PROPERTY (ownership)
1.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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 and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compañia Agricola Filipina" bought a considerable quantity of rice-cleaning
machinery company from the defendant machinery company, and executed a
chattel mortgage thereon to secure payment of the purchase price. It included in
the mortgage deed the building of strong materials in which the machinery was
installed, without any reference to the land on which it stood. The indebtedness
secured by this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was
registered in the chattel mortgage registry, and the sale of the property to the
machinery company in satisfaction of the mortgage was annotated in the same
registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "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 the sale duly registered in the land registry of the Province
of Cavite.
At the time when the execution was levied upon the building, the defendant
machinery company, which was in possession, filed with the sheriff a sworn
statement setting up its claim of title and demanding the release of the property
from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an
indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which
the sheriff sold the property at public auction to the plaintiff, who was the highest
bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from
the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave
judgment in favor of the machinery company, on the ground that the company had
its title to the building registered prior to the date of registry of the plaintiff's
certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall
be transfer to the person who may have the first taken possession thereof in good
faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first
recorded it in the registry.
Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a
chattel mortgage registry cannot be given the legal effect of an inscription in the
registry of real property. By its express terms, the Chattel Mortgage Law
contemplates and makes provision for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry is to provide for the registry of
"Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in
which the rice-cleaning machinery was installed by the "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
of the building and the machinery installed therein, not the annotation in that
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PROPERTY (ownership)
registry of the sale of the mortgaged property, had any effect whatever so far as the
building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained
on the ground assigned by the trial judge. We are of opinion, however, that the
judgment must be sustained on the ground that the agreed statement of facts in
the court below discloses that neither the purchase of the building by the plaintiff
nor his inscription of the sheriff's certificate of sale in his favor was made in good
faith, and that the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of the code, it
appearing that the company first took possession of the property; and further, that
the building and the land were sold to the machinery company long prior to the
date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code
require "good faith," in express terms, in relation to "possession" and "title," but
contain no express requirement as to "good faith" in relation to the "inscription" of
the property on the registry, it must be presumed that good faith is not an essential
requisite of registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the intention
of the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The
public records cannot be converted into instruments of fraud and oppression by
one who secures an inscription therein in bad faith. The force and effect given by
law to an inscription in a public record presupposes the good faith of him who
enters such inscription; and rights created by statute, which are predicated upon an
inscription in a public registry, do not and cannot accrue under an inscription "in
bad faith," to the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of
Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the
first paragraph; therefore, it having been found that the second purchasers who
record their purchase had knowledge of the previous sale, the question is to be
decided in accordance with the following paragraph. (Note 2, art. 1473, Civ. Code,
Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance
of ownership of the real property that is first recorded in the registry shall have
preference, this provision must always be understood on the basis of the good faith
mentioned in the first paragraph; the legislator could not have wished to strike it
out and to sanction bad faith, just to comply with a mere formality which, in given
cases, does not obtain even in real disputes between third persons. (Note 2, art.
1473, Civ. Code, issued by the publishers of the La Revista de los Tribunales, 13th
edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought
the building at the sheriff's sale and inscribed his title in the land registry, was duly
notified that the machinery company had bought the building from plaintiff's
judgment debtor; that it had gone into possession long prior to the sheriff's sale;
and that it was in possession at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale with full
knowledge that at the time of the levy and sale the building had already been sold
to the machinery company by the judgment debtor, the plaintiff cannot be said to
have been a purchaser in good faith; and of course, the subsequent inscription of
the sheriff's certificate of title must be held to have been tainted with the same
defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be
understood as questioning, in any way, the good faith and genuineness of the
plaintiff's claim against the "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 considered that he was doing no more than
he had a right to do under all the circumstances, and it is highly possible and even
probable that he thought at that time that he would be able to maintain his
position in a contest with the machinery company. There was no collusion on his
part with the common debtor, and no thought of the perpetration of a fraud upon
the rights of another, in the ordinary sense of the word. He may have hoped, and
doubtless he did hope, that the title of the machinery company would not stand the
test of an action in a court of law; and if later developments had confirmed his
unfounded hopes, no one could question the legality of the propriety of the course
he adopted.
But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of
ownership was well founded, he cannot be said to have been an innocent purchaser
for value. He took the risk and must stand by the consequences; and it is in this
sense that we find that he was not a purchaser in good faith.
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PROPERTY (ownership)
One who purchases real estate with knowledge of a defect or lack of title in his
vendor cannot claim that he has acquired title thereto in good faith as against the
true owner of the land or of an interest therein; and the same rule must be applied
to one who has knowledge of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in the title
of his vendor. A purchaser cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his willful closing of his eyes to the possibility of
the existence of a defect in his vendor's title, will not make him an innocent
purchaser for value, if afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defects as would have led to its discovery
had he acted with that measure of precaution which may reasonably be acquired of
a prudent man in a like situation. Good faith, or lack of it, is in its analysis a question
of intention; but in ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with safety, be determined.
So it is that "the honesty of intention," "the honest lawful intent," which constitutes
good faith implies a "freedom from knowledge and circumstances which ought to
put a person on inquiry," and so it is that proof of such knowledge overcomes the
presumption of good faith in which the courts always indulge in the absence of
proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact
that can be seen or touched, but rather a state or condition of mind which can only
be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504,
505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros.
Co. vs. Bromley, 119 Mich., 8, 10, 17.)

We conclude that upon the grounds herein set forth the disposing part of the
decision and judgment entered in the court below should be affirmed with costs of
this instance against the appellant. So ordered.

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PROPERTY (ownership)
2.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the
Standard Oil Company of New York, seeking a peremptory 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 mortgage
are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by
way of mortgage, the following described personal property, situated in the City of
Manila, and now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of
lease hereinabove referred to, and in and to the premises the subject of the said
lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased
premises.
After said document had been duly acknowledge and delivered, the petitioner
caused the same to be presented to the respondent, Joaquin Jaramillo, as register
of deeds of the City of Manila, for the purpose of having the same recorded in the
book of record of chattel mortgages. Upon examination of the instrument, the
respondent was of the opinion that it was not a chattel mortgage, for the reason
that the interest therein mortgaged did not appear to be personal property, within
the meaning of the Chattel Mortgage Law, and registration was refused on this
ground only.
We are of the opinion that the position taken by the respondent is untenable; and it
is his duty to accept the proper fee and place the instrument on record. The duties
of a register of deeds in respect to the registration of chattel mortgage are of a
purely ministerial character; and no provision of law can be cited which confers
upon him any judicial or 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 mortgage. His duties in respect to such instruments are
ministerial only. The efficacy of the act of recording a chattel mortgage consists in
the fact that it operates as constructive notice of the existence of the contract, and
the legal effects of the contract must be discovered in the instrument itself in
relation with the fact of notice. Registration adds nothing to the instrument,
considered as a source of title, and affects nobody's rights except as a specifies of
notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating
between real property and personal property for purpose of the application of the
Chattel Mortgage Law. Those articles state rules which, considered as a general
doctrine, are law in this jurisdiction; but it must not be forgotten that under given
conditions property may have character different from that imputed to it in said
articles. It is undeniable that the parties to a contract may by agreement treat as
personal property that which by nature would be real property; and it is a familiar
phenomenon to see things classed as real property for purposes of taxation which
on general principle might be considered personal property. Other situations are
constantly arising, and from time to time are presented to this court, in which the
proper classification of one thing or another as real or personal property may be
said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in an
administrative ruling promulgated by the Honorable James A. Ostrand, now a
Justice of this Court, but acting at that time in the capacity of Judge of the fourth
branch of the Court of First Instance of the Ninth Judicial District, in the City of
Manila; and little of value can be here added to the observations contained in said
ruling. We accordingly quote therefrom as follows:
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PROPERTY (ownership)
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the
point as to whether a register of deeds has authority to deny the registration of a
document purporting to be a chattel mortgage and executed in the manner and
form prescribed by the Chattel Mortgage Law.

Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor
continued:

Based principally upon the provisions of section quoted the Attorney-General of the
Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds
has no authority to pass upon the capacity of the parties to a chattel mortgage
which is presented to him for record. A fortiori a register of deeds can have no
authority to pass upon the character of the property sought to be encumbered by a
chattel mortgage. Of course, if the mortgaged property is real instead of personal
the chattel mortgage would no doubt be held ineffective as against third parties,
but this is a question to be determined by the courts of justice and not by the
register of deeds.

In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this
court held that where the interest conveyed is of the nature of real, property, the
placing of the document on record in the chattel mortgage register is a futile act;
but that decision is not decisive of the question now before us, which has reference
to the function of the register of deeds in placing the document on record.

In the light of what has been said it becomes unnecessary for us to pass upon the
point whether the interests conveyed in the instrument now in question are real or
personal; and we declare it to be the duty of the register of deeds to accept the
estimate placed upon the document by the petitioner and to register it, upon
payment of the proper fee.

The demurrer is overruled; and unless within the period of five days from the date
of the notification hereof, the respondent shall interpose a sufficient answer to the
petition, the writ of mandamus will be issued, as prayed, but without costs. So
ordered.

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PROPERTY (ownership)
4.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF
PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the
Court of First Instance of Manila, dismissing said plaintiff's complaint against Cu
Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by
the trial court in its decision in question which will be discussed in the course of this
decision.
The first question to be decided in this appeal, which is raised in the first
assignment of alleged error, is whether or not the lower court erred in declaring
that the additional machinery and equipment, as improvement incorporated with
the central are subject to the mortgage deed executed in favor of the defendants
Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc.,
owner of the sugar central situated in Mabalacat, Pampanga, obtained from the
defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on
two parcels and land "with all its buildings, improvements, sugar-cane mill, steel
railway, telephone line, apparatus, utensils and whatever forms part or is necessary
complement of said sugar-cane mill, steel railway, telephone line, now existing or
that may in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the
Mabalacat Sugar Co., Inc., decided to increase the capacity of its sugar central by
buying additional machinery and equipment, so that instead of milling 150 tons
daily, it could produce 250. The estimated cost of said additional machinery and
equipment was approximately P100,000. In order to carry out this plan, B.A. Green,
president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to
advance the necessary amount for the purchase of said machinery and equipment,
promising to reimburse him as soon as he could obtain an additional loan from the
mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said
proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter,
on October 9th of the same year, delivered the sum of P1,710 to B.A. Green,
president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said
B.A. Green having been P25,750. Furthermore, B.H. Berkenkotter had a credit of
P22,000 against said corporation for unpaid salary. With the loan of P25,750 and
said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional
machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to
Cu Unjieng e Hijos for an additional loan of P75,000 offering as security the
additional machinery and equipment acquired by said B.A. Green and installed in
the sugar central after the execution of the original mortgage deed, on April 27,
1927, together with whatever additional equipment acquired with said loan. B.A.
Green failed to obtain said loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing
fruits, and rents not collected when the obligation falls due, and the amount of any
indemnities paid or due the owner by the insurers of the mortgaged property or by
virtue of the exercise of the power of eminent domain, with the declarations,
amplifications, and limitations established by law, whether the estate continues in
the possession of the person who mortgaged it or whether it passes into the hands
of a third person.
In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12 Phil., 690),
cited with approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid
shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES.
— It is a rule, established by the Civil Code and also by the Mortgage Law, with
which the decisions of the courts of the United States are in accord, that in a
mortgage of real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land, although they may
have been placed there after the mortgage was constituted, are also included.
(Arts. 110 and 111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S.
Supreme Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and
Amadeo [26 Sup. Ct. Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may
be understood that the machinery and other objects placed upon and used in
connection with a mortgaged estate are excluded from the mortgage, when it was
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PROPERTY (ownership)
stated in the mortgage that the improvements, buildings, and machinery that
existed thereon were also comprehended, it is indispensable that the exclusion
thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment
claimed by him in the sugar central of the Mabalacat Sugar Company, Inc., was not
permanent in character inasmuch as B.A. Green, in proposing to him to advance the
money for the purchase thereof, made it appear in the letter, Exhibit E, that in case
B.A. Green should fail to obtain an additional loan from the defendants Cu Unjieng
e Hijos, said machinery and equipment would become security therefor, said B.A.
Green binding himself not to mortgage nor encumber them to anybody until said
plaintiff be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as
loan from the plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar
Co., Inc., the latter became owner of said machinery and equipment, otherwise B.A.
Green, as such president, could not have offered them to the plaintiff as security for
the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to
"machinery, liquid containers, instruments or implements intended by the owner of
any building or land for use in connection with any industry or trade being carried
on therein and which are expressly adapted to meet the requirements of such trade
or industry.
Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central
to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor
Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and
equipment had been incorporated, was transferred thereby, subject to the right of
the defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the
installation of a machinery and equipment in a mortgaged sugar central, in lieu of
another of less capacity, for the purpose of carrying out the industrial functions of
the latter and increasing production, constitutes a permanent improvement on said
sugar central and subjects said machinery and equipment to the mortgage
constituted thereon (article 1877, Civil Code); (2) that the fact that the purchaser of
the new machinery and equipment has bound himself to the person supplying him
the purchase money to hold them as security for the payment of the latter's credit,
and to refrain from mortgaging or otherwise encumbering them does not alter the
permanent character of the incorporation of said machinery and equipment with
the central; and (3) that the sale of the machinery and equipment in question by
the purchaser who was supplied the purchase money, as a loan, to the person who
supplied the money, after the incorporation thereof with the mortgaged sugar
central, does not vest the creditor with ownership of said machinery and
equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts,
with costs to the appellant. So ordered.

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

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

As to the alleged sale of said machinery and equipment to the plaintiff and
appellant after they had been permanently incorporated with sugar central of the
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PROPERTY (ownership)
5.) [G.R. No. L-8133. May 18, 1956.]
MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-Appellants, vs.
MACARIO M. OFILADA, Sheriff of the City of Manila and ERNESTO
ESTEBAN, Respondents-Appellees.
DECISION
LABRADOR, J.:
On September 8, 1951, Petitioner Lucia D. Manarang obtained a loan of P200 from
Ernesto Esteban, and to secure its payment she executed a chattel mortgage over a
house of mixed materials erected on a lot on Alvarado Street, Manila. As Manarang
did not pay the loan as agreed upon, Esteban brought an action against her in the
municipal court of Manila for its recovery, alleging that the loan was secured by a
chattel mortgage on her property. Judgment having been entered in Plaintiff’s
favor, execution was issued against the same property mortgaged.
Before the property could be sold Manarang offered to pay the sum of P277, which
represented the amount of the judgment of P250, the interest thereon, the costs,
and the sheriff’s fees, but the sheriff refused the tender unless the additional
amount of P260 representing the publication of the notice of sale in two
newspapers be paid also. So Defendants therein brought this suit to compel the
sheriff to accept the amount of P277 as full payment of the judgment and to annul
the published notice of sale.
It is to be noted that in the complaint filed in the municipal court, a copy of the
chattel mortgage is attached and mention made of its registration, and in the
prayer request is made that the house mortgaged be sold at public auction to
satisfy the debt. It is also important to note that the house mortgaged was levied
upon at Plaintiff’s request (Exhibit “E”).
On the basis of the above facts counsel for Manarang contended in the court below
that the house in question should be considered as personal property and the
publication of the notice of its sale at public auction in execution considered
unnecessary. The Court of First Instance held that although real property may
sometimes be considered as personal property, the sheriff was in duty bound to
cause the publication of the notice of its sale in order to make the sale valid or to
prevent its being declared void or voidable, and he did not, therefore, err in causing
such publication of the notice. So it denied the petition.
There cannot be any question that a building of mixed materials may be the subject
of a chattel mortgage, in which case it is considered as between the parties as
personal property. We held so expressly in the cases of Luna vs. Encarnacion, et al.,
* 48 Off. Gaz., No. 7, p. 2664; chan roblesvirtualawlibraryStandard Oil Co. of New
York vs. Jaranillo, 44 Phil., 630; chan roblesvirtualawlibraryand De Jesus vs. Guan
Dee Co., Inc., 72 Phil., 464. The matter depends on the circumstances and the
intention of the parties.
“ cralaw The general principle of law is that a building permanently fixed to the
freehold becomes a part of it, that prima facie a house is real estate, belonging to
the owner of the land on which it stands, even though it was erected against the
will of the landowner, or without his consent cralaw . The general rule is otherwise,
however, where the improvement is made with the consent of the landowner, and
pursuant to an understanding either expressed or implied that it shall remain
personal property. Nor does the general rule apply to a building which is wrongfully
removed from the land and placed on the land of the person removing it.” (42 Am.
Jur. 199-200.)
“ cralaw Among the principal criteria for determining whether property remains
personally or becomes realty are annexation to the soil, either actual or
construction, and the intention of the parties cralaw
“Personal property may retain its character as such where it is so agreed by the
parties interested even though annexed to the realty, or where it is affixed in the
soil to be used for a particular purpose for a short period and then removed as soon
as it has served its purpose cralaw .” (Ibid., 209-210.)
The question now before us, however, is:chanroblesvirtuallawlibrary Does the fact
that the parties entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in advertising
the property’s sale at public auction as personal property? It is to be remembered
that in the case at bar the action was to collect a loan secured by a chattel
mortgage on the house. It is also to be remembered that in practice it is the
judgment creditor who points out to the sheriff the properties that the sheriff is to
levy upon in execution, and the judgment creditor in the case at bar is the party in
whose favor the owner of the house and conveyed it by way of chattel mortgage
and, therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not
allow, and we should not interpret them in such a way as to allow, the special
consideration that parties to a contract may have desired to impart to real estate,
for example, as personal property, when they are not ordinarily so. Sales on
execution affect the public and third persons. The regulation governing sales on
execution are for public officials to follow. The form of proceedings prescribed for
each kind of property is suited to its character, not to the character which the
parties have given to it or desire to give it. When the rules speak of personal
property, property which is ordinarily so considered is meant; chan
roblesvirtualawlibraryand when real property is spoken of, it means property which
is generally known as real property. The regulations were never intended to suit the
8
PROPERTY (ownership)
consideration that parties, may have privately given to the property levied upon.
Enforcement of regulations would be difficult were the convenience or agreement
of private parties to determine or govern the nature of the proceedings. We,
therefore, hold that the mere fact that a house was the subject of a chattel
mortgage and was considered as personal property by the parties does not make
said house personal property for purposes of the notice to be given for its sale at
public auction. This ruling is demanded by the need for a definite, orderly and well-
defined regulation for official and public guidance and which would prevent
confusion and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on execution,
although subject of a contract of chattel mortgage between the owner and a third
person, is real property within the purview of Rule 39, section 16, of the Rules of
Court as it has become a permanent fixture on the land, which is real property. (42
Am. Jur. 199-200; chan roblesvirtualawlibraryLeung Yee vs. Strong Machinery Co.,
37 Phil., 644; chan roblesvirtualawlibraryRepublic vs. Ceniza, et al., 90 Phil.,
544; chan roblesvirtualawlibraryLadera, et al. vs. Hodges, et al., [C. A], 48 Off. Gaz.,
5374.).

The judgment appealed from is hereby affirmed, with costs. SO ORDERED.

9
PROPERTY (ownership)
6.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19867 May 29, 1968
GOVERNMENT SERVICE INSURANCE SYSTEM, plaintiff-appellee,
vs.
CALSONS, INC., CESARIO P. CALANOC, and NENITA GODINEZ, defendants-
appellants.
The Government Corporate Counsel for plaintiff-appellee.
Juan T. David and Clemente M. Soriano for defendants-appellants.
MAKALINTAL., J.:
Appeal from the decision of the Court of First Instance of Manila..
On April 11, 1957 appellant CALSONS, INC. applied for a loan of P2,000,000.00 to
appellee to pay the balance of the purchase price of certain parcels of land situated
at the corner of Globo de Oro and Elizondo Streets, Quiapo, Manila, and to finance
the construction of a two-storey textile market building on said land. The
application was approved by appellee's Board of Trustees on August 26, 1957. In
connection with said loan appellants executed on October 31, 1957 a promissory
note binding themselves jointly and severally to pay appellee the sum of
P2,000,000.00, with interest at the rate of 7% per annum compounded monthly, in
120 equal monthly installments of P23,221.69 each. Under said note "the first
installment shall be due and payable beginning the month following the last release
and/or the month following the expiration of the period for the construction of the
textile market building, whichever is earlier, and the rest on the 7th day of every
month thereafter until the principal of TWO MILLION PESOS (P2,000,000.00) and
the interest shall have been fully paid." To secure payment of the note "and/or the
interest thereon and/or other obligations arising thereunder", appellants executed
on the same date a first mortgage in favor of appellee on five (5) parcels of land
particularly described in the mortgage contract, "together with all the buildings and
improvements now existing thereon or which may hereafter be constructed on the
mortgaged property (ies) of which MORTGAGOR is the absolute owner, free from
all liens and encumbrances." The aforementioned five (5) parcels of land were
among the properties acquired by appellant CALSONS, INC., from Tuason &
Sampedro, Inc., for and in consideration of the sum of ONE MILLION ONE HUNDRED
THOUSAND PESOS (P1,100,000.00) under a Deed of Assignment dated October 29,
1957.1ªvvphi1.nêt
The conditions of the mortgage contract which are relevant to this case are the
following:
2. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner
encumber the mortgaged property (ies) without the prior written consent of the
MORTGAGOR.
4. If the MORTGAGOR shall, at any time, fail or refuse to pay any of the
amortizations on the indebtedness, or the interest when due, or whatever other
obligation herein agreed, then all the amortizations and other obligations of the
MORTGAGOR of any nature, shall become due, payable and defaulted and the
MORTGAGEE may immediately foreclose this mortgage judicially or extrajudicially
under Act 3135, as amended and/or under C.A. 186, as amended, and/or Act No.
1508, as amended....
14. This mortgage shall furthermore be subject to the following ADDITIONAL
CONDITIONS:
1) That the applicant shall pay to the system P23,221.70 monthly, including
principal and interest.
2) That the first release of P819,000.00 on this loan shall be made only after:
xxx xxx xxx
b. The submission of evidence showing payment on realty taxes up to and including
that of the current year; .
c. The submission of evidence showing the reduction of applicant's account on the
lot to at least P819,000.00; .
d. The submission of the certificates of title in the name of the applicant to the
property offered as collateral for this loan; provided, that if the said certificates of
title could not be secured without paying the balance of the purchase price, said
balance shall be paid first from the first release of this loan;
3) That the check covering the obligation of applicant on the lots offered as
collateral shall be drawn in favor of the vendor of said lots;
4) That subsequent releases on this loan shall be controlled in such manner that the
amount to be released shall depend on the progress of the work done on the
proposed building but in no case shall the amount to be released and the amounts
already released exceed 60% of the appraised value of the lots and the existing
improvements thereon as of every release;
xxx xxx xxx
6) That the proposed building shall be completed within twelve (12) months from
the date the first release of this loan is made;
The first release in the amount of P819,000.00 was made on November 7, 1957,
while the second (and last) release in the amount of P30,000.00 was made on May
15, 1958. The checks covering both releases were drawn in favor of the vendor of
the mortgaged properties.
In accordance with the agreement between the parties, the old building standing on
the mortgaged properties was insured for P300,000.00 on December 1, 1959.
10
PROPERTY (ownership)
Appellee advanced the sum of P5,628.00 for the annual premium, but appellants
failed to reimburse the same.
Appellee filed a complaint for the foreclosure of the mortgage with the Court of
First Instance of Manila on August 11, 1958, alleging a number of violations of the
mortgage contract, to wit: (1) that the mortgaged properties had not been freed by
the mortgagor from certain liens and encumbrances other than the mortgage itself;
(2) that without the prior written consent of plaintiff defendants removed and
disposed of the complete band sawmill and filing machine which formed part of the
properties mortgaged; (3) that defendant Calsons, Inc., failed to submit to appellee
evidence showing the reduction of defendant's account on the lot to at least
P819,000.00; (4) and that Calsons, Inc., failed to begin, much less complete, the
construction of the supermarket building on the mortgaged properties. On August
11, 1959, plaintiff filed supplemental complaint, which was admitted without
opposition. Two additional grounds for the foreclosure of the mortgage were
alleged, namely: (1) that defendants failed, despite demands therefor, to pay the
amortizations due and payable, including accrued interest and surcharges, on the
portion of the loan released to them; and (2) that defendants failed to complete the
construction of the textile market building on the mortgaged properties within 12
months from November 7, 1957, the date of the first release of P819,000.00.
Judgment was rendered on March 3, 1962 in favor of plaintiff, and defendants
brought this appeal directly to this Court in view of the amount involved.
In their brief, appellants make the following assignment of errors:
1. The Trial Court erred in holding that it is not true that defendants have not
defaulted in any of their obligations under the mortgage contract.
2. The Trial Court erred in ruling that with respect to the liens and encumbrances,
the defendants' failure to pay the balance of the purchase price of the mortgaged
properties from their original owners subjected the said properties to a vendor's
lien.
3. The Trial Court erred in holding that the machineries on the mortgaged
properties are part of the mortgage and that the removal and subsequent disposal
of the same therefrom by the defendants violated the said mortgage contract.
4. The Trial Court erred in holding that defendant Calsons, Inc., has failed to reduce
its account on the loan to at least P819,000.00 and that such failure is a clear
violation of a contract of mortgage.
5. The Trial Court erred in holding that the defendants failed despite demand
therefor, to pay the amortization due and payable, including interests and
surcharges on the portion of the loan released to them.
6. The Trial Court erred in rendering judgment for plaintiff and against the
defendants ordering the latter to pay jointly and severally the plaintiff of the sum of
(1) P819,000.00 with interests at the rate of 7% per annum compounded monthly
from November 8, 1957 until the same is fully paid; (2) P30,000.00 with interests at
the rate of 7% per annum compounded monthly, from May 16, 1958 until the same
is fully paid; (3) P5,628.00 yearly insurance premium with interests of 7% per
annum compounded monthly, from December, 1959 until the same is fully paid; (4)
the sum equivalent to 10% of the foregoing sums as expenses of collection and
attorney's fees, plus the costs of this action.
7. The Trial Court erred in failing and/or neglecting to act and pass upon the
counterclaim of the defendants-appellants notwithstanding the fact that said
counterclaim is fully established by the evidence on records.
The second and fourth errors assigned are interrelated and will first be taken up.
The two certificates of title covering the mortgaged properties do not show any lien
or encumbrance thereon other than the mortgage itself. This is admitted by both
parties. Appellee refers, however, to the vendor's lien in favor of the former
owners, representing the unpaid balance of P280,000.00 on the purchase price of
the lots mortgaged. The lien, appellee point out, is a legal encumbrance and
therefore effective, although not recorded. On the other hand, appellants contend
that appellee is estopped from invoking its right to have the mortgaged properties
free from the vendor's lien on two grounds, namely: (1) that appellant had previous
knowledge of said lien as evidenced by the two releases of P819,000 and P30,000
directly to the vendor of the mortgaged properties, and (2) that appellant
committed itself to pay to the said vendor the amount of P280,000.00, balance on
the purchase price, within a period of six (6) months from October 28, 1957.
The contention cannot be sustained on the first ground. One of the reasons why
appellant Calsons, Inc., applied for the P2,000,000.00 loan was precisely to use part
thereof to pay the balance of the purchase price of five (5) parcels of land it
mortgaged to appellee. And to assure itself that no vendor's lien attached to the
said properties appellee caused the following conditions to be added to the original
terms of the mortgage contract:
2) That the first release of P819,000.00 on this loan shall be made only after:
e. The submission of evidence showing the reduction of applicant's account on the
lot to at least P819,000.00;
d. The submission of the certificates of title in the name of the applicant to the
property offered as collateral for this loan; provided, that if the said certificates of
title could not be secured without paying the balance of the purchase price, said
balance shall be paid first from the first release of this loan;
3) That the check covering the obligation of applicant on the lots offered as
collateral shall be drawn in favor of the vendor of said lots;
Pursuant to the foregoing conditions the check covering the first release of
P819,000.00 was drawn in favor of the vendor of the properties, and the release
11
PROPERTY (ownership)
was made upon submission of the two transfer certificates of title already in the
name of appellant Calsons, Inc., as vendee, without any annotation thereon of any
lien or encumbrance except the mortgage itself in favor of appellee. It turned out,
however, that appellants had failed to reduce their account on the lot to
P819,000.00, as stipulated in the mortgage contract, since there was still a balance
of P280,000 on the purchase price. With respect to the second release of
P30,000.00, the check was also drawn in favor of the vendor with the
understanding that it would be used to pay the real estate taxes due on said
properties and thus remove the corresponding tax lien imposed by law.
The steps taken by appellee negate any inference that it agreed to waive its right to
have the properties "free from all liens and encumbrances," as provided in the
mortgage contract.
Estoppel is invoked by appellants on the basis of a letter dated October 28, 1957,
sent by the Manager of appellee's Real Estate Department to the vendor of the
properties, to the effect that the balance of the purchase price in the amount of
P280,000.00 would be released within six (6) months from the date of the said
letter. The commitment of said Manager was not recognized by the Board of
Trustees of the appellee as shown by the fact that it was not incorporated in the
mortgage contract, which was executed on a later date — October 31, 1957. While
the schedule of subsequent releases was clearly defined in the mortgage contract,
no mention was made about the said commitment. Thus, Paragraph 14 (4) of the
mortgage contract states:
(4) .That subsequent releases on this loan shall be controlled in such manner that
the amount to be released shall depend in the progress of the work done on the
proposed building but in no case shall the amount to be released and the amounts
already released exceed 60% of the appraised value of the lots and the existing
improvements thereon as of every release;
Regarding the third error assigned, appellants do not deny the fact that they
removed and disposed of the machineries installed in the building which were
standing on the mortgaged properties. However, they contend that the said
machineries were not included in the mortgage. The contention is groundless.
The mortgage was on the lands "together with all the buildings and improvements
now existing or which may hereafter be constructed" thereon. And the machineries,
as found by the trial court, were permanently attached to the property, and
installed there by the former owner to meet the needs of certain works or industry
therein. They were therefore part of the immovable pursuant to Article 415 of the
Civil Code, and need not be the subject of a separate chattel mortgage in order to
be deemed duly encumbered in favor of appellee.
Under the fifth assignment of error, appellants point out that there is no time
specified in the mortgage contract within which the amortizations on the loan
should begin to be paid, and conclude that they should begin only from the time
the proposed building started earning rentals. The provision of Paragraph 14 (13) of
the mortgage contract is invoked, to wit:
That rentals from the proposed building equivalent to the monthly amortization on
this loan shall be assigned in favor of and made payable to the System.
As a corollary argument, appellants add that since the present action was instituted
three (3) months before the expiration of the twelve-month period (from
November 7, 1957) within which the construction of the supermarket building
should be completed the premature institution of the suit rendered the
construction of said building impossible, and hence no default in payment was
incurred.
Again this contention of appellants is without merit. The promissory note executed
by them clearly provides when the first installment, as well as subsequent ones,
would become due, thus:
The first installment shall be due and payable beginning the month following the
last release and/or the month following the expiration of the period for the
construction of the textile market building, whichever is earlier, and the rest on the
7th day of every month thereafter until the principal of TWO MILLION PESOS
(P2,000,000.00) and the interest shall have been fully paid.
As previously mentioned, the mortgage contract provides that the proposed
building should be completed within twelve (12) months from the date of the first
release. Said release having been made on November 7, 1957, the construction
period of 12 months expired on November 7, 1958; hence, the first installment
became due one month thereafter or on December 7, 1958, and the rest on the 7th
day of every month thereafter. Appellants' failure to pay the amortizations, interest
and surcharges demanded of them by appellee, therefore, constitutes a violation of
the mortgage contract and is sufficient ground for the foreclosure of the mortgage.
IN VIEW OF THE FOREGOING, the sixth and seventh assignments of error are
without merit. The judgment appealed from is hereby affirmed, with costs against
appellants.
12
PROPERTY (ownership)
7.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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 and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A.
Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the
payment of the realty tax on its maintenance and repair equipment hereunder
referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's
above-mentioned equipment. Petitioner appealed the assessment to the
respondent Board of Tax Appeals on the ground that the same are not realty. The
Board of Tax Appeals of the City sustained the city assessor, so petitioner herein
filed with the Court of Tax Appeals a petition for the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following
stipulation of facts:
1. That petitioner is a public utility solely engaged in transporting passengers and
cargoes by motor trucks, over its authorized lines in the Island of Mindanao,
collecting rates approved by the Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains
Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur;
Davao City and Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties
are the following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked
Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex
"B";
(c) Lathe machine with motor, appearing in the attached photograph, marked
Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex
"D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex
"E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph,
marked Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked
Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be
seen in the attached photographs which form part of this agreed stipulation of
facts;
5. That petitioner is the owner of the land where it maintains and operates a garage
for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with
these machineries which are placed therein, its TPU trucks are made; body
constructed; and same are repaired in a condition to be serviceable in the TPU land
transportation business it operates;
6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries, parts
and the like offered to the general public indiscriminately for business or
commercial purposes for which petitioner has never engaged in, to
date.1awphîl.nèt
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.
13
PROPERTY (ownership)
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
machineries is further restricted by section 31, paragraph (c) of Republic Act No.
521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by
destination, in accordance with paragraph 5 of Article 415 of the New Civil Code
which provides:
Art. 415. — The following are immovable properties:
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 and industry, converted them into real property by reason of their purpose, it
cannot be said that their incorporation therewith was not permanent in character
because, as essential and principle elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial purpose for
which it was established. Inasmuch as the central is permanent in character, the
necessary machinery and equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law must
first be "essential and principal elements" of an industry or works without which
such industry or works would be "unable to function or carry on the industrial
purpose for which it was established." We may here distinguish, therefore, those
movable which become immobilized by destination because they are essential and
principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus,
cash registers, typewriters, etc., usually found and used in hotels, restaurants,
theaters, etc. are merely incidentals and are not and should not be considered
immobilized by destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use forklifts, jeep-
wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials,
and thus retain their movable nature. On the other hand, machineries of breweries
used in the manufacture of liquor and soft drinks, though movable in nature, are
immobilized because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found within their
industrial compounds are merely incidental and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their
nature, not essential and principle municipal elements of petitioner's business of
transporting passengers and cargoes by motor trucks. They are merely incidentals
— acquired as movables and used only for expediency to facilitate and/or improve
its service. Even without such tools and equipments, its business may be carried on,
as petitioner has carried on, without such equipments, before the war. The
transportation business could be carried on without the repair or service shop if its
rolling equipment is repaired or serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
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.
14
PROPERTY (ownership)
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

15
PROPERTY (ownership)
8.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17898 October 31, 1962
PASTOR D. AGO, petitioner,
vs.
THE HON. COURT OF APPEALS, HON. MONTANO A. ORTIZ, Judge of the Court of
First Instance of Agusan, THE PROVINCIAL SHERIFF OF SURIGAO and GRACE PARK
ENGINEERING, INC., respondents.
Jose M. Luison for petitioner.
Norberto J. Quisumbing for respondent Grace Park Engineering, Inc.
The Provincial Fiscal of Surigao for respondent Sheriff of Surigao.
LABRABOR, J.:
Appeal by certiorari to review the decision of respondent Court of Appeals in CA-
G.R. No. 26723-R entitled "Pastor D. Ago vs. The Provincial Sheriff of Surigao, et al."
which in part reads:
In this case for certiorari and prohibition with preliminary injunction, it appears
from the records that the respondent Judge of the Court of First Instance of Agusan
rendered judgment (Annex "A") in open court on January 28, 1959, basing said
judgment on a compromise agreement between the parties.
On August 15, 1959, upon petition, the Court of First Instance issued a writ of
execution.
Petitioner's motion for reconsideration dated October 12, 1959 alleges that he, or
his counsel, did not receive a formal and valid notice of said decision, which motion
for reconsideration was denied by the court below in the order of November 14,
1959.
Petitioner now contends that the respondent Judge exceeded in his jurisdiction in
rendering the execution without valid and formal notice of the decision.
A compromise agreement is binding between the parties and becomes the law
between them. (Gonzales vs. Gonzales G.R. No. L-1254, May 21, 1948, 81 Phil. 38;
Martin vs. Martin, G.R. No. L-12439, May 22, 1959) .
It is a general rule in this jurisdiction that a judgment based on a compromise
agreement is not appealable and is immediately executory, unless a motion is filed
on the ground fraud, mistake or duress. (De los Reyes vs. Ugarte, 75 Phil. 505;
Lapena vs. Morfe, G.R. No. L-10089, July 31, 1957)
Petitioner's claim that he was not notified or served notice of the decision is
untenable. The judgment on the compromise agreement rendered by the court
below dated January 28, 1959, was given in open court. This alone is a substantial
compliance as to notice. (De los Reyes vs. Ugarte, supra)
IN VIEW THEREOF, we believe that the lower court did not exceed nor abuse its
jurisdiction in ordering the execution of the judgment. The petition for certiorari is
hereby dismissed and the writ of preliminary injunction heretofore dissolved, with
costs against the petitioner.
IT IS SO ORDERED.
The facts of the case may be briefly stated as follows: In 1957, petitioner Pastor D.
Ago bought sawmill machineries and equipments from respondent Grace Park
Engineer domineering, Inc., executing a chattel mortgage over said machineries and
equipments to secure the payment of balance of the price remaining unpaid of
P32,000.00, which petitioner agreed to pay on installment basis.
Petitioner Ago defaulted in his payment and so, in 1958 respondent Grace Park
Engineering, Inc. instituted extra-judicial foreclosure proceedings of the mortgage.
To enjoin said foreclosure, petitioner herein instituted Special Civil Case No. 53 in
the Court of First Instance of Agusan. The parties to the case arrived at a
compromise agreement and submitted the same in court in writing, signed by
Pastor D. Ago and the Grace Park Engineering, Inc. The Hon. Montano A. Ortiz,
Judge of the Court of First Instance of Agusan, then presiding, dictated a decision in
open court on January 28, 1959.
Petitioner continued to default in his payments as provided in the judgment by
compromise, so Grace Park Engineering, Inc. filed with the lower court a motion for
execution, which was granted by the court on August 15, 1959. A writ of execution,
dated September 23, 1959, later followed.
The herein respondent, Provincial Sheriff of Surigao, acting upon the writ of
execution issued by the lower court, levied upon and ordered the sale of the
sawmill machineries and equipments in question. These machineries and
equipments had been taken to and installed in a sawmill building located in Lianga,
Surigao del Sur, and owned by the Golden Pacific Sawmill, Inc., to whom, petitioner
alleges, he had sold them on February 16, 1959 (a date after the decision of the
lower court but before levy by the Sheriff).
Having been advised by the sheriff that the public auction sale was set for
December 4, 1959, petitioner, on December 1, 1959, filed the petition
for certiorari and prohibition with preliminary injunction with respondent Court of
Appeals, alleging that a copy of the aforementioned judgment given in open court
on January 28, 1959 was served upon counsel for petitioner only on September 25,
16
PROPERTY (ownership)
1959 (writ of execution is dated September 23, 1959); that the order and writ of
execution having been issued by the lower court before counsel for petitioner
received a copy of the judgment, its resultant last order that the "sheriff may now
proceed with the sale of the properties levied constituted a grave abuse of
discretion and was in excess of its jurisdiction; and that the respondent Provincial
Sheriff of Surigao was acting illegally upon the allegedly void writ of execution by
levying the same upon the sawmill machineries and equipments which have
become real properties of the Golden Pacific sawmill, Inc., and is about to proceed
in selling the same without prior publication of the notice of sale thereof in some
newspaper of general circulation as required by the Rules of Court.
The Court of Appeals, on December 8, 1959, issued a writ of preliminary injunction
against the sheriff but it turned out that the latter had already sold at public auction
the machineries in question, on December 4, 1959, as scheduled. The respondent
Grace Park Engineering, Inc. was the only bidder for P15,000.00, although the
certificate sale was not yet executed. The Court of Appeals constructed the sheriff
to suspend the issuance of a certificate of sale of the said sawmill machineries and
equipment sold by him on December 4, 1959 until the final decision of the case. On
November 9, 1960 the Court of Appeals rendered the aforequoted decision.
Before this Court, petitioner alleges that the Court of Appeals erred (1) in holding
that the rendition of judgment on compromise in open court on January 1959 was a
sufficient notice; and (2) in not resolving the other issues raised before it, namely,
(a) the legality of the public auction sale made by the sheriff, and (b) the nature of
the machineries in question, whether they are movables or immovables.
The Court of Appeals held that as a judgment was entered by the court below in
open court upon the submission of the compromise agreement, the parties may be
considered as having been notified of said judgment and this fact constitutes due
notice of said judgment. This raises the following legal question: Is the order
dictated in open court of the judgment of the court, and is the fact the petitioner
herein was present in open court was the judgment was dictated, sufficient notice
thereof? The provisions of the Rules of Court decree otherwise. Section 1 of Rule 35
describes the manner in which judgment shall be rendered, thus:
SECTION 1. How judgment rendered. — All judgments determining the merits of
cases shall be in writing personally and directly prepared by the judge, and signed
by him, stating clearly and distinctly the facts and the law on which it is based, filed
with the clerk of the court.
The court of first instance being a court of record, in order that a judgment may be
considered as rendered, must not only be in writing, signed by the judge, but it
must also be filed with the clerk of court. The mere pronouncement of the
judgment in open court with the stenographer taking note thereof does not,
therefore, constitute a rendition of the judgment. It is the filing of the signed
decision with the clerk of court that constitutes rendition. While it is to be presumed
that the judgment that was dictated in open court will be the judgment of the
court, the court may still modify said order as the same is being put into writing.
And even if the order or judgment has already been put into writing and signed,
while it has not yet been delivered to the clerk for filing it is still subject to
amendment or change by the judge. It is only when the judgment signed by the
judge is actually filed with the clerk of court that it becomes a valid and binding
judgment. Prior thereto, it could still be subject to amendment and change and may
not, therefore, constitute the real judgment of the court.
Regarding the notice of judgment, the mere fact that a party heard the judge
dictating the judgment in open court, is not a valid notice of said judgment. If
rendition thereof is constituted by the filing with the clerk of court of a signed copy
(of the judgment), it is evident that the fact that a party or an attorney heard the
order or judgment being dictated in court cannot be considered as notice of the real
judgment. No judgment can be notified to the parties unless it has previously been
rendered. The notice, therefore, that a party has of a judgment that was being
dictated is of no effect because at the time no judgment has as yet been signed by
the judge and filed with the clerk.
Besides, the Rules expressly require that final orders or judgments be served
personally or by registered mail. Section 7 of Rule 27 provides as follows:
SEC. 7. Service of final orders or judgments. — Final orders or judgments shall be
served either personally or by registered mail.
In accordance with this provision, a party is not considered as having been served
with the judgment merely because he heard the judgment dictating the said
judgment in open court; it is necessary that he be served with a copy of the signed
judgment that has been filed with the clerk in order that he may legally be
considered as having been served with the judgment.
For all the foregoing, the fact that the petitioner herein heard the trial judge
dictating the judgment in open court, is not sufficient to constitute the service of
judgement as required by the above-quoted section 7 of Rule 2 the signed
judgment not having been served upon the petitioner, said judgment could not be
effective upon him (petitioner) who had not received it. It follows as a consequence
that the issuance of the writ of execution null and void, having been issued before
petitioner her was served, personally or by registered mail, a copy of the decision.
The second question raised in this appeal, which has been passed upon by the Court
of Appeals, concerns the validity of the proceedings of the sheriff in selling the
sawmill machineries and equipments at public auction with a notice of the sale
having been previously published.
17
PROPERTY (ownership)
The record shows that after petitioner herein Pastor D. Ago had purchased the published in the province in both the English and Spanish languages, then a like
sawmill machineries and equipments he assigned the same to the Golden Pacific publication for a like period shall be made in one newspaper published in the
Sawmill, Inc. in payment of his subscription to the shares of stock of said English language, and in one published in the Spanish language.
corporation. Thereafter the sawmill machinery and equipments were installed in a
building and permanently attached to the ground. By reason of such installment in the sale made by the sheriff must be declared null and void.
a building, the said sawmill machineries and equipment became real estate
properties in accordance with the provision of Art. 415 (5) of the Civil Code, thus: WHEREFORE, the decision of the Court of Appeals sought to be reviewed is hereby
set aside and We declare that the issuance of the writ of execution in this case
ART. 415. The following are immovable property: against the sawmill machineries and equipments purchased by petitioner Pastor D.
Ago from the Grace Park Engineering, Inc., as well as the sale of the same by the
xxx xxx xxx Sheriff of Surigao, are null and void. Costs shall be against the respondent Grace
Park Engineering, Inc.
(5) Machinery, receptacles, instruments or implements tended by the owner of the
tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;

This Court in interpreting a similar question raised before it in the case

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

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

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

xxx xxx xxx

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

18
PROPERTY (ownership)
9.) [G.R. No. 137705. August 22, 2000]
SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING
AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be
considered as personal or movable, a party is estopped from subsequently claiming
otherwise. Hence, such property is a proper subject of a writ of replevin obtained
by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999
Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26,
1999 Resolution[3] denying reconsideration. The decretal portion of the CA Decision
reads as follows:
WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and
Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]
In its February 18, 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
petitioners factory, seized one machinery with [the] word that he [would] return for
the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex
C), invoking the power of the court to control the conduct of its officers and amend
and control its processes, praying for a directive for the sheriff to defer
enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ of
replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to the
contrary notwithstanding. They argued that to give effect to the agreement would
be prejudicial to innocent third parties. They further stated that PCI Leasing [was]
estopped from treating these machineries as personal because the contracts in
which the alleged agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was
prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject
machines were personal property, and that they had only been leased, not owned,
by petitioners. It also ruled that the words of the contract are clear and leave no
doubt upon the true intention of the contracting parties. Observing that Petitioner
Goquiolay was an experienced businessman who was not unfamiliar with the ways
of the trade, it ruled that he should have realized the import of the document he
signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in
ruling upon the case below, since the merits of the whole matter are laid down
before us via a petition whose sole purpose is to inquire upon the existence of a
grave abuse of discretion on the part of the [RTC] in issuing the assailed Order and
Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a matter x x x which
respondent court is in the best position to determine.
19
PROPERTY (ownership)
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by SERGS became real
property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.[12]
In the main, the Court will resolve whether the said machines are personal, not
immovable, property which may be a proper subject of a writ of replevin. As a
preliminary matter, the Court will also address briefly the procedural points raised
by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was
being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the
Petition erroneously impleadedJudge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion
finds support in the very title of the Petition, which is Petition for Review on
Certiorari.[13]
While Judge Laqui should not have been impleaded as a respondent,[14] substantial
justice requires that such lapse by itself should not warrant the dismissal of the
present Petition. In this light, the Court deems it proper to remove, motu proprio,
the name of Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper
subjects of the Writ issued by the RTC, because they were in fact real
property. Serious policy considerations, they argue, militate against a contrary
characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the
recovery of personal property only.[15] Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court
shall issue an order and the corresponding writ of replevin describing the personal
property alleged to be wrongfully detained and requiring the sheriff forthwith to
take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real
property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure were
placed by petitioners in the factory built on their own land. Indisputably, they were
essential and principal elements of their chocolate-making industry. Hence,
although each of them was movable or personal property on its own, all of them
have become immobilized by destination because they are essential and principal
elements in the industry.[16] In that sense, petitioners are correct in arguing that the
said machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.[17]
Be that as it may, we disagree with the submission of the petitioners that the said
machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a real property
be considered as personal.[18] After agreeing to such stipulation, they are
consequently estopped from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the truth of any material
fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to
treat a house as a personal property because it had been made the subject of a
chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not now
be allowed to make an inconsistent stand by claiming otherwise.
20
PROPERTY (ownership)
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever
Textile Mills[20] also held that the machinery used in a factory and essential to the
industry, as in the present case, was a proper subject of a writ of replevin because it
was treated as personal property in a contract. Pertinent portions of the Courts
ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because
one who has so agreed is estopped from denying the existence of the chattel
mortgage.
In the present case, the Lease Agreement clearly provides that the machines in
question are to be considered as personal property. Specifically, Section 12.1 of the
Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently
resting upon, real property or any building thereon, or attached in any manner to
what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the
subject machines as personal property. Under the circumstances, they are proper
subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be
deemed personal property pursuant to the Lease Agreement is good only insofar as
the contracting parties are concerned.[22] Hence, while the parties are bound by the
Agreement, third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event, there is no
showing that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a
lease.[24] Submitting documents supposedly showing that they own the subject
machines, petitioners also argue in their Petition that the Agreement suffers from
intrinsic ambiguity which places in serious doubt the intention of the parties and
the validity of the lease agreement itself.[25] In their Reply to respondents
Comment, they further allege that the Agreement is invalid. [26]
These arguments are unconvincing. The validity and the nature of the contract are
the lis mota of the civil action pending before the RTC. A resolution of these
questions, therefore, is effectively a resolution of the merits of the case. Hence,
they should be threshed out in the trial, not in the proceedings involving the
issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the policy under
Rule 60 was that questions involving title to the subject property questions which
petitioners are now raising --should be determined in the trial. In that case, the
Court noted that the remedy of defendants under Rule 60 was either to post a
counter-bond or to question the sufficiency of the plaintiffs bond. They were not
allowed, however, to invoke the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve or
discharge the writ of seizure (or delivery) on ground of insufficiency of the
complaint or of the grounds relied upon therefor, as in proceedings on preliminary
attachment or injunction, and thereby put at issue the matter of the title or right of
possession over the specific chattel being replevied, the policy apparently being
that said matter should be ventilated and determined only at the trial on the
merits.[28]
Besides, these questions require a determination of facts and a presentation of
evidence, both of which have no place in a petition for certiorari in the CA under
Rule 65 or in a petition for review in this Court under Rule 45. [29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease
Agreement, for nothing on record shows that it has been nullified or annulled. In
fact, petitioners assailed it first only in the RTC proceedings, which had ironically
been instituted by respondent. Accordingly, it must be presumed valid and binding
as the law between the parties.
Makati Leasing and Finance Corporation [30] is also instructive on this point. In that
case, the Deed of Chattel Mortgage, which characterized the subject machinery as
personal property, was also assailed because respondent had allegedly been
required to sign a printed form of chattel mortgage which was in a blank form at
the time of signing. The Court rejected the argument and relied on the Deed, ruling
as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not
render a contract void ab initio, but can only be a ground for rendering said
contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has
been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x
21
PROPERTY (ownership)
Alleged Injustice Committed on the Part of Petitioners

Petitioners contend that if the Court allows these machineries to be seized, then its
workers would be out of work and thrown into the streets. [31] They also allege that
the seizure would nullify all efforts to rehabilitate the corporation.

Petitioners arguments do not preclude the implementation of the Writ. As earlier

discussed, law and jurisprudence support its propriety. Verily, the above-mentioned
consequences, if they come true, should not be blamed on this Court, but on the
petitioners for failing to avail themselves of the remedy under Section 5 of Rule 60,
which allows the filing of a counter-bond. The provision states:

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the
applicants bond, or of the surety or sureties thereon, he cannot immediately
require the return of the property, but if he does not so object, he may, at any time
before the delivery of the property to the applicant, require the return thereof, by
filing with the court where the action is pending a bond executed to the applicant,
in double the value of the property as stated in the applicants affidavit for the
delivery thereof to the applicant, if such delivery be adjudged, and for the payment
of such sum to him as may be recovered against the adverse party, and by serving a
copy bond on the applicant.

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.

22
PROPERTY (ownership)
10.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.
REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the
reason that only questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal
court of Manila in Civil Case No. 43073, for ejectment. Having lost therein,
defendants-appellants appealed to the court a quo (Civil Case No. 30993) which
also rendered a decision against them, the dispositive portion of which follows:
WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and
against the defendants, ordering the latter to pay jointly and severally the former a
monthly rent of P200.00 on the house, subject-matter of this action, from March
27, 1956, to January 14, 1967, with interest at the legal rate from April 18, 1956, the
filing of the complaint, until fully paid, plus attorney's fees in the sum of P300.00
and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants
executed a chattel mortgage in favor of plaintiffs-appellees over their house of
strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over
Lot Nos. 6-B and 7-B, Block No. 2554, which were being rented from Madrigal &
Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on 2
September 1955. The herein mortgage was executed to guarantee a loan of
P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per
annum. The mode of payment was P150.00 monthly, starting September, 1955, up
to July 1956, and the lump sum of P3,150 was payable on or before August, 1956. It
was also agreed that default in the payment of any of the amortizations, would
cause the remaining unpaid balance to becomeimmediately due and Payable and —
the Chattel Mortgage will be enforceable in accordance with the provisions of
Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or any of
his deputies is hereby empowered and authorized to sell all the Mortgagor's
property after the necessary publication in order to settle the financial debts of
P4,800.00, plus 12% yearly interest, and attorney's fees... 2
When defendants-appellants defaulted in paying, the mortgage was extrajudicially
foreclosed, and on 27 March 1956, the house was sold at public auction pursuant to
the said contract. As highest bidder, plaintiffs-appellees were issued the
corresponding certificate of sale.3 Thereafter, on 18 April 1956, plaintiffs-appellant
commenced Civil Case No. 43073 in the municipal court of Manila, praying, among
other things, that the house be vacated and its possession surrendered to them,
and for defendants-appellants to pay rent of P200.00 monthly from 27 March 1956
up to the time the possession is surrendered.4 On 21 September 1956, the
municipal court rendered its decision —
... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
5
P100.00 and the costs of the suit.
Defendants-appellants, in their answers in both the municipal court and court a
quo impugned the legality of the chattel mortgage, claiming that they are still the
owners of the house; but they waived the right to introduce evidence, oral or
documentary. Instead, they relied on their memoranda in support of their motion
to dismiss, predicated mainly on the grounds that: (a) the municipal court did not
have jurisdiction to try and decide the case because (1) the issue involved, is
ownership, and (2) there was no allegation of prior possession; and (b) failure to
prove prior demand pursuant to Section 2, Rule 72, of the Rules of Court.6
During the pendency of the appeal to the Court of First Instance, defendants-
appellants failed to deposit the rent for November, 1956 within the first 10 days of
December, 1956 as ordered in the decision of the municipal court. As a result, the
court granted plaintiffs-appellees' motion for execution, and it was actually issued
on 24 January 1957. However, the judgment regarding the surrender of possession
to plaintiffs-appellees could not be executed because the subject house had been
already demolished on 14 January 1957 pursuant to the order of the court in a
separate civil case (No. 25816) for ejectment against the present defendants for
non-payment of rentals on the land on which the house was constructed.
The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas
bond and withdrawal of deposited rentals was denied for the reason that the
liability therefor was disclaimed and was still being litigated, and under Section 8,
7
Rule 72, rentals deposited had to be held until final disposition of the appeal.
On 7 October 1957, the appellate court of First Instance rendered its decision, the
dispositive portion of which is quoted earlier. The said decision was appealed by
defendants to the Court of Appeals which, in turn, certified the appeal to this Court.
Plaintiffs-appellees failed to file a brief and this appeal was submitted for decision
without it.
23
PROPERTY (ownership)
Defendants-appellants submitted numerous assignments of error which can be
condensed into two questions, namely: .
(a) Whether the municipal court from which the case originated had jurisdiction to
adjudicate the same;
(b) Whether the defendants are, under the law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year provided by law for the redemption of
the extrajudicially foreclosed house.
We will consider these questions seriatim.
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal
court from which the case originated, and consequently, the appellate jurisdiction
of the Court of First Instance a quo, on the theory that the chattel mortgage is
void ab initio; whence it would follow that the extrajudicial foreclosure, and
necessarily the consequent auction sale, are also void. Thus, the ownership of the
house still remained with defendants-appellants who are entitled to possession and
not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue
of ownership will have to be adjudicated first in order to determine possession. lt is
contended further that ownership being in issue, it is the Court of First Instance
which has jurisdiction and not the municipal court.
Defendants-appellants predicate their theory of nullity of the chattel mortgage on
two grounds, which are: (a) that, their signatures on the chattel mortgage were
obtained through fraud, deceit, or trickery; and (b) that the subject matter of the
mortgage is a house of strong materials, and, being an immovable, it can only be
the subject of a real estate mortgage and not a chattel mortgage.
On the charge of fraud, deceit or trickery, the Court of First Instance found
defendants-appellants' contentions as not supported by evidence and accordingly
dismissed the charge,8 confirming the earlier finding of the municipal court that
"the defense of ownership as well as the allegations of fraud and deceit ... are mere
allegations."9
It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a
mere statement of the facts which the party filing it expects to prove, but it is not
evidence;11 and further, that when the question to be determined is one of title, the
Court is given the authority to proceed with the hearing of the cause until this fact
is clearly established. In the case of Sy vs. Dalman,12 wherein the defendant was
also a successful bidder in an auction sale, it was likewise held by this Court that in
detainer cases the aim of ownership "is a matter of defense and raises an issue of
fact which should be determined from the evidence at the trial." What determines
jurisdiction are the allegations or averments in the complaint and the relief asked
for. 13
Moreover, even granting that the charge is true, fraud or deceit does not render a
contract void ab initio, and can only be a ground for rendering the contract voidable
or annullable pursuant to Article 1390 of the New Civil Code, by a proper action in
court. 14 There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. Hence, defendants-
appellants' claim of ownership on the basis of a voidable contract which has not
been voided fails.
It is claimed in the alternative by defendants-appellants that even if there was no
fraud, deceit or trickery, the chattel mortgage was still null and void ab
initio because only personal properties can be subject of a chattel mortgage. The
rule about the status of buildings as immovable property is stated in Lopez vs.
Orosa, Jr. and Plaza Theatre Inc.,15cited in Associated Insurance Surety Co., Inc. vs.
16
Iya, et al. to the effect that —
... it is obvious that the inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real properties (art. 415, New Civil
Code) could only mean one thing — that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.
Certain deviations, however, have been allowed for various reasons. In the case
of Manarang and Manarang vs. Ofilada,17 this Court stated that "it is undeniable
that the parties to a contract may by agreement treat as personal property that
which by nature would be real property", citing Standard Oil Company of New York
vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following described personal property." 19 The
"personal property" consisted of leasehold rights and a building. Again, in the case
of Luna vs. Encarnacion,20 the subject of the contract designated as Chattel
Mortgage was a house of mixed materials, and this Court hold therein that it was a
valid Chattel mortgage because it was so expressly designated and specifically that
the property given as security "is a house of mixed materials, which by its very
nature is considered personal property." In the later case of Navarro vs.
21
Pineda, this Court stated that —
The view that parties to a deed of chattel mortgage may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based, partly, upon the principle of
estoppel" (Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case, a
mortgaged house built on a rented land was held to be a personal property, not
only because the deed of mortgage considered it as such, but also because it did
not form part of the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now
settled that an object placed on land by one who had only a temporary right to the
same, such as the lessee or usufructuary, does not become immobilized by
24
PROPERTY (ownership)
attachment (Valdez vs. Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co.,
Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a person stands
on a rented land belonging to another person, it may be mortgaged as a personal
property as so stipulated in the document of mortgage. (Evangelista vs.
Abad, Supra.) It should be noted, however that the principle is predicated on
statements by the owner declaring his house to be a chattel, a conduct that may
conceivably estop him from subsequently claiming otherwise. (Ladera vs. C.N.
Hodges, [CA] 48 O.G. 5374): 22
In the contract now before Us, the house on rented land is not only expressly
designated as Chattel Mortgage; it specifically provides that "the mortgagor ...
voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage23 the property
together with its leasehold rights over the lot on which it is constructed and
24
participation ..." Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property by way
of chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they should
not now be allowed to make an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented lot to which defendats-appellants
merely had a temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with other factors
to sustain the interpretation that the parties, particularly the mortgagors, intended
to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr.
and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, 26 wherein third persons assailed the validity of the chattel
mortgage,27 it is the defendants-appellants themselves, as debtors-mortgagors,
who are attacking the validity of the chattel mortgage in this case. The doctrine of
estoppel therefore applies to the herein defendants-appellants, having treated the
subject house as personalty.
(b) Turning to the question of possession and rentals of the premises in question.
The Court of First Instance noted in its decision that nearly a year after the
foreclosure sale the mortgaged house had been demolished on 14 and 15 January
1957 by virtue of a decision obtained by the lessor of the land on which the house
stood. For this reason, the said court limited itself to sentencing the erstwhile
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when
the chattel mortgage was foreclosed and the house sold) until 14 January 1957
(when it was torn down by the Sheriff), plus P300.00 attorney's fees.
Appellants mortgagors question this award, claiming that they were entitled to
remain in possession without any obligation to pay rent during the one year
redemption period after the foreclosure sale, i.e., until 27 March 1957. On this
issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No.
1508.28 Section 14 of this Act allows the mortgagee to have the property mortgaged
sold at public auction through a public officer in almost the same manner as that
allowed by Act No. 3135, as amended by Act No. 4118, provided that the
requirements of the law relative to notice and registration are complied with. 29 In
the instant case, the parties specifically stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of Special Act No. 3135 ...
." 30(Emphasis supplied).
Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-
appellants herein) may, at any time within one year from and after the date of the
auction sale, redeem the property sold at the extra judicial foreclosure sale. Section
7 of the same Act 32 allows the purchaser of the property to obtain from the court
the possession during the period of redemption: but the same provision expressly
requires the filing of a petition with the proper Court of First Instance and the
furnishing of a bond. It is only upon filing of the proper motion and the approval of
the corresponding bond that the order for a writ of possession issues as a matter of
course. No discretion is left to the court. 33 In the absence of such a compliance, as
in the instant case, the purchaser can not claim possession during the period of
redemption as a matter of right. In such a case, the governing provision is Section
34, Rule 39, of the Revised Rules of Court 34 which also applies to properties
purchased in extrajudicial foreclosure proceedings.35 Construing the said section,
this Court stated in the aforestated case of Reyes vs. Hamada.
In other words, before the expiration of the 1-year period within which the
judgment-debtor or mortgagor may redeem the property, the purchaser thereof is
not entitled, as a matter of right, to possession of the same. Thus, while it is true
that the Rules of Court allow the purchaser to receive the rentals if the purchased
property is occupied by tenants, he is, nevertheless, accountable to the judgment-
debtor or mortgagor as the case may be, for the amount so received and the same
will be duly credited against the redemption price when the said debtor or
mortgagor effects the redemption. Differently stated, the rentals receivable from
tenants, although they may be collected by the purchaser during the redemption
period, do not belong to the latter but still pertain to the debtor of mortgagor. The
rationale for the Rule, it seems, is to secure for the benefit of the debtor or
mortgagor, the payment of the redemption amount and the consequent return to
him of his properties sold at public auction. (Emphasis supplied)
The Hamada case reiterates the previous ruling in Chan vs. Espe.36
Since the defendants-appellants were occupying the house at the time of the
auction sale, they are entitled to remain in possession during the period of
redemption or within one year from and after 27 March 1956, the date of the
auction sale, and to collect the rents or profits during the said period.
25
PROPERTY (ownership)
It will be noted further that in the case at bar the period of redemption had not yet
expired when action was instituted in the court of origin, and that plaintiffs-
appellees did not choose to take possession under Section 7, Act No. 3135, as
amended, which is the law selected by the parties to govern the extrajudicial
foreclosure of the chattel mortgage. Neither was there an allegation to that effect.
Since plaintiffs-appellees' right to possess was not yet born at the filing of the
complaint, there could be no violation or breach thereof. Wherefore, the original
complaint stated no cause of action and was prematurely filed. For this reason, the
same should be ordered dismissed, even if there was no assignment of error to that
effect. The Supreme Court is clothed with ample authority to review palpable errors
not assigned as such if it finds that their consideration is necessary in arriving at a
just decision of the cases. 37

It follows that the court below erred in requiring the mortgagors to pay rents for
the year following the foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and
another one entered, dismissing the complaint. With costs against plaintiffs-
appellees.

26
PROPERTY (ownership)
11.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18456 November 30, 1963
CONRADO P. NAVARRO, plaintiff-appellee,
vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.
Deogracias Tañedo, Jr. for plaintiff-appellee.
Renato A. Santos for defendants-appellants.
PAREDES, J.:
On December 14, 1959, defendants Rufino G. Pineda and his mother Juana
Gonzales (married to Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro,
the sum of P2,500.00, payable 6 months after said date or on June 14, 1959. To
secure the indebtedness, Rufino executed a document captioned "DEED OF REAL
ESTATE and CHATTEL MORTGAGES", whereby Juana Gonzales, by way of Real Estate
Mortgage hypothecated a parcel of land, belonging to her, registered with the
Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and Rufino
G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house,
having a floor area of 912 square meters, erected on a lot belonging to Atty. Vicente
Castro, located at Bo. San Roque, Tarlac, Tarlac; and one motor truck, registered in
his name, under Motor Vehicle Registration Certificate No. A-171806. Both
mortgages were contained in one instrument, which was registered in both the
Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.
When the mortgage debt became due and payable, the defendants, after demands
made on them, failed to pay. They, however, asked and were granted extension up
to June 30, 1960, within which to pay. Came June 30, defendants again failed to pay
and, for the second time, asked for another extension, which was given, up to July
30, 1960. In the second extension, defendant Pineda in a document entitled
"Promise", categorically stated that in the remote event he should fail to make
good the obligation on such date (July 30, 1960), the defendant would no longer ask
for further extension and there would be no need for any formal demand, and
plaintiff could proceed to take whatever action he might desire to enforce his
rights, under the said mortgage contract. In spite of said promise, defendants, failed
and refused to pay the obligation.
On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and
for damages, which consisted of liquidated damages in the sum of P500.00 and 12%
per annum interest on the principal, effective on the date of maturity, until fully
paid.
Defendants, answering the complaint, among others, stated —
Defendants admit that the loan is overdue but deny that portion of paragraph 4 of
the First Cause of Action which states that the defendants unreasonably failed and
refuse to pay their obligation to the plaintiff the truth being the defendants are
hard up these days and pleaded to the plaintiff to grant them more time within
which to pay their obligation and the plaintiff refused;
WHEREFORE, in view of the foregoing it is most respectfully prayed that this
Honorable Court render judgment granting the defendants until January 31, 1961,
within which to pay their obligation to the plaintiff.
On September 30, 1960, plaintiff presented a Motion for summary Judgment,
claiming that the Answer failed to tender any genuine and material issue. The
motion was set for hearing, but the record is not clear what ruling the lower court
made on the said motion. On November 11, 1960, however, the parties submitted a
Stipulation of Facts, wherein the defendants admitted the indebtedness, the
authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12%
per annum as interest was agreed, upon failure to pay the principal when due and
P500.00 as liquidated damages; that the instrument had been registered in the
Registry of Property and Motor Vehicles Office, both of the province of Tarlac; that
the only issue in the case is whether or not the residential house, subject of the
mortgage therein, can be considered a Chattel and the propriety of the attorney's
fees.
On February 24, 1961, the lower court held —
... WHEREFORE, this Court renders decision in this Case:
(a) Dismissing the complaint with regard to defendant Gregorio Pineda;
(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon
Reyes, to pay jointly and severally and within ninety (90) days from the receipt of
the copy of this decision to the plaintiff Conrado P. Navarro the principal sum of
P2,550.00 with 12% compounded interest per annum from June 14, 1960, until said
principal sum and interests are fully paid, plus P500.00 as liquidated damages and
the costs of this suit, with the warning that in default of said payment of the
properties mentioned in the deed of real estate mortgage and chattel mortgage
(Annex "A" to the complaint) be sold to realize said mortgage debt, interests,
liquidated damages and costs, in accordance with the pertinent provisions of Act
3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508;
and
(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver
immediately to the Provincial Sheriff of Tarlac the personal properties mentioned in
27
PROPERTY (ownership)
said Annex "A", immediately after the lapse of the ninety (90) days above-
mentioned, in default of such payment.
The above judgment was directly appealed to this Court, the defendants therein
assigning only a single error, allegedly committed by the lower court, to wit —
In holding that the deed of real estate and chattel mortgages appended to the
complaint is valid, notwithstanding the fact that the house of the defendant Rufino
G. Pineda was made the subject of the chattel mortgage, for the reason that it is
erected on a land that belongs to a third person.
Appellants contend that article 415 of the New Civil Code, in classifying a house as
immovable property, makes no distinction whether the owner of the land is or not
the owner of the building; the fact that the land belongs to another is immaterial, it
is enough that the house adheres to the land; that in case of immovables by
incorporation, such as houses, trees, plants, etc; the Code does not require that the
attachment or incorporation be made by the owner of the land, the only criterion
being the union or incorporation with the soil. In other words, it is claimed that "a
building is an immovable property, irrespective of whether or not said structure and
the land on which it is adhered to, belong to the same owner" (Lopez v. Orosa, G.R.
Nos. L-10817-8, Feb. 28, 1958). (See also the case of Leung Yee v. Strong Machinery
Co., 37 Phil. 644). Appellants argue that since only movables can be the subject of a
chattel mortgage (sec. 1, Act No. 3952) then the mortgage in question which is the
basis of the present action, cannot give rise to an action for foreclosure, because it
is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-
10838, May 30, 1958.)
The trial court did not predicate its decision declaring the deed of chattel mortgage
valid solely on the ground that the house mortgaged was erected on the land which
belonged to a third person, but also and principally on the doctrine of estoppel, in
that "the parties have so expressly agreed" in the mortgage to consider the house
as chattel "for its smallness and mixed materials of sawali and wood". In construing
arts. 334 and 335 of the Spanish Civil Code (corresponding to arts. 415 and 416,
N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held
that under certain conditions, "a property may have a character different from that
imputed to it in said articles. It is undeniable that the parties to a contract may by
agreement, treat as personal property that which by nature would be real property"
(Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-633)."There can not be any
question that a building of mixed materials may be the subject of a chattel
mortgage, in which case, it is considered as between the parties as personal
property. ... The matter depends on the circumstances and the intention of the
parties". "Personal property may retain its character as such where it is so agreed
by the parties interested even though annexed to the realty ...". (42 Am. Jur. 209-
210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18, 1956; 52
O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may
agree to consider a house as personal property for the purposes of said contract, "is
good only insofar as the contracting parties are concerned. It is based partly, upon
the principles of estoppel ..." (Evangelista v. Alto Surety, No. L-11139, Apr. 23,
1958). In a case, a mortgage house built on a rented land, was held to be a personal
property, not only because the deed of mortgage considered it as such, but also
because it did not form part of the land (Evangelista v. Abad [CA];36 O.G. 2913), for
it is now well settled that an object placed on land by one who has only a
temporary right to the same, such as a lessee or usufructuary, does not become
immobilized by attachment (Valdez v. Central Altagracia, 222 U.S. 58, cited in Davao
Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a house belonging to a
person stands on a rented land belonging to another person, it may be mortgaged
as a personal property is so stipulated in the document of mortgage. (Evangelista v.
Abad, supra.) It should be noted, however, that the principle is predicated on
statements by the owner declaring his house to be a chattel, a conduct that may
conceivably estop him from subsequently claiming otherwise (Ladera, et al.. v. C. N.
Hodges, et al., [CA]; 48 O.G. 5374). The doctrine, therefore, gathered from these
cases is that although in some instances, a house of mixed materials has been
considered as a chattel between them, has been recognized, it has been a constant
criterion nevertheless that, with respect to third persons, who are not parties to the
contract, and specially in execution proceedings, the house is considered as an
immovable property (Art. 1431, New Civil Code).
In the case at bar, the house in question was treated as personal or movable
property, by the parties to the contract themselves. In the deed of chattel
mortgage, appellant Rufino G. Pineda conveyed by way of "Chattel Mortgage" "my
personal properties", a residential house and a truck. The mortgagor himself
grouped the house with the truck, which is, inherently a movable property. The
house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and
wooden posts; built on land belonging to another.
The cases cited by appellants are not applicable to the present case. The Iya cases
(L-10837-38, supra), refer to a building or a house of strong materials, permanently
adhered to the land, belonging to the owner of the house himself. In the case
of Lopez v. Orosa, (L-10817-18), the subject building was a theatre, built of
materials worth more than P62,000, attached permanently to the soil. In these
cases and in the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the parties to the
contract of mortgages who assailed its validity.
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be,
as it is hereby affirmed, with costs against appellants.
28
PROPERTY (ownership)
12.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-
12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI, issued
in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the
said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial
foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned
to implement the foreclosure failed to gain entry into private respondent's
premises and was not able to effect the seizure of the aforedescribed machinery.
Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First
Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the
lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained upon
private respondent's filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order lifting the restraining
order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of
private respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed
by herein private respondent, set aside the Orders of the lower court and ordered
the return of the drive motor seized by the sheriff pursuant to said Orders, after
ruling that the machinery in suit cannot be the subject of replevin, much less of a
chattel mortgage, because it is a real property pursuant to Article 415 of the new
Civil Code, the same being attached to the ground by means of bolts and the only
way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enfore the writ was to
take the main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming that the
machine is real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari.
It is contended by private respondent, however, that the instant petition was
rendered moot and academic by petitioner's act of returning the subject motor
drive of respondent's machinery after the Court of Appeals' decision was
promulgated.
The contention of private respondent is without merit. When petitioner returned
the subject motor drive, it made itself unequivocably clear that said action was
without prejudice to a motion for reconsideration of the Court of Appeals decision,
as shown by the receipt duly signed by respondent's representative. 1 Considering
that petitioner has reserved its right to question the propriety of the Court of
Appeals' decision, the contention of private respondent that this petition has been
mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties,
with petitioner arguing that it is a personality, while the respondent claiming the
contrary, and was sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended by said
respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143
where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal
property, yet by ceding, selling or transferring a property by way of chattel
29
PROPERTY (ownership)
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not now
be allowed to make an inconsistent stand by claiming otherwise. Moreover, the
subject house stood on a rented lot to which defendants-appellants merely had a
temporary right as lessee, and although this can not in itself alone determine the
status of the property, it does so when combined with other factors to sustain the
interpretation that the parties, particularly the mortgagors, intended to treat the
house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third
persons assailed the validity of the chattel mortgage, it is the defendants-appellants
themselves, as debtors-mortgagors, who are attacking the validity of the chattel
mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude
the rule 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.
immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in
the appellate court. Moreover, even granting that the charge is true, such fact alone
does not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code,
by a proper action in court. There is nothing on record to show that the mortgage
has been annulled. Neither is it disclosed that steps were taken to nullify the same.
On the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract. Equity dictates
that one should not benefit at the expense of another. Private respondent could
not now therefore, be allowed to impugn the efficacy of the chattel mortgage after
it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent.
Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70,
heavily relied upon by said court is not applicable to the case at bar, the nature of
the machinery and equipment involved therein as real properties never having
been disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant
case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are
hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.
SO ORDERED

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

30
PROPERTY (ownership)
13.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 106041 January 29, 1993
BENGUET CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and
MUNICIPALITY OF SAN MARCELINO, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
CRUZ, J.:
The realty tax assessment involved in this case amounts to P11,319,304.00. It has
been imposed on the petitioner's tailings dam and the land thereunder over its
protest.
The controversy arose in 1985 when the Provincial Assessor of Zambales assessed
the said properties as taxable improvements. The assessment was appealed to the
Board of Assessment Appeals of the Province of Zambales. On August 24, 1988, the
appeal was dismissed mainly on the ground of the petitioner's "failure to pay the
realty taxes that fell due during the pendency of the appeal."
The petitioner seasonably elevated the matter to the Central Board of Assessment
Appeals,1 one of the herein respondents. In its decision dated March 22, 1990, the
Board reversed the dismissal of the appeal but, on the merits, agreed that "the
tailings dam and the lands submerged thereunder (were) subject to realty tax."
For purposes of taxation the dam is considered as real property as it comes within
the object mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code.
It is a construction adhered to the soil which cannot be separated or detached
without breaking the material or causing destruction on the land upon which it is
attached. The immovable nature of the dam as an improvement determines its
character as real property, hence taxable under Section 38 of the Real Property Tax
Code. (P.D. 464).
Although the dam is partly used as an anti-pollution device, this Board cannot
accede to the request for tax exemption in the absence of a law authorizing the
same.
xxx xxx xxx
We find the appraisal on the land submerged as a result of the construction of the
tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values
for Zambales which was reviewed and allowed for use by the Ministry (Department)
of Finance in the 1981-1982 general revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e., that
the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no cause to disturb the
market value applied by Respondent Appellee Provincial Assessor of Zambales on
the properties of Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.
This petition for certiorari now seeks to reverse the above ruling.
The principal contention of the petitioner is that the tailings dam is not subject to
realty tax because it is not an "improvement" upon the land within the meaning of
the Real Property Tax Code. More particularly, it is claimed —
(1) as regards the tailings dam as an "improvement":
(a) that the tailings dam has no value separate from and independent of the mine;
hence, by itself it cannot be considered an improvement separately assessable;
(b) that it is an integral part of the mine;
(c) that at the end of the mining operation of the petitioner corporation in the area,
the tailings dam will benefit the local community by serving as an irrigation facility;
(d) that the building of the dam has stripped the property of any commercial value
as the property is submerged under water wastes from the mine;
(e) that the tailings dam is an environmental pollution control device for which
petitioner must be commended rather than penalized with a realty tax assessment;
(f) that the installation and utilization of the tailings dam as a pollution control
device is a requirement imposed by law;
(2) as regards the valuation of the tailings dam and the submerged lands:
(a) that the subject properties have no market value as they cannot be sold
independently of the mine;
(b) that the valuation of the tailings dam should be based on its incidental use by
petitioner as a water reservoir and not on the alleged cost of construction of the
dam and the annual build-up expense;
31
PROPERTY (ownership)
(c) that the "residual value formula" used by the Provincial Assessor and adopted by
respondent CBAA is arbitrary and erroneous; and
(3) as regards the petitioner's liability for penalties for
non-declaration of the tailings dam and the submerged lands for realty tax
purposes:
(a) that where a tax is not paid in an honest belief that it is not due, no penalty shall
be collected in addition to the basic tax;
(b) that no other mining companies in the Philippines operating a tailings dam have
been made to declare the dam for realty tax purposes.
The petitioner does not dispute that the tailings dam may be considered realty
within the meaning of Article 415. It insists, however, that the dam cannot be
subjected to realty tax as a separate and independent property because it does not
constitute an "assessable improvement" on the mine although a considerable sum
may have been spent in constructing and maintaining it.
To support its theory, the petitioner cites the following cases:
1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered
the dikes and gates constructed by the taxpayer in connection with a fishpond
operation as integral parts of the fishpond.
2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303),
involving a road constructed by the timber concessionaire in the area, where this
Court did not impose a realty tax on the road primarily for two reasons:
In the first place, it cannot be disputed that the ownership of the road that was
constructed by appellee belongs to the government by right of accession not only
because it is inherently incorporated or attached to the timber land . . . but also
because upon the expiration of the concession said road would ultimately pass to
the national government. . . . In the second place, while the road was constructed
by appellee primarily for its use and benefit, the privilege is not exclusive, for . . .
appellee cannot prevent the use of portions of the concession for homesteading
purposes. It is also duty bound to allow the free use of forest products within the
concession for the personal use of individuals residing in or within the vicinity of the
land. . . . In other words, the government has practically reserved the rights to use
the road to promote its varied activities. Since, as above shown, the road in
question cannot be considered as an improvement which belongs to appellee,
although in part is for its benefit, it is clear that the same cannot be the subject of
assessment within the meaning of Section 2 of C.A.
No. 470.
Apparently, the realty tax was not imposed not because the road was an integral
part of the lumber concession but because the government had the right to use the
road to promote its varied activities.
3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it
was declared that the reservoir dam went with and formed part of the reservoir
and that the dam would be "worthless and useless except in connection with the
outlet canal, and the water rights in the reservoir represent and include whatever
utility or value there is in the dam and headgates."
4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States.
This case involved drain tunnels constructed by plaintiff when it expanded its
mining operations downward, resulting in a constantly increasing flow of water in
the said mine. It was held that:
Whatever value they have is connected with and in fact is an integral part of the
mine itself. Just as much so as any shaft which descends into the earth or an
underground incline, tunnel, or drift would be which was used in connection with
the mine.
On the other hand, the Solicitor General argues that the dam is an assessable
improvement because it enhances the value and utility of the mine. The primary
function of the dam is to receive, retain and hold the water coming from the
operations of the mine, and it also enables the petitioner to impound water, which
is then recycled for use in the plant.
There is also ample jurisprudence to support this view, thus:
. . . The said equipment and machinery, as appurtenances to the gas station building
or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures
are necessary to the operation of the gas station, for without them the gas station
would be useless and which have been attached or affixed permanently to the gas
station site or embedded therein, are taxable improvements and machinery within
the meaning of the Assessment Law and the Real Property Tax Code. (Caltex [Phil.]
Inc. v. CBAA, 114 SCRA 296).
We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been
installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by MERALCO for its operations. (Manila Electric Co. v.
CBAA, 114 SCRA 273).
The pipeline system in question is indubitably a construction adhering to the soil. It
is attached to the land in such a way that it cannot be separated therefrom without
32
PROPERTY (ownership)
dismantling the steel pipes which were welded to form the pipeline. (MERALCO
Securities Industrial Corp. v. CBAA, 114 SCRA 261).
The tax upon the dam was properly assessed to the plaintiff as a tax upon real
estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742).
The oil tanks are structures within the statute, that they are designed and used by
the owner as permanent improvement of the free hold, and that for such reasons
they were properly assessed by the respondent taxing district as improvements.
(Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271)
The Real Property Tax Code does not carry a definition of "real property" and simply
says that the realty tax is imposed on "real property, such as lands, buildings,
machinery and other improvements affixed or attached to real property." In the
absence of such a definition, we apply Article 415 of the Civil Code, the pertinent
portions of which state:
Art. 415. The following are immovable property.
(1) Lands, buildings and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object.
Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that
the realty tax is due "on the real property, including land, buildings, machinery and
other improvements" not specifically exempted in Section 3 thereof. A reading of
that section shows that the tailings dam of the petitioner does not fall under any of
the classes of exempt real properties therein enumerated.
Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property
Tax Code defines improvement as follows:
(k) Improvements — is a valuable addition made to property or an amelioration in
its condition, amounting to more than mere repairs or replacement of waste,
costing labor or capital and intended to enhance its value, beauty or utility or to
adopt it for new or further purposes.
The term has also been interpreted as "artificial alterations of the physical condition
of the ground that are reasonably permanent in character."2
The Court notes that in the Ontario case the plaintiff admitted that the mine
involved therein could not be operated without the aid of the drain tunnels, which
were indispensable to the successful development and extraction of the minerals
therein. This is not true in the present case.
Even without the tailings dam, the petitioner's mining operation can still be carried
out because the primary function of the dam is merely to receive and retain the
wastes and water coming from the mine. There is no allegation that the water
coming from the dam is the sole source of water for the mining operation so as to
make the dam an integral part of the mine. In fact, as a result of the construction of
the dam, the petitioner can now impound and recycle water without having to
spend for the building of a water reservoir. And as the petitioner itself points out,
even if the petitioner's mine is shut down or ceases operation, the dam may still be
used for irrigation of the surrounding areas, again unlike in the Ontario case.
As correctly observed by the CBAA, the Kendrick case is also not applicable because
it involved water reservoir dams used for different purposes and for the benefit of
the surrounding areas. By contrast, the tailings dam in question is being
used exclusively for the benefit of the petitioner.
Curiously, the petitioner, while vigorously arguing that the tailings dam has no
separate existence, just as vigorously contends that at the end of the mining
operation the tailings dam will serve the local community as an irrigation facility,
thereby implying that it can exist independently of the mine.
From the definitions and the cases cited above, it would appear that whether a
structure constitutes an improvement so as to partake of the status of realty would
depend upon the degree of permanence intended in its construction and use. The
expression "permanent" as applied to an improvement does not imply that the
improvement must be used perpetually but only until the purpose to which the
principal realty is devoted has been accomplished. It is sufficient that the
improvement is intended to remain as long as the land to which it is annexed is still
used for the said purpose.
The Court is convinced that the subject dam falls within the definition of an
"improvement" because it is permanent in character and it enhances both the value
and utility of petitioner's mine. Moreover, the immovable nature of the dam
defines its character as real property under Article 415 of the Civil Code and thus
makes it taxable under Section 38 of the Real Property Tax Code.
The Court will also reject the contention that the appraisal at P50.00 per square
meter made by the Provincial Assessor is excessive and that his use of the "residual
value formula" is arbitrary and erroneous.
Respondent Provincial Assessor explained the use of the "residual value formula" as
follows:
33
PROPERTY (ownership)
A 50% residual value is applied in the computation because, while it is true that non-declaration of the tailings dam and the submerged lands for realty tax
when slime fills the dike, it will then be covered by another dike or stage, the stage purposes.
covered is still there and still exists and since only one face of the dike is filled, 50%
or the other face is unutilized. WHEREFORE, the petition is DISMISSED for failure to show that the questioned
decision of respondent Central Board of Assessment Appeals is tainted with grave
In sustaining this formula, the CBAA gave the following justification: abuse of discretion except as to the imposition of penalties upon the petitioner
which is hereby SET ASIDE. Costs against the petitioner. It is so ordered.
We find the appraisal on the land submerged as a result of the construction of the
tailings dam, covered by Tax Declaration Nos.
002-0260 and 002-0266, to be in accordance with the Schedule of Market Values
for San Marcelino, Zambales, which is fifty (50.00) pesos per square meter for third
class industrial land (TSN, page 17, July 5, 1989) and Schedule of Market Values for
Zambales which was reviewed and allowed for use by the Ministry (Department) of
Finance in the 1981-1982 general revision. No serious attempt was made by
Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e, that
the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is
indeed excessive and unconscionable. Hence, we find no cause to disturb the
market value applied by Respondent-Appellee Provincial Assessor of Zambales on
the properties of Petitioner-Appellant Benguet Corporation covered by Tax
Declaration Nos. 002-0260 and 002-0266.

It has been the long-standing policy of this Court to respect the conclusions of
quasi-judicial agencies like the CBAA, which, because of the nature of its functions
and its frequent exercise thereof, has developed expertise in the resolution of
assessment problems. The only exception to this rule is where it is clearly shown
that the administrative body has committed grave abuse of discretion calling for the
intervention of this Court in the exercise of its own powers of review. There is no
such showing in the case at bar.

We disagree, however, with the ruling of respondent CBAA that it cannot take
cognizance of the issue of the propriety of the penalties imposed upon it, which was
raised by the petitioner for the first time only on appeal. The CBAA held that this "is
an entirely new matter that petitioner can take up with the Provincial Assessor
(and) can be the subject of another protest before the Local Board or a negotiation
with the local sanggunian . . ., and in case of an adverse decision by either the Local
Board or the local sanggunian, (it can) elevate the same to this Board for
appropriate action."

There is no need for this time-wasting procedure. The Court may resolve the issue
in this petition instead of referring it back to the local authorities. We have studied
the facts and circumstances of this case as above discussed and find that the
petitioner has acted in good faith in questioning the assessment on the tailings dam
and the land submerged thereunder. It is clear that it has not done so for the
purpose of evading or delaying the payment of the questioned tax. Hence, we hold
that the petitioner is not subject to penalty for its
34
PROPERTY (ownership)
14.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-46245 May 31, 1982
MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.
AQUINO, J.:
In this special civil action of certiorari, Meralco Securities Industrial Corporation
assails the decision of the Central Board of Assessment Appeals (composed of the
Secretary of Finance as chairman and the Secretaries of Justice and Local
Government and Community Development as members) dated May 6, 1976,
holding that Meralco Securities' oil pipeline is subject to realty tax.
The record reveals that pursuant to a pipeline concession issued under the
Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed from
Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined
together and buried not less than one meter below the surface along the shoulder
of the public highway. The portion passing through Laguna is about thirty
kilometers long.
The pipes for white oil products measure fourteen inches in diameter by thirty-six
feet with a maximum capacity of 75,000 barrels daily. The pipes for fuel and black
oil measure sixteen inches by forty-eight feet with a maximum capacity of 100,000
barrels daily.
The pipes are embedded in the soil and are firmly and solidly welded together so as
to preclude breakage or damage thereto and prevent leakage or seepage of the oil.
The valves are welded to the pipes so as to make the pipeline system one single
piece of property from end to end.
In order to repair, replace, remove or transfer segments of the pipeline, the pipes
have to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or
excavating them out of the ground where they are buried. In points where the
pipeline traversed rivers or creeks, the pipes were laid beneath the bed thereof.
Hence, the pipes are permanently attached to the land.
However, Meralco Securities notes that segments of the pipeline can be moved
from one place to another as shown in the permit issued by the Secretary of Public
Works and Communications which permit provides that the government reserves
the right to require the removal or transfer of the pipes by and at the
concessionaire's expense should they be affected by any road repair or
improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial
assessor of Laguna treated the pipeline as real property and issued Tax Declarations
Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885,
Biñan and 15806-15810, Calamba, containing the assessed values of portions of the
pipeline.
Meralco Securities appealed the assessments to the Board of Assessment Appeals
of Laguna composed of the register of deeds as chairman and the provincial auditor
as member. That board in its decision of June 18, 1975 upheld the assessments (pp.
47-49, Rollo).
Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary
of Local Government and Community Development Jose Roño as members, ruled
that the pipeline is subject to realty tax (p. 40, Rollo).
A copy of that decision was served on Meralco Securities' counsel on August 27,
1976. Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which
took effect on June 1, 1974, provides that the Board's decision becomes final and
executory after the lapse of fifteen days from the date of receipt of a copy of the
decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of
Assessment Appeals (70 O.G. 10085), a party may ask for the reconsideration of the
Board's decision within fifteen days after receipt. On September 7, 1976 (the
eleventh day), Meralco Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of
which was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6,
1977, Meralco Securities filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and
Meralco Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no
jurisdiction to review the decision of the Central Board of Assessment Appeals and
because no judicial review of the Board's decision is provided for in the Real
Property Tax Code, Meralco Securities' recourse is to file a petition for certiorari.
35
PROPERTY (ownership)
We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-
judicial functions whereby the record of a particular case is ordered to be elevated
for review and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).
The rule is that as to administrative agencies exercising quasi-judicial power there is
an underlying power in the courts to scrutinize the acts of such agencies on
questions of law and jurisdiction even though no right of review is given by the
statute (73 C.J.S. 506, note 56).
"The purpose of judicial review is to keep the administrative agency within its
jurisdiction and protect substantial rights of parties affected by its decisions" (73
C.J.S. 507, See. 165). The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which forestalls arbitrary and
unjust adjudications.
Judicial review of the decision of an official or administrative agency exercising
quasi-judicial functions is proper in cases of lack of jurisdiction, error of law, grave
abuse of discretion, fraud or collusion or in case the administrative decision is
corrupt, arbitrary or capricious (Mafinco Trading Corporation vs. Ople, L-37790,
March 25, 1976, 70 SCRA 139, 158; San Miguel Corporation vs. Secretary of Labor,
L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of
Batangas, 56 Phil. 260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax
under those laws; that articles 415 and 416 of the Civil Code, defining real and
personal property, have no application to this case; that even under article 415, the
steel pipes can be regarded as realty because they are constructions adhered to the
soil and things attached to the land in a fixed manner and that Meralco Securities is
not exempt from realty tax under the Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is
not real property within the meaning of article 415. This contention is not
sustainable under the provisions of the Assessment Law, the Real Property Tax
Code and the Civil Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real
property, including land, buildings, machinery, and other improvements" not
specifically exempted in section 3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real
property, such as land, buildings, machinery and other improvements affixed or
attached to real property not hereinafter specifically exempted. *
It is incontestable that the pipeline of Meralco Securities does not fall within any of
the classes of exempt real property enumerated in section 3 of the Assessment Law
and section 40 of the Real Property Tax Code.
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in
the earth, carrying with it the right to the use of the soil in which it is placed (Note
21[10],54 C.J.S. 561).
Article 415[l] and [3] provides that real property may consist of constructions of all
kinds adhered to the soil and everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object.
The pipeline system in question is indubitably a construction adhering to the soil
(Exh. B, p. 39, Rollo). It is attached to the land in such a way that it cannot be
separated therefrom without dismantling the steel pipes which were welded to
form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow
of oil, it is in a sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are
not the steel pipes but the pipeline system as a whole. Meralco Securities has
apparently two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax
purposes (Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd
3; Board of Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F.
C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it
from the payment of realty taxes. The alleged exemption is predicated on the
following provisions of that law which exempt Meralco Securities from local taxes
and make it liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed.— Work obligations,
special taxes and royalties which are fixed by the provisions of this Act or by the
concession for any of the kinds of concessions to which this Act relates, are
considered as inherent on such concessions after they are granted, and shall not be
36
PROPERTY (ownership)
increased or decreased during the life of the concession to which they apply; nor
shall any other special taxes or levies be applied to such concessions, nor shall
0concessionaires under this Act be subject to any provincial, municipal or other
local taxes or levies; nor shall any sales tax be charged on any petroleum produced
from the concession or portion thereof, manufactured by the concessionaire and
used in the working of his concession. All such concessionaires, however, shall be
subject to such taxes as are of general application in addition to taxes and other
levies specifically provided in this Act.

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the President of the Philippines
in the exercise of his lawmaking powers, as shown in section 342 et seq. of the
Revised Administrative Code, Act No. 3995, Commonwealth Act No. 470 and
Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In
contrast, a local tax is imposed by the municipal or city council by virtue of the Local
Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G.
6197).

We hold that the Central Board of Assessment Appeals did not act with grave abuse
of discretion, did not commit any error of law and acted within its jurisdiction in
sustaining the holding of the provincial assessor and the local board of assessment
appeals that Meralco Securities' pipeline system in Laguna is subject to realty tax.

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

SO ORDERED.

37