[G.R. No. L-11658. February 15, 1918.

]
LEUNG YEE, plaintiff-appellant, vs. FRANK L. STRONG MACHINERY COMPANY
and J. G. WILLIAMSON, defendants-appellees.
Booram & Mahoney for appellant.
Williams, Ferrier & SyCip for appellees.

SYLLABUS
1. CHATTEL MORTGAGE; REGISTRY OF MORTGAGE COVERING REAL
PROPERTY. — The sole purpose and object of the chattel mortgage registry is to provide for
the registry of "chattel mortgages," and transfers thereof, that is to say, mortgages of personal
property executed in the manner and form prescribed in the statute. Neither the original registry
in a chattel mortgage registry of an instrument purporting to be a chattel mortgage of a building
and the machinery installed therein, nor the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the building is concerned.
2. ID.; ID. — A factory building is real property, and the mere fact that it is mortgaged and
sold, separate and apart from the land on which it stands, in no wise changes its character as real
property.
3. VENDOR AND PURCHASER; REGISTRY OF TITLE; GOOD FAITH. — The rights
secured under the provisions of article 1473 of the Civil Code to that one of two purchasers of
the same real estate, who has secured and inscribed his title thereto in the Land Registry, do not
accrue unless such inscription is made in good faith.
4. ID.; SEPARATE PURCHASERS; DETERMINATION OF RIGHTS. — The respective
rights of two or more separate purchasers of the same real estate from the same owner in case
none of them has secured an inscription of his title in the land registry in good faith, are to be
determined in accord with the third, and not the second paragraph of that article.
5. ID.; 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.
6. ID.; ID. — 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.
7. ID.; ID. — Good faith, or the lack of it, is in its last 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.
8. ID.; ID. — "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."

DECISION
CARSON, J p:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
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 "Compañia 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 "Compañia 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 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 transferred
to the person who may have 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 here 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 "Compañia 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 registry of the instrument purporting to be a chattel mortgage of the
building and the machinery installed therein, nor 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 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 in 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 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
sentence 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 precious sale, the question is to be decided in accordance with the
following paragraph." (Note 2, art. 1473, Civ. Code, Medina and Marañon [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 plaintiff's claim against the "Compañia 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 conceived 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 or 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 it afterwards develops that
the title was in fact defective, and it appears that he had such notice of the defect as would have
led to its discovery had he acted with that measure of precaution which may reasonably be
required of a prudent man in a like situation. Good faith, or the lack of it, is in its last 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 vs.
Miller, 108 Cal., 250; Breaux-Renoudet, Cypress 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 the costs of this instance against the
appellant. So ordered.
Arellano, C. J., Johnson, Araullo, Street, and Malcolm, JJ., concur.
Torres, Avanceña, and Fisher, JJ., did not take part.

[G.R. No. 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 & Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.

SYLLABUS
1. CHATTEL MORTGAGE; REGISTRATION; NOTICE. — The efficacy of the act of
recording a chattel mortgage consists in the fact that registration operates as constructive notice
of the existence of the contract, and the legal effects of the instrument must be discovered in the
document 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 species of constructive
notice.
2. ID.; ID.; FUNCTION OF REGISTER. — The duties of a register of deeds in respect to
the registration of chattel mortgages are purely of a ministerial character, and he is clothed with
no judicial or quasi-judicial power to determine the nature of the property, whether real or
personal, which is the subject of the mortgage. Generally speaking, he should accept the
qualification of the property adapted by the person who presents the instrument for registration
and should place the instrument on record, upon payment of the proper fee, leaving the effects of
registration to be determined by the court if such question should arise for legal determination.

DECISION
STREET, J p:
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 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.
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 mortgaged are
expressed in the following words:
"Now, therefore, the mortgagor hereby conveys and transfers to the mortgagee, 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 acknowledged 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 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 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 mortgages are of a purely ministerial character; and no
provision of law can be cited which confers upon him any judicial or quasi-judicial 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 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. Registration adds nothing to the instrument, considered as a source of title, and affects
nobody's rights except as a species of notice.
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 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 us 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 provision 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 interest 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.
Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.

[G.R. No. 40411. August 7, 1935.]

DAVAO SAW MILL CO., INC., plaintiff-appellant, vs. APRONIANO G. CASTILLO and
DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio, Suazo & Jose L. Palma Gil and Pablo Lorenzo & Delfin Joven for appellant.
J. W. Ferrier for appellees.

SYLLABUS
1. PROPERTY; MACHINERY AS PERSONAL PROPERTY; CIVIL CODE, ARTICLE
334, PARAGRAPHS 1 and 5, CONSTRUED. — A lessee placed machinery in a building
erected on land belonging to another, with the understanding that the machinery was not
included in the improvements which would pass to the lessor on the expiration or abandonment
of the land leased. The lessee also treated the machinery as personal property by executing
chattel mortgages in favor of third persons. The machinery was levied upon by the sheriff as
personalty pursuant to a writ of execution obtained without any protest being registered. Held:
That the machinery must be classified as personal property.
2. ID.; ID.; ID. — 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.

DECISION
MALCOLM, J p:
The issue in this case, as announced in the opening sentence of the decision in the trial court and
as set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal
in nature, and as a consequence absolved the defendants from the complaint, with costs against
the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged
to another person. On the land the sawmill company erected a building which housed the
machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there appeared the
following provision:
"That on the expiration of the period agreed upon, all the improvements and buildings introduced
and erected by the party of the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for said improvements and
buildings; also, in the event the party of the second part should leave or abandon the land leased
before the time herein stipulated, the improvements and buildings shall likewise pass to the
ownership of the party of the first part as though the time agreed upon had expired: Provided,
however, That the machineries and accessories are not included in the improvements which will
pass to the party of the first part on the expiration or abandonment of the land leased."
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao
Saw Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the properties
now in question were levied upon as personalty by the sheriff. No third party claim was filed for
such properties at the time of the sales thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgagees.
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;
xxx xxx xxx
"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 or industry."
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and the appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of
intention and impresses upon the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo
([1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.
It is, however, not necessary to spend overly much 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 industry 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 of 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.
xxx xxx xxx
"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 [1912], 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.
Villa-Real, Imperial, Butte and Goddard, JJ., concur.
[G.R. No. L-58469. May 16, 1983.]
MAKATI LEASING and FINANCE CORPORATION, petitioner, vs. WEAREVER
TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.

SYLLABUS
1. REMEDIAL LAW; PETITION FOR REVIEW; NOT RENDERED MOOT AND
ACADEMIC; WHERE RIGHT TO QUESTION DECISION, TIMELY RESERVED. — The
contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals' decision, as shown by the receipt duly signed by
respondent's representative. Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition
has been mooted by such return may not be sustained.
2. CIVIL LAW; PROPERTY; MACHINERY THOUGH IMMOBILIZED BY
DESTINATION IF TREATED BY THE PARTIES AS A PERSONALTY FOR PURPOSES OF
A CHATTEL MORTGAGE LEGAL, WHERE NO THIRD PARTY IS PREJUDICED. — The
next and the more crucial question to be resolved in this petition is whether the machinery in suit
is real or personal property from the point of view of the parties. Examining the records of the
instance case, the Supreme Court found no logical justification to exclude and rule out, as the
appellate court did, the present case from the application of the pronouncement in the
TUMALAD v. VICENCIO CASE (41 SCRA 143) where a similar, if not identical issue was
raised. If a house of strong materials, like what was involved in the Tumalad case may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as
the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is really because one
who has so agreed is estopped from denying the existence of the chattel mortgage.
3. ID.; ID.; ID.; COURT SHOULD NOT MAKE DISTINCTIONS, WHERE THE LAW
DOES NOT. — In rejecting petitioner's assertion on the applicability of the Tumalad doctrine,
the Court of Appeals lays stress on the fact that the house involved therein was built on a land
that did not belong to the owner of such house. But the law makes no distinction with respect to
the ownership of the land on which the house is built and the Supreme Court should not lay
down distinctions not contemplated by law.
4. ID.; ID.; ID.; CHARACTERIZATION OF PROPERTY, INDICATIVE OF THE
INTENTION OF THE PARTIES. — It must be pointed out that the characterization of the
subject machinery as chattel by the private respondent is indicative of intention and impresses
upon the property the character determined by the parties. As stated in Standard Oil Co. of New
York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by agreement
treat as personal property that which by nature would be real property, as long as no interest of
third parties would be prejudiced thereby.
5. CIVIL LAW; ESTOPPEL; REPRESENTING OR AGREEING ON THE
CONSTITUTION OF A PROPERTY AS CHATTEL; A CASE THEREOF. — Private
respondent contends that estoppel cannot apply against it because it had never represented nor
agreed that the machinery in suit he considered as personal property but was merely required and
dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
format the time of signing. This contention lacks persuasiveness. As aptly pointed out by
petitioner and not denied by the respondent, the status of the subject machine as movable or
immovable was never placed in issue before the lower court and the Court of Appeals except ins
supplemental memorandum in support of the petition filed in the appellate court.
6. ID.; CONTRACT; TREATING A MACHINERY AS A CHATTEL; AGREEMENT
DEEMED VALID UNLESS ANNULLED OR VOIDED IN A PROPER ACTION. —
Moreover, even granting that the charge is true, such fact alone does not render a contract void
ab initio, but can only be a ground for rendering said contract voidable or annullable pursuant to
Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to
show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify
the same.
7. ID.; ID.; UNDUE BENEFIT OVER A CONTRACT AT THE EXPENSE OF
ANOTHER NOT COUNTENANCED BY EQUITY. — On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, he allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom.

DECISION
DE CASTRO, J p:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate
Appellate Court) promulgation August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain
Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of
First Instance of Rizal, Branch VI, issued in Civil Case No. 36040, as well as the resolution
dated September 22, 1981 of the said appellate court, denying petitioner's motion for
reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati
Leasing and Finance Corporation, the private respondent Wearever Textile Mills, Inc.,
discounted and assigned several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned, private respondent executed a
Chattel Mortgage over certain raw materials inventory as well as a machinery described as an
Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure
failed to gain entry into private respondent's premises and was not able to effect the seizure of
the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with
the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case
before the lower court. LexLib
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order
to break open the premises of private respondent to enforce said writ. The lower court reaffirmed
its stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein
private respondent, set aside the Orders of the lower court and ordered the return of the drive
motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot
be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant
to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts
and the only way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enforce the writ was to take the
main drive motor of said machinery. The appellate court rejected petitioner's argument that
private respondent is estopped from claiming that the machine is real property by constituting a
chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied,
petitioner has brought the case to this Court for review by writ of certiorari. It is contended by
private respondent, however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's machinery after the Court of
Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject
motor drive, it made itself' unequivocably clear that said action was without prejudice to a
motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed
by respondent's representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition
has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that
it is a personalty, while the respondent claiming the contrary, and was sustained by the appellate
court, which accordingly held that the chattel mortgage constituted thereon is null and void, as
contended by said respondent. LLpr
A similar, if not identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this
Court, speaking through Justice J.B.L. Reyes, ruled:
"Although there is no specific statement referring to the subject house as personal property, yet
by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants
could only have meant to convey the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent stand by claiming
otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants
merely had a temporary right as lessee, and although this can not in itself alone determine the
status of the property, it does so when combined with other factors to sustain the interpretation
that the parties, particularly the mortgagors, intended to treat the house as Personalty. Finally,
unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third persons assailed the validity of the chattel mortgage, it
is the defendants-appellants themselves, as debtors mortgagors, who are attacking the validity of
the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants appellants, having treated the subject house as personalty."
Examining the records of the instant case, We find no logical justification to exclude the rule out,
as the appellate court did, the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise treated as
such. This is really because one who has so agreed is estopped from denying the existence of the
chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of
Appeals lays stress on the fact that the house involved therein was built on a land that did not
belong to the owner of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay down distinctions not
contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined
by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as personal property that which
by nature would be real property, as long as no interest of third parties would be prejudiced
thereby.
Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property but was
merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage
which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the subject machinery as
movable or immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in the appellate
court. Moreover, even granting that the charge is true, such fact alone does not render a contract
void ab initio, but can only be a ground for rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken
to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract. Equity dictates that one
should not benefit at the expense of another. Private respondent could not now therefore, be
allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom. LexLib
From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of
Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is
not applicable to the case at bar, the nature of the machinery and equipment involved therein as
real properties never having been disputed nor in issue, and they were not the subject of a Chattel
Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case
to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby
reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs against
the private respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and Escolin, JJ., concur.
Abad Santos, J., concurs in the result.
[G.R. No. L-17870. September 29, 1962.]
MINDANAO BUS COMPANY, petitioner, vs. THE CITY ASSESSOR & TREASURER
and the BOARD OF TAX APPEALS OF CAGAYAN DE ORO CITY, respondents.
Binamira, Barria & Irabagon for petitioner.
Vicente E. Sabellina for respondents.

SYLLABUS
1. PROPERTY; IMMOVABLE PROPERTY BY DESTINATION; TWO REQUISITES
BEFORE MOVABLES MAY BE DEEMED TO HAVE BEEN IMMOBILIZED; TOOLS AND
EQUIPMENTS MERELY INCIDENTAL TO BUSINESS NOT SUBJECT TO REAL ESTATE
TAX. — Movable equipments, to be immobilized in contemplation of Article 415 of the Civil
Code, must be the essential and principal elements of an industry or works which are carried on
in a building or on a piece of land. Thus, where the business is one of transportation, which is
carried on without a repair or service shop, and its rolling equipment is repaired or serviced in a
shop belonging to another, the tools and equipments in its repair shop which appear movable are
merely incidentals and may not be considered immovables, and, hence, not subject to assessment
as real estate for purposes of the real estate tax.

DECISION
LABRADOR, J p:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No.
710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax
on its maintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for
the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
"Petitioner and respondents, thru their respective counsels agreed to the following stipulation of
facts:
"1. That petitioner is a public utility solely engaged in transporting passengers and cargoes
by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by
the Public Service Commission;
"2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;
"3. That the machineries sought to be assessed by the respondent as real properties are the
following:
"(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex
'A';
"(b) Storm Boring machine, appearing in the attached photograph, marked Annex 'B';
"(c) Lathe machine with motor, appearing in the attached photograph, marked Annex 'C';
"(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex 'D';
"(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex 'E';
"(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked
Annex 'F'; and
"(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex 'G'.
"4. That these machineries are sitting on cement or wooden platforms as may be seen in the
attached photographs which form part of this agreed stipulation of facts;
"5. That petitioner is the owner of the land where it maintains and operates a garage for its
TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries
which are placed therein, its TPU trucks are made; body constructed; and same are repaired in a
condition to be serviceable in the TPU land transportation business it operates;
"6. That these machineries have never been or were never used as industrial equipments to
produce finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes for which petitioner has
never engaged in, to date."
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, the 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:
xxx xxx xxx
"(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 industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principal
elements of a sugar central, without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent." (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 movables which become immobilized by destination
because they are essential and principal elements in the industry from 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 equipments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IMB 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 incidentals
and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principal 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:
xxx xxx xxx
"(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.
Bengzon, C . J ., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ .,
concur.
Concepcion and Barrera, JJ ., took no part.
Regala, J ., did not take part.

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

CALTEX (PHILIPPINES) INC., petitioner, vs. CENTRAL BOARD OF ASSESSMENT
APPEALS and CITY ASSESSOR OF PASAY, respondents.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Eduardo Z. Gatchalian for respondents.

SYNOPSIS
Petitioner installed underground tanks, elevated tanks, elevated water tanks, water tanks,
gasoline and computing pumps, car washers, car and tire hoists, air compressors and tireflators in
its gasoline stations located on leased land. They were attached to the pavement covering the
entire lot. The said machines were loaned by petitioner to gas station operators under lease
contracts to be returned to petitioner upon demand. The city assessor of Pasay City treated the
said machines as taxable realty and imposed real tax thereon. The city board of tax appeals ruled
that they are personality not subject to realty tax, but the Central Board of Assessment Appeals
reversed the ruling and found that the machines and equipment were real property within the
meaning of Section 3(k) and (m) and 38 of the Real Property Tax Code, Presidential Decree 464,
and that the definitions of real property and personal property in Articles 415 and 416 of the
Civil Code are not applicable to this case. Hence, this petition.
The Supreme Court, on review, held that the equipment and machinery necessary to the
operation of a gas station and which are attached or affixed permanently thereto or embedded
therein are taxable improvements and machinery within the meaning of the Assessment Law and
the Real Property Tax Code.
Petition dismissed and the questioned decision and resolution of the Central Board of
Assessment Appeals are affirmed. LibLex

SYLLABUS
1. ADMINISTRATIVE LAW; TAXATION; REALTY TAX; EQUIPMENT AND
MACHINERY PERMANENTLY AFFIXED TO GAS STATION SUBJECT THEREOF AS
IMPROVEMENT. — 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 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.
2. ID.; ID.; PROPERTY SUBJECT THERETO; IMPROVEMENTS ON LAND
COMMONLY TAXED AS A REALTY. — Improvements on land are commonly taxed as
realty even though for some purposes they might be considered personality (84 C.J.S. 181-2,
Notes 40 and 41). It is a familiar phenomenon to see things in classed as real property for
purposes of taxation which on general principle might be considered personal property (Standard
Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).

DECISION
AQUINO, J p:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines)
Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water tanks,
water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck
hoists, air compressors and tireflators. The city assessor described the said equipment and
machinery in this manner:
"A gasoline service station is a piece of lot where a building or shed is erected, a water tank if
there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air
compressor is attached in the wall of the shed or at the concrete wall fence.
"The controversial underground tank, depository of gasoline or crude oil, is dug deep about six
feet more or less, a few meters away from the shed. This is done to prevent conflagration
because gasoline and other combustible oil are very inflammable.
"This underground tank is connected with a steel pipe to the gasoline pump and the gasoline
pump is commonly placed or constructed under the shed. The footing of the pump is a cement
pad and this cement pad is imbedded in the pavement under the shed, and evidence that the
gasoline underground tank is attached and connected to the shed or building through the pipe to
the pump and the pump is attached and affixed to the cement pad and pavement covered by the
roof of the building or shed. cdasia
"The building or shed, the elevated water tank, the car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon lights signboard, concrete fence and pavement
and the lot where they are all placed or erected, all of them used in the pursuance of the gasoline
service station business formed the entire gasoline service station.
"As to whether the subject properties are attached and affixed to the tenement, it is clear they are,
for the tenement we consider in this particular case are (is) the pavement covering the entire lot
which was constructed by the owner of the gasoline station and the improvement which holds all
the properties under question, they are attached and affixed to the pavement and to the
improvement.
"The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. . . .
"The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the
water tank it is connected also by a steel pipe to the pavement, then to the electric motor which
electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and
underground tanks are outside of the service station, and to consider only the building as the
service station is grossly erroneous." (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an
appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators,
upon demand, shall return to Caltex the machines and equipment in good condition as when
received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not become the owner of the
machines and equipment installed therein. Caltex retains the ownership thereof during the term
of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and
machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p.
52, Rollo). The city board of tax appeals ruled that they are personality. The assessor appealed to
the Central Board of Assessment Appeals. prcd
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting
Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community
Development Jose Roño, held in its decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real
Property Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, and that the
definitions of real property and personal property in articles 415 and 416 of the Civil Code are
not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place)
in its resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of
which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that the said machines and equipment are personal
property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court in
1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law in
providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city
boards of assessment appeals had in mind the local boards of assessment appeals but not the
Central Board of Assessment Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals and is, therefore, in the
same category as the Tax Court. cdll
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the
receipt of its decision by the appellant. Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide for the review of the Board's decision
by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse
resorted to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the
Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including
land, buildings, machinery, and other improvements" not specifically exempted in section 3
thereof. This provision is reproduced with some modification in the Real Property Tax Code
which provides:
"SEC. 38. Incidence of Real Property Tax. — There shall be levied, assessed and collected
in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land,
buildings, machinery and other improvements affixed or attached to real property not hereinafter
specifically exempted."
The Code contains the following definitions in its section 3:
"k) Improvements — is a valuable addition made to property or an amelioration in its
condition, amounting to more than mere repairs or replacement of waste, costing labor or capital
and intended to enhance its value, beauty or utility or to adapt it for new or further purposes."
"m) Machinery — shall embrace machines, mechanical contrivances, instruments, appliances
and apparatus attached to the real estate. It includes the physical facilities available for
production, as well as the installations and appurtenant service facilities, together with all other
equipment designed for or essential to its manufacturing, industrial or agricultural purposes."
(See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to
the operation of the gas station, for without them the gas station would be useless, and which
have been attached or affixed permanently to the gas station site or embedded therein, are taxable
improvements and machinery within the meaning of the Assessment Law and the Real Property
Tax Code. LLphil
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant,
a usufructuary, or any person having only a temporary right, unless such person acted as the
agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil. 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding
machinery that becomes real property by destination. In the Davao Saw Mills case the question
was whether the machinery mounted on foundations of cement and installed by the lessee on
leased land should be regarded as real property for purposes of execution of a judgment against
the lessee. The sheriff treated the machinery as personal property. This Court sustained the
sheriff's action. (Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96
Phil. 70, where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to
the realty tax. This question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might
be considered personality (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see
things classed as real property for purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
LexLib
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric
Co., 119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of
paragraph 9 of its franchise which exempts its poles from taxation. The steel towers were
considered personality because they were attached to square metal frames by means of bolts and
could be moved from place to place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the
repair shop of a bus company which were held to be personal property not subject to realty tax
(Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in
upholding the city assessor's imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment
Appeals are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.
SO ORDERED.
Barredo, Guerrero, De Castro and Escolin, JJ ., concur.
Concepcion Jr. and Abad Santos, JJ ., took no part.
[G.R. No. 137705. August 22, 2000.]
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI
LEASING AND FINANCE, INC., respondent.
Antonio R. Bautista & Partners for petitioners.
Perez & Calima Law Offices for respondent.

SYNOPSIS
On February 13, 1998, respondent PCI Leasing and Finance Inc. filed with the RTC of Quezon
City a complaint for sum of money, with an application for a writ of replevin. On March 6, 1998,
respondent 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 payment of the necessary
expenses. The sheriff proceeded to petitioner's factory and seized one machinery. On March 25,
1998, petitioner filed a motion for special protective order 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. The motion was opposed by PCI on the
ground that the properties were personal and therefore still subject to seizure and writ of
replevin. In their reply, petitioners asserted that the properties were immovable. They further
stated that PCI was estopped from treating these machineries as personal because the contracts
were totally sham and farcical. On April 7, 1998, petitioners went to the Court of Appeals via an
original action for certiorari. The Court of Appeals ruled that the subject machines were personal
property as provided by the agreement of the parties. Hence, this petition. TaCEHA
The Court found the petition not meritorious. The Court ruled that the 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. In
the present case, the lease agreement clearly provides that the machines in question are to be
considered as personal properties. Clearly then, petitioners were estopped from denying the
characterization of the subject machines as personal property. Under the circumstances, they are
proper subject of the writ of seizure. Accordingly, the petition was denied and the assailed
decision of the Court of Appeals was affirmed.

SYLLABUS
1. CIVIL LAW; CONTRACTS; CONTRACTING PARTIES MAY VALIDLY
STIPULATE THAT REAL PROPERTY BE CONSIDERED AS PERSONAL. — The Court has
held that 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. Hence, in Tumalad v. Vicencio, 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: ". . . . 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 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. CcaASE
2. ID.; ID.; ID.; THIRD PERSONS ACTING IN GOOD FAITH ARE NOT AFFECTED
BY STIPULATION CHARACTERIZING MACHINERY AS PERSONAL. — 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: "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. 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. In any event, there is no showing
that any specific third party would be adversely affected.
3. REMEDIAL LAW; PROVISIONAL REMEDIES; REPLEVIN; THE REMEDY OF
DEFENDANTS UNDER RULE 60 WAS EITHER TO POST A COUNTER-BOND OR TO
QUESTION THE SUFFICIENCY OF PLAINTIFF'S BOND. — 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 Tondeña Distillers v. CA, 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
plaintiff's 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." THADEI

DECISION
PANGANIBAN, J p:
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.
ECSHID
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision 1 of the
Court of Appeals (CA) 2 in CA-GR SP No. 47332 and its February 26, 1999 Resolution 3
denying reconsideration. The decretal portion of the CA Decision reads as follows: IEAacT
"WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The
writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED." 4
In its February 18, 1998 Order, 5 the Regional Trial Court (RTC) of Quezon City (Branch 218) 6
issued a Writ of Seizure. 7 The March 18, 1998 Resolution 8 denied petitioners' Motion for
Special Protective Order, praying that the deputy sheriff be enjoined "from seizing immobilized
or other real properties in [petitioners'] factory in Cainta, Rizal and to return to their original
place whatever immobilized machineries or equipments he may have removed." 9
The Facts
The undisputed facts are summarized by the Court of Appeals as follows: 10
"On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex 'E'), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.
"On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ
of replevin (Annex 'B') directing its sheriff to seize and deliver the machineries and equipment to
PCI Leasing after 5 days and upon the payment of the necessary expenses.
"On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioner's factory,
seized one machinery with [the] word that he [would] return for the other machineries.
"On March 25, 1998, petitioners filed a motion for special protective order (Annex 'C'), invoking
the power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.
"This motion was opposed by PCI Leasing (Annex 'F'), on the ground that the properties [were]
still personal and therefore still subject to seizure and a writ of replevin.
"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties' agreement to the contrary notwithstanding.
They argued that to give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these machineries as personal
because the contracts in which the alleged agreement [were] embodied [were] totally sham and
farcical.
"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
the remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest.
"On April 7, 1998, they went to [the CA] via an original action for certiorari."
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled that
the "words of the contract are clear and leave no doubt upon the true intention of the contracting
parties." Observing that Petitioner Goquiolay was an experienced businessman who was "not
unfamiliar with the ways of the trade," it ruled that he "should have realized the import of the
document he signed." The CA further held:
"Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon
the case below, since the merits of the whole matter are laid down before us via a petition whose
sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of the
[RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper subjects
of a full-blown trial, necessitating presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other — a matter . . . 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 SERG'S 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 Court's 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:
"SECTION 3. Order. — Upon the filing of such affidavit and approval of the bonds, 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: AHDaET
ARTICLE 415. The following are immovable property: HCTEDa
xxx xxx xxx
(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.
xxx xxx xxx"
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:
". . . 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 Court's ruling are reproduced hereunder:
". . . 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 respondent's 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 Tondeña 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
plaintiff's 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: DcITHE
". . . 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. . . ."
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:
"SECTION 5. Return of property. — If the adverse party objects to the sufficiency of the
applicant's 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 applicant's
affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and by serving a
copy bond on the applicant."
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners. THEcAS
SO ORDERED.
Melo, Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.