PROPERTY CASES ARTS 415 418 UNDER ATTY.

IGNACIO
(NOT-SO-FAVORITE CASES)
Prudential Bank v. Panis

All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as visible limits.
( Exhibit "A, " also Exhibit "1" for defendant).

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

Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears a
rider typed at the bottom of the reverse side of the document under the lists of the properties mortgaged
which reads, as follows:
AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the
Mortgagors as herein stated is released or issued by the Bureau of Lands, the Mortgagors hereby
authorize the Register of Deeds to hold the Registration of same until this Mortgage is cancelled, or to
annotate this encumbrance on the Title upon authority from the Secretary of Agriculture and Natural
Resources, which title with annotation, shall be released in favor of the herein Mortgage.

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

From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential Bank) was at
the outset aware of the fact that the mortgagors (plaintiffs) have already filed a Miscellaneous Sales
Application over the lot, possessory rights over which, were mortgaged to it.

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

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of
Deeds of Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the sum of
P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of the said defendant
another deed of Real Estate Mortgage over thesame properties previously mortgaged in Exhibit "A."
(Exhibit "B;" also Exhibit "2" for defendant). This second deed of Real Estate Mortgage was likewise
registered with the Registry of Deeds, this time in Olongapo City, on May 2,1973.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the lot
where the above property is erected, and more particularly described and bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin
Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m. more or less, declared and
assessed in the name of FERNANDO MAGCALE under Tax Duration No. 19595 issued by the
Assessor of Olongapo City with an assessed value of P1,860.00; bounded on the

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776 over the
parcel of land, possessory rights over which were mortgaged to defendant Prudential Bank, in favor of
plaintiffs. On the basis of the aforesaid Patent, and upon its transcription in the Registration Book of the
Province of Zambales, Original Certificate of Title No. P-2554 was issued in the name of Plaintiff
Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972.

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street.
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For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon
application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and "B") were
extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties therein
mortgaged to defendant as the highest bidder in a public auction sale conducted by the defendant City
Sheriff on April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written request from
plaintiffs through counsel dated March 29, 1978, for the defendant City Sheriff to desist from going with
the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled
that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision of
law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on
which it has been built. Such a mortgage would be still a real estate mortgage for the building would still
be considered immovable property even if dealt with separately and apart from the land (Leung Yee vs.
Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that
possessory rights over said properties before title is vested on the grantee, may be validly transferred or
conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate Mortgage
as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by
private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979
(Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition
(Ibid., pp. 5-28).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on the
2-storey semi-concrete residential building with warehouse and on the right of occupancy on the lot
where the building was erected, was executed on November 19, 1971 and registered under the
provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous
Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which OCT No. 2554
was issued in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore
without question that the original mortgage was executed before the issuance of the final patent and
before the government was divested of its title to the land, an event which takes effect only on the
issuance of the sales patent and its subsequent registration in the Office of the Register of Deeds
(Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of
Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the
foregoing considerations, it is evident that the mortgage executed by private respondent on his own
building which was erected on the land belonging to the government is to all intents and purposes a
valid mortgage.

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents
to comment (Ibid., p. 65), which order was complied with the Resolution dated May 18,1979, (Ibid., p.
100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties
were required to submit simultaneously their respective memoranda. (Ibid., p. 114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed
their Memorandum on August 1, 1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).
In its Memorandum, petitioner raised the following issues:

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted that
Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the Public Land
Act, or any improvement thereon and therefore have no application to the assailed mortgage in the case
at bar which was executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a
restriction appearing on the face of private respondent's title has likewise no application in the instant
case, despite its reference to encumbrance or alienation before the patent is issued because it refers
specifically to encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF
MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE
COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT
OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo,
p. 122).
This petition is impressed with merit.

But it is a different matter, as regards the second mortgage executed over the same properties on May
2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of
Olongapo City on the same date. Relative thereto, it is evident that such mortgage executed after the
issuance of the sales patent and of the Original Certificate of Title, falls squarely under the prohibitions

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.
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stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is
therefore null and void.

all the properties in it. It leased the entire factory premises to Ruby Tsai and sold to the same the
factory, lock, stock and barrel including the contested machineries. EVERTEX filed a complaint for
annulment of sale, reconveyance, and damages against PBCom, alleging inter alia that the extrajudicial
foreclosure of subject mortgage was not valid, and that PBCom, without any legal or factual basis,
appropriated the contested properties which were not included in the Real and Chattel Mortgage of the
first mortgage contract nor in the second contract which is a Chattel Mortgage, and neither were those
properties included in the Notice of Sheriff's Sale.

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated,
without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand,
thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.

ISSUES:

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120,
122 and 123 of Commonwealth Act 141, has held:

1) W/N the contested properties are personal or movable properties

... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may not be
invoked to defeat the policy of the State neither may the doctrine of estoppel give a validating effect to a
void contract. Indeed, it is generally considered that as between parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not within
the competence of any citizen to barter away what public policy by law was to preserve (Gonzalo Puyat
& Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

2) W/N the sale of these properties to a third person (Tsai) by the bank through an irregular foreclosure
sale is valid.
HELD:
1) Nature of the Properties and Intent of the Parties

This pronouncement covers only the previous transaction already alluded to and does not pass upon
any new contract between the parties (Ibid), as in the case at bar. It should not preclude new contracts
that may be entered into between petitioner bank and private respondents that are in accordance with
the requirements of the law. After all, private respondents themselves declare that they are not denying
the legitimacy of their debts and appear to be open to new negotiations under the law (Comment; Rollo,
pp. 95-96). Any new transaction, however, would be subject to whatever steps the Government may
take for the reversion of the land in its favor.PREMISES CONSIDERED, the decision of the Court of
First Instance of Zambales & Olongapo City is hereby MODIFIED, declaring that the Deed of Real
Estate Mortgage for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage for an
additional loan of P20,000.00 is null and void, without prejudice to any appropriate action the
Government may take against private respondents.

The nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real
property mortgaged does not make them ipso facto immovable under Article 415 (3) and (5) of the New
Civil Code. While it is true that the properties appear to be immobile, a perusal of the contract of Real
and Chattel Mortgage executed by the parties herein reveal their intent, that is - to treat machinery and
equipment as chattels.
In the first mortgage contract, reflective of the true intention of PBCOM and EVERTEX was the typing
in capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel."
So also, the "machineries and equipment" in the printed form of the bank had to be inserted in the blank
space of the printed contract and connected with the word "building" by typewritten slash marks. Now,
then, if the machineries in question were contemplated to be included in the real estate mortgage, there
would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A
a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the
Deed of Real Estate Mortgage of the land and building involved. As regards the second contract, the
intention of the parties is clear and beyond question. It refers solely to chattels. The inventory list of the
mortgaged properties is an itemization of 63 individually described machineries while the schedule
listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.

SO ORDERED.
Tsai v. CA
Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications (PBCom),
secured by a deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels
located therein as enumerated in a schedule attached to the mortgage contract. PBCom again granted
a second loan to EVERTEX which was secured by a Chattel Mortgage over personal properties
enumerated in a list attached thereto. These listed properties were similar to those listed in the first
mortgage deed. After the date of the execution of the second mortgage mentioned above, EVERTEX
purchased various machines and equipments. Upon EVERTEX's failure to meet its obligation to
PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135
and Act 1506 or "The Chattel Mortgage Law". PBCom then consolidated its ownership over the lot and

UNDER PRINCIPLE OF STOPPEL Assuming arguendo that the properties in question are immovable
by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the
principle of estoppel. As far back as Navarro v. Pineda, an immovable may be considered a personal
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property if there is a stipulation as when it is used as security in the payment of an obligation where a
chattel mortgage is executed over it.

The Supreme Court overruled the demurrer, and ordered that unless Jaramillo interposes a sufficient
answer to the petition for mandamus by Standard Oil within 5 days of notification, the writ would be
issued as prayed, but without costs.

2) Sale of the Properties Not Included in the Subject of Chattel Mortgage is Not Valid
ISSUE:
The auction sale of the subject properties to PBCom is void. Inasmuch as the subject mortgages were
intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the
Chattel Mortgage Law applies. Section 7 provides thereof that: "a chattel mortgage shall be deemed to
cover only the property described therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgaged, anything in the
mortgage to the contrary notwithstanding." Since the disputed machineries were acquired later after the
two mortgage contracts were executed, it was consequently an error on the part of the Sheriff to include
subject machineries with the properties enumerated in said chattel mortgages. As the lease and sale of
said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the
auction, no valid title passed in its favor. Consequently, the sale thereof to Ruby Tsai is also a nullity
under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.

w/n the Registry of Deeds can determine the nature of property to be registered.
w/n the Registry of Deeds has powers beyond Ministerial discretion.
RESOLUTION:
1.Jaramillo, register of deeds, does not have judicial or quasi-judicial power to determine nature of
document registered as chattel mortgage Section 198 of the Administrative Code, originally of Section
15 of the Chattel Mortgage Law (Act 1508 as amended by Act 2496), does not confer upon the register
of deeds any authority whatever in respect to the "qualification," as the term is used in Spanish law, of
chattel mortgages. 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.

Standard Oil v. Jaramillo

The Power of the Registry of Deeds is Ministerial, and The absolute criterion to determine between real
and personal property is NOT supplied by the civil code. Parties may agree what to treat as personal
property and what to treat as real property.

2.Article 334 and 335 of the Civil Code does not supply absolute criterion on distinction between real
and personal property for purpose of the application of the Chattel Mortgage Law Article 334 and 335 of
the Civil Code supply no absolute criterion for discriminating between real property and personal
property for purposes 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 be 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 the Supreme Court, in which the proper
classification of one thing or another as real or personal property may be said to be doubtful

FACTS
On November 27, 1922, Gervasia de la Rosa was the lessee of a parcel of land situated in the City of
Manila and owner of the house of really tough materials built thereon. She executed that fine day a
document in the form of a chattel mortgage, purporting to convey to Standard Oil Company of New York
(by way of mortgage) both the leasehold interest in said lot and the building.
After said document had been duly acknowledged and delivered, Standard Oil presented it to 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, Jaramillo opined that it was
not 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.

Evangelista v. Alto Surety

Facts:
In 1949, Santos Evangelista instituted Civil Case No. 8235 of the CFI Manila (Santos
Evangelista vs. Ricardo Rivera) for a sum of money. On the same date, he obtained a writ
of attachment, which was levied upon a house, built by Rivera on a land situated in Manila
and leased to him, by filing copy of said writ and the corresponding notice of attachment
with the Office of the Register of Deeds of Manila. In due course, judgment was rendered in
favor of Evangelista, who bought the house at public auction held in compliance with the
writ of execution issued in said case on 8 October 1951. The corresponding definite deed of

Later this confusion was brought to the Supreme Court upon demurrer by Joaquin Jaramillo, register of
deeds of the City of Manila, to an original petition of the Standard Oil Company of New York, demanding
a mandamus to 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.
Page 4 of 7

sale was issued to him on 22 October 1952, upon expiration of the period of redemption.
When Evangelista sought to take possession of the house, Rivera refused to surrender it,
upon the ground that he had leased the property from the Alto Surety & Insurance Co., Inc.
and that the latter is now the true owner of said property. It appears that on 10 May 1952,
a definite deed of sale of the same house had been issued to Alto Surety, as the highest
bidder at an auction sale held, on 29 September 1950, in compliance with a writ of
execution issued in Civil Case 6268 of the same court (Alto Surety & Insurance vs. Maximo
Quiambao, Rosario Guevara and Ricardo Rivera)" in which judgment for the sum of money,
had been rendered in favor of Alto Surety. Hence, on 13 June 1953, Evangelista instituted
an action against Alto Surety and Ricardo Rivera, for the purpose of establishing his title
over said house, and securing possession thereof, apart from recovering damages. After
due trial, the CFI Manila rendered judgment for Evangelista, sentencing Rivera and Alto
Surety to deliver the house in question to Evangelista and to pay him, jointly and severally,
P40.00 a month from October 1952, until said delivery. The decision was however reversed
by the Court of Appeals, which absolved Alto Surety from the complaint on account that
although the writ of attachment in favor of Evangelista had been filed with the Register of
Deeds of Manila prior to the sale in favor of Alto Surety, Evangelista did not acquire
thereby a preferential lien, the attachment having been levied as if the house in question
were immovable property.

Facts: appellants were the owners of the house, worth P200.00, built on and owned by
them and situated in the said municipality Lagangilang; that sometime in January 1957
appealed forcibly demolished the house, claiming to be the owners thereof; that the
materials of the house, after it was dismantled, were placed in the custody of the barrio
lieutenant of the place; and that as a result of appellate's refusal to restore the house or to
deliver the material appellants the latter have suffered damages.
Issue: whether the action involves title to real property.
Ruling/ Rationale: A house is classified as immovable property by reason of its adherence
to the soil on which it is built (Art. 415, par. 1, Civil Code). This classification holds true
regardless of the fact that the house may be situated on land belonging to a different
owner. But once the house is demolished, as in this case, it ceases to exist as such and
hence its character as an immovable likewise ceases.
Sergs Products, Inc. vs. PCI Leasing G.R. No. 137705. August 22, 2000
FACTS:
PCI Leasing and Finance filed a complaint for sum of money, with an application for a writ
of replevin. Judge issued a writ of replevin directing its sheriff to seize and deliver the
machineries and equipment to PCI Leasing after 5 days and upon the payment of the
necessary expenses. The sheriff proceeded to petitioner's factory, seized one machinery,
with word that he would return for other machineries. Petitioner (Sergs Products) filed a
motion for special protective order to defer enforcement of the writ of replevin. PCI Leasing
opposed the motion on the ground that the properties were still personal and therefore can
still be subjected to seizure and writ of replevin. Petitioner asserted that properties sought
to be seized were immovable as defined in Article 415 of the Civil Code. Sheriff was still
able to take possession of two more machineries

Issue:
Whether or not a house constructed by the lessee of the land on which it is built, should be
dealt with, for purpose of attachment, as immovable property?
Held:
The court ruled that the house is not personal property, much less a debt, credit or other
personal property not capable of manual delivery, but immovable property. As held in
Laddera vs. Hodges (48 OG 5374), "a true building is immovable or real property, whether
it is erected by the owner of the land or by a usufructuary or lessee. The opinion that the
house of Rivera should have been attached, as "personal property capable of manual
delivery, by taking and safely keeping in his custody", for it declared that "Evangelista
could not have validly purchased Ricardo Rivera's house from the sheriff as the latter was
not in possession thereof at the time he sold it at a public auction is untenable. Parties to
a deed of chattel mortgage may agree to consider a house as personal property for
purposes of said contract. However, this view is good only insofar as the contracting
parties are concerned. It is based, partly, upon the principle of estoppel. Neither this
principle, nor said view, is applicable to strangers to said contract. The rules on execution
do not allow, and should not be interpreted as to allow, the special consideration that
parties to a contract may have desired to impart to real estate as personal property, when
they are not ordinarily so. Sales on execution affect the public and third persons. The
regulation governing sales on execution are for public officials to follow. The form of
proceedings prescribed for each kind of property is suited to its character, not to the
character which the parties have given to it or desire to give it. The regulations were never
intended to suit the consideration that parties, may have privately given to the property
levied upon. The court therefore affirms the decision of the CA with cost against Alto
Surety.

In its decision on the original action for certiorari filed by the Petitioner, the appellate
court, Citing the Agreement of the parties, held that the subject machines were personal
property, and that they had only been leased, not owned, by petitioners; and ruled that the
"words of the contract are clear and leave no doubt upon the true intention of the
contracting parties."
ISSUE: Whether or not the machineries became real property by virtue of immobilization.
Ruling:
Petitioners contend that the subject machines used in their factory were not proper
subjects of the Writ issued by the RTC, because they were in fact real property. Writ of
Replevin: Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.
Article 415 (5) of the Civil Code provides that machinery, receptacles, instruments or
implements intended by the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly to meet the needs of
the said industry or works

BICERRA v TENEZA G.R. No. L-16218 November 29, 1962

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In the present case, the machines that were the subjects of the Writ of Seizure were placed
by petitioners in the factory built on their own land.They were essential and principal
elements of their chocolate-making industry.Hence, although each of them was movable or
personal property on its own, all of them have become immobilized by destination
because they are essential and principal elements in the industry.

power and authority to represent it in any conference regarding the real property
assessment of the Provincial Assessor. NPC filed a petition with the LBAA. The LBAA
ordered Fels to pay the real estate taxes. The LBAA ruled that the power plant facilities,
while they may be classified as movable or personal property, are nevertheless considered
real property for taxation purposes because they are installed at a specific location with a
character of permanency. The LBAA also pointed out that the owner of the bargesFELS, a
private corporationis the one being taxed, not NPC. A mere agreement making NPC
responsible for the payment of all real estate taxes and assessments will not justify the
exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to
FELS. Finally, the LBAA also ruled that the petition was filed out of time.

However, contracting parties may validly stipulate that a real property be considered as
personal. After agreeing to such stipulation, they are consequently estopped from claiming
otherwise.Under the principle of estoppel, a party to a contract is ordinarily precluded from
denying the truth of any material fact found therein.
Section 12.1 of the Agreement between the parties provides The PROPERTY is, and shall
at all times be and remain, personal property notwithstanding that the PROPERTY or any
part thereof may now be, or hereafter become, in any manner affixed or attached to or
embedded in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent.

Fels appealed to the CBAA. The CBAA reversed and ruled that the power barges belong to
NPC; since they are actually, directly and exclusively used by it, the power barges are
covered by the exemptions under Section 234(c) of R.A. No. 7160. As to the other
jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. Upon
MR, the CBAA reversed itself.

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

Issue: Whether or not the petitioner may be assessed of real property taxes.
Fels Energy, Inc. vs. Province of Batangas

Held: YES. The CBAA and LBAA power barges are real property and are thus subject to real
property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was
dismissed for failure to sufficiently show any reversible error. Tax assessments by tax
examiners are presumed correct and made in good faith, with the taxpayer having the
burden of proving otherwise. Besides, factual findings of administrative bodies, which have
acquired expertise in their field, are generally binding and conclusive upon the Court; we
will not assume to interfere with the sensible exercise of the judgment of men especially
trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy
to leave the assessment undisturbed. We find no reason to depart from this rule in this
case.

Callejo Sr., J.
Doctrine: In Consolidated Edison Company of New York, Inc., et al. v. The City of New York,
et al., a power company brought an action to review property tax assessment. On the
citys motion to dismiss, the Supreme Court of New York held that the barges on which
were mounted gas turbine power plants designated to generate electrical power, the fuel
oil barges which supplied fuel oil to the power plant barges, and the accessory equipment
mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that docks and structures which,
though floating, are intended by their nature and object to remain at a fixed place on a
river, lake, or coast are considered immovable property. Thus, power barges are
categorized as immovable property by destination, being in the nature of machinery and
other implements intended by the owner for an industry or work which may be carried on
in a building or on a piece of land and which tend directly to meet the needs of said
industry or work.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., a
power company brought an action to review property tax assessment. On the citys motion
to dismiss, the Supreme Court of New York held that the barges on which were mounted
gas turbine power plants designated to generate electrical power, the fuel oil barges which
supplied fuel oil to the power plant barges, and the accessory equipment mounted on the
barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that docks and structures which,
though floating, are intended by their nature and object to remain at a fixed place on a
river, lake, or coast are considered immovable property. Thus, power barges are
categorized as immovable property by destination, being in the nature of machinery and
other implements intended by the owner for an industry or work which may be carried on
in a building or on a piece of land and which tend directly to meet the needs of said
industry or work.

Facts: On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over
330 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The
contract, denominated as an Energy Conversion Agreement, was for a period of five years.
Article 10 states that NPC shall be responsible for the payment of taxes. (other than (i)
taxes imposed or calculated on the basis of the net income of POLAR and Personal Income
Taxes of its employees and (ii) construction permit fees, environmental permit fees and
other similar fees and charges. Polar Energy then assigned its rights under the Agreement
to Fels despite NPCs initial opposition.

Petitioners maintain nevertheless that the power barges are exempt from real estate tax
under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively
used by petitioner NPC, a government- owned and controlled corporation engaged in the
supply, generation, and transmission of electric power.

FELS received an assessment of real property taxes on the power barges from Provincial
Assessor Lauro C. Andaya of Batangas City. FELS referred the matter to NPC, reminding it
of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full
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We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As
stipulated under Section 2.11, Article 2 of the Agreement:

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the local government units for
the delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges
which have been supplied by it at its own cost. POLAR shall operate, manage and maintain
the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.

Caveat: Anyone who claims this digest as his own without proper authority shall be held
liable under the law of Karma.
Strochecker v. Ramirez

It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160. Indeed, the law states that the
machinery must be actually, directly and exclusively used by the government owned or
controlled corporation; nevertheless, petitioner FELS still cannot find solace in this
provision because Section 5.5, Article 5 of the Agreement provides:

FACTS:
The half-interest in the business (Antigua Botica Ramirez) was mortgaged with Fidelity &
Surety Co. on 10 March 1919, and registered in due time in the registry of property, while
another mortgage was made with Ildefonso Ramirez on 22 September 1919 and registered
also in the registry. Raised in the lower court, the trial court declared the mortgage of
Fidelity & Surety Co. entitled to preference over that of Ildefonso Ramirez and another
mortgage by Concepcion Ayala. Ayala did not appeal, but Ramirez did.

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the
supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will
operate the Power Barges to convert such Fuel into electricity in accordance with Part A of
Article 7.

ISSUE: Whether or not half-interest over a business is a movable property

It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions.

RULING: Yes.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is
the exception. The law does not look with favor on tax exemptions and the entity that
would seek to be thus privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted. Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.

1. Interest in business may be subject of mortgage With regard to the nature of the
property mortgaged which is one-half interest in the business, such interest is a personal
property capable of appropriation and not included in the enumeration of real properties in
articles 335 of the Civil Code, and may be the subject of mortgage. All personal property
may be mortgaged. (Sec. 7, Act 1508.)

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall
be responsible for the payment of all real estate taxes and assessments, does not justify
the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The
covenant is between FELS and NPC and does not bind a third person not privy thereto, in
this case, the Province of Batangas.

2. Description of mortgage property sufficient The description contained in the document is

sufficient. The law (sec. 7, Act 1508) requires only a description of the mortgaged property
shall be such as to enable the parties to the mortgage, or any other person, after
reasonable inquiry and investigation, to identify the same. In the case at bar, his half
interest in the drug business known as Antigua Botica Ramirez, located at Calle Real Nos.
123 and 125, District of Intramuros, Manila Philippine Islands" is sufficient.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in
the local governments deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging in its very nature no
perimeter so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay for it. The right of
local government units to collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy to guarantee the autonomy
of local governments and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.

3. Article 1922 (1-3) of the Civil Code applicable only to mortgage property in possession
Numbers 1, 2, and 3 of the article 1922 of the Civil Code are not applicable as neither the
debtor, nor himself, is in possession of the property mortgaged, which is, and since the
registration of the mortgage has been, legally in possession of the surety company
4. Stipulation about personal property not a mortgage upon property - In no way can the
mortgage executed be given effect as of the date of the sale of the store in question; as
there was a mere stipulation about personal security during said date, but not a mortgage
upon property, and much less upon the property in question.

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