G.R. No.

L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and as set forth
by
counsel for the parties on appeal, involves the determination of the nature of the properties described in the
complaint. The trial judge found that those properties were personal in nature, and as a consequence absolved
the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine
Islands.
It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao, Province of Davao.
However,
the land upon which the business was conducted belonged to another person. On the land the sawmill
company
erected a building which housed the machinery used by it. Some of the implements thus used were clearly
personal property, the conflict concerning machines which were placed and mounted on foundations of
cement. In
the contract of lease between the sawmill company and the owner of the land there appeared the following
provision:
That on the expiration of the period agreed upon, all the improvements and buildings introduced and
erected by the party of the second part shall pass to the exclusive ownership of the party of the first part
without any obligation on its part to pay any amount for said improvements and buildings; also, in the event
the party of the second part should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first part as though the
time agreed upon had expired: Provided, however, That the machineries and accessories are not included
in the improvements which will pass to the party of the first part on the expiration or abandonment of the
land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co.,
Inc.,
was the defendant, a judgment was rendered in favor of the plaintiff in that action against the defendant in that
action; a writ of execution issued thereon, and the properties now in question were levied upon as personalty
by
the sheriff. No third party claim was filed for such properties at the time of the sales thereof as is borne out by
the
record made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant
herein having consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a
number
of occasions treated the machinery as personal property by executing chattel mortgages in favor of third
persons.
One of such persons is the appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of

1. Land, buildings, roads and constructions of all kinds adhering to the soil;
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5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for
use in connection with any industry or trade being carried on therein and which are expressly adapted to
meet the requirements of such trade of industry.
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Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no doubt
that the trial judge and appellees are right in their appreciation of the legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest before or at
the
time of the sale of this property. It must further be pointed out that while not conclusive, the characterization of
the
property as chattels by the appellant is indicative of intention and impresses upon the property the character
determined by the parties. In this connection the decision of this court in the case of Standard Oil Co. of New
York
vs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It is
machinery which is involved; moreover, machinery not intended by the owner of any building or land for use in

connection therewith, but intended by a lessee for use in a building erected on the land by the latter to be
returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was
held that machinery which is movable in its nature only becomes immobilized when placed in a plant by the
owner
of the property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of the owner. In the opinion written by Chief Justice
White,
whose knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the property from the point of view of
the rights of Valdes and its nature and character from the point of view of Nevers & Callaghan as a
judgment creditor of the Altagracia Company and the rights derived by them from the execution levied on
the machinery placed by the corporation in the plant. Following the Code Napoleon, the Porto Rican Code
treats as immovable (real) property, not only land and buildings, but also attributes immovability in some
cases to property of a movable nature, that is, personal property, because of the destination to which it is
applied. "Things," says section 334 of the Porto Rican Code, "may be immovable either by their own nature
or by their destination or the object to which they are applicable." Numerous illustrations are given in the fifth
subdivision of section 335, which is as follows: "Machinery, vessels, instruments or implements intended by
the owner of the tenements for the industrial or works that they may carry on in any building or upon any
land and which tend directly to meet the needs of the said industry or works." (See also Code Nap., articles
516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with which we are dealing machinery placed
in the plant it is plain, both under the provisions of the Porto Rican Law and of the Code Napoleon, that
machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of
the property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a
plant by a tenant or a usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No.
203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in FuzierHerman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by Demolombe,
upon the fact that one only having a temporary right to the possession or enjoyment of property is not
presumed by the law to have applied movable property belonging to him so as to deprive him of it by
causing it by an act of immobilization to become the property of another. It follows that abstractly speaking
the machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete immobilization took place
because of the express provisions of the lease under which the Altagracia held, since the lease in
substance required the putting in of improved machinery, deprived the tenant of any right to charge against
the lessor the cost such machinery, and it was expressly stipulated that the machinery so put in should
become a part of the plant belonging to the owner without compensation to the lessee. Under such
conditions the tenant in putting in the machinery was acting but as the agent of the owner in compliance with
the obligations resting upon him, and the immobilization of the machinery which resulted arose in legal effect
from the act of the owner in giving by contract a permanent destination to the machinery.
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The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the
Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that they had the
right to levy on it under the execution upon the judgment in their favor, and the exercise of that right did not
in a legal sense conflict with the claim of Valdes, since as to him the property was a part of the realty which,
as the result of his obligations under the lease, he could not, for the purpose of collecting his debt, proceed
separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this instance
to be paid by the appellant.

B.H. BERKENKOTTER, plaintiff-appellant,

vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR
COMPANY and THE PROVINCE SHERIFF OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
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 the original mortgage deed, on April 27, 1927,
together with whatever additional equipment acquired with said loan. B.A. Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not
collected when the obligation falls due, and the amount of any indemnities paid or due the owner by the
insurers of the mortgaged property or by virtue of the exercise of the power of eminent domain, with the
declarations, amplifications, and limitations established by law, whether the estate continues in the
possession of the person who mortgaged it or whether it passes into the hands of a third person.
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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 plaintiffappellant
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.

ENRIQUE LOPEZ, petitioner,

vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.
Nicolas Belmonte and Benjamin T. de Peralta for petitioner.
Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay for respondent
Plaza Theatre, Inc.
FELIX, J.:
Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-Castelo
Sawmill.
Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province, dropped at Lopez' house and
invited him to make an investment in the theatre business. It was intimated that Orosa, his family and close
friends
were organizing a corporation to be known as Plaza Theatre, Inc., that would engage in such venture. Although
Lopez expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for the
construction of the proposed theatre, and at Orosa's behest and assurance that the latter would be personally
liable for any account that the said construction might incur, Lopez further agreed that payment therefor would
be
on demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered the lumber
which
was used for the construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But
of
the total cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a
balance
of P41,771.35.
We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of 679.17
square
meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation on September 25, 1946, for
P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid obligation, the latter and Belarmino
Rustia, the president of the corporation, promised to obtain a bank loan by mortgaging the properties of the
Plaza
Theatre., out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to accede.
Unknown to him, however, as early as November, 1946, the corporation already got a loan for P30,000 from
the
Philippine National Bank with the Luzon Surety Company as surety, and the corporation in turn executed a
mortgage on the land and building in favor of said company as counter-security. As the land at that time was
not
yet brought under the operation of the Torrens System, the mortgage on the same was registered on
November
16, 1946, under Act No. 3344. Subsequently, when the corporation applied for the registration of the land under
Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was correspondingly
issued on October 25, 1947, without any encumbrance appearing thereon.
Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to execute on
March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the Plaza Theater, Inc., at P100
per share or with a total value of P42,000 in favor of the creditor, and as the obligation still remained unsettled,
Lopez filed on November 12, 1947, a complaint with the Court of First Instance of Batangas (Civil Case No.
4501
which later became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be
sentenced to pay him jointly and severally the sum of P41,771.35, with legal interest from the firing of the
action;
that in case defendants fail to pay the same, that the building and the land covered by OCT No. O-391 owned
by
the corporation be sold at public auction and the proceeds thereof be applied to said indebtedness; or that the
420 shares of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be
sold
at public auction for the same purpose; and for such other remedies as may be warranted by the
circumstances.
Plaintiff also caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.
Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that the
materials
were delivered to him as a promoter and later treasurer of the corporation, because he had purchased and
received the same on his personal account; that the land on which the movie house was constructed was not
charged with a lien to secure the payment of the aforementioned unpaid obligation; and that the 420 shares of
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stock of the Plaza Theatre, Inc., was not assigned to plaintiff as collaterals but as direct security for the
payment of
his indebtedness. As special defense, this defendant contended that as the 420 shares of stock assigned and

conveyed by the assignor and accepted by Lopez as direct security for the payment of the amount of
P41,771.35
were personal properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale thereof
at
public auction would not be sufficient to cover and satisfy the obligation. It was thus prayed that he be declared
exempted from the payment of any deficiency in case the proceeds from the sale of said personal properties
would
not be enough to cover the amount sought to be collected.
Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by alleging that
the
building materials delivered to Orosa were on the latter's personal account; and that there was no
understanding
that said materials would be paid jointly and severally by Orosa and the corporation, nor was a lien charged on
the
properties of the latter to secure payment of the same obligation. As special defense, defendant corporation
averred that while it was true that the materials purchased by Orosa were sold by the latter to the corporation,
such transactions were in good faith and for valuable consideration thus when plaintiff failed to claim said
materials
within 30 days from the time of removal thereof from Orosa, lumber became a different and distinct specie and
plaintiff lost whatever rights he might have in the same and consequently had no recourse against the Plaza
Theatre, Inc., that the claim could not have been refectionary credit, for such kind of obligation referred to an
indebtedness incurred in the repair or reconstruction of something already existing and this concept did not
include an entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14, 1946,
it
could not have contracted any obligation prior to said date. It was, therefore, prayed that the complaint be
dismissed; that said defendant be awarded the sum P 5,000 for damages, and such other relief as may be just
and proper in the premises.
The surety company, in the meantime, upon discovery that the land was already registered under the Torrens
System and that there was a notice of lis pendens thereon, filed on August 17, 1948, or within the 1-year period
after the issuance of the certificate of title, a petition for review of the decree of the land registration court dated
October 18, 1947, which was made the basis of OCT No. O-319, in order to annotate the rights and interests of
the surety company over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition
thereto
was offered by Enrique Lopez, asserting that the amount demanded by him constituted a preferred lien over
the
properties of the obligors; that the surety company was guilty of negligence when it failed to present an
opposition
to the application for registration of the property; and that if any violation of the rights and interest of said surety
would ever be made, same must be subject to the lien in his favor.
The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, after making an
exhaustive and detailed analysis of the respective stands of the parties and the evidence adduced at the trial,
held
that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid balance of the
cost of lumber used in the construction of the building and the plaintiff thus acquired the materialman's lien over
the same. In making the pronouncement that the lien was merely confined to the building and did not extend to
the
land on which the construction was made, the trial judge took into consideration the fact that when plaintiff
started
the delivery of lumber in May, 1946, the land was not yet owned by the corporation; that the mortgage in favor
of
Luzon Surety Company was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the
old Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings which are
also
classified as real properties, upon which said refection was made. It was, however, declared that plaintiff's lien
on
the building was superior to the right of the surety company. And finding that the Plaza Theatre, Inc., had no
objection to the review of the decree issued in its favor by the land registration court and the inclusion in the
title of
the encumbrance in favor of the surety company, the court a quo granted the petition filed by the latter
company.
Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay jointly the amount of P41,771.35 with
legal interest and costs within 90 days from notice of said decision; that in case of default, the 420 shares of
stock
assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to the payment of
the
amount due the plaintiff, plus interest and costs; and that the encumbrance in favor of the surety company be

endorsed at the back of OCT No. O-391, with notation I that with respect to the building, said mortgage was
subject to the materialman's lien in favor of Enrique Lopez.
Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of therein
defendants was joint instead of solidary, and that the lien did not extend to the land, but same was denied by
order
the court of December 23, 1952. The matter was thus appealed to the Court of appeals, which affirmed the
lower
court's ruling, and then to this Tribunal. In this instance, plaintiff-appellant raises 2 issues: (1) whether a
materialman's lien for the value of the materials used in the construction of a building attaches to said structure
alone and does not extend to the land on which the building is adhered to; and (2) whether the lower court and
the
Court of Appeals erred in not providing that the material mans liens is superior to the mortgage executed in
favor
surety company not only on the building but also on the land.
It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of the decision
sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We will not take
up
or consider anything on that point. Appellant, however, contends that the lien created in favor of the furnisher of
the materials used for the construction, repair or refection of a building, is also extended to the land which the
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construction was made, and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent
law on
the matter, which reads as follows:
ART. 1923. With respect to determinate real property and real rights of the debtor, the following are
preferred:
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5. Credits for refection, not entered or recorded, with respect to the estate upon which the refection was
made, and only with respect to other credits different from those mentioned in four preceding paragraphs.
It is argued that in view of the employment of the phrase real estate, or immovable property, and inasmuch as
said
provision does not contain any specification delimiting the lien to the building, said article must be construed as
to
embrace both the land and the building or structure adhering thereto. We cannot subscribe to this view, for
while it
is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the
inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real
properties1 could mean only one thing that a building is by itself an immovable property, a doctrine already
pronounced by this Court in the case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover, and in
view
of the absence of any specific provision of law to the contrary, a building is an immovable property, irrespective
of
whether or not said structure and the land on which it is adhered to belong to the same owner.
A close examination of the provision of the Civil Code invoked by appellant reveals that the law gives
preference to
unregistered refectionary credits only with respect to the real estate upon which the refection or work was
made.
This being so, the inevitable conclusion must be that the lien so created attaches merely to the immovable
property for the construction or repair of which the obligation was incurred. Evidently, therefore, the lien in favor
of
appellant for the unpaid value of the lumber used in the construction of the building attaches only to said
structure
and to no other property of the obligors.
Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only to the
building
for which the credit was made or which received the benefit of refection, the lower court was right in, holding at
the
interest of the mortgagee over the land is superior and cannot be made subject to the said materialman's lien.
Wherefore, and on the strength of the foregoing considerations, the decision appealed from is hereby affirmed,
with costs against appellant. It is so ordered.

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
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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
defendantsappellants
who are entitled to possession and not plaintiffs-appellees. Therefore, it is argued by defendantsappellants,
the issue of ownership will have to be adjudicated first in order to determine possession. lt is
contended further that ownership being in issue, it is the Court of First Instance which has jurisdiction and not
the
municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds, which are: (a)
that,
their signatures on the chattel mortgage were obtained through fraud, deceit, or trickery; and (b) that the
subject
matter of the mortgage is a house of strong materials, and, being an immovable, it can only be the subject of a
real estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants' contentions
as
not supported by evidence and accordingly dismissed the charge, 8 confirming the earlier finding of the municipal
court
that "the defense of ownership as well as the allegations of fraud and deceit ... are mere allegations." 9
It has been held in Supia and Batiaco vs. Quintero and Ayala 10 that "the answer is a mere statement of the facts
which the party filing it expects to prove, but it is not evidence; 11 and further, that when the question to be
determined is
one of title, the Court is given the authority to proceed with the hearing of the cause until this fact is clearly
established. In
the case of Sy vs. Dalman, 12 wherein the defendant was also a successful bidder in an auction sale, it was likewise
held by
this Court that in detainer cases the aim of ownership "is a matter of defense and raises an issue of fact which should
be
determined from the evidence at the trial." What determines jurisdiction are the allegations or averments in the
complaint and
the relief asked for. 13

Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab initio, and
can
only be a ground for rendering the contract voidable or annullable pursuant to Article 1390 of the New Civil
Code,
by a proper action in court. 14 There is nothing on record to show that the mortgage has been annulled. Neither is it
disclosed that steps were taken to nullify the same. Hence, defendants-appellants' claim of ownership on the basis of
a
voidable contract which has not been voided fails.
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voidable contract which has not been voided fails.

It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or trickery, the
chattel mortgage was still null and void ab initio because only personal properties can be subject of a chattel
mortgage. The rule about the status of buildings as immovable property is stated in Lopez vs. Orosa, Jr. and
Plaza
Theatre Inc., 15 cited in Associated Insurance Surety Co., Inc. vs. Iya, et al. 16 to the effect that
... it is obvious that the inclusion of the building, separate and distinct from the land, in the
enumeration of what may constitute real properties (art. 415, New Civil Code) could only mean one
thing that a building is by itself an immovable property irrespective of whether or not said structure
and the land on which it is adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case of Manarang and Manarang
vs.
Ofilada, 17 this Court stated that "it is undeniable that the parties to a contract may by agreement treat as personal
property
that which by nature would be real property", citing Standard Oil Company of New York vs. Jaramillo. 18 In the latter
case,
the mortgagor conveyed and transferred to the mortgagee by way of mortgage "the following described personal
property." 19
The "personal property" consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion, 20
the
subject of the contract designated as Chattel Mortgage was a house of mixed materials, and this Court hold therein
that it
was a valid Chattel mortgage because it was so expressly designated and specifically that the property given as
security "is
a house of mixed materials, which by its very nature is considered personal property." In the later case of Navarro vs.
Pineda, 21 this Court stated that

The view that parties to a deed of chattel mortgage may agree to consider a house as personal
property for the purposes of said contract, "is good only insofar as the contracting parties are
concerned. It is based, partly, upon the principle of estoppel" (Evangelista vs. Alto Surety, No. L11139, 23 April 1958). In a case, a mortgaged house built on a rented land was held to be a personal
property, not only because the deed of mortgage considered it as such, but also because it did not
form part of the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an object
placed on land by one who had only a temporary right to the same, such as the lessee or
usufructuary, does not become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S.
58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a
person stands on a rented land belonging to another person, it may be mortgaged as a personal
property as so stipulated in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be
noted, however that the principle is predicated on statements by the owner declaring his house to be
a chattel, a conduct that may conceivably estop him from subsequently claiming otherwise. (Ladera
vs. C.N. Hodges, [CA] 48 O.G. 5374): 22
In the contract now before Us, the house on rented land is not only expressly designated as Chattel Mortgage;
it
specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by way of Chattel
Mortgage 23 the property together with its leasehold rights over the lot on which it is constructed and participation ..."
24

Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house
as
chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an
inconsistent
stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendats-appellants merely
had a
temporary right as lessee, and although this can not in itself alone determine the status of the property, it does so
when
combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat
the
house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee
vs. F.
L. Strong Machinery and Williamson, 26 wherein third persons assailed the validity of the chattel mortgage, 27 it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in
this case.
The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the subject house as
personalty.

(b) Turning to the question of possession and rentals of the premises in question. The Court of First Instance
noted in its decision that nearly a year after the foreclosure sale the mortgaged house had been demolished on
14 and 15 January 1957 by virtue of a decision obtained by the lessor of the land on which the house stood.
For
this reason, the said court limited itself to sentencing the erstwhile mortgagors to pay plaintiffs a monthly rent of
P200.00 from 27 March 1956 (when the chattel mortgage was foreclosed and the house sold) until 14 January

1957 (when it was torn down by the Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled to remain in possession without
any
obligation to pay rent during the one year redemption period after the foreclosure sale, i.e., until 27 March
1957.
On this issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508. 28 Section 14 of this
Act
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allows the mortgagee to have the property mortgaged sold at public auction through a public officer in almost the
same
manner as that allowed by Act No. 3135, as amended by Act No. 4118, provided that the requirements of the law
relative to
notice and registration are complied with. 29 In the instant case, the parties specifically stipulated that "the chattel
mortgage
will be enforceable in accordance with the provisions of Special Act No. 3135 ... ." 30 (Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein) may, at any
time
within one year from and after the date of the auction sale, redeem the property sold at the extra judicial foreclosure
sale.
Section 7 of the same Act 32 allows the purchaser of the property to obtain from the court the possession during the
period
of redemption: but the same provision expressly requires the filing of a petition with the proper Court of First Instance
and the
furnishing of a bond. It is only upon filing of the proper motion and the approval of the corresponding bond that the
order for a
writ of possession issues as a matter of course. No discretion is left to the court. 33 In the absence of such a
compliance,
as in the instant case, the purchaser can not claim possession during the period of redemption as a matter of right. In
such a
case, the governing provision is Section 34, Rule 39, of the Revised Rules of Court 34 which also applies to
properties
purchased in extrajudicial foreclosure proceedings. 35 Construing the said section, this Court stated in the
aforestated case
of Reyes vs. Hamada.

In other words, before the expiration of the 1-year period within which the judgment-debtor or
mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of right, to
possession of the same. Thus, while it is true that the Rules of Court allow the purchaser to receive
the rentals if the purchased property is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount so received and the same will be
duly credited against the redemption price when the said debtor or mortgagor effects the redemption.
Differently stated, the rentals receivable from tenants, although they may be collected by the
purchaser during the redemption period, do not belong to the latter but still pertain to the debtor of
mortgagor. The rationale for the Rule, it seems, is to secure for the benefit of the debtor or
mortgagor, the payment of the redemption amount and the consequent return to him of his properties
sold at public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe. 36
Since the defendants-appellants were occupying the house at the time of the auction sale, they are entitled to
remain in possession during the period of redemption or within one year from and after 27 March 1956, the
date of
the auction sale, and to collect the rents or profits during the said period.
It will be noted further that in the case at bar the period of redemption had not yet expired when action was
instituted in the court of origin, and that plaintiffs-appellees did not choose to take possession under Section 7,
Act
No. 3135, as amended, which is the law selected by the parties to govern the extrajudicial foreclosure of the
chattel mortgage. Neither was there an allegation to that effect. Since plaintiffs-appellees' right to possess was
not
yet born at the filing of the complaint, there could be no violation or breach thereof. Wherefore, the original
complaint stated no cause of action and was prematurely filed. For this reason, the same should be ordered
dismissed, even if there was no assignment of error to that effect. The Supreme Court is clothed with ample
authority to review palpable errors not assigned as such if it finds that their consideration is necessary in
arriving at a just decision of the cases.

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
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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 debtorsmortgagors,
who are attacking the validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-appellants, having treated the subject house as
personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as the
appellate
court did, the present case from the application of the abovequoted pronouncement. If a house of strong
materials, like what was involved in the above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no
innocent
third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature
and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress
on
the fact that the house involved therein was built on a land that did not belong to the owner of such house. But
the
law makes no distinction with respect to the ownership of the land on which the house is built and We should
not
lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is
indicative of intention and impresses upon the property the character determined by the parties. As stated 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 and equipment involved therein as real properties never having been disputed nor in issue, and they were
not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the
instant case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set
aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent.
SO ORDERED.

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON CITY,
petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the Municipal Board of
Manila to grant a franchise to construct, maintain and operate an electric street railway and electric light, heat
and
power system in the City of Manila and its suburbs to the person or persons making the most favorable bid.
Charles M. Swift was awarded the said franchise on March 1903, the terms and conditions of which were
embodied
in Ordinance No. 44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became
the transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna and is
transmitted to the City of Manila by means of electric transmission wires, running from the province of Laguna
to
the said City. These electric transmission wires which carry high voltage current, are fastened to insulators
attached on steel towers constructed by respondent at intervals, from its hydro-electric plant in the province of
Laguna to the City of Manila. The respondent Meralco has constructed 40 of these steel towers within Quezon
City, on land belonging to it. A photograph of one of these steel towers is attached to the petition for review,
marked Annex A. Three steel towers were inspected by the lower court and parties and the following were the
descriptions given there of by said court:
The first steel tower is located in South Tatalon, Espaa Extension, Quezon City. The findings were as
follows: the ground around one of the four posts was excavated to a depth of about eight (8) feet, with an
opening of about one (1) meter in diameter, decreased to about a quarter of a meter as it we deeper until it
reached the bottom of the post; at the bottom of the post were two parallel steel bars attached to the leg
means of bolts; the tower proper was attached to the leg three bolts; with two cross metals to prevent
mobility; there was no concrete foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be determined with certainty to
whether said adobe stone was placed purposely or not, as the place abounds with this kind of stone; and
the tower carried five high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land owned by the
petitioner approximate more than one kilometer from the first tower. As in the first tower, the ground around
one of the four legs was excavate from seven to eight (8) feet deep and one and a half (1-) meters wide.
There being very little water at the bottom, it was seen that there was no concrete foundation, but there soft
adobe beneath. The leg was likewise provided with two parallel steel bars bolted to a square metal frame
also bolted to each corner. Like the first one, the second tower is made up of metal rods joined together by
means of bolts, so that by unscrewing the bolts, the tower could be dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two towers given above,
the ground around the two legs of the third tower was excavated to a depth about two or three inches
beyond the outside level of the steel bar foundation. It was found that there was no concrete foundation.
Like the two previous ones, the bottom arrangement of the legs thereof were found to be resting on soft
adobe, which, probably due to high humidity, looks like mud or clay. It was also found that the square metal
frame supporting the legs were not attached to any material or foundation.
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On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers for real
property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's petition to cancel these
declarations, an appeal was taken by respondent to the Board of Assessment Appeals of Quezon City, which
required respondent to pay the amount of P11,651.86 as real property tax on the said steel towers for the years
1952 to 1956. Respondent paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA for short) which rendered a decision on December 29, 1958, ordering the cancellation of the said
tax declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant petition for
review
was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term "poles"
which
are declared exempt from taxes under part II paragraph 9 of respondent's franchise; (2) the steel towers are
personal properties and are not subject to real property tax; and (3) the City Treasurer of Quezon City is held
responsible for the refund of the amount paid. These are assigned as errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including
poles, wires, transformers, and insulators), machinery and personal property as other persons are or may

be hereafter required by law to pay ... Said percentage shall be due and payable at the time stated in
paragraph nineteen of Part One hereof, ... and shall be in lieu of all taxes and assessments of whatsoever
nature and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee from which taxes and assessments the grantee is hereby
expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as typically
the
stem of a small tree stripped of its branches; also by extension, a similar typically cylindrical piece or object of
metal or the like". The term also refers to "an upright standard to the top of which something is affixed or by
which
something is supported; as a dovecote set on a pole; telegraph poles; a tent pole; sometimes, specifically a
vessel's master (Webster's New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of
Manila,
may be seen cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co. which are made of two
steel bars joined together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they
are no made of wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for
which
exemption is granted, is not determined by their place or location, nor by the character of the electric current it
carries, nor the material or form of which it is made, but the use to which they are dedicated. In accordance
with
the definitions, pole is not restricted to a long cylindrical piece of wood or metal, but includes "upright standards
to
the top of which something is affixed or by which something is supported. As heretofore described,
respondent's
steel supports consists of a framework of four steel bars or strips which are bound by steel cross-arms atop of
which are cross-arms supporting five high voltage transmission wires (See Annex A) and their sole function is
to
support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not a novelty.
Several courts of last resort in the United States have called these steel supports "steel towers", and they
denominated these supports or towers, as electric poles. In their decisions the words "towers" and "poles" were
used interchangeably, and it is well understood in that jurisdiction that a transmission tower or pole means the
same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law provided that wires shall
be
constructed upon suitable poles, this term was construed to mean either wood or metal poles and in view of the
land being subject to overflow, and the necessary carrying of numerous wires and the distance between poles,
the
statute was interpreted to include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224;
32-A
Words and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an association used to
convey
its electric power furnished to subscribers and members, constructed for the purpose of fastening high voltage
and dangerous electric wires alongside public highways. The steel supports or towers were made of iron or
other
metals consisting of two pieces running from the ground up some thirty feet high, being wider at the bottom
than at
the top, the said two metal pieces being connected with criss-cross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage electricity. In form and structure, they are like the steel
towers in question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged in the generation of
hydroelectric
power generated from its plant to the Tower of Oxford and City of Waterbury. These steel towers are about
15 feet square at the base and extended to a height of about 35 feet to a point, and are embedded in the
cement
foundations sunk in the earth, the top of which extends above the surface of the soil in the tower of Oxford, and
to
the towers are attached insulators, arms, and other equipment capable of carrying wires for the transmission of
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electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his death was built for the
purpose of supporting a transmission wire used for carrying high-tension electric power, but claimed that the
steel
towers on which it is carried were so large that their wire took their structure out of the definition of a pole line. It
was held that in defining the word pole, one should not be governed by the wire or material of the support used,

but was considering the danger from any elevated wire carrying electric current, and that regardless of the size
or
material wire of its individual members, any continuous series of structures intended and used solely or
primarily
for the purpose of supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper
Co. v.
Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the petitioner's
franchise,
should not be given a restrictive and narrow interpretation, as to defeat the very object for which the franchise
was
granted. The poles as contemplated thereon, should be understood and taken as a part of the electric power
system of the respondent Meralco, for the conveyance of electric current from the source thereof to its
consumers.
If the respondent would be required to employ "wooden poles", or "rounded poles" as it used to do fifty years
back,
then one should admit that the Philippines is one century behind the age of space. It should also be conceded
by
now that steel towers, like the ones in question, for obvious reasons, can better effectuate the purpose for
which
the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are not embraced within the
term poles, the logical question posited is whether they constitute real properties, so that they can be subject to
a
real property tax. The tax law does not provide for a definition of real property; but Article 415 of the Civil Code
does, by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxxxxxxxx
(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;
xxxxxxxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried in a building or on a piece of land, and which tends directly to meet
the needs of the said industry or works;
xxxxxxxxx
The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because
they
do not constitute buildings or constructions adhered to the soil. They are not construction analogous to
buildings
nor adhering to the soil. As per description, given by the lower court, they are removable and merely attached
to a
square metal frame by means of bolts, which when unscrewed could easily be dismantled and moved from
place to
place. They can not be included under paragraph 3, as they are not attached to an immovable in a fixed
manner,
and they can be separated without breaking the material or causing deterioration upon the object to which they
are attached. Each of these steel towers or supports consists of steel bars or metal strips, joined together by
means of bolts, which can be disassembled by unscrewing the bolts and reassembled by screwing the same.
These steel towers or supports do not also fall under paragraph 5, for they are not machineries, receptacles,
instruments or implements, and even if they were, they are not intended for industry or works on the land.
Petitioner is not engaged in an industry or works in the land in which the steel supports or towers are
constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the sum of
P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued that as the City Treasurer
is
not the real party in interest, but Quezon City, which was not a party to the suit, notwithstanding its capacity to
sue
and be sued, he should not be ordered to effect the refund. This question has not been raised in the court
below,
and, therefore, it cannot be properly raised for the first time on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any; for factually, it was he (City Treasurer) whom had insisted
that respondent herein pay the real estate taxes, which respondent paid under protest. Having acted in his
official
capacity as City Treasurer of Quezon City, he would surely know what to do, under the circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.

MANILA ELECTRIC COMPANY, petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF BATANGAS and
PROVINCIAL ASSESSOR OF BATANGAS, respondents.
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by Manila Electric
Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are
within
the Caltex refinery compound. They have a total capacity of 566,000 barrels. They are used for storing fuel oil
for
Meralco's power plants.
According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot. Their
bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad as the
intermediate layer and a two-inch thick bituminous asphalt stratum as the top layer. The bottom of each tank is
in
contact with the asphalt layer,
The steel sides of the tank are directly supported underneath by a circular wall made of concrete, eighteen
inches
thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is not attached to its foundation. It
is
not anchored or welded to the concrete circular wall. Its bottom plate is not attached to any part of the
foundation
by bolts, screws or similar devices. The tank merely sits on its foundation. Each empty tank can be floated by
flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central Board of Assessment Appeals, the
area
where the two tanks are located is enclosed with earthen dikes with electric steel poles on top thereof and is
divided into two parts as the site of each tank. The foundation of the tanks is elevated from the remaining area.
On
both sides of the earthen dikes are two separate concrete steps leading to the foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines were
installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises Industrial
Corporation whose buildings and pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and the walls,
dikes
and steps, which are integral parts of the tanks, are affixed to the land while the pipelines are attached to the
tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an assessment
made by the provincial assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period
from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco
to
pay the tax and penalties as a condition for entertaining its appeal from the adverse decision of the Batangas
board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M. Almanzor as
chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and Community
Development Jose Roo as members) in its decision dated November 5, 1976 ruled that the tanks together
with
the foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a motion for
reconsideration which the Board denied in its resolution of November 25, 1977, a copy of which was received
by
Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and
resolution.
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On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and
resolution.
It contends that the Board acted without jurisdiction and committed a grave error of law in holding that its
storage
tanks are taxable real property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property enumerated
in
article 415 of the Civil Code and, therefore, they cannot be categorized as realty by nature, by incorporation, by
destination nor by analogy. Stress is laid on the fact that the tanks are not attached to the land and that they
were
placed on leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on the classification of property where

strong divergent opinions are inevitable. The issue raised by Meralco has to be resolved in the light of the
provisions of the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is
reproduced
with some modification in the Real Property Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property not hereinafter specifically
exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and intended
to enhance its value, beauty or utility or to adapt it for new or further purposes.
We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered
as
improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that
the
two tanks have been installed with some degree of permanence as receptacles for the considerable quantities
of
oil needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd
271.
For purposes of taxation, the term "real property" may include things which should generally be regarded as
personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property (Standard Oil Co. of
New
York vs. Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein Meralco's steel
towers were held not to be subject to realty tax, is not in point because in that case the steel towers were
regarded
as poles and under its franchise Meralco's poles are exempt from taxation. Moreover, the steel towers were not
attached to any land or building. They were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where
the
tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held not
subject to realty tax because they were personal property.
WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are affirmed. No
costs.
SO ORDERED.

CALTEX (PHILIPPINES) INC., petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.
AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in its gas
stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks,
gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and
tireflators. The city assessor described the said equipment and machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is erected, a water tank if there is
any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air compressor is
attached in the wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed. This is done to prevent conflagration because
gasoline and other combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump and the gasoline pump is
commonly placed or constructed under the shed. The footing of the pump is a cement pad and this
cement pad is imbedded in the pavement under the shed, and evidence that the gasoline
underground tank is attached and connected to the shed or building through the pipe to the pump
and the pump is attached and affixed to the cement pad and pavement covered by the roof of the
building or shed.
The building or shed, the elevated water tank, the car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon lights signboard, concrete fence and pavement
and the lot where they are all placed or erected, all of them used in the pursuance of the gasoline
service station business formed the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the tenement, it is clear they are, for
the tenement we consider in this particular case are (is) the pavement covering the entire lot which
was constructed by the owner of the gasoline station and the improvement which holds all the
properties under question, they are attached and affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as well as all the improvements,
machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the
water tank it is connected also by a steel pipe to the pavement, then to the electric motor which
electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and
underground tanks are outside of the service station, and to consider only the building as the service
station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease
agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to
Caltex
the machines and equipment in good condition as when received, ordinary wear and tear excepted.
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The lessor of the land, where the gas station is located, does not become the owner of the machines and
equipment installed therein. Caltex retains the ownership thereof during the term of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and machinery as
taxable
realty. The realty tax on said equipment amounts to P4,541.10 annually (p. 52, Rollo). The city board of tax
appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting Secretary of
Justice
Catalino Macaraig, Jr. and Secretary of Local Government and Community Development Jose Roo, held in its
decision of June 3, 1977 that the said machines and equipment are real property within the meaning of
sections
3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1,
1974,
and that the definitions of real property and personal property in articles 415 and 416 of the Civil Code are not
applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in its resolution
of
January 12, 1978, denying Caltex's motion for reconsideration, a copy of which was received by its lawyer on
April
2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the Board's decision
and for a declaration that t he said machines and equipment are personal property not subject to realty tax (p.
16,
Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate jurisdiction over this
case
is not correct. When Republic act No. 1125 created the Tax Court in 1954, there was as yet no Central Board
of
Assessment Appeals. Section 7(3) of that law in providing that the Tax Court had jurisdiction to review by
appeal
decisions of provincial or city boards of assessment appeals had in mind the local boards of assessment
appeals
but not the Central Board of Assessment Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals and is, therefore, in the same
category
as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of Assessment
Appeals
shall become final and executory after the lapse of fifteen days from the receipt of its decision by the appellant.
Within that fifteen-day period, a petition for reconsideration may be filed. The Code does not provide for the
review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of the Central Board
of
Assessment Appeals is the special civil action of certiorari, the recourse resorted to herein by Caltex
(Philippines),
Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated are subject to
realty
tax. This issue has to be resolved primarily under the provisions of the Assessment Law and the Real Property
Tax
Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is
reproduced
with some modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property not hereinafter specifically
exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and intended
to enhance its value, beauty or utility or to adapt it for new or further purposes.
m) Machinery shall embrace machines, mechanical contrivances, instruments, appliances and
apparatus attached to the real estate. It includes the physical facilities available for production, as well
as the installations and appurtenant service facilities, together with all other equipment designed for
or essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned
by
Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas
station,
for without them the gas station would be useless, and which have been attached or affixed permanently to the
gas station site or embedded therein, are taxable improvements and machinery within the meaning of the
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gas station site or embedded therein, are taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized when placed
in a
plant by the owner of the property or plant but not when so placed by a tenant, a usufructuary, or any person
having only a temporary right, unless such person acted as the agent of the owner (Davao Saw Mill Co. vs.
Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery that
becomes
real property by destination. In the Davao Saw Mills case the question was whether the machinery mounted on
foundations of cement and installed by the lessee on leased land should be regarded as real property for
purposes of execution of a judgment against the lessee. The sheriff treated the machinery as personal
property.
This Court sustained the sheriff's action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of
Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty).

Here, the question is whether the gas station equipment and machinery permanently affixed by Caltex to its
gas
station and pavement (which are indubitably taxable realty) should be subject to the realty tax. This question is
different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might be considered
personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real
property
for purposes of taxation which on general principle might be considered personal property" (Standard Oil Co. of
New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119 Phil.
328,
where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its franchise which
exempts its poles from taxation. The steel towers were considered personalty because they were attached to
square metal frames by means of bolts and could be moved from place to place when unscrewed and
dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the repair shop of a
bus company which were held to be personal property not subject to realty tax (Mindanao Bus Co. vs. City
Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in upholding the city
assessor's is imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment Appeals are
affirmed.
The petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.

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

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"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.
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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.
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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 RespondentAppellee 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
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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.