G.R. Nos.

L-10817-18 February 28, 1958

ENRIQUE LOPEZ, petitioner,

vs.
VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.

Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay for
respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-Castelo
Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province, dropped at
Lopez' house and invited him to make an investment in the theatre business. It was intimated that
Orosa, his family and close friends were organizing a corporation to be known as Plaza Theatre, Inc., that
would engage in such venture. Although Lopez expressed his unwillingness to invest of the same, he
agreed to supply the lumber necessary for the construction of the proposed theatre, and at Orosa's
behest and assurance that the latter would be personally liable for any account that the said
construction might incur, Lopez further agreed that payment therefor would be on demand and not
cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was used
for the construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of
the total cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a
balance of P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of
679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation on
September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid
obligation, the latter and Belarmino Rustia, the president of the corporation, promised to obtain a bank
loan by mortgaging the properties of the Plaza Theatre., out of which said amount of P41,771.35 would
be satisfied, to which assurance Lopez had to accede. Unknown to him, however, as early as November,
1946, the corporation already got a loan for P30,000 from the Philippine National Bank with the Luzon
Surety Company as surety, and the corporation in turn executed a mortgage on the land and building in
favor of said company as counter-security. As the land at that time was not yet brought under the
operation of the Torrens System, the mortgage on the same was registered on November 16, 1946,
under Act No. 3344. Subsequently, when the corporation applied for the registration of the land under
Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was
correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to
execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the Plaza
Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the creditor, and as the
obligation still remained unsettled, Lopez filed on November 12, 1947, a complaint with the Court of
First Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente Orosa, Jr. and
Plaza Theater, Inc., praying that defendants be sentenced to pay him jointly and severally the sum of
P41,771.35, with legal interest from the firing of the action; that;; or that the 420 shares of the capital
stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction
for the same purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff
also caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that the
materials were delivered to him as a promoter and later treasurer of the corporation, because he had
purchased and received the same on his personal account; that the land on which the movie house was
constructed was not charged with a lien to secure the payment of the aforementioned unpaid
obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not assigned to plaintiff as
collaterals but as direct security for the payment of his indebtedness. As special defense, this defendant
contended that as the 420 shares of stock assigned and conveyed by the assignor and accepted by Lopez
as direct security for the payment of the amount of P41,771.35 were personal properties, plaintiff was
barred from recovering any deficiency if the proceeds of the sale thereof at public auction would not be
sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted from the
payment of any deficiency in case the proceeds from the sale of said personal properties would not be
enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by alleging
that the building materials delivered to Orosa were on the latter's personal account; and that there was
no understanding that said materials would be paid jointly and severally by Orosa and the corporation,
nor was a lien charged on the properties of the latter to secure payment of the same obligation. As
special defense, defendant corporation averred that while it was true that the materials purchased by
Orosa were sold by the latter to the corporation, such transactions were in good faith and for valuable
consideration thus when plaintiff failed to claim said materials within 30 days from the time of removal
thereof from Orosa, lumber became a different and distinct specie and plaintiff lost whatever rights he
might have in the same and consequently had no recourse against the Plaza Theatre, Inc., that the claim
could not have been refectionary credit, for such kind of obligation referred to an indebtedness incurred
in the repair or reconstruction of something already existing and this concept did not include an entirely
new work; and that the Plaza Theatre, Inc., having been incorporated on October 14, 1946, it could not
have contracted any obligation prior to said date. It was, therefore, prayed that the complaint be
dismissed; that said defendant be awarded the sum P 5,000 for damages, and such other relief as may
be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered under the
Torrens System and that there was a notice of lis pendens thereon, filed on August 17, 1948, or within
the 1-year period after the issuance of the certificate of title, a petition for review of the decree of the
land registration court dated October 18, 1947, which was made the basis of OCT No. O-319, in order to
annotate the rights and interests of the surety company over said properties (Land Registration Case No.
17 GLRO Rec. No. 296). Opposition thereto was offered by Enrique Lopez, asserting that the amount
demanded by him constituted a preferred lien over the properties of the obligors; that the surety
company was guilty of negligence when it failed to present an opposition to the application for
registration of the property; and that if any violation of the rights and interest of said surety would ever
be made, same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, after
making an exhaustive and detailed analysis of the respective stands of the parties and the evidence
adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly
liable for the unpaid balance of the cost of lumber used in the construction of the building and the
plaintiff thus acquired the materialman's lien over the same. In making the pronouncement that the lien
was merely confined to the building and did not extend to the land on which the construction was
made, the trial judge took into consideration the fact that when plaintiff started the delivery of lumber
in May, 1946, the land was not yet owned by the corporation; that the mortgage in favor of Luzon
Surety Company was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the
old Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings which
are also classified as real properties, upon which said refection was made. It was, however, declared
that plaintiff's lien on the building was superior to the right of the surety company. And finding that the
Plaza Theatre, Inc., had no objection to the review of the decree issued in its favor by the land
registration court and the inclusion in the title of the encumbrance in favor of the surety company, the
court a quo granted the petition filed by the latter company. Defendants Orosa and the Plaza Theatre,
Inc., were thus required to pay jointly the amount of P41,771.35 with legal interest and costs within 90
days from notice of said decision; that in case of default, the 420 shares of stock assigned by Orosa to
plaintiff be sold at public auction and the proceeds thereof be applied to the payment of the amount
due the plaintiff, plus interest and costs; and that the encumbrance in favor of the surety company be
endorsed at the back of OCT No. O-391, with notation I that with respect to the building, said mortgage
was subject to the materialman's lien in favor of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of
therein defendants was joint instead of solidary, and that the lien did not extend to the land, but same
was denied by order the court of December 23, 1952. The matter was thus appealed to the Court of
appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this instance, plaintiff-
appellant raises 2 issues: (1) whether a materialman's lien for the value of the materials used in the
construction of a building attaches to said structure alone and does not extend to the land on which the
building is adhered to; and (2) whether the lower court and the Court of Appeals erred in not providing
that the material mans liens is superior to the mortgage executed in favor surety company not only on
the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of the
decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so
We will not take up or consider anything on that point. Appellant, however, contends that the lien
created in favor of the furnisher of the materials used for the construction, repair or refection of a
building, is also extended to the land which the construction was made, and in support thereof he relies
on Article 1923 of the Spanish Civil Code, pertinent law on the matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the following are
preferred:
xxx xxx xxx

5. Credits for refection, not entered or recorded, with respect to the estate upon which the refection
was made, and only with respect to other credits different from those mentioned in four preceding
paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property, and
inasmuch as said provision does not contain any specification delimiting the lien to the building, said
article must be construed as to embrace both the land and the building or structure adhering thereto.
We cannot subscribe to this view, for while it is true that generally, real estate connotes the land and
the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real properties1 could mean only one thing —
that a building is by itself an immovable property, a doctrine already pronounced by this Court in the
case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence of any
specific provision of law to the contrary, a building is an immovable property, irrespective of whether or
not said structure and the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant reveals that the law gives
preference to unregistered refectionary credits only with respect to the real estate upon which the
refection or work was made. This being so, the inevitable conclusion must be that the lien so created
attaches merely to the immovable property for the construction or repair of which the obligation was
incurred. Evidently, therefore, the lien in favor of appellant for the unpaid value of the lumber used in
the construction of the building attaches only to said structure and to no other property of the obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only to the
building for which the credit was made or which received the benefit of refection, the lower court was
right in, holding at the interest of the mortgagee over the land is superior and cannot be made subject
to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is hereby
affirmed, with costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L. and Endencia, JJ., concur.

Republic v Bantigue
SECOND DIVISION D E C I S I O N
SERENO, J.:
This Rule 45 Petition requires this Court to address the issue of the proper scope of the delegated
jurisdiction of municipal trial courts in land registration cases. Petitioner Republic of the Philippines
(Republic) assails the Decision of the Court of Appeals (CA)[1] in CA-G.R. CV No. 70349, which affirmed
the Decision of the Municipal Trial Court (MTC) of San Juan, Batangas[2] in LRC Case No. N-98-20, LRA
Record No. 68329, granting respondent Bantigue Point Development Corporations (Corporation)
application for original registration of a parcel of land. Since only questions of law have been raised,
petitioner need not have filed a Motion for Reconsideration of the assailed CA Decision before filing this
Petition for Review.
The Facts
On 17 July 1997, respondent Bantigue Point Development Corporation filed with the Regional Trial Court
(RTC) of Rosario, Batangas an application for original registration of title over a parcel of land with an
assessed value of ₱4,330, ₱1,920 and ₱8,670, or a total assessed value of ₱14,920 for the entire
property, more particularly described as Lot 8060 of Cad 453-D, San Juan Cadastre, with an area of more
or less 10,732 square meters, located at Barangay Barualte, San Juan, Batangas. [3]
On 18 July 1997, the RTC issued an Order setting the case for initial hearing on 22 October 1997.[4] On 7
August 1997, it issued a second Order setting the initial hearing on 4 November 1997.[5]
Petitioner Republic filed its Opposition to the application for registration on 8 January 1998 while the
records were still with the RTC.[6]

On 31 March 1998, the RTC Clerk of Court transmitted motu proprio the records of the case to the MTC
of San Juan, because the assessed value of the property was allegedly less than ₱100,000.[7]
Thereafter, the MTC entered an Order of General Default[8] and commenced with the reception of
evidence.[9] Among the documents presented by respondent in support of its application are Tax
Declarations,[10] a Deed of Absolute Sale in its favor,[11] and a Certification from the Department of
Environment and Natural Resources (DENR) Community Environment and Natural Resources Office
(CENRO) of Batangas City that the lot in question is within the alienable and disposable
zone.[12] Thereafter, it awarded the land to respondent Corporation.[13]
Acting on an appeal filed by the Republic,[14] the CA ruled that since the former had actively
participated in the proceedings before the lower court, but failed to raise the jurisdictional challenge
therein, petitioner is thereby estopped from questioning the jurisdiction of the lower court on
appeal.[15] The CA further found that respondent Corporation had sufficiently established the latters
registrable title over the subject property after having proven open, continuous, exclusive and notorious
possession and occupation of the subject land by itself and its predecessors-in-interest even before the
outbreak of World War II.[16]
Dissatisfied with the CAs ruling, petitioner Republic filed this instant Rule 45 Petition and raised the
following arguments in support of its appeal:

I.

THE REPUBLIC CANNOT BE ESTOPPED FROM QUESTIONING THE JURISDICTION OF THE MUNICIPAL TRIAL
COURT OVER THE APPLICATION FOR ORIGINAL REGISTRATION OF LAND TITLE EVEN FOR THE FIRST TIME
ON APPEAL

II.

THE MUNICIPAL TRIAL COURT FAILED TO ACQUIRE JURISDICTION OVER THE APPLICATION FOR ORIGINAL
REGISTRATION OF LAND TITLE.[17]

The Courts Ruling

We uphold the jurisdiction of the MTC, but remand the case to the court a quo for further proceedings
in order to determine if the property in question forms part of the alienable and disposable land of the
public domain.
I
The Republic is not estopped from raising the issue of jurisdiction in this case.
At the outset, we rule that petitioner Republic is not estopped from questioning the jurisdiction of the
lower court, even if the former raised the jurisdictional question only on appeal. The rule is settled that
lack of jurisdiction over the subject matter may be raised at any stage of the
proceedings.[18] Jurisdiction over the subject matter is conferred only by the Constitution or the
law.[19] It cannot be acquired through a waiver or enlarged by the omission of the parties or conferred
by the acquiescence of the court.[20] Consequently, questions of jurisdiction may be cognizable even if
raised for the first time on appeal.[21]
The ruling of the Court of Appeals that a party may be estopped from raising such [jurisdictional]
question if he has actively taken part in the very proceeding which he questions, belatedly objecting to
the courts jurisdiction in the event that the judgment or order subsequently rendered is adverse to
him[22] is based on the doctrine of estoppel by laches. We are aware of that doctrine first enunciated
by this Court in Tijam v. Sibonghanoy.[23] In Tijam, the party-litigant actively participated in the
proceedings before the lower court and filed pleadings therein. Only 15 years thereafter, and after
receiving an adverse Decision on the merits from the appellate court, did the party-litigant question the
lower courts jurisdiction. Considering the unique facts in that case, we held that estoppel by laches had
already precluded the party-litigant from raising the question of lack of jurisdiction on appeal.
In Figueroa v. People,[24] we cautioned that Tijam must be construed as an exception to the general
rule and applied only in the most exceptional cases whose factual milieu is similar to that in the latter
case.
The facts are starkly different in this case, making the exceptional rule in Tijam inapplicable. Here,
petitioner Republic filed its Opposition to the application for registration when the records were still
with the RTC.[25] At that point, petitioner could not have questioned the delegated jurisdiction of the
MTC, simply because the case was not yet with that court. When the records were transferred to the
MTC, petitioner neither filed pleadings nor requested affirmative relief from that court. On appeal,
petitioner immediately raised the jurisdictional question in its Brief.[26]Clearly, the exceptional doctrine
of estoppel by laches is inapplicable to the instant appeal.
Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time,
to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or
omission to assert a right within a reasonable time, warranting the presumption that the party entitled
to assert it either has abandoned or declined to assert it.[27] In this case, petitioner Republic has not
displayed such unreasonable failure or neglect that would lead us to conclude that it has abandoned or
declined to assert its right to question the lower court's jurisdiction.

II
The Municipal Trial Court properly acquired jurisdiction over the case.
In assailing the jurisdiction of the lower courts, petitioner Republic raised two points of contention: (a)
the period for setting the date and hour of the initial hearing; and (b) the value of the land to be
registered.
First, petitioner argued that the lower court failed to acquire jurisdiction over the application, because
the RTC set the date and hour of the initial hearing beyond the 90-day period provided under the
Property Registration Decree.[28]
We disagree.

The Property Registration Decree provides:

Sec. 23. Notice of initial hearing, publication, etc. - The court shall, within five days from filing of the
application, issue an order setting the date and hour of the initial hearing which shall not be earlier than
forty-five days nor later than ninety days from the date of the order. x x x.

In this case, the application for original registration was filed on 17 July 1997.[29] On 18 July 1997, or a
day after the filing of the application, the RTC immediately issued an Order setting the case for initial
hearing on 22 October 1997, which was 96 days from the Order.[30] While the date set by the RTC was
beyond the 90-day period provided for in Section 23, this fact did not affect the jurisdiction of the trial
court. In Republic v. Manna Properties, Inc.,[31]petitioner Republic therein contended that there was
failure to comply with the jurisdictional requirements for original registration, because there were 125
days between the Order setting the date of the initial hearing and the initial hearing itself. We ruled
that the lapse of time between the issuance of the Order setting the date of initial hearing and the date
of the initial hearing itself was not fatal to the application. Thus, we held:
x x x [A] party to an action has no control over the Administrator or the Clerk of Court acting as a land
court; he has no right to meddle unduly with the business of such official in the performance of his
duties. A party cannot intervene in matters within the exclusive power of the trial court. No fault is
attributable to such party if the trial court errs on matters within its sole power. It is unfair to punish an
applicant for an act or omission over which the applicant has neither responsibility nor control,
especially if the applicant has complied with all the requirements of the law.[32]

Indeed, it would be the height of injustice to penalize respondent Corporation by dismissing its
application for registration on account of events beyond its control.
Moreover, since the RTC issued a second Order on 7 August 1997 setting the initial hearing on 4
November 1997,[33]within the 90-day period provided by law, petitioner Republic argued that the
jurisdictional defect was still not cured, as the second Order was issued more than five days from the
filing of the application, again contrary to the prescribed period under the Property Registration
Decree.[34]
Petitioner is incorrect.
The RTCs failure to issue the Order setting the date and hour of the initial hearing within five days from
the filing of the application for registration, as provided in the Property Registration Decree, did not
affect the courts its jurisdiction. Observance of the five-day period was merely directory, and failure to
issue the Order within that period did not deprive the RTC of its jurisdiction over the case. To rule that
compliance with the five-day period is mandatory would make jurisdiction over the subject matter
dependent upon the trial court. Jurisdiction over the subject matter is conferred only by the
Constitution or the law.[35] It cannot be contingent upon the action or inaction of the court.
This does not mean that courts may disregard the statutory periods with impunity. We cannot assume
that the law deliberately meant the provision to become meaningless and to be treated as a dead
letter.[36] However, the records of this case do not show such blatant disregard for the law. In fact, the
RTC immediately set the case for initial hearing a day after the filing of the application for
registration,[37] except that it had to issue a second Order because the initial hearing had been set
beyond the 90-day period provided by law.
Second, petitioner contended[38] that since the selling price of the property based on the Deed of Sale
annexed to respondents application for original registration was ₱160,000,[39] the MTC did not have
jurisdiction over the case. Under Section 34 of the Judiciary Reorganization Act, as amended,[40] the
MTCs delegated jurisdiction to try cadastral and land registration cases is limited to lands, the value of
which should not exceed ₱100,000.
We are not persuaded.
The delegated jurisdiction of the MTC over cadastral and land registration cases is indeed set forth in the
Judiciary Reorganization Act, which provides:
Sec. 34. Delegated Jurisdiction in Cadastral and Land Registration Cases. - Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts may be assigned by the Supreme Court to hear
and determine cadastral or land registration cases covering lots where there is no controversy or
opposition, or contested lots where the value of which does not exceed One hundred thousand pesos
(₱100,000.00), such value to be ascertained by the affidavit of the claimant or by agreement of the
respective claimants if there are more than one, or from the corresponding tax declaration of the real
property. Their decision in these cases shall be appealable in the same manner as decisions of the
Regional Trial Courts. (As amended by R.A. No. 7691) (Emphasis supplied.)
Thus, the MTC has delegated jurisdiction in cadastral and land registration cases in two
instances: first, where there is no controversy or opposition; or, second, over contested lots, the value
of which does not exceed ₱100,000.

The case at bar does not fall under the first instance, because petitioner opposed respondent
Corporations application for registration on 8 January 1998.[41]
However, the MTC had jurisdiction under the second instance, because the value of the lot in this case
does not exceed ₱100,000.
Contrary to petitioners contention, the value of the land should not be determined with reference to its
selling price. Rather, Section 34 of the Judiciary Reorganization Act provides that the value of the
property sought to be registered may be ascertained in three ways: first, by the affidavit of the
claimant; second, by agreement of the respective claimants, if there are more than one; or, third, from
the corresponding tax declaration of the real property.[42]
In this case, the value of the property cannot be determined using the first method, because the records
are bereft of any affidavit executed by respondent as to the value of the property. Likewise, valuation
cannot be done through the second method, because this method finds application only where there
are multiple claimants who agree on and make a joint submission as to the value of the property. Here,
only respondent Bantigue Point Development Corporation claims the property.
The value of the property must therefore be ascertained with reference to the corresponding Tax
Declarations submitted by respondent Corporation together with its application for registration. From
the records, we find that the assessed value of the property is ₱4,330, ₱1,920 and ₱8,670, or a total
assessed value of ₱14,920 for the entire property.[43]Based on these Tax Declarations, it is evident that
the total value of the land in question does not exceed ₱100,000. Clearly, the MTC may exercise its
delegated jurisdiction under the Judiciary Reorganization Act, as amended.
III
A certification from the CENRO is not sufficient proof that the property in question is alienable and
disposable land of the public domain.

Even as we affirm the propriety of the MTCs exercise of its delegated jurisdiction, we find that the lower
court erred in granting respondent Corporations application for original registration in the absence of
sufficient proof that the property in question was alienable and disposable land of the public domain.
The Regalian doctrine dictates that all lands of the public domain belong to the State.[44] The applicant
for land registration has the burden of overcoming the presumption of State ownership by establishing
through incontrovertible evidence that the land sought to be registered is alienable or disposable based
on a positive act of the government.[45] We held in Republic v. T.A.N. Properties, Inc. that a CENRO
certification is insufficient to prove the alienable and disposable character of the land sought to be
registered.[46] The applicant must also show sufficient proof that the DENR Secretary has approved the
land classification and released the land in question as alienable and disposable.[47]
Thus, the present rule is that an application for original registration must be accompanied by (1) a
CENRO or PENRO[48] Certification; and (2) a copy of the original classification approved by the DENR
Secretary and certified as a true copy by the legal custodian of the official records.[49]

Here, respondent Corporation only presented a CENRO certification in support of its

application.[50] Clearly, this falls short of the requirements for original registration.
We therefore remand this case to the court a quo for reception of further evidence to prove that the
property in question forms part of the alienable and disposable land of the public domain. If respondent
Bantigue Point Development Corporation presents a certified true copy of the original classification
approved by the DENR Secretary, the application for original registration should be granted. If it fails to
present sufficient proof that the land in question is alienable and disposable based on a positive act of
the government, the application should be denied.
WHEREFORE, premises considered, the instant Petition for Review is DENIED. Let this case
be REMANDED to the Municipal Trial Court of San Juan, Batangas, for reception of evidence to prove
that the property sought to be registered is alienable and disposable land of the public domain.
SO ORDERED.

EN BANC

G.R. Nos. L-10837-38 May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,

vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.

ISABEL IYA, plaintiff,

vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY. INC.,
defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co., Inc.

FELIX, J.:

Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a house of
strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan, Rizal,
which they purchased on installment basis from the Philippine Realty Corporation. On November 6,
1951, to enable her to purchase on credit rice from the NARIC, Lucia A. Valino filed a bond in the sum of
P11,000.00 (AISCO Bond No. G-971) subscribed by the Associated Insurance and Surety Co., Inc., and as
counter-guaranty therefor, the spouses Valino executed an alleged chattel mortgage on the
aforementioned house in favor of the surety company, which encumbrance was duly registered with the
Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted that at the time said undertaking
took place, the parcel of land on which the house is erected was still registered in the name of the
Philippine Realty Corporation. Having completed payment on the purchase price of the lot, the Valinos
were able to secure on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884).
Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an indebtedness in
the amount of P12,000.00, executed a real estate mortgage over the lot and the house in favor of Isabel
Iya, which was duly registered and annotated at the back of the certificate of title.

On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company
was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety company
demanded reimbursement from the spouses Valino, and as the latter likewise failed to do so, the
company foreclosed the chattel mortgage over the house. As a result thereof, a public sale was
conducted by the Provincial Sheriff of Rizal on December 26, 1952, wherein the property was awarded
to the surety company for P8,000.00, the highest bid received therefor. The surety company then
caused the said house to be declared in its name for tax purposes (Tax Declaration No. 25128).

Sometime in July, 1953, the surety company learned of the existence of the real estate mortgage over
the lot covered by T.C.T. No. 26884 together with the improvements thereon; thus, said surety company
instituted Civil Case No. 2162 of the Court of First Instance of Manila naming Adriano and Lucia Valino
and Isabel Iya, the mortgagee, as defendants. The complaint prayed for the exclusion of the residential
house from the real estate mortgage in favor of defendant Iya and the declaration and recognition of
plaintiff's right to ownership over the same in virtue of the award given by the Provincial Sheriff of Rizal
during the public auction held on December 26, 1952. Plaintiff likewise asked the Court to sentence the
spouses Valino to pay said surety moral and exemplary damages, attorney's fees and costs. Defendant
Isabel Iya filed her answer to the complaint alleging among other things, that in virtue of the real estate
mortgage executed by her co-defendants, she acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly conducted by the Provincial Sheriff of Rizal as a
result of the foreclosure of the chattel mortgage on the house was null and void for non-compliance
with the form required by law. She, therefore, prayed for the dismissal of the complaint and anullment
of the sale made by the Provincial Sheriff. She also demanded the amount of P5,000.00 from plaintiff as
counterclaim, the sum of P5,000.00 from her co-defendants as crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and denied the
others. They, however, prayed for the dismissal of the action for lack of cause of action, it being alleged
that plaintiff was already the owner of the house in question, and as said defendants admitted this fact,
the claim of the former was already satisfied.

On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety company
(Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant to the contract of
mortgage executed by the spouses Valino on October 24, 1952, the latter undertook to pay a loan of
P12,000.00 with interest at 12% per annum or P120.00 a month, which indebtedness was payable in 4
years, extendible for only one year; that to secure payment thereof, said defendants mortgaged the
house and lot covered by T.C.T. No. 27884 located at No. 67 Baltazar St., Grace Park Subdivision,
Caloocan, Rizal; that the Associated Insurance and Surety Co., Inc., was included as a party defendant
because it claimed to have an interest on the residential house also covered by said mortgage; that it
was stipulated in the aforesaid real estate mortgage that default in the payment of the interest agreed
upon would entitle the mortgagee to foreclose the same even before the lapse of the 4-year period; and
as defendant spouses had allegedly failed to pay the interest for more than 6 months, plaintiff prayed
the Court to order said defendants to pay the sum of P12,000.00 with interest thereon at 12% per
annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the total
obligation as damages, and for costs. As an alternative in case such demand may not be met and
satisfied plaintiff prayed for a decree of foreclosure of the land, building and other improvements
thereon to be sold at public auction and the proceeds thereof applied to satisfy the demands of plaintiff;
that the Valinos, the surety company and any other person claiming interest on the mortgaged
properties be barred and foreclosed of all rights, claims or equity of redemption in said properties; and
for deficiency judgment in case the proceeds of the sale of the mortgaged property would be insufficient
to satisfy the claim of plaintiff.

Defendant surety company, in answer to this complaint insisted on its right over the building, arguing
that as the lot on which the house was constructed did not belong to the spouses at the time the chattel
mortgage was executed, the house might be considered only as a personal property and that the
encumbrance thereof and the subsequent foreclosure proceedings made pursuant to the provisions of
the Chattel Mortgage Law were proper and legal. Defendant therefore prayed that said building be
excluded from the real estate mortgage and its right over the same be declared superior to that of
plaintiff, for damages, attorney's fees and costs.

Taking side with the surety company, defendant spouses admitted the due execution of the mortgage
upon the land but assailed the allegation that the building was included thereon, it being contended that
it was already encumbered in favor of the surety company before the real estate mortgage was
executed, a fact made known to plaintiff during the preparation of said contract and to which the latter
offered no objection. As a special defense, it was asserted that the action was premature because the
contract was for a period of 4 years, which had not yet elapsed.

The two cases were jointly heard upon agreement of the parties, who submitted the same on a
stipulation of facts, after which the Court rendered judgment dated March 8, 1956, holding that the
chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferred and superior
over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled that as the
Valinos were not yet the registered owner of the land on which the building in question was constructed
at the time the first encumbrance was made, the building then was still a personality and a chattel
mortgage over the same was proper. However, as the mortgagors were already the owner of the land at
the time the contract with Isabel Iya was entered into, the building was transformed into a real property
and the real estate mortgage created thereon was likewise adjudged as proper. It is to be noted in this
connection that there is no evidence on record to sustain the allegation of the spouses Valino that at the
time they mortgaged their house and lot to Isabel Iya, the latter was told or knew that part of the
mortgaged property, i.e., the house, had previously been mortgaged to the surety company.

The residential building was, therefore, ordered excluded from the foreclosure prayed for by Isabel Iya,
although the latter could exercise the right of a junior encumbrance. So the spouses Valino were
ordered to pay the amount demanded by said mortgagee or in their default to have the parcel of land
subject of the mortgage sold at public auction for the satisfaction of Iya's claim.

There is no question as to appellant's right over the land covered by the real estate mortgage; however,
as the building constructed thereon has been the subject of 2 mortgages; controversy arise as to which
of these encumbrances should receive preference over the other. The decisive factor in resolving the
issue presented by this appeal is the determination of the nature of the structure litigated upon, for
where it be considered a personality, the foreclosure of the chattel mortgage and the subsequent sale
thereof at public auction, made in accordance with the Chattel Mortgage Law would be valid and the
right acquired by the surety company therefrom would certainly deserve prior recognition; otherwise,
appellant's claim for preference must be granted. The lower Court, deciding in favor of the surety
company, based its ruling on the premise that as the mortgagors were not the owners of the land on
which the building is erected at the time the first encumbrance was made, said structure partook of the
nature of a personal property and could properly be the subject of a chattel mortgage. We find reason
to hold otherwise, for as this Court, defining the nature or character of a building, has said:

. . . while it is true that generally, real estate connotes the land and the building constructed thereon, it
is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of
what may constitute real properties (Art. 415, new Civil Code) could only mean one thing — that a
building is by itself an immovable property . . . Moreover, and in view of the absence of any specific
provision to the contrary, a building is an immovable property irrespective of whether or not said
structure and the land on which it is adhered to belong to the same owner. (Lopez vs. Orosa, G.R. Nos.
supra, p. 98).

A building certainly cannot be divested of its character of a realty by the fact that the land on which it is
constructed belongs to another. To hold it the other way, the possibility is not remote that it would
result in confusion, for to cloak the building with an uncertain status made dependent on the ownership
of the land, would create a situation where a permanent fixture changes its nature or character as the
ownership of the land changes hands. In the case at bar, as personal properties could only be the
subject of a chattel mortgage (Section 1, Act 3952) and as obviously the structure in question is not one,
the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it is
true that said document was correspondingly registered in the Chattel Mortgage Register of Rizal, this
act produced no effect whatsoever for where the interest conveyed is in the nature of a real property,
the registration of the document in the registry of chattels is merely a futile act. Thus, the registration of
the chattel mortgage of a building of strong materials produce no effect as far as the building is
concerned (Leung Yee vs. Strong Machinery Co., 37 Phil., 644). Nor can we give any consideration to the
contention of the surety that it has acquired ownership over the property in question by reason of the
sale conducted by the Provincial Sheriff of Rizal, for as this Court has aptly pronounced:

A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue
of a chattel mortgage constituted in his favor, which mortgage has been declared null and void with
respect to said real properties, acquires no right thereto by virtue of said sale (De la Riva vs. Ah Keo, 60
Phil., 899).

Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the
rights of the surety company, over the building superior to that of Isabel Iya and excluding the building
from the foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to foreclose not
only the land but also the building erected thereon is hereby recognized, and the proceeds of the sale
thereof at public auction (if the land has not yet been sold), shall be applied to the unsatisfied judgment
in favor of Isabel Iya. This decision however is without prejudice to any right that the Associated
Insurance and Surety Co., Inc., may have against the spouses Adriano and Lucia Valino on account of the
mortgage of said building they executed in favor of said surety company. Without pronouncement as to
costs. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and
Endencia, JJ., concur.

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 P100.00 and the costs of the suit.5

Defendants-appellants, in their answers in both the municipal court and court a quo impugned the
legality of the chattel mortgage, claiming that they are still the owners of the house; but they waived the
right to introduce evidence, oral or documentary. Instead, they relied on their memoranda in support of
their motion to dismiss, predicated mainly on the grounds that: (a) the municipal court did not have
jurisdiction to try and decide the case because (1) the issue involved, is ownership, and (2) there was no
allegation of prior possession; and (b) failure to prove prior demand pursuant to Section 2, Rule 72, of
the Rules of Court.6
During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to deposit
the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the decision of
the municipal court. As a result, the court granted plaintiffs-appellees' motion for execution, and it was
actually issued on 24 January 1957. However, the judgment regarding the surrender of possession to
plaintiffs-appellees could not be executed because the subject house had been already demolished on
14 January 1957 pursuant to the order of the court in a separate civil case (No. 25816) for ejectment
against the present defendants for non-payment of rentals on the land on which the house was
constructed.

The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and withdrawal
of deposited rentals was denied for the reason that the liability therefor was disclaimed and was still
being litigated, and under Section 8, Rule 72, rentals deposited had to be held until final disposition of
the appeal.7

On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive portion of
which is quoted earlier. The said decision was appealed by defendants to the Court of Appeals which, in
turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief and this appeal was
submitted for decision without it.

Defendants-appellants submitted numerous assignments of error which can be condensed into two
questions, namely: .

(a) Whether the municipal court from which the case originated had jurisdiction to adjudicate the
same;

(b) Whether the defendants are, under the law, legally bound to pay rentals to the plaintiffs during
the period of one (1) year provided by law for the redemption of the extrajudicially foreclosed house.

We will consider these questions seriatim.

(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which the
case originated, and consequently, the appellate jurisdiction of the Court of First Instance a quo, on the
theory that the chattel mortgage is void ab initio; whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent auction sale, are also void. Thus, the ownership of the
house still remained with 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.,15 cited in Associated Insurance Surety Co., Inc. vs. Iya, et al.
16 to the effect that —

... it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration
of what may constitute real properties (art. 415, New Civil Code) could only mean one thing — that a
building is by itself an immovable property irrespective of whether or not said structure and the land on
which it is adhered to belong to the same owner.

Certain deviations, however, have been allowed for various reasons. In the case of Manarang and
Manarang vs. Ofilada,17 this Court stated that "it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property", citing Standard Oil
Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred to the
mortgagee by way of mortgage "the following described personal property." 19 The "personal property"
consisted of leasehold rights and a building. Again, in the case of Luna vs. Encarnacion,20 the subject of
the contract designated as Chattel Mortgage was a house of mixed materials, and this Court hold
therein that it was a valid Chattel mortgage because it was so expressly designated and specifically that
the property given as security "is a house of mixed materials, which by its very nature is considered
personal property." In the later case of Navarro vs. Pineda,21 this Court stated that —
The view that parties to a deed of chattel mortgage may agree to consider a house as personal property
for the purposes of said contract, "is good only insofar as the contracting parties are concerned. It is
based, partly, upon the principle of estoppel" (Evangelista vs. Alto Surety, No. 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
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 participation ..." 24 Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least, intended to
treat the same as such, so that they should not now be allowed to make an inconsistent stand by
claiming otherwise. Moreover, the subject house stood on a rented lot to which defendats-appellants
merely had a temporary right as lessee, and although this can not in itself alone determine the status of
the property, it does so when combined with other factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house as personalty. Finally unlike in the Iya cases,
Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and Williamson,
26 wherein third persons assailed the validity of the chattel mortgage,27 it is the defendants-appellants
themselves, as debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case.
The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the
subject house as personalty.

(b) Turning to the question of possession and rentals of the premises in question. The Court of First
Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged house had
been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the lessor of the land on
which the house stood. For this reason, the said court limited itself to sentencing the erstwhile
mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when the chattel mortgage
was foreclosed and the house sold) until 14 January 1957 (when it was torn down by the Sheriff), plus
P300.00 attorney's fees.

Appellants mortgagors question this award, claiming that they were entitled to remain in possession
without any obligation to pay rent during the one year redemption period after the foreclosure sale, i.e.,
until 27 March 1957. On this issue, We must rule for the appellants.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508.28 Section 14
of this Act allows the mortgagee to have the property mortgaged sold at public auction through a public
officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No. 4118,
provided that the requirements of the law relative to notice and registration are complied with. 29 In
the instant case, the parties specifically stipulated that "the chattel mortgage will be enforceable in
accordance with the provisions of Special Act No. 3135 ... ." 30 (Emphasis supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the date of the auction sale, redeem the property sold
at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the purchaser of the property
to obtain from the court the possession during the period of redemption: but the same provision
expressly requires the filing of a petition with the proper Court of First Instance and the furnishing of a
bond. It is only upon filing of the proper motion and the approval of the corresponding bond that the
order for a writ of possession issues as a matter of course. No discretion is left to the court. 33 In the
absence of such a compliance, as in the instant case, the purchaser can not claim possession during the
period of redemption as a matter of right. In such a case, the governing provision is Section 34, Rule 39,
of the Revised Rules of Court 34 which also applies to properties purchased in extrajudicial foreclosure
proceedings.35 Construing the said section, this Court stated in the aforestated case of Reyes vs.
Hamada.

In other words, before the expiration of the 1-year period within which the judgment-debtor or
mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of right, to
possession of the same. Thus, while it is true that the Rules of Court allow the purchaser to receive the
rentals if the purchased property is occupied by tenants, he is, nevertheless, accountable to the
judgment-debtor or mortgagor as the case may be, for the amount so received and the same will be
duly credited against the redemption price when the said debtor or mortgagor effects the redemption.
Differently stated, the rentals receivable from tenants, although they may be collected by the purchaser
during the redemption period, do not belong to the latter but still pertain to the debtor of mortgagor.
The rationale for the Rule, it seems, is to secure for the benefit of the debtor or mortgagor, the payment
of the redemption amount and the consequent return to him of his properties sold at public auction.
(Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs. Espe.36

Since the defendants-appellants were occupying the house at the time of the auction sale, they are
entitled to remain in possession during the period of redemption or within one year from and after 27
March 1956, the date of the auction sale, and to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had not yet expired when action
was instituted in the court of origin, and that plaintiffs-appellees did not choose to take possession
under Section 7, Act No. 3135, as amended, which is the law selected by the parties to govern the
extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation to that effect. Since
plaintiffs-appellees' right to possess was not yet born at the filing of the complaint, there could be no
violation or breach thereof. Wherefore, the original complaint stated no cause of action and was
prematurely filed. For this reason, the same should be ordered dismissed, even if there was no
assignment of error to that effect. The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision of the cases. 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.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.

epublic 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:

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.

Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,

vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of Zambales and
Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE, respondents.

PARAS, J.:

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

The undisputed facts of this case by stipulation of the parties are as follows:

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

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces containing a total

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

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy on the
lot where the above property is erected, and more particularly described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite Subdivision) Ardoin
Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq. m. more or less, declared and
assessed in the name of FERNANDO MAGCALE under Tax Duration No. 19595 issued by the Assessor of
Olongapo City with an assessed value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

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

Apart from the stipulations in the printed portion of the aforestated deed of mortgage, there appears a
rider typed at the bottom of the reverse side of the document under the lists of the properties
mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the Mortgagors
as herein stated is released or issued by the Bureau of Lands, the Mortgagors hereby authorize the
Register of Deeds to hold the Registration of same until this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority from the Secretary of Agriculture and Natural Resources,
which title with annotation, shall be released in favor of the herein Mortgage.

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

Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the Registry of
Deeds of Zambales on November 23, 1971.

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

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

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

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

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the respondents
to comment (Ibid., p. 65), which order was complied with the Resolution dated May 18,1979, (Ibid., p.
100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties
were required to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents filed
their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF

MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING
ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE
DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled
that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said provision
of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-
10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on
which it has been built. Such a mortgage would be still a real estate mortgage for the building would still
be considered immovable property even if dealt with separately and apart from the land (Leung Yee vs.
Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established that possessory
rights over said properties before title is vested on the grantee, may be validly transferred or conveyed
as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).

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

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

But it is a different matter, as regards the second mortgage executed over the same properties on May
2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of
Olongapo City on the same date. Relative thereto, it is evident that such mortgage executed after the
issuance of the sales patent and of the Original Certificate of Title, falls squarely under the prohibitions
stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is
therefore null and void.

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

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

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

This pronouncement covers only the previous transaction already alluded to and does not pass upon any
new contract between the parties (Ibid), as in the case at bar. It should not preclude new contracts that
may be entered into between petitioner bank and private respondents that are in accordance with the
requirements of the law. After all, private respondents themselves declare that they are not denying the
legitimacy of their debts and appear to be open to new negotiations under the law (Comment; Rollo, pp.
95-96). Any new transaction, however, would be subject to whatever steps the Government may take
for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City is
hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling
that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void, without
prejudice to any appropriate action the Government may take against private respondents.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.

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.

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.

Resuming what we have set forth above, we hold that the equipments in question are not absolutely
essential to the petitioner's transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not be considered real estate within
the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in
question declared not subject to assessment as real estate for the purposes of the real estate tax.
Without costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court and as set
forth by counsel for the parties on appeal, involves the determination of the nature of the properties
described in the complaint. The trial judge found that those properties were personal in nature, and as a
consequence absolved the defendants from the complaint, with costs against the plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of Davao,
Province of Davao. However, the land upon which the business was conducted belonged to another
person. On the land the sawmill company erected a building which housed the machinery used by it.
Some of the implements thus used were clearly personal property, the conflict concerning machines
which were placed and mounted on foundations of cement. In the contract of lease between the
sawmill company and the owner of the land there appeared the following provision:

That on the expiration of the period agreed uponAsements and buildings; also, in the event the party of
the second part should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first part as though
the time agreed upon had expired: Provided, however, That the machineries and accessories are not
included in the improvements which will pass to the party of the first part on the expiration or
abandonment of the land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill
Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action against the
defendant in that action; a writ of execution issued thereon, and the properties now in question were
levied upon as personalty by the sheriff. No third party claim was filed for such properties at the time of
the sales thereof as is borne out by the record made by the plaintiff herein. Indeed the bidder, which
was the plaintiff in that action, and the defendant herein having consummated the sale, proceeded to
take possession of the machinery and other properties described in the corresponding certificates of
sale executed in its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a
number of occasions treated the machinery as personal property by executing chattel mortgages in
favor of third persons. One of such persons is the appellee by assignment from the original mortgages.

Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain no
doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing from
the facts.

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

It is, however not necessary to spend overly must time in the resolution of this appeal on side issues. It
is machinery which is involved; moreover, machinery not intended by the owner of any building or land
for use in connection therewith, but intended by a lessee for use in a building erected on the land by the
latter to be returned to the lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court,
it was held that machinery which is movable in its nature only becomes immobilized when placed in a
plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any
person having only a temporary right, unless such person acted as the agent of the owner. In the
opinion written by Chief Justice White, whose knowledge of the Civil Law is well known, it was in part
said:

To determine this question involves fixing the nature and character of the property from the point of
view of the rights of Valdes and its nature and character from the point of view of Nevers & Callaghan as
a judgment creditor of the Altagracia Company and the rights derived by them from the execution levied
on the machinery placed by the corporation in the plant. Following the Code Napoleon, the Porto Rican
Code treats as immovable (real) property, not only land and buildings, but also attributes immovability
in some cases to property of a movable nature, that is, personal property, because of the destination to
which it is applied. "Things," says section 334 of the Porto Rican Code, "may be immovable either by
their own nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery, vessels,
instruments or implements intended by the owner of the tenements for the industrial or works that
they may carry on in any building or upon any land and which tend directly to meet the needs of the said
industry or works." (See also Code Nap., articles 516, 518 et seq. to and inclusive of article 534,
recapitulating the things which, though in themselves movable, may be immobilized.) So far as the
subject-matter with which we are dealing — machinery placed in the plant — it is plain, both under the
provisions of the Porto Rican Law and of the Code Napoleon, that machinery which is movable in its
nature only becomes immobilized when placed in a plant by the owner of the property or plant. Such
result would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau,
Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code
Napoleon under articles 522 et seq.) The distinction rests, as pointed out by Demolombe, upon the fact
that one only having a temporary right to the possession or enjoyment of property is not presumed by
the law to have applied movable property belonging to him so as to deprive him of it by causing it by an
act of immobilization to become the property of another. It follows that abstractly speaking the
machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete immobilization took place
because of the express provisions of the lease under which the Altagracia held, since the lease in
substance required the putting in of improved machinery, deprived the tenant of any right to charge
against the lessor the cost such machinery, and it was expressly stipulated that the machinery so put in
should become a part of the plant belonging to the owner without compensation to the lessee. Under
such conditions the tenant in putting in the machinery was acting but as the agent of the owner in
compliance with the obligations resting upon him, and the immobilization of the machinery which
resulted arose in legal effect from the act of the owner in giving by contract a permanent destination to
the machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by the
Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that they had
the right to levy on it under the execution upon the judgment in their favor, and the exercise of that
right did not in a legal sense conflict with the claim of Valdes, since as to him the property was a part of
the realty which, as the result of his obligations under the lease, he could not, for the purpose of
collecting his debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of this
instance to be paid by the appellant.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.