G.R. No.

L-11658
1918

February 15,

LEUNG YEE, plaintiff-appellant,

vs.
FRANK L. STRONG MACHINERY COMPANY
and J. G. WILLIAMSON, defendantsappellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a
considerable quantity of rice-cleaning
machinery company from the defendant
machinery company, and executed a chattel
mortgage thereon to secure payment of the
purchase price. It included in the mortgage
deed the building of strong materials in which
the machinery was installed, without any
reference to the land on which it stood. The
indebtedness secured by this instrument not
having been paid when it fell due, the
mortgaged property was sold by the sheriff, in
pursuance of the terms of the mortgage
instrument, and was bought in by the
machinery company. The mortgage was
registered in the chattel mortgage registry, and
the sale of the property to the machinery
company in satisfaction of the mortgage was
annotated in the same registry on December
29, 1913.
A few weeks thereafter, on or about the 14th of
January, 1914, the "Compaia Agricola Filipina"
executed a deed of sale of the land upon which
the building stood to the machinery company,
but this deed of sale, although executed in a
public document, was not registered. This deed
makes no reference to the building erected on
the land and would appear to have been
executed for the purpose of curing any defects
which might be found to exist in the machinery

company's title to the building under the

sheriff's certificate of sale. The machinery
company went into possession of the building
at or about the time when this sale took place,
that is to say, the month of December, 1913,
and it has continued in possession ever since.
At or about the time when the chattel
mortgage was executed in favor of the
machinery company, the mortgagor, the
"Compaia Agricola Filipina" executed another
mortgage to the plaintiff upon the building,
separate and apart from the land on which it
stood, to secure payment of the balance of its
indebtedness to the plaintiff under a contract
for the construction of the building. Upon the
failure of the mortgagor to pay the amount of
the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount,
levied execution upon the building, bought it in
at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's
certificate of the sale duly registered in the
land registry of the Province of Cavite.
At the time when the execution was levied
upon the building, the defendant machinery
company, which was in possession, filed with
the sheriff a sworn statement setting up its
claim of title and demanding the release of the
property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an
indemnity bond in favor of the sheriff in the
sum of P12,000, in reliance upon which the
sheriff sold the property at public auction to
the plaintiff, who was the highest bidder at the
sheriff's sale.
This action was instituted by the plaintiff to
recover possession of the building from the
machinery company.
The trial judge, relying upon the terms of
article 1473 of the Civil Code, gave judgment in
favor of the machinery company, on the

ground that the company had its title to the

building registered prior to the date of registry
of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to
different vendees, the ownership shall be
transfer to the person who may have the first
taken possession thereof in good faith, if it
should be personal property.
Should it be real property, it shall belong to the
person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall
belong to the person who first took possession
of it in good faith, and, in the absence thereof,
to the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the
registry of real property, and it must be
apparent that the annotation or inscription of a
deed of sale of real property in a chattel
mortgage registry cannot be given the legal
effect of an inscription in the registry of real
property. By its express terms, the Chattel
Mortgage Law contemplates and makes
provision for mortgages of personal property;
and the sole purpose and object of the chattel
mortgage registry is to provide for the registry
of "Chattel mortgages," that is to say,
mortgages of personal property executed in
the manner and form prescribed in the statute.
The building of strong materials in which the
rice-cleaning machinery was installed by the
"Compaia Agricola Filipina" was real property,
and the mere fact that the parties seem to
have dealt with it separate and apart from the
land on which it stood in no wise changed its
character as real property. It follows that
neither the original registry in the chattel
mortgage of the building and the machinery

installed therein, not the annotation in that

registry of the sale of the mortgaged property,
had any effect whatever so far as the building
was concerned.
We conclude that the ruling in favor of the
machinery company cannot be sustained on
the ground assigned by the trial judge. We are
of opinion, however, that the judgment must
be sustained on the ground that the agreed
statement of facts in the court below discloses
that neither the purchase of the building by the
plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in
good faith, and that the machinery company
must be held to be the owner of the property
under the third paragraph of the above cited
article of the code, it appearing that the
company first took possession of the property;
and further, that the building and the land were
sold to the machinery company long prior to
the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions
of article 1473 of the Civil Code require "good
faith," in express terms, in relation to
"possession" and "title," but contain no express
requirement as to "good faith" in relation to the
"inscription" of the property on the registry, it
must be presumed that good faith is not an
essential requisite of registration in order that
it may have the effect contemplated in this
article. We cannot agree with this contention. It
could not have been the intention of the
legislator to base the preferential right secured
under this article of the code upon an
inscription of title in bad faith. Such an
interpretation placed upon the language of this
section would open wide the door to fraud and
collusion. The public records cannot be
converted into instruments of fraud and
oppression by one who secures an inscription
therein in bad faith. The force and effect given
by law to an inscription in a public record
presupposes the good faith of him who enters

such inscription; and rights created by statute,

which are predicated upon an inscription in a
public registry, do not and cannot accrue under
an inscription "in bad faith," to the benefit of
the person who thus makes the inscription.
Construing the second paragraph of this article
of the code, the supreme court of Spain held in
its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the
basis of the good faith mentioned in the first
paragraph; therefore, it having been found that
the second purchasers who record their
purchase had knowledge of the previous sale,
the question is to be decided in accordance
with the following paragraph. (Note 2, art.
1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph,
provides that the title of conveyance of
ownership of the real property that is first
recorded in the registry shall have preference,
this provision must always be understood on
the basis of the good faith mentioned in the
first paragraph; the legislator could not have
wished to strike it out and to sanction bad
faith, just to comply with a mere formality
which, in given cases, does not obtain even in
real disputes between third persons. (Note 2,
art. 1473, Civ. Code, issued by the publishers
of the La Revista de los Tribunales, 13th
edition.)
The agreed statement of facts clearly discloses
that the plaintiff, when he bought the building
at the sheriff's sale and inscribed his title in the
land registry, was duly notified that the
machinery company had bought the building
from plaintiff's judgment debtor; that it had
gone into possession long prior to the sheriff's
sale; and that it was in possession at the time
when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff

in favor of the sheriff, after the machinery

company had filed its sworn claim of
ownership, leaves no room for doubt in this
regard. Having bought in the building at the
sheriff's sale with full knowledge that at the
time of the levy and sale the building had
already been sold to the machinery company
by the judgment debtor, the plaintiff cannot be
said to have been a purchaser in good faith;
and of course, the subsequent inscription of
the sheriff's certificate of title must be held to
have been tainted with the same defect.
Perhaps we should make it clear that in holding
that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith,
we should not be understood as questioning, in
any way, the good faith and genuineness of the
plaintiff's claim against the "Compaia Agricola
Filipina." The truth is that both the plaintiff and
the defendant company appear to have had
just and righteous claims against their common
debtor. No criticism can properly be made of
the exercise of the utmost diligence by the
plaintiff in asserting and exercising his right to
recover the amount of his claim from the
estate of the common debtor. We are strongly
inclined to believe that in procuring the levy of
execution upon the factory building and in
buying it at the sheriff's sale, he considered
that he was doing no more than he had a right
to do under all the circumstances, and it is
highly possible and even probable that he
thought at that time that he would be able to
maintain his position in a contest with the
machinery company. There was no collusion on
his part with the common debtor, and no
thought of the perpetration of a fraud upon the
rights of another, in the ordinary sense of the
word. He may have hoped, and doubtless he
did hope, that the title of the machinery
company would not stand the test of an action
in a court of law; and if later developments had
confirmed his unfounded hopes, no one could

question the legality of the propriety of the

course he adopted.
But it appearing that he had full knowledge of
the machinery company's claim of ownership
when he executed the indemnity bond and
bought in the property at the sheriff's sale, and
it appearing further that the machinery
company's claim of ownership was well
founded, he cannot be said to have been an
innocent purchaser for value. He took the risk
and must stand by the consequences; and it is
in this sense that we find that he was not a
purchaser in good faith.
One who purchases real estate with knowledge
of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good
faith as against the true owner of the land or of
an interest therein; and the same rule must be
applied to one who has knowledge of facts
which should have put him upon such inquiry
and investigation as might be necessary to
acquaint him with the defects in the title of his
vendor. A purchaser cannot close his eyes to
facts which should put a reasonable man upon
his guard, and then claim that he acted in good
faith under the belief that there was no defect
in the title of the vendor. His mere refusal to
believe that such defect exists, or his willful
closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will
not make him an innocent purchaser for value,
if afterwards develops that the title was in fact
defective, and it appears that he had such
notice of the defects as would have led to its
discovery had he acted with that measure of
precaution which may reasonably be acquired
of a prudent man in a like situation. Good faith,
or lack of it, is in its analysis a question of
intention; but in ascertaining the intention by
which one is actuated on a given occasion, we
are necessarily controlled by the evidence as
to the conduct and outward acts by which
alone the inward motive may, with safety, be

determined. So it is that "the honesty of

intention," "the honest lawful intent," which
constitutes good faith implies a "freedom from
knowledge and circumstances which ought to
put a person on inquiry," and so it is that proof
of such knowledge overcomes the presumption
of good faith in which the courts always indulge
in the absence of proof to the contrary. "Good
faith, or the want of it, is not a visible, tangible
fact that can be seen or touched, but rather a
state or condition of mind which can only be
judged of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt., 504, 505; Cf.
Cardenas Lumber Co. vs. Shadel, 52 La. Ann.,
2094-2098; Pinkerton Bros. Co. vs. Bromley,
119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set
forth the disposing part of the decision and
judgment entered in the court below should be
affirmed with costs of this instance against the
appellant. So ordered.
G.R. No. L-20329

March 16, 1923

THE STANDARD OIL COMPANY OF NEW

YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds
of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal
Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer
interposed by the respondent, Joaquin
Jaramillo, register of deeds of the City of
Manila, to an original petition of the Standard
Oil Company of New York, seeking a
peremptory mandamusto compel the
respondent to record in the proper register a
document purporting to be a chattel mortgage

executed in the City of Manila by Gervasia de la

Rosa, Vda. de Vera, in favor of the Standard Oil
Company of New York.
It appears from the petition that on November
27, 1922, Gervasia de la Rosa, Vda. de Vera,
was the lessee of a parcel of land situated in
the City of Manila and owner of the house of
strong materials built thereon, upon which date
she executed a document in the form of a
chattel mortgage, purporting to convey to the
petitioner by way of mortgage both the
leasehold interest in said lot and the building
which stands thereon.
The clauses in said document describing the
property intended to be thus mortgage are
expressed in the following words:
Now, therefore, the mortgagor hereby conveys
and transfer to the mortgage, by way of
mortgage, the following described personal
property, situated in the City of Manila, and
now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the
mortgagor in and to the contract of lease
hereinabove referred to, and in and to the
premises the subject of the said lease;
(2) The building, property of the mortgagor,
situated on the aforesaid leased premises.
After said document had been duly
acknowledge and delivered, the petitioner
caused the same to be presented to the
respondent, Joaquin Jaramillo, as register of
deeds of the City of Manila, for the purpose of
having the same recorded in the book of record
of chattel mortgages. Upon examination of the
instrument, the respondent was of the opinion
that it was not a chattel mortgage, for the
reason that the interest therein mortgaged did
not appear to be personal property, within the

meaning of the Chattel Mortgage Law, and

registration was refused on this ground only.
We are of the opinion that the position taken by
the respondent is untenable; and it is his duty
to accept the proper fee and place the
instrument on record. The duties of a register
of deeds in respect to the registration of
chattel mortgage are of a purely ministerial
character; and no provision of law can be cited
which confers upon him any judicial or quasijudicial power to determine the nature of any
document of which registration is sought as a
chattel mortgage.
The original provisions touching this matter are
contained in section 15 of the Chattel Mortgage
Law (Act No. 1508), as amended by Act No.
2496; but these have been transferred to
section 198 of the Administrative Code, where
they are now found. There is nothing in any of
these provisions conferring upon the register of
deeds any authority whatever in respect to the
"qualification," as the term is used in Spanish
law, of chattel mortgage. His duties in respect
to such instruments are ministerial only. The
efficacy of the act of recording a chattel
mortgage consists in the fact that it operates
as constructive notice of the existence of the
contract, and the legal effects of the contract
must be discovered in the instrument itself in
relation with the fact of notice. Registration
adds nothing to the instrument, considered as
a source of title, and affects nobody's rights
except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply
no absolute criterion for discriminating
between real property and personal property
for purpose of the application of the Chattel
Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in
this jurisdiction; but it must not be forgotten
that under given conditions property may have
character different from that imputed to it in

said articles. It is undeniable that the parties to

a contract may by agreement treat as personal
property that which by nature would be real
property; and it is a familiar phenomenon to
see things classed as real property for
purposes of taxation which on general principle
might be considered personal property. Other
situations are constantly arising, and from time
to time are presented to this court, in which the
proper classification of one thing or another as
real or personal property may be said to be
doubtful.
The point submitted to us in this case was
determined on September 8, 1914, in an
administrative ruling promulgated by the
Honorable James A. Ostrand, now a Justice of
this Court, but acting at that time in the
capacity of Judge of the fourth branch of the
Court of First Instance of the Ninth Judicial
District, in the City of Manila; and little of value
can be here added to the observations
contained in said ruling. We accordingly quote
therefrom as follows:
It is unnecessary here to determine whether or
not the property described in the document in
question is real or personal; the discussion may
be confined to the point as to whether a
register of deeds has authority to deny the
registration of a document purporting to be a
chattel mortgage and executed in the manner
and form prescribed by the Chattel Mortgage
Law.
Then, after quoting section 5 of the Chattel
Mortgage Law (Act No. 1508), his Honor
continued:
Based principally upon the provisions of section
quoted the Attorney-General of the Philippine
Islands, in an opinion dated August 11, 1909,
held that a register of deeds has no authority
to pass upon the capacity of the parties to a
chattel mortgage which is presented to him for

record. A fortiori a register of deeds can have

no authority to pass upon the character of the
property sought to be encumbered by a chattel
mortgage. Of course, if the mortgaged property
is real instead of personal the chattel mortgage
would no doubt be held ineffective as against
third parties, but this is a question to be
determined by the courts of justice and not by
the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co.
and Williamson (37 Phil., 644), this court held
that where the interest conveyed is of the
nature of real, property, the placing of the
document on record in the chattel mortgage
register is a futile act; but that decision is not
decisive of the question now before us, which
has reference to the function of the register of
deeds in placing the document on record.
In the light of what has been said it becomes
unnecessary for us to pass upon the point
whether the interests conveyed in the
instrument now in question are real or
personal; and we declare it to be the duty of
the register of deeds to accept the estimate
placed upon the document by the petitioner
and to register it, upon payment of the proper
fee.
The demurrer is overruled; and unless within
the period of five days from the date of the
notification hereof, the respondent shall
interpose a sufficient answer to the petition,
the writ of mandamus will be issued, as
prayed, but without costs. So ordered.
SERGS PRODUCTS, INC., and SERGIO T.
GOQUIOLAY, petitioners, vs. PCI LEASING
AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:

After agreeing to a contract stipulating that a

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

On March 6, 1998, upon an ex-parte

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

The Case

On March 24, 1998, in implementation of said

writ, the sheriff proceeded to petitioners
factory, seized one machinery with [the] word
that he [would] return for the other
machineries.

Before us is a Petition for Review on Certiorari

assailing the January 6, 1999 Decision [1] of the
Court of Appeals (CA)[2] in CA-GR SP No. 47332
and its February 26, 1999 Resolution[3] denying
reconsideration. The decretal portion of the CA
Decision reads as follows:
WHEREFORE, premises considered, the
assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case
No. Q-98-33500 are hereby AFFIRMED. The
writ of preliminary injunction issued on June 15,
1998 is hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional
Trial Court (RTC) of Quezon City (Branch 218)
[6]
issued a Writ of Seizure.[7] The March 18,
1998 Resolution[8] denied petitioners Motion for
Special Protective Order, praying that the
deputy sheriff be enjoined from seizing
immobilized or other real properties in
(petitioners) factory in Cainta, Rizal and to
return to their original place whatever
immobilized machineries or equipments he
may have removed.[9]
The Facts
The undisputed facts are summarized by the
Court of Appeals as follows:[10]
On February 13, 1998, respondent PCI Leasing
and Finance, Inc. (PCI Leasing for short) filed
with the RTC-QC a complaint for [a] sum of
money (Annex E), with an application for a writ
of replevin docketed as Civil Case No. Q-9833500.

On March 25, 1998, petitioners filed a motion

for special protective order (Annex C), invoking
the power of the court to control the conduct of
its officers and amend and control its
processes, praying for a directive for the sheriff
to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing
(Annex F), on the ground that the properties
[were] still personal and therefore still subject
to seizure and a writ of replevin.
In their Reply, petitioners asserted that the
properties sought to be seized [were]
immovable as defined in Article 415 of the Civil
Code, the parties agreement to the contrary
notwithstanding. They argued that to give
effect to the agreement would be prejudicial to
innocent third parties. They further stated that
PCI Leasing [was] estopped from treating these
machineries as personal because the contracts
in which the alleged agreement [were]
embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to
enforce the writ of seizure and take possession
of the remaining properties. He was able to
take two more, but was prevented by the
workers from taking the rest.
On April 7, 1998, they went to [the CA] via an
original action for certiorari.

Ruling of the Court of Appeals

Citing the Agreement of the parties, the
appellate court held that the subject machines
were personal property, and that they had only
been leased, not owned, by petitioners. It also
ruled that the words of the contract are clear
and leave no doubt upon the true intention of
the contracting parties. Observing that
Petitioner Goquiolay was an experienced
businessman who was not unfamiliar with the
ways of the trade, it ruled that he should have
realized the import of the document he
signed. The CA further held:
Furthermore, to accord merit to this petition
would be to preempt the trial court in ruling
upon the case below, since the merits of the
whole matter are laid down before us via a
petition whose sole purpose is to inquire upon
the existence of a grave abuse of discretion on
the part of the [RTC] in issuing the assailed
Order and Resolution. The issues raised herein
are proper subjects of a full-blown trial,
necessitating presentation of evidence by both
parties. The contract is being enforced by one,
and [its] validity is attacked by the other a
matter x x x which respondent court is in the
best position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the
following issues for our consideration:
A. Whether or not the machineries purchased
and imported by SERGS became real property
by virtue of immobilization.
B. Whether or not the contract between the
parties is a loan or a lease.[12]
In the main, the Court will resolve whether the
said machines are personal, not immovable,

property which may be a proper subject of a

writ of replevin. As a preliminary matter, the
Court will also address briefly the procedural
points raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to
indicate expressly whether it was being filed
under Rule 45 or Rule 65 of the Rules of
Court. It further alleges that the Petition
erroneously impleaded Judge Hilario Laqui as
respondent.
There is no question that the present recourse
is under Rule 45. This conclusion finds support
in the very title of the Petition, which is Petition
for Review on Certiorari.[13]
While Judge Laqui should not have been
impleaded as a respondent,[14] substantial
justice requires that such lapse by itself should
not warrant the dismissal of the present
Petition. In this light, the Court deems it proper
to remove, motu proprio, the name of Judge
Laqui from the caption of the present case.
Main Issue: Nature of the Subject
Machinery
Petitioners contend that the subject machines
used in their factory were not proper subjects
of the Writ issued by the RTC, because they
were in fact real property. Serious policy
considerations, they argue, militate against a
contrary characterization.
Rule 60 of the Rules of Court provides that
writs of replevin are issued for the recovery of
personal property only.[15] Section 3 thereof
reads:

SEC. 3. Order. -- Upon the filing of such

affidavit and approval of the bond, the court
shall issue an order and the corresponding writ
of replevin describing the personal property
alleged to be wrongfully detained and requiring
the sheriff forthwith to take such property into
his custody.
On the other hand, Article 415 of the Civil Code
enumerates immovable or real property as
follows:
ART. 415. The following are immovable
property:
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which may
be carried on in a building or on a piece of
land, and which tend directly to meet the
needs of the said industry or works;
In the present case, the machines that were
the subjects of the Writ of Seizure were placed
by petitioners in the factory built on their own
land. Indisputably, they were essential and
principal elements of their chocolate-making
industry. Hence, although each of them was
movable or personal property on its own, all of
them have become immobilized by destination
because they are essential and principal
elements in the industry.[16] In that sense,
petitioners are correct in arguing that the said
machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the
submission of the petitioners that the said
machines are not proper subjects of the Writ of
Seizure.
The Court has held that contracting parties
may validly stipulate that a real property be
considered as personal.[18] After agreeing to
such stipulation, they are consequently

estopped from claiming otherwise. Under the

principle of estoppel, a party to a contract is
ordinarily precluded from denying the truth of
any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court
upheld the intention of the parties to treat
a house as a personal property because it had
been made the subject of a chattel
mortgage. The Court ruled:
x x x. Although there is no specific statement
referring to the subject house as personal
property, yet by ceding, selling or transferring
a property by way of chattel mortgage
defendants-appellants could only have meant
to convey the house as chattel, or at least,
intended to treat the same as such, so that
they should not now be allowed to make an
inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing
and Finance Corp. v. Wearever Textile
Mills[20] also held that the machinery used in a
factory and essential to the industry, as in the
present case, was a proper subject of a writ of
replevin because it was treated as personal
property in a contract. Pertinent portions of the
Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what
was involved in the above Tumalad case, may
be considered as personal property for
purposes of executing a chattel mortgage
thereon as long as the parties to the contract
so agree and no innocent third party will be
prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in
its nature and becomes immobilized only by
destination or purpose, may not be likewise
treated as such. This is really because one who
has so agreed is estopped from denying the
existence of the chattel mortgage.

In the present case, the Lease Agreement

clearly provides that the machines in question
are to be considered as personal
property. Specifically, Section 12.1 of the
Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be
and remain, personal property notwithstanding
that the PROPERTY or any part thereof may
now be, or hereafter become, in any manner
affixed or attached to or embedded in, or
permanently resting upon, real property or any
building thereon, or attached in any manner to
what is permanent.
Clearly then, petitioners are estopped from
denying the characterization of the subject
machines as personal property. Under the
circumstances, they are proper subjects of the
Writ of Seizure.
It should be stressed, however, that our
holding -- that the machines should be deemed
personal property pursuant to the Lease
Agreement is good only insofar as the
contracting parties are concerned.[22] Hence,
while the parties are bound by the Agreement,
third persons acting in good faith are not
affected by its stipulation characterizing the
subject machinery as personal.[23] In any event,
there is no showing that any specific third party
would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that
the Agreement is a loan and not a lease.
[24]
Submitting documents supposedly showing
that they own the subject machines,
petitioners also argue in their Petition that the
Agreement suffers from intrinsic ambiguity
which places in serious doubt the intention of
the parties and the validity of the lease
agreement itself.[25] In their Reply to

respondents Comment, they further allege that

the Agreement is invalid.[26]
These arguments are unconvincing. The
validity and the nature of the contract are
the lis mota of the civil action pending before
the RTC. A resolution of these questions,
therefore, is effectively a resolution of the
merits of the case. Hence, they should be
threshed out in the trial, not in the proceedings
involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the
Court explained that the policy under Rule 60
was that questions involving title to the subject
property questions which petitioners are now
raising -- should be determined in the trial. In
that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of
the plaintiffs bond. They were not allowed,
however, to invoke the title to the subject
property. The Court ruled:
In other words, the law does not allow the
defendant to file a motion to dissolve or
discharge the writ of seizure (or delivery) on
ground of insufficiency of the complaint or of
the grounds relied upon therefor, as in
proceedings on preliminary attachment or
injunction, and thereby put at issue the matter
of the title or right of possession over the
specific chattel being replevied, the policy
apparently being that said matter should be
ventilated and determined only at the trial on
the merits.[28]
Besides, these questions require a
determination of facts and a presentation of
evidence, both of which have no place in a
petition for certiorari in the CA under Rule 65 or
in a petition for review in this Court under Rule
45.[29]
Reliance on the Lease Agreement

It should be pointed out that the Court in this

case may rely on the Lease Agreement,
for nothing on record shows that it has been
nullified or annulled. In fact, petitioners
assailed it first only in the RTC proceedings,
which had ironically been instituted by
respondent. Accordingly, it must be presumed
valid and binding as the law between the
parties.
Makati Leasing and Finance Corporation[30] is
also instructive on this point. In that case, the
Deed of Chattel Mortgage, which characterized
the subject machinery as personal property,
was also assailed because respondent had
allegedly been required to sign a printed form
of chattel mortgage which was in a blank form
at the time of signing. The Court rejected the
argument and relied on the Deed, ruling as
follows:
x x x. Moreover, even granting that the charge
is true, such fact alone does not render a
contract void ab initio, but can only be a
ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new
Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage
has been annulled. Neither is it disclosed that
steps were taken to nullify the same. x x x
Alleged Injustice Committed on the Part
of Petitioners
Petitioners contend that if the Court allows
these machineries to be seized, then its
workers would be out of work and thrown into
the streets.[31] They also allege that the seizure
would nullify all efforts to rehabilitate the
corporation.
Petitioners arguments do not preclude the
implementation of the Writ. As earlier
discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned

consequences, if they come true, should not be

blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under
Section 5 of Rule 60, which allows the filing of a
counter-bond. The provision states:

trial with respect to respondent Remedios Vda.

de Lacsamana as the case had been dismissed
on the ground of improper venue upon motion
of co-respondent Philippine National Bank
(PNB).

Lacsamana before respondent Court of First

Instance of Rizal, Branch XXXI, Quezon City,
essentially impugning the validity of the sale of
the building as embodied in the Amended Deed
of Sale. In this connection, petitioner alleged:

SEC. 5. Return of property. -- If the adverse

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

It appears that petitioner, Antonio Punsalan, Jr.,

was the former registered owner of a parcel of
land consisting of 340 square meters situated
in Bamban, Tarlac. In 1963, petitioner
mortgaged said land to respondent PNB (Tarlac
Branch) in the amount of P10,000.00, but for
failure to pay said amount, the property was
foreclosed on December 16, 1970. Respondent
PNB (Tarlac Branch) was the highest bidder in
said foreclosure proceedings. However, the
bank secured title thereto only on December
14, 1977.

xxx xxx xxx

WHEREFORE, the Petition is DENIED and the

assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE
HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.

In the meantime, in 1974, while the properly

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

MELENCIO-HERRERA, J.:

On July 26, 1978, a Deed of Sale was executed

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

The sole issue presented by petitioner for

resolution is whether or not respondent Court
erred in denying the Motion to Set Case for Pre-

On November 22, 1979, petitioner commenced

suit for "Annulment of Deed of Sale with
Damages" against herein respondents PNB and

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

22. That defendant, Philippine National Bank,

through its Branch Manager ... by virtue of the
request of defendant ... executed a document
dated July 31, 1978, entitled Amendment to
Deed of Absolute Sale ... wherein said
defendant bank as Vendor sold to defendant
Lacsamana the building owned by the plaintiff
under Tax Declaration No. 5619,
notwithstanding the fact that said building is
not owned by the bank either by virtue of the
public auction sale conducted by the Sheriff
and sold to the Philippine National Bank or by
virtue of the Deed of Sale executed by the
bank itself in its favor on September 21,
1977 ...;
23. That said defendant bank fraudulently
mentioned ... that the sale in its favor should
likewise have included the building,
notwithstanding no legal basis for the same
and despite full knowledge that the Certificate
of Sale executed by the sheriff in its favor ...
only limited the sale to the land, hence, by
selling the building which never became the
property of defendant, they have violated the
principle against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the
building in favor of respondent Lacsamana be
declared null and void and that damages in the
total sum of P230,000.00, more or less, be
awarded to him. 2
In her Answer filed on March 4, 1980,respondent Lacsamana averred the affirmative
defense of lack of cause of action in that she
was a purchaser for value and invoked the

principle in Civil Law that the "accessory

follows the principal". 3
On March 14, 1980, respondent PNB filed a
Motion to Dismiss on the ground that venue
was improperly laid considering that the
building was real property under article 415 (1)
of the New Civil Code and therefore section
2(a) of Rule 4 should apply. 4
Opposing said Motion to Dismiss, petitioner
contended that the action for annulment of
deed of sale with damages is in the nature of a
personal action, which seeks to recover not the
title nor possession of the property but to
compel payment of damages, which is not an
action affecting title to real property.
On April 25, 1980, respondent Court granted
respondent PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the
defendant Philippine National Bank dated
March 13, 1980, considered against the
plaintiff's opposition thereto dated April 1,
1980, including the reply therewith of said
defendant, this Court resolves to DISMISS the
plaintiff's complaint for improper venue
considering that the plaintiff's complaint which
seeks for the declaration as null and void, the
amendment to Deed of Absolute Sale executed
by the defendant Philippine National Bank in
favor of the defendant Remedios T. Vda. de
Lacsamana, on July 31, 1978, involves a
warehouse allegedly owned and constructed by
the plaintiff on the land of the defendant
Philippine National Bank situated in the
Municipality of Bamban, Province of Tarlac,
which warehouse is an immovable property
pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is
a real action affecting title to real property
which, under Section 2, Rule 4 of the New Rules
of Court, must be tried in the province where
the property or any part thereof lies. 5

In his Motion for Reconsideration of the

aforestated Order, petitioner reiterated the
argument that the action to annul does not
involve ownership or title to property but is
limited to the validity of the deed of sale and
emphasized that the case should proceed with
or without respondent PNB as respondent
Lacsamana had already filed her Answer to the
Complaint and no issue on venue had been
raised by the latter.
On September 1, 1980,.respondent Court
denied reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for
Pre-trial, in so far as respondent Lacsamana
was concerned, as the issues had already been
joined with the filing of respondent
Lacsamana's Answer.
In the Order of November 10, 1980 respondent
Court denied said Motion to Set Case for Pretrial as the case was already dismissed in the
previous Orders of April 25, 1980 and
September 1, 1980.
Hence, this Petition for Certiorari, to which we
gave due course.
We affirm respondent Court's Order denying
the setting for pre-trial.
The warehouse claimed to be owned by
petitioner is an immovable or real property as
provided in article 415(l) of the Civil
Code. 6 Buildings are always immovable under
the Code. 7 A building treated separately from
the land on which it stood is immovable
property and the mere fact that the parties to a
contract seem to have dealt with it separate
and apart from the land on which it stood in no
wise changed its character as immovable
property. 8
While it is true that petitioner does not directly
seek the recovery of title or possession of the

property in question, his action for annulment

of sale and his claim for damages are closely
intertwined with the issue of ownership of the
building which, under the law, is considered
immovable property, the recovery of which is
petitioner's primary objective. The prevalent
doctrine is that an action for the annulment or
rescission of a sale of real property does not
operate to efface the fundamental and prime
objective and nature of the case, which is to
recover said real property. It is a real action. 9
Respondent Court, therefore, did not err in
dismissing the case on the ground of improper
venue (Section 2, Rule 4) 10, which was timely
raised (Section 1, Rule 16) 11.
Petitioner's other contention that the case
should proceed in so far as respondent
Lacsamana is concerned as she had already
filed an Answer, which did not allege improper
venue and, therefore, issues had already been
joined, is likewise untenable. Respondent PNB
is an indispensable party as the validity of the
Amended Contract of Sale between the former
and respondent Lacsamana is in issue. It
would, indeed, be futile to proceed with the
case against respondent Lacsamana alone.
WHEREFORE, the petition is hereby denied
without prejudice to the refiling of the case by
petitioner Antonio Punsalan, Jr. in the proper
forum.
Costs against petitioner.
SO ORDERED.
G.R. No. L-40411

August 7, 1935

DAVAO SAW MILL CO., INC., plaintiffappellant,

vs.
APRONIANO G. CASTILLO and DAVAO
LIGHT & POWER CO., INC., defendantsappellees.

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.

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 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.

In the first place, it must again be pointed out

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

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;
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.

It is, however not necessary to spend overly

must time in the resolution of this appeal on
side issues. It is machinery which is involved;
moreover, machinery not intended by the
owner of any building or land for use in
connection therewith, but intended by a lessee
for use in a building erected on the land by the
latter to be returned to the lessee on the
expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on
appeal being taken to the United States
Supreme Court, it was held that machinery
which is movable in its nature only becomes
immobilized when placed in a plant by the
owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any
person having only a temporary right, unless
such person acted as the agent of the owner. In
the opinion written by Chief Justice White,
whose knowledge of the Civil Law is well
known, it was in part said:
To determine this question involves fixing the
nature and character of the property from the

point of view of the rights of Valdes and its

nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of
the Altagracia Company and the rights derived
by them from the execution levied on the
machinery placed by the corporation in the
plant. Following the Code Napoleon, the Porto
Rican Code treats as immovable (real)
property, not only land and buildings, but also
attributes immovability in some cases to
property of a movable nature, that is, personal
property, because of the destination to which it
is applied. "Things," says section 334 of the
Porto Rican Code, "may be immovable either
by their own nature or by their destination or
the object to which they are applicable."
Numerous illustrations are given in the fifth
subdivision of section 335, which is as follows:
"Machinery, vessels, instruments or
implements intended by the owner of the
tenements for the industrial or works that they
may carry on in any building or upon any land
and which tend directly to meet the needs of
the said industry or works." (See also Code
Nap., articles 516, 518 et seq. to and inclusive
of article 534, recapitulating the things which,
though in themselves movable, may be
immobilized.) So far as the subject-matter with
which we are dealing machinery placed in
the plant it is plain, both under the
provisions of the Porto Rican Law and of the
Code Napoleon, that machinery which is
movable in its nature only becomes
immobilized when placed in a plant by the
owner of the property or plant. Such result
would not be accomplished, therefore, by the
placing of machinery in a plant by a tenant or a
usufructuary or any person having only a
temporary right. (Demolombe, Tit. 9, No. 203;
Aubry et Rau, Tit. 2, p. 12, Section 164;
Laurent, Tit. 5, No. 447; and decisions quoted
in Fuzier-Herman ed. Code Napoleon under
articles 522 et seq.) The distinction rests, as
pointed out by Demolombe, upon the fact that

one only having a temporary right to the

possession or enjoyment of property is not
presumed by the law to have applied movable
property belonging to him so as to deprive him
of it by causing it by an act of immobilization to
become the property of another. It follows that
abstractly speaking the machinery put by the
Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable
property and become immovable by
destination. But in the concrete immobilization
took place because of the express provisions of
the lease under which the Altagracia held,
since the lease in substance required the
putting in of improved machinery, deprived the
tenant of any right to charge against the lessor
the cost such machinery, and it was expressly
stipulated that the machinery so put in should
become a part of the plant belonging to the
owner without compensation to the lessee.
Under such conditions the tenant in putting in
the machinery was acting but as the agent of
the owner in compliance with the obligations
resting upon him, and the immobilization of the
machinery which resulted arose in legal effect
from the act of the owner in giving by contract
a permanent destination to the machinery.
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.
US vs Carlos
21 Phil 553
Facts:
Ignacio Carlos has been a consumer of
electricity furnished by the Manila Electric
Railroad and Light Company for a building
containing the residence of the accused and 3
other residences. Representatives of the
company believing that more light is consumed
than what is shown in the meter installed an
additional meter on the pole outside Carlos
house to compare the actual consumption and
found out that the latter used a jumper.
Further, a jumper was found in a drawer of a
small cabinet in the room of the defendants
house were the meter was installed. In the
absence of any explanation for Carlos
possession of said device, the presumption
raised was that Carlos was the owner of the
device whose only use was to deflect the
current from the meter. Thus he was charged
with the crime of theft amounting to 2,273KW
of electric power worth 909.20 pesos.
Issue:
Whether or not the court erred in declaring that
the electrical energy may be stolen.
Held:
It is true that electricity is no longer, as
formerly, regarded by electricians as a fluid,
but its manifestation and effects, like those of
gas, may be seen and felt. The true test of
what is a proper subject of larceny seems to be
not whether the subject is corporeal, but
whether it is capable of appropriation by
another than the owner.

The court ruled that electricity, the same as

gas, is a valuable article of merchandise,
bought and sold like other personal property
and is capable of appropriation by another. It is
also susceptible of being severed from a mass
or larger quantity, and of being transported
from place to place. So no error was committed
by the trial court in holding that electricity is a
subject of larceny.

Petitioner and respondents, thru their

respective counsels agreed to the following
stipulation of facts:

G.R. No. L-17870

1962

2. That petitioner has its main office and shop

at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao;
Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;

September 29,

MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and
the BOARD OF TAX APPEALS of Cagayan
de Oro City,respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision
of the Court of Tax Appeals in C.T.A. Case No.
710 holding that the petitioner Mindanao Bus
Company is liable to the payment of the realty
tax on its maintenance and repair equipment
hereunder referred to.
Respondent City Assessor of Cagayan de Oro
City assessed at P4,400 petitioner's abovementioned equipment. Petitioner appealed the
assessment to the respondent Board of Tax
Appeals on the ground that the same are not
realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner
herein filed with the Court of Tax Appeals a
petition for the review of the assessment.
In the Court of Tax Appeals the parties
submitted the following stipulation of facts:

1. That petitioner is a public utility solely

engaged in transporting passengers and
cargoes by motor trucks, over its authorized
lines in the Island of Mindanao, collecting rates
approved by the Public Service Commission;

3. That the machineries sought to be assessed

by the respondent as real properties are the
following:
(a) Hobart Electric Welder Machine, appearing
in the attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the
attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the
attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the
attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the
attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine)
appearing in the attached photograph, marked
Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in
the attached photograph, marked Annex "G".
4. That these machineries are sitting on
cement or wooden platforms as may be seen in
the attached photographs which form part of
this agreed stipulation of facts;

5. That petitioner is the owner of the land

where it maintains and operates a garage for
its TPU motor trucks; a repair shop; blacksmith
and carpentry shops, and with these
machineries which are placed therein, its TPU
trucks are made; body constructed; and same
are repaired in a condition to be serviceable in
the TPU land transportation business it
operates;
6. That these machineries have never been or
were never used as industrial equipments to
produce finished products for sale, nor to repair
machineries, parts and the like offered to the
general public indiscriminately for business or
commercial purposes for which petitioner has
never engaged in, to date.1awphl.nt
The Court of Tax Appeals having sustained the
respondent city assessor's ruling, and having
denied a motion for reconsideration, petitioner
brought the case to this Court assigning the
following errors:
1. The Honorable Court of Tax Appeals erred in
upholding respondents' contention that the
questioned assessments are valid; and that
said tools, equipments or machineries are
immovable taxable real properties.
2. The Tax Court erred in its interpretation of
paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the
movable equipments are taxable realties, by
reason of their being intended or destined for
use in an industry.
3. The Court of Tax Appeals erred in denying
petitioner's contention that the respondent City
Assessor's power to assess and levy real estate
taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No.
521; and

4. The Tax Court erred in denying petitioner's

motion for reconsideration.
Respondents contend that said equipments,
tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of
the New Civil Code which provides:
Art. 415. The following are immovable
properties:
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which may
be carried on in a building or on a piece of
land, and which tend directly to meet the
needs of the said industry or works. (Emphasis
ours.)
Note that the stipulation expressly states that
the equipment are placed on wooden or
cement platforms. They can be moved around
and about in petitioner's repair shop. In the
case of B. H. Berkenkotter vs. Cu Unjieng, 61
Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the
Civil Code, gives the character of real property
to "machinery, liquid containers, instruments
or implements intended by the owner of any
building or land for use in connection with any
industry or trade being carried on therein and
which are expressly adapted to meet the
requirements of such trade or industry."
If the installation of the machinery and
equipment in question in the central of the
Mabalacat Sugar Co., Inc., in lieu of the other of
less capacity existing therein, for its sugar and
industry, converted them into real property by
reason of their purpose, it cannot be said that
their incorporation therewith was not
permanent in character because, as essential
and principle elements of a sugar central,
without them the sugar central would be

unable to function or carry on the industrial

purpose for which it was established. Inasmuch
as the central is permanent in character, the
necessary machinery and equipment installed
for carrying on the sugar industry for which it
has been established must necessarily be
permanent. (Emphasis ours.)
So that movable equipments to be immobilized
in contemplation of the law must first be
"essential and principal elements" of an
industry or works without which such industry
or works would be "unable to function or carry
on the industrial purpose for which it was
established." We may here distinguish,
therefore, those movable which become
immobilized by destination because they
are essential and principal elements in the
industry for those which may not be so
considered immobilized because they
are merely incidental, not essential and
principal. Thus, cash registers, typewriters,
etc., usually found and used in hotels,
restaurants, theaters, etc. are merely
incidentals and are not and should not be
considered immobilized by destination, for
these businesses can continue or carry on their
functions without these equity comments.
Airline companies use forklifts, jeep-wagons,
pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their
movable nature. On the other hand,
machineries of breweries used in the
manufacture of liquor and soft drinks, though
movable in nature, are immobilized because
they are essential to said industries; but the
delivery trucks and adding machines which
they usually own and use and are found within
their industrial compounds are merely
incidental and retain their movable nature.
Similarly, the tools and equipments in question
in this instant case are, by their nature, not
essential and principle municipal elements of
petitioner's business of transporting

passengers and cargoes by motor trucks. They

are merely incidentals acquired as movables
and used only for expediency to facilitate
and/or improve its service. Even without such
tools and equipments, its business may be
carried on, as petitioner has carried on, without
such equipments, before the war. The
transportation business could be carried on
without the repair or service shop if its rolling
equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the
question at issue is as follows:
Art. 415. The following are immovable
property:
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which may
be carried on in a building or on a piece of
land, and which tend directly to meet the
needs of the said industry or works; (Civil Code
of the Phil.)
Aside from the element of essentiality the
above-quoted provision also requires that the
industry or works be carried on in a building or
on a piece of land. Thus in the case
of Berkenkotter vs. Cu Unjieng, supra, the
"machinery, liquid containers, and instruments
or implements" are found in a building
constructed on the land. A sawmill would also
be installed in a building on land more or less
permanently, and the sawing is conducted in
the land or building.
But in the case at bar the equipments in
question are destined only to repair or service
the transportation business, which is not
carried on in a building or permanently on a
piece of land, as demanded by the law. Said
equipments may not, therefore, be deemed
real property.

Resuming what we have set forth above, we

hold that the equipments in question are not
absolutely essential to the petitioner's
transportation business, and petitioner's
business is not carried on in a building,
tenement or on a specified land, so said
equipment may not be considered real estate
within the meaning of Article 415 (c) of the
Civil Code.
WHEREFORE, the decision subject of the
petition for review is hereby set aside and the
equipment in question declared not subject to
assessment as real estate for the purposes of
the real estate tax. Without costs.
So ordered.
G.R. No. L-15334

January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY

ASSESSOR and CITY TREASURER OF
QUEZON CITY,petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for
petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence
adduced during the hearing, the following
appear:
On October 20, 1902, the Philippine
Commission enacted Act No. 484 which
authorized the Municipal Board of Manila to
grant a franchise to construct, maintain and
operate an electric street railway and electric
light, heat and power system in the City of
Manila and its suburbs to the person or persons
making the most favorable bid. Charles M.
Swift was awarded the said franchise on March
1903, the terms and conditions of which were

embodied in Ordinance No. 44 approved on

March 24, 1903. Respondent Manila Electric Co.
(Meralco for short), became the transferee and
owner of the franchise.
Meralco's electric power is generated by its
hydro-electric plant located at Botocan Falls,
Laguna and is transmitted to the City of Manila
by means of electric transmission wires,
running from the province of Laguna to the
said City. These electric transmission wires
which carry high voltage current, are fastened
to insulators attached on steel towers
constructed by respondent at intervals, from its
hydro-electric plant in the province of Laguna
to the City of Manila. The respondent Meralco
has constructed 40 of these steel towers within
Quezon City, on land belonging to it. A
photograph of one of these steel towers is
attached to the petition for review, marked
Annex A. Three steel towers were inspected by
the lower court and parties and the following
were the descriptions given there of by said
court:

The first steel tower is located in South Tatalon,

Espaa Extension, Quezon City. The findings
were as follows: the ground around one of the
four posts was excavated to a depth of about
eight (8) feet, with an opening of about one (1)
meter in diameter, decreased to about a
quarter of a meter as it we deeper until it
reached the bottom of the post; at the bottom
of the post were two parallel steel bars
attached to the leg means of bolts; the tower
proper was attached to the leg three bolts; with
two cross metals to prevent mobility; there was
no concrete foundation but there was adobe
stone underneath; as the bottom of the
excavation was covered with water about three
inches high, it could not be determined with
certainty to whether said adobe stone was
placed purposely or not, as the place abounds
with this kind of stone; and the tower carried
five high voltage wires without cover or any
insulating materials.
The second tower inspected was located in
Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more
than one kilometer from the first tower. As in
the first tower, the ground around one of the
four legs was excavate from seven to eight (8)
feet deep and one and a half (1-) meters
wide. There being very little water at the
bottom, it was seen that there was no concrete
foundation, but there soft adobe beneath. The
leg was likewise provided with two parallel
steel bars bolted to a square metal frame also
bolted to each corner. Like the first one, the
second tower is made up of metal rods joined
together by means of bolts, so that by
unscrewing the bolts, the tower could be
dismantled and reassembled.
The third tower examined is located along
Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two
legs of the third tower was excavated to a
depth about two or three inches beyond the

outside level of the steel bar foundation. It was

found that there was no concrete foundation.
Like the two previous ones, the bottom
arrangement of the legs thereof were found to
be resting on soft adobe, which, probably due
to high humidity, looks like mud or clay. It was
also found that the square metal frame
supporting the legs were not attached to any
material or foundation.
On November 15, 1955, petitioner City
Assessor of Quezon City declared the aforesaid
steel towers for real property tax under Tax
declaration Nos. 31992 and 15549. After
denying respondent's petition to cancel these
declarations, an appeal was taken by
respondent to the Board of Assessment
Appeals of Quezon City, which required
respondent to pay the amount of P11,651.86
as real property tax on the said steel towers for
the years 1952 to 1956. Respondent paid the
amount under protest, and filed a petition for
review in the Court of Tax Appeals (CTA for
short) which rendered a decision on December
29, 1958, ordering the cancellation of the said
tax declarations and the petitioner City
Treasurer of Quezon City to refund to the
respondent the sum of P11,651.86. The motion
for reconsideration having been denied, on
April 22, 1959, the instant petition for review
was filed.
In upholding the cause of respondents, the CTA
held that: (1) the steel towers come within the
term "poles" which are declared exempt from
taxes under part II paragraph 9 of respondent's
franchise; (2) the steel towers are personal
properties and are not subject to real property
tax; and (3) the City Treasurer of Quezon City is
held responsible for the refund of the amount
paid. These are assigned as errors by the
petitioner in the brief.
The tax exemption privilege of the petitioner is
quoted hereunder:

PAR 9. The grantee shall be liable to pay the

same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers,
and insulators), machinery and personal
property as other persons are or may be
hereafter required by law to pay ... Said
percentage shall be due and payable at the
time stated in paragraph nineteen of Part One
hereof, ... and shall be in lieu of all taxes and
assessments of whatsoever nature and by
whatsoever authority upon the privileges,
earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee
from which taxes and assessments the
grantee is hereby expressly exempted. (Par. 9,
Part Two, Act No. 484 Respondent's Franchise;
emphasis supplied.)
The word "pole" means "a long, comparatively
slender usually cylindrical piece of wood or
timber, as typically the stem of a small tree
stripped of its branches; also by extension, a
similar typically cylindrical piece or object of
metal or the like". The term also refers to
"an upright standard to the top of which
something is affixed or by which something is
supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes,
specifically a vessel's master (Webster's New
International Dictionary 2nd Ed., p. 1907.)
Along the streets, in the City of Manila, may be
seen cylindrical metal poles, cubical concrete
poles, and poles of the PLDT Co. which are
made of two steel bars joined together by an
interlacing metal rod. They are called "poles"
notwithstanding the fact that they are no made
of wood. It must be noted from paragraph 9,
above quoted, that the concept of the "poles"
for which exemption is granted, is not
determined by their place or location, nor by
the character of the electric current it carries,
nor the material or form of which it is made,
but the use to which they are dedicated. In
accordance with the definitions, pole is not
restricted to a long cylindrical piece of wood or

metal, but includes "upright standards to the

top of which something is affixed or by which
something is supported. As heretofore
described, respondent's steel supports consists
of a framework of four steel bars or strips
which are bound by steel cross-arms atop of
which are cross-arms supporting five high
voltage transmission wires (See Annex A) and
their sole function is to support or carry such
wires.
The conclusion of the CTA that the steel
supports in question are embraced in the term
"poles" is not a novelty. Several courts of last
resort in the United States have called these
steel supports "steel towers", and they
denominated these supports or towers, as
electric poles. In their decisions the words
"towers" and "poles" were used
interchangeably, and it is well understood in
that jurisdiction that a transmission tower or
pole means the same thing.
In a proceeding to condemn land for the use of
electric power wires, in which the law provided
that wires shall be constructed upon
suitable poles, this term was construed to
mean either wood or metal poles and in view of
the land being subject to overflow, and the
necessary carrying of numerous wires and the
distance between poles, the statute was
interpreted to include towers or poles.
(Stemmons and Dallas Light Co. (Tex) 212 S.W.
222, 224; 32-A Words and Phrases, p. 365.)
The term "poles" was also used to denominate
the steel supports or towers used by an
association used to convey its electric power
furnished to subscribers and members,
constructed for the purpose of fastening high
voltage and dangerous electric wires alongside
public highways. The steel supports or towers
were made of iron or other metals consisting of
two pieces running from the ground up some
thirty feet high, being wider at the bottom than

at the top, the said two metal pieces being

connected with criss-cross iron running from
the bottom to the top, constructed like ladders
and loaded with high voltage electricity. In form
and structure, they are like the steel towers in
question. (Salt River Valley Users' Ass'n v.
Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel
towers of an electric company engaged in the
generation of hydro-electric power generated
from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15
feet square at the base and extended to a
height of about 35 feet to a point, and are
embedded in the cement foundations sunk in
the earth, the top of which extends above the
surface of the soil in the tower of Oxford, and
to the towers are attached insulators, arms,
and other equipment capable of carrying wires
for the transmission of electric power
(Connecticut Light and Power Co. v. Oxford,
101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the
structure on which a certain person met his
death was built for the purpose of supporting a
transmission wire used for carrying hightension 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;
(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;
(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;

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.
Caltex vs CBAA
114 SCRA 296
Facts:
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 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.
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.

Held:
The Assessment Law provides that the realty
tax is due "on real property, including land,
buildings, machinery, and other
improvements".
SC hold that the said equipment and
machinery, as appurtenances to the gas
station building or shed owned by Caltex (as to
which it is subject to realty tax) and which
fixtures are necessary to the operation of the
gas station, for without them the gas station
would be useless, and which have been
attached or affixed permanently to the gas
station site or embedded therein, are taxable
improvements and machinery within the
meaning of the Assessment Law and the Real
Property Tax Code.
Note:
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.
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.

Issue:
Whether or not the pieces of gas station
equipment and machinery enumerated are
subject to realty tax.

Laurel vs. Garcia

Salvador H. Laurel vs. Ramon Garcia, et.

Al.
G. R. No. 92013. July 25, 1990.
Gutierrez, J.
Doctrine: A property continues to be part of
the public domain, not available for private
appropriation or ownership until there is a
formal declaration on the part of the
government to withdraw it from being such.
Facts: The subject Roppongi property is one of
the four properties in Japan acquired by the
Philippine government under the Reparations
Agreement entered into with Japan on 9 May
1956, the other lots being the Nampeidai
Property (site of Philippine Embassy Chancery),
the Kobe Commercial Property (Commercial lot
used as warehouse and parking lot of consulate
staff), and the Kobe Residential Property (a
vacant residential lot).
The properties and the capital goods and
services procured from the Japanese
government for national development projects
are part of the indemnification to the Filipino
people for their losses in life and property and
their suffering during World War II.
The Reparations Agreement provides that
reparations valued at $550 million would be
payable in 20 years in accordance with annual
schedules of procurements to be fixed by the
Philippine and Japanese governments (Article
2, Reparations Agreement).
The Roppongi property was acquired from the
Japanese government under the Second Year
Schedule and listed under the heading
Government Sector, through Reparations
Contract 300 dated 27 June 1958. The
Roponggi property consists of the land and
building for the Chancery of the Philippine
Embassy. As intended, it became the site of
the Philippine Embassy until the latter was

transferred to Nampeidai on 22 July 1976 when

the Roppongi building needed major repairs.
Due to the failure of our government to provide
necessary funds, the Roppongi property has
remained undeveloped since that time.
During the incumbency of President Aquino, a
proposal was made by former Philippine
Ambassador to Japan, Carlos J. Valdez, to lease
the subject property to Kajima Corporation, a
Japanese firm, in exchange of the construction
of 2 buildings in Roppongi, 1 building in
Nampeidai, and the renovation of the Philippine
Chancery in Nampeidai. The Government did
not act favorably to said proposal, but instead,
on 11 August 1986, President Aquino created a
committee to study the disposition or
utilization of Philippine government properties
in Tokyo and Kobe though AO-3, and AO 3-A to
3-D. On 25 July 1987, the President issued EO
296 entitling non-Filipino citizens or entities to
avail of reparations capital goods and services
in the event of sale, lease or disposition. The
four properties in Japan including the Roppongi
were specifically mentioned in the first
Whereas clause. Amidst opposition by
various sectors, the Executive branch of the
government has been pushing, with great
vigor, its decision to sell the reparations
properties starting with the Roppongi lot.
Two petitions for prohibition were filed seeking
to enjoin respondents, their representatives
and agents from proceeding with the bidding
for the sale of the 3,179 sq. m. of land at 306
Ropponggi, 5-Chome Minato-ku, Tokyo, Japan
scheduled on 21 February 1990; the temporary
restaining order of which was granted by the
court on 20 February 1990. In G.R. No. 92047,
a writ of mandamus was prayed for to compel
the respondents to fully disclose to the public
the basis of their decision to push through with
the sale of the Roppongi property inspite of
strong public opposition and to explain the
proceedings which effectively prevent the

participation of Filipino citizens and entities in

the bidding process.
Issues: Can the Roppongi property and others
of its kind be alienated by the Philippine
Government?
Does the Chief Executive, her officers and
agents, have the authority and jurisdiction, to
sell the Roppongi property?
Held: No. The Roppongi property was acquired
together with the other properties through
reparation agreements. They were assigned to
the government sector and that the Roppongi
property was specifically designated under the
agreement to house the Philippine embassy. It
is of public dominion unless it is convincingly
shown that the property has become
patrimonial. The respondents have failed to do
so.
As property of public dominion, the Roppongi
lot is outside the commerce of man. It cannot
be alienated. Its ownership is a special
collective ownership for general use and
payment, in application to the satisfaction of
collective needs, and resides in the social
group. The purpose is not to serve the State as
the juridical person but the citizens; it is
intended for the common and public welfare
and cannot be the object of appropriation.
The fact that the Roppongi site has not been
used for a long time for actual Embassy service
doesnt automatically convert it to patrimonial
property. Any such conversion happens only if
the property is withdrawn from public use. A
property continues to be part of the public
domain, not available for private appropriation
or ownership until there is a formal declaration
on the part of the government to withdraw it
from being such.
Chavez v. Pea and Amari

Fact:
In 1973, the Comissioner on Public Highways
entered into a contract to reclaim areas of
Manila Bay with the Construction and
Development Corportion of the Philippines
(CDCP).
PEA (Public Estates Authority) was created by
President Marcos under P.D. 1084, tasked with
developing and leasing reclaimed lands. These
lands were transferred to the care of PEA under
P.D. 1085 as part of the Manila Cavite Road and
Reclamation Project (MCRRP). CDCP and PEA
entered into an agreement that all future
projects under the MCRRP would be funded and
owned by PEA.
By 1988, President Aquino issued Special
Patent No. 3517 transferring lands to PEA. It
was followed by the transfer of three Titles
(7309, 7311 and 7312) by the Register of
Deeds of Paranaque to PEA covering the three
reclaimed islands known as the FREEDOM
ISLANDS.
Subsquently, PEA entered into a joint venture
agreement (JVA) with AMARI, a Thai-Philippine
corporation to develop the Freedom Islands.
Along with another 250 hectares, PEA and
AMARI entered the JVA which would later
transfer said lands to AMARI. This caused a stir
especially when Sen. Maceda assailed the
agreement, claiming that such lands were part
of public domain (famously known as the
mother of all scams).
Peitioner Frank J. Chavez filed case as a
taxpayer praying for mandamus, a writ of
preliminary injunction and a TRO against the
sale of reclaimed lands by PEA to AMARI and
from implementing the JVA. Following these
events, under President Estradas admin, PEA
and AMARI entered into an Amended JVA and
Mr. Chaves claim that the contract is null and
void.

Issue:
w/n: the transfer to AMARI lands reclaimed or
to be reclaimed as part of the stipulations in
the (Amended) JVA between AMARI and PEA
violate Sec. 3 Art. XII of the 1987 Constitution
w/n: the court is the proper forum for raising
the issue of whether the amended joint venture
agreement is grossly disadvantageous to the
government.
Held:
On the issue of Amended JVA as violating the
constitution:
1. The 157.84 hectares of reclaimed lands
comprising the Freedom Islands, now covered
by certificates of title in the name of PEA, are
alienable lands of the public domain. PEA may
lease these lands to private corporations but
may not sell or transfer ownership of these
lands to private corporations. PEA may only sell
these lands to Philippine citizens, subject to the
ownership limitations in the 1987 Constitution
and existing laws.

2. The 592.15 hectares of submerged areas of

Manila Bay remain inalienable natural
resources of the public domain until classified
as alienable or disposable lands open to
disposition and declared no longer needed for
public service. The government can make such
classification and declaration only after PEA
has reclaimed these submerged areas. Only
then can these lands qualify as agricultural
lands of the public domain, which are the only
natural resources the government can alienate.
In their present state, the 592.15 hectares of
submerged areas are inalienable and outside
the commerce of man.
3. Since the Amended JVA seeks to transfer to
AMARI, a private corporation, ownership of
77.34 hectares110 of the Freedom Islands,
such transfer is void for being contrary to
Section 3, Article XII of the 1987 Constitution
which prohibits private corporations from
acquiring any kind of alienable land of the
public domain.

4. Since the Amended JVA also seeks to

transfer to AMARI ownership of 290.156
hectares111 of still submerged areas of Manila
Bay, such transfer is void for being contrary to
Section 2, Article XII of the 1987 Constitution
which prohibits the alienation of natural
resources other than agricultural lands of the
public domain.
PEA may reclaim these submerged areas.
Thereafter, the government can classify the
reclaimed lands as alienable or disposable, and
further declare them no longer needed for
public service. Still, the transfer of such
reclaimed alienable lands of the public domain
to AMARI will be void in view of Section 3,
Article XII of the 1987Constitution which
prohibits private corporations from acquiring
any kind of alienable land of the public domain.