, which had ironically
been instituted by respondent. Accordingly, it must be presumed valid and binding
as the law between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized the subject
machinery as personal property, was also assailed because respondent had allegedly
been required to sign a printed form of chattel mortgage which was in a blank form
at the time of signing. The Court rejected the argument and relied on the Deed,
ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract
void ab initio, but can only be a ground for rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken
to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized,
then its workers would be out of work and thrown into the streets. [31] They also
allege that the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As
earlier discussed, law and jurisprudence support its propriety. Verily, the above-
mentioned consequences, if they come true, should not be blamed on this Court, but
on the petitioners for failing to avail themselves of the remedy under Section 5 of
Rule 60, which allows the filing of a counter-bond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants
bond, or of the surety or sureties thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where the action is pending a
bond executed to the applicant, in double the value of the property as stated in the applicants
affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and by serving a
copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the

Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants
REYES, J.B.L., J.:Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-
R) for the reason that only questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal court of Manila
in Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to
the court a quo (Civil Case No. 30993) which also rendered a decision against them, the
dispositive portion of which follows:
WHEREFORE, the court hereby renders judgment in favor of the plaintiffs
and against the defendants, ordering the latter to pay jointly and severally
the former a monthly rent of P200.00 on the house, subject-matter of this
action, from March 27, 1956, to January 14, 1967, with interest at the legal
rate from April 18, 1956, the filing of the complaint, until fully paid, plus
attorney's fees in the sum of P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants executed a chattel
mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550
Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which
were being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry
of Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a
loan of P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per annum.
The mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and the
lump sum of P3,150 was payable on or before August, 1956. It was also agreed that default in
the payment of any of the amortizations, would cause the remaining unpaid balance to
becomeimmediately due and Payable and
the Chattel Mortgage will be enforceable in accordance with the provisions
of Special Act No. 3135, and for this purpose, the Sheriff of the City of
Manila or any of his deputies is hereby empowered and authorized to sell
all the Mortgagor's property after the necessary publication in order to settle
the financial debts of P4,800.00, plus 12% yearly interest, and attorney's
fees... 2
When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed,
and on 27 March 1956, the house was sold at public auction pursuant to the said contract. As
highest bidder, plaintiffs-appellees were issued the corresponding certificate of
sale.3 Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the
municipal court of Manila, praying, among other things, that the house be vacated and its
possession surrendered to them, and for defendants-appellants to pay rent of P200.00 monthly
from 27 March 1956 up to the time the possession is surrendered.4 On 21 September 1956, the
municipal court rendered its decision
... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27,
1956, until such (time that) the premises is (sic) completely vacated; plus
attorney's fees of P100.00 and the costs of the suit.5
Defendants-appellants, in their answers in both the municipal court and court a quo impugned
the legality of the chattel mortgage, claiming that they are still the owners of the house; but they
waived the right to introduce evidence, oral or documentary. Instead, they relied on their
memoranda in support of their motion to dismiss, predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and decide the case because (1) the issue
involved, is ownership, and (2) there was no allegation of prior possession; and (b) failure to
prove prior demand pursuant to Section 2, Rule 72, of the Rules of Court. 6
During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in
the decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion
for execution, and it was actually issued on 24 January 1957. However, the judgment regarding
the surrender of possession to plaintiffs-appellees could not be executed because the subject
house had been already demolished on 14 January 1957 pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants for non-payment of
rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and
withdrawal of deposited rentals was denied for the reason that the liability therefor was
disclaimed and was still being litigated, and under Section 8, Rule 72, rentals deposited had to
be held until final disposition of the appeal.7
On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive
portion of which is quoted earlier. The said decision was appealed by defendants to the Court
of Appeals which, in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a
brief and this appeal was submitted for decision without it.
Defendants-appellants submitted numerous assignments of error which can be condensed into
two questions, namely: .
(a) Whether the municipal court from which the case originated had
jurisdiction to adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay rentals
to the plaintiffs during the period of one (1) year provided by law for the
redemption of the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from
which the case originated, and consequently, the appellate jurisdiction of the Court of First
Instance a quo, on the theory that the chattel mortgage is void ab initio; whence it would follow
that the extrajudicial foreclosure, and necessarily the consequent auction sale, are also void.
Thus, the ownership of the house still remained with defendants-appellants who are entitled to
possession and not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the
issue of ownership will have to be adjudicated first in order to determine possession. lt is
contended further that ownership being in issue, it is the Court of First Instance which has
jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds,
which are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit,
or trickery; and (b) that the subject matter of the mortgage is a house of strong materials, and,
being an immovable, it can only be the subject of a real estate mortgage and not a chattel
mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-
appellants' contentions as not supported by evidence and accordingly dismissed the
charge,8 confirming the earlier finding of the municipal court that "the defense of ownership as
well as the allegations of fraud and deceit ... are mere allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a mere
statement of the facts which the party filing it expects to prove, but it is not evidence;11 and
further, that when the question to be determined is one of title, the Court is given the authority
to proceed with the hearing of the cause until this fact is clearly established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a successful bidder in an auction sale, it was likewise
held by this Court that in detainer cases the aim of ownership "is a matter of defense and raises
an issue of fact which should be determined from the evidence at the trial." What determines
jurisdiction are the allegations or averments in the complaint and the relief asked for. 13
Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the contract voidable or annullable pursuant to
Article 1390 of the New Civil Code, by a proper action in court. 14 There is nothing on record
to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to
nullify the same. Hence, defendants-appellants' claim of ownership on the basis of a voidable
contract which has not been voided fails.
It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit
or trickery, the chattel mortgage was still null and void ab initio because only personal
properties can be subject of a chattel mortgage. The rule about the status of buildings as
immovable property is stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,15cited 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 Mortgage23 the property together with its leasehold rights
over the lot on which it is constructed and participation ..." 24 Although there is no specific
statement referring to the subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendants-appellants could only have meant
to convey the house as chattel, or at least, intended to treat the same as such, so that they should
not now be allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject
house stood on a rented lot to which defendats-appellants merely had a temporary right as lessee,
and although this can not in itself alone determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs.
Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, 26 wherein third persons assailed the validity of the chattel mortgage,27 it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-
appellants, having treated the subject house as personalty.
(b) Turning to the question of possession and rentals of the premises in question. The Court of
First Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged
house had been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the Since the defendants-appellants were occupying the house at the time of the auction sale, they
lessor of the land on which the house stood. For this reason, the said court limited itself to are entitled to remain in possession during the period of redemption or within one year from and
sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March after 27 March 1956, the date of the auction sale, and to collect the rents or profits during the
1956 (when the chattel mortgage was foreclosed and the house sold) until 14 January 1957 said period.
(when it was torn down by the Sheriff), plus P300.00 attorney's fees.
It will be noted further that in the case at bar the period of redemption had not yet expired when
Appellants mortgagors question this award, claiming that they were entitled to remain in action was instituted in the court of origin, and that plaintiffs-appellees did not choose to take
possession without any obligation to pay rent during the one year redemption period after the possession under Section 7, Act No. 3135, as amended, which is the law selected by the parties
foreclosure sale, i.e., until 27 March 1957. On this issue, We must rule for the appellants. 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
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. complaint, there could be no violation or breach thereof. Wherefore, the original complaint
1508.28 Section 14 of this Act allows the mortgagee to have the property mortgaged sold at stated no cause of action and was prematurely filed. For this reason, the same should be ordered
public auction through a public officer in almost the same manner as that allowed by Act No. dismissed, even if there was no assignment of error to that effect. The Supreme Court is clothed
3135, as amended by Act No. 4118, provided that the requirements of the law relative to notice with ample authority to review palpable errors not assigned as such if it finds that their
and registration are complied with. 29 In the instant case, the parties specifically stipulated that consideration is necessary in arriving at a just decision of the cases. 37
"the chattel mortgage will be enforceable in accordance with the provisions of Special Act No.
3135 ... ." 30(Emphasis supplied). 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.
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 FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
property sold at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the entered, dismissing the complaint. With costs against plaintiffs-appellees.
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

CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Taedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married
to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00,
payable 6 months after said date or on June 14, 1959. To secure the indebtedness, Rufino
executed a document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES",
whereby Juana Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land,
belonging to her, registered with the Register of Deeds of Tarlac, under Transfer Certificate of
Title No. 25776, and Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story
residential house, having a floor area of 912 square meters, erected on a lot belonging to Atty.
Vicente Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in his
name, under Motor Vehicle Registration Certificate No. A-171806. Both mortgages were
contained in one instrument, which was registered in both the Office of the Register of Deeds
and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands made on them,
failed to pay. They, however, asked and were granted extension up to June 30, 1960, within
which to pay. Came June 30, defendants again failed to pay and, for the second time, asked for
another extension, which was given, up to July 30, 1960. In the second extension, defendant
Pineda in a document entitled "Promise", categorically stated that in the remote event he should
fail to make good the obligation on such date (July 30, 1960), the defendant would no longer
ask for further extension and there would be no need for any formal demand, and plaintiff could
proceed to take whatever action he might desire to enforce his rights, under the said mortgage
contract. In spite of said promise, defendants, failed and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on
the principal, effective on the date of maturity, until fully paid.
Defendants, answering the complaint, among others, stated
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the
First Cause of Action which states that the defendants unreasonably failed and refuse
to pay their obligation to the plaintiff the truth being the defendants are hard up these
days and pleaded to the plaintiff to grant them more time within which to pay their
obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this
Honorable Court render judgment granting the defendants until January 31, 1961,
within which to pay their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that
the indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum
as interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated
damages; that the instrument had been registered in the Registry of Property and Motor Vehicles
Office, both of the province of Tarlac; that the only issue in the case is whether or not the
residential house, subject of the mortgage therein, can be considered a Chattel and the propriety
of the attorney's fees.
On February 24, 1961, the lower court held
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of the
copy of this decision to the plaintiff Conrado P. Navarro the principal sum of
P2,550.00 with 12% compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated damages and the
costs of this suit, with the warning that in default of said payment of the properties
mentioned in the deed of real estate mortgage and chattel mortgage (Annex "A" to the
complaint) be sold to realize said mortgage debt, interests, liquidated damages and
costs, in accordance with the pertinent provisions of Act 3135, as amended by Act
4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately
to the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex
"A", immediately after the lapse of the ninety (90) days above-mentioned, in default
of such payment.
The above judgment was directly appealed to this Court, the defendants therein assigning only
a single error, allegedly committed by the lower court, to wit
In holding that the deed of real estate and chattel mortgages appended to the complaint
is valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda
was made the subject of the chattel mortgage, for the reason that it is erected on a land
that belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building;
the fact that the land belongs to another is immaterial, it is enough that the house adheres to the
land; that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code
does not require that the attachment or incorporation be made by the owner of the land, the only
criterion being the union or incorporation with the soil. In other words, it is claimed that "a
building is an immovable property, irrespective of whether or not said structure and the land on
which it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
28, 1958). (See also the case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants 38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
argue that since only movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
then the mortgage in question which is the basis of the present action, cannot give rise to an subject building was a theatre, built of materials worth more than P62,000, attached permanently
action for foreclosure, because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. to the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity
Adriano Valino, et al., L-10838, May 30, 1958.) of the deed of chattel mortgages; in the present case, it was one of the parties to the contract of
mortgages who assailed its validity.
The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely
on the ground that the house mortgaged was erected on the land which belonged to a third CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as
person, but also and principally on the doctrine of estoppel, in that "the parties have so expressly it is hereby affirmed, with costs against appellants.
agreed" in the mortgage to consider the house as chattel "for its smallness and mixed materials
of sawali and wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding
to arts. 415 and 416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it
was held that under certain conditions, "a property may have a character different from that
imputed to it in said articles. It is undeniable that the parties to a contract may by agreement,
treat as personal property that which by nature would be real property" (Standard Oil Co. of
N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any question that a building of mixed
materials may be the subject of a chattel mortgage, in which case, it is considered as between
the parties as personal property. ... The matter depends on the circumstances and the intention
of the parties". "Personal property may retain its character as such where it is so agreed by the
parties interested even though annexed to the realty ...". (42 Am. Jur. 209-210, cited in
Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52 O.G. No. 8, p. 3954.)
The view that parties to a deed of chattel mortgagee may agree to consider a house as personal
property for the purposes of said contract, "is good only insofar as the contracting parties are
concerned. It is based partly, upon the principles of estoppel ..." (Evangelista v. Alto Surety, No.
L-11139, Apr. 23, 1958). In a case, a mortgage house built on a rented land, was held to be a
personal property, not only because the deed of mortgage considered it as such, but also because
it did not form part of the land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now well
settled that an object placed on land by one who has only a temporary right to the same, such as
a lessee or usufructuary, does not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence,
if a house belonging to a person stands on a rented land belonging to another person, it may be
mortgaged as a personal property is so stipulated in the document of mortgage. (Evangelista v.
Abad, supra.) It should be noted, however, that the principle is predicated on statements by the
owner declaring his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374).
The doctrine, therefore, gathered from these cases is that although in some instances, a house of
mixed materials has been considered as a chattel between them, has been recognized, it has been
a constant criterion nevertheless that, with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is considered as an immovable
property (Art. 1431, New Civil Code).

In the case at bar, the house in question was treated as personal or movable property, by the
parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda
conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a
truck. The mortgagor himself grouped the house with the truck, which is, inherently a movable
property. The house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts;
built on land belonging to another.

MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate
Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside
certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the
Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the
resolution dated September 22, 1981 of the said appellate court, denying petitioner's motion for
reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc.,
discounted and assigned several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a machinery described as an
Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure
failed to gain entry into private respondent's premises and was not able to effect the seizure of
the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure
with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case
before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of
a motion for reconsideration. After several incidents, the lower court finally issued on February
11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an
order to break open the premises of private respondent to enforce said writ. The lower court
reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein
private respondent, set aside the Orders of the lower court and ordered the return of the drive
motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot
be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant
to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts
and the only way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the
main drive motor of said machinery. The appellate court rejected petitioner's argument that
private respondent is estopped from claiming that the machine is real property by constituting a
chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied,
petitioner has brought the case to this Court for review by writ of certiorari. It is contended by
private respondent, however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's machinery after the Court of
Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject
motor drive, it made itself unequivocably clear that said action was without prejudice to a motion
for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition
has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery
in suit is real or personal property from the point of view of the parties, with petitioner arguing
that it is a personality, while the respondent claiming the contrary, and was sustained by the
appellate court, which accordingly held that the chattel mortgage constituted thereon is null and
void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this
Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey
the house as chattel, or at least, intended to treat the same as such, so that
they should not now be allowed to make an inconsistent stand by claiming
otherwise. Moreover, the subject house stood on a rented lot to which
defendants-appellants merely had a temporary right as lessee, and although
this can not in itself alone determine the status of the property, it does so
when combined with other factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to treat the house as
personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel
mortgage, it is the defendants-appellants themselves, as debtors-
mortgagors, who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein defendants-
appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule SO ORDERED.
out, as the appellate court did, the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise treated as
such. This is really because one who has so agreed is estopped from denying the existence of
the chattel mortgage.

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

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

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

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

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

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation assails
the decision of the Central Board of Assessment Appeals (composed of the Secretary
of Finance as chairman and the Secretaries of Justice and Local Government and
Community Development as members) dated May 6, 1976, holding that Meralco
Securities' oil pipeline is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the Petroleum
Act of 1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila
a pipeline system consisting of cylindrical steel pipes joined together and buried not
less than one meter below the surface along the shoulder of the public highway. The
portion passing through Laguna is about thirty kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six feet
with a maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil
measure sixteen inches by forty-eight feet with a maximum capacity of 100,000 barrels
daily.
The pipes are embedded in the soil and are firmly and solidly welded together so as to
preclude breakage or damage thereto and prevent leakage or seepage of the oil. The
valves are welded to the pipes so as to make the pipeline system one single piece of
property from end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes have
to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating
them out of the ground where they are buried. In points where the pipeline traversed
rivers or creeks, the pipes were laid beneath the bed thereof. Hence, the pipes are
permanently attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved from
one place to another as shown in the permit issued by the Secretary of Public Works
and Communications which permit provides that the government reserves the right to
require the removal or transfer of the pipes by and at the concessionaire's expense
should they be affected by any road repair or improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor
of Laguna treated the pipeline as real property and issued Tax Declarations Nos. 6535-
6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Bian and
15806-15810, Calamba, containing the assessed values of portions of the pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals of
Laguna composed of the register of deeds as chairman and the provincial auditor as
member. That board in its decision of June 18, 1975 upheld the assessments (pp. 47-
49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of
Local Government and Community Development Jose Roo as members, ruled that
the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities' counsel on August 27, 1976.
Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which took
effect on June 1, 1974, provides that the Board's decision becomes final and executory
after the lapse of fifteen days from the date of receipt of a copy of the decision by the
appellant.
Under Rule III of the amended rules of procedure of the Central Board of Assessment
Appeals (70 O.G. 10085), a party may ask for the reconsideration of the Board's
decision within fifteen days after receipt. On September 7, 1976 (the eleventh day),
Meralco Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roo (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of which
was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6, 1977,
Meralco Securities filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and Meralco
Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction
to review the decision of the Central Board of Assessment Appeals and because no
judicial review of the Board's decision is provided for in the Real Property Tax Code,
Meralco Securities' recourse is to file a petition for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-judicial
functions whereby the record of a particular case is ordered to be elevated for review
and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasi-judicial power there is
an underlying power in the courts to scrutinize the acts of such agencies on questions
of law and jurisdiction even though no right of review is given by the statute (73 C.J.S.
506, note 56).
"The purpose of judicial review is to keep the administrative agency within its jurisdiction
and protect substantial rights of parties affected by its decisions" (73 C.J.S. 507, See.
165). The review is a part of the system of checks and balances which is a limitation
on the separation of powers and which forestalls arbitrary and unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising quasi-
judicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of
discretion, fraud or collusion or in case the administrative decision is corrupt, arbitrary
or capricious (Mafinco Trading Corporation vs. Ople, L-37790, March 25, 1976, 70
SCRA 139, 158; San Miguel Corporation vs. Secretary of Labor, L-39195, May 16,
1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of Batangas, 56 Phil.
260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax under
those laws; that articles 415 and 416 of the Civil Code, defining real and personal
property, have no application to this case; that even under article 415, the steel pipes
can be regarded as realty because they are constructions adhered to the soil and things
attached to the land in a fixed manner and that Meralco Securities is not exempt from
realty tax under the Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is not
real property within the meaning of article 415. This contention is not sustainable under
the provisions of the Assessment Law, the Real Property Tax Code and the Civil Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted. *
It is incontestable that the pipeline of Meralco Securities does not fall within any of the
classes of exempt real property enumerated in section 3 of the Assessment Law and
section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in
the earth, carrying with it the right to the use of the soil in which it is placed (Note
21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may consist of constructions of all kinds
adhered to the soil and everything attached to an immovable in a fixed manner, in such
a way that it cannot be separated therefrom without breaking the material or
deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil (Exh.
B, p. 39, Rollo). It is attached to the land in such a way that it cannot be separated
therefrom without dismantling the steel pipes which were welded to form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of
oil, it is in a sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are not
the steel pipes but the pipeline system as a whole. Meralco Securities has apparently
two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax purposes
(Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of
Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed.
2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it from
the payment of realty taxes. The alleged exemption is predicated on the following
provisions of that law which exempt Meralco Securities from local taxes and make it
liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed.
Work obligations, special taxes and royalties which are fixed by the
provisions of this Act or by the concession for any of the kinds of
concessions to which this Act relates, are considered as inherent on
such concessions after they are granted, and shall not be increased
or decreased during the life of the concession to which they apply;
nor shall any other special taxes or levies be applied to such
concessions, nor shall 0concessionaires under this Act be subject to
any provincial, municipal or other local taxes or levies; nor shall any
sales tax be charged on any petroleum produced from the
concession or portion thereof, manufactured by the concessionaire
and used in the working of his concession. All such concessionaires,
however, shall be subject to such taxes as are of general
application in addition to taxes and other levies specifically provided
in this Act.
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always been
imposed by the lawmaking body and later by the President of the Philippines in the
exercise of his lawmaking powers, as shown in section 342 et seq. of the Revised
Administrative Code, Act No. 3995, Commonwealth Act No. 470 and Presidential
Decree No. 464.
The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city, municipality
and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local
tax is imposed by the municipal or city council by virtue of the Local Tax Code,
Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G. 6197).
We hold that the Central Board of Assessment Appeals did not act with grave abuse of
discretion, did not commit any error of law and acted within its jurisdiction in sustaining
the holding of the provincial assessor and the local board of assessment appeals that
Meralco Securities' pipeline system in Laguna is subject to realty tax.

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

SO ORDERED.