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.

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

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: 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. 106041 January 29, 1993

BENGUET CORPORATION, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF ZAMBALES, PROVINCIAL ASSESSOR OF ZAMBALES, PROVINCE OF ZAMBALES, and MUNICIPALITY OF SAN MARCELINO, respondents. Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Appellant Benguet Corporation to impugn its reasonableness, i.e., that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value applied by Respondent Appellee Provincial Assessor of Zambales on the properties of Petitioner-Appellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266. This petition for certiorari now seeks to reverse the above ruling. The principal contention of the petitioner is that the tailings dam is not subject to realty tax because it is not an "improvement" upon the land within the meaning of the Real Property Tax Code. More particularly, it is claimed (1) as regards the tailings dam as an "improvement": (a) that the tailings dam has no value separate from and independent of the mine; hence, by itself it cannot be considered an improvement separately assessable; (b) that it is an integral part of the mine;

CRUZ, J.: The realty tax assessment involved in this case amounts to P11,319,304.00. It has been imposed on the petitioner's tailings dam and the land thereunder over its protest. The controversy arose in 1985 when the Provincial Assessor of Zambales assessed the said properties as taxable improvements. The assessment was appealed to the Board of Assessment Appeals of the Province of Zambales. On August 24, 1988, the appeal was dismissed mainly on the ground of the petitioner's "failure to pay the realty taxes that fell due during the pendency of the appeal." The petitioner seasonably elevated the matter to the Central Board of Assessment Appeals, 1 one of the herein respondents. In its decision dated March 22, 1990, the Board reversed the dismissal of the appeal but, on the merits, agreed that "the tailings dam and the lands submerged thereunder (were) subject to realty tax." For purposes of taxation the dam is considered as real property as it comes within the object mentioned in paragraphs (a) and (b) of Article 415 of the New Civil Code. It is a construction adhered to the soil which cannot be separated or detached without breaking the material or causing destruction on the land upon which it is attached. The immovable nature of the dam as an improvement determines its character as real property, hence taxable under Section 38 of the Real Property Tax Code. (P.D. 464). Although the dam is partly used as an anti-pollution device, this Board cannot accede to the request for tax exemption in the absence of a law authorizing the same. xxx xxx xxx We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax Declaration Nos. 002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No serious attempt was made by Petitioner-

(c) that at the end of the mining operation of the petitioner corporation in the area, the tailings dam will benefit the local community by serving as an irrigation facility; (d) that the building of the dam has stripped the property of any commercial value as the property is submerged under water wastes from the mine; (e) that the tailings dam is an environmental pollution control device for which petitioner must be commended rather than penalized with a realty tax assessment; (f) that the installation and utilization of the tailings dam as a pollution control device is a requirement imposed by law; (2) as regards the valuation of the tailings dam and the submerged lands: (a) that the subject properties have no market value as they cannot be sold independently of the mine;

(b) that the valuation of the tailings dam should be based on its incidental use by petitioner as a water reservoir and not on the alleged cost of construction of the dam and the annual build-up expense; (c) that the "residual value formula" used by the Provincial Assessor and adopted by respondent CBAA is arbitrary and erroneous; and (3) as regards the petitioner's liability for penalties for non-declaration of the tailings dam and the submerged lands for realty tax purposes: (a) that where a tax is not paid in an honest belief that it is not due, no penalty shall be collected in addition to the basic tax; (b) that no other mining companies in the Philippines operating a tailings dam have been made to declare the dam for realty tax purposes. The petitioner does not dispute that the tailings dam may be considered realty within the meaning of Article 415. It insists, however, that the dam cannot be subjected to realty tax as a separate and independent property because it does not constitute an "assessable improvement" on the mine although a considerable sum may have been spent in constructing and maintaining it. To support its theory, the petitioner cites the following cases: 1. Municipality of Cotabato v. Santos (105 Phil. 963), where this Court considered the dikes and gates constructed by the taxpayer in connection with a fishpond operation as integral parts of the fishpond. 2. Bislig Bay Lumber Co. v. Provincial Government of Surigao (100 Phil. 303), involving a road constructed by the timber concessionaire in the area, where this Court did not impose a realty tax on the road primarily for two reasons: In the first place, it cannot be disputed that the ownership of the road that was constructed by appellee belongs to the government by right of accession not only because it is inherently incorporated or attached to the timber land . . . but also because upon the expiration of the concession said road would ultimately pass to the national government. . . . In the second place, while the road was constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for . . . appellee cannot prevent the use of portions of the concession for homesteading purposes. It is also duty bound to allow the free use of forest products within the concession for the personal use of individuals residing in or within

the vicinity of the land. . . . In other words, the government has practically reserved the rights to use the road to promote its varied activities. Since, as above shown, the road in question cannot be considered as an improvement which belongs to appellee, although in part is for its benefit, it is clear that the same cannot be the subject of assessment within the meaning of Section 2 of C.A. No. 470. Apparently, the realty tax was not imposed not because the road was an integral part of the lumber concession but because the government had the right to use the road to promote its varied activities. 3. Kendrick v. Twin Lakes Reservoir Co. (144 Pacific 884), an American case, where it was declared that the reservoir dam went with and formed part of the reservoir and that the dam would be "worthless and useless except in connection with the outlet canal, and the water rights in the reservoir represent and include whatever utility or value there is in the dam and headgates." 4. Ontario Silver Mining Co. v. Hixon (164 Pacific 498), also from the United States. This case involved drain tunnels constructed by plaintiff when it expanded its mining operations downward, resulting in a constantly increasing flow of water in the said mine. It was held that: Whatever value they have is connected with and in fact is an integral part of the mine itself. Just as much so as any shaft which descends into the earth or an underground incline, tunnel, or drift would be which was used in connection with the mine. On the other hand, the Solicitor General argues that the dam is an assessable improvement because it enhances the value and utility of the mine. The primary function of the dam is to receive, retain and hold the water coming from the operations of the mine, and it also enables the petitioner to impound water, which is then recycled for use in the plant. There is also ample jurisprudence to support this view, thus: . . . The said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. (Caltex [Phil.] Inc. v. CBAA, 114 SCRA 296). We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and rendering it useful to the oil

industry. It is undeniable that the two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of oil needed by MERALCO for its operations. (Manila Electric Co. v. CBAA, 114 SCRA 273). The pipeline system in question is indubitably a construction adhering to the soil. It is attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which were welded to form the pipeline. (MERALCO Securities Industrial Corp. v. CBAA, 114 SCRA 261). The tax upon the dam was properly assessed to the plaintiff as a tax upon real estate. (Flax-Pond Water Co. v. City of Lynn, 16 N.E. 742). The oil tanks are structures within the statute, that they are designed and used by the owner as permanent improvement of the free hold, and that for such reasons they were properly assessed by the respondent taxing district as improvements. (Standard Oil Co. of New Jersey v. Atlantic City, 15 A 2d. 271) The Real Property Tax Code does not carry a definition of "real property" and simply says that the realty tax is imposed on "real property, such as lands, buildings, machinery and other improvements affixed or attached to real property." In the absence of such a definition, we apply Article 415 of the Civil Code, the pertinent portions of which state: Art. 415. The following are immovable property. (1) Lands, buildings and constructions of all kinds adhered to the soil; xxx xxx xxx (3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object. Section 2 of C.A. No. 470, otherwise known as the Assessment Law, provides that the realty tax is due "on the real property, including land, buildings, machinery and other improvements" not specifically exempted in Section 3 thereof. A reading of that section shows that the tailings dam of the petitioner does not fall under any of the classes of exempt real properties therein enumerated. Is the tailings dam an improvement on the mine? Section 3(k) of the Real Property Tax Code defines improvement as follows:

(k) Improvements is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adopt it for new or further purposes. The term has also been interpreted as "artificial alterations of the physical condition of the ground that are reasonably permanent in character." 2 The Court notes that in the Ontario case the plaintiff admitted that the mine involved therein could not be operated without the aid of the drain tunnels, which were indispensable to the successful development and extraction of the minerals therein. This is not true in the present case. Even without the tailings dam, the petitioner's mining operation can still be carried out because the primary function of the dam is merely to receive and retain the wastes and water coming from the mine. There is no allegation that the water coming from the dam is the sole source of water for the mining operation so as to make the dam an integral part of the mine. In fact, as a result of the construction of the dam, the petitioner can now impound and recycle water without having to spend for the building of a water reservoir. And as the petitioner itself points out, even if the petitioner's mine is shut down or ceases operation, the dam may still be used for irrigation of the surrounding areas, again unlike in the Ontario case. As correctly observed by the CBAA, the Kendrick case is also not applicable because it involved water reservoir dams used for different purposes and for the benefit of the surrounding areas. By contrast, the tailings dam in question is being used exclusively for the benefit of the petitioner. Curiously, the petitioner, while vigorously arguing that the tailings dam has no separate existence, just as vigorously contends that at the end of the mining operation the tailings dam will serve the local community as an irrigation facility, thereby implying that it can exist independently of the mine. From the definitions and the cases cited above, it would appear that whether a structure constitutes an improvement so as to partake of the status of realty would depend upon the degree of permanence intended in its construction and use. The expression "permanent" as applied to an improvement does not imply that the improvement must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is annexed is still used for the said purpose. The Court is convinced that the subject dam falls within the definition of an "improvement" because it is permanent in character and it enhances both the value and utility of petitioner's mine. Moreover, the immovable nature of the dam defines its character as real property under Article 415 of the Civil Code and thus makes it taxable under Section 38 of the Real Property Tax Code.

The Court will also reject the contention that the appraisal at P50.00 per square meter made by the Provincial Assessor is excessive and that his use of the "residual value formula" is arbitrary and erroneous. Respondent Provincial Assessor explained the use of the "residual value formula" as follows: A 50% residual value is applied in the computation because, while it is true that when slime fills the dike, it will then be covered by another dike or stage, the stage covered is still there and still exists and since only one face of the dike is filled, 50% or the other face is unutilized. In sustaining this formula, the CBAA gave the following justification: We find the appraisal on the land submerged as a result of the construction of the tailings dam, covered by Tax Declaration Nos. 002-0260 and 002-0266, to be in accordance with the Schedule of Market Values for San Marcelino, Zambales, which is fifty (50.00) pesos per square meter for third class industrial land (TSN, page 17, July 5, 1989) and Schedule of Market Values for Zambales which was reviewed and allowed for use by the Ministry (Department) of Finance in the 1981-1982 general revision. No serious attempt was made by Petitioner-Appellant Benguet Corporation to impugn its reasonableness, i.e, that the P50.00 per square meter applied by Respondent-Appellee Provincial Assessor is indeed excessive and unconscionable. Hence, we find no cause to disturb the market value applied by Respondent-Appellee Provincial Assessor of Zambales on the properties of PetitionerAppellant Benguet Corporation covered by Tax Declaration Nos. 002-0260 and 002-0266. It has been the long-standing policy of this Court to respect the conclusions of quasijudicial agencies like the CBAA, which, because of the nature of its functions and its frequent exercise thereof, has developed expertise in the resolution of assessment problems. The only exception to this rule is where it is clearly shown that the administrative body has committed grave abuse of discretion calling for the intervention of this Court in the exercise of its own powers of review. There is no such showing in the case at bar. We disagree, however, with the ruling of respondent CBAA that it cannot take cognizance of the issue of the propriety of the penalties imposed upon it, which was raised by the petitioner for the first time only on appeal. The CBAA held that this "is an entirely new matter that petitioner can take up with the Provincial Assessor (and) can be the subject of another protest before the Local Board or a negotiation with the local sanggunian . . ., and in case of an adverse decision by either the Local Board or the local sanggunian, (it can) elevate the same to this Board for appropriate action."

There is no need for this time-wasting procedure. The Court may resolve the issue in this petition instead of referring it back to the local authorities. We have studied the facts and circumstances of this case as above discussed and find that the petitioner has acted in good faith in questioning the assessment on the tailings dam and the land submerged thereunder. It is clear that it has not done so for the purpose of evading or delaying the payment of the questioned tax. Hence, we hold that the petitioner is not subject to penalty for its non-declaration of the tailings dam and the submerged lands for realty tax purposes. WHEREFORE, the petition is DISMISSED for failure to show that the questioned decision of respondent Central Board of Assessment Appeals is tainted with grave abuse of discretion except as to the imposition of penalties upon the petitioner which is hereby SET ASIDE. Costs against the petitioner. It is so ordered. Narvasa, C.J., Gutierrez, Jr., Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo and Campos, Jr., JJ., concur. Feliciano, J., took no part. THIRD DIVISION [G.R. No. 137705. August 22, 2000] SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, Petitioners, vs. PCI LEASING AND FINANCE, INC., respondent. DECISION PANGANIBAN, J.: chanrobles virtual law library After agreeing to a contract stipulating that a real or immovable property be considered as personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a proper subject of a writ of replevin obtained by the other contracting party. The Case chanrobles virtual law library Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1 of the Court of Appeals (CA)[2 in CA-GR SP No. 47332 and its February 26, 1999 Resolution[3 denying reconsideration. The decretal portion of the CA Decision reads as follows: chanrobles virtual law library WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED.

The writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED.4 chanrobles virtual law library In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch 218)[6 issued a Writ of Seizure.[7 The March 18, 1998 Resolution[8 denied petitioners Motion for Special Protective Order, praying that the deputy sheriff be enjoined from seizing immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to return to their original place whatever immobilized machineries or equipments he may have removed.[9 The Facts chanrobles virtual law library The undisputed facts are summarized by the Court of Appeals as follows:10 chanrobles virtual law library On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ of replevin docketed as Civil Case No. Q-98-33500. chanrobles virtual law library On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses. chanrobles virtual law library On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory, seized one machinery with [the] word that he [would] return for the other machineries. chanrobles virtual law library On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the power of the court to control the conduct of its officers and amend and control its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin. chanrobles virtual law library This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still personal and therefore still subject to seizure and a writ of replevin. chanrobles virtual law library In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding. They argued that to give effect to the agreement would be prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped from treating these machineries as personal because the contracts in which the alleged agreement [were] embodied [were] totally sham and farcical. chanrobles virtual law library

On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the remaining properties. He was able to take two more, but was prevented by the workers from taking the rest. chanrobles virtual law library On April 7, 1998, they went to [the CA] via an original action for certiorari. Ruling of the Court of Appeals chanrobles virtual law library Citing the Agreement of the parties, the appellate court held that the subject machines were personal property, and that they had only been leased, not owned, by petitioners. It also ruled that the words of the contract are clear and leave no doubt upon the true intention of the contracting parties. Observing that Petitioner Goquiolay was an experienced businessman who was not unfamiliar with the ways of the trade, it ruled that he should have realized the import of the document he signed. The CA further held: chanrobles virtual law library Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case below, since the merits of the whole matter are laid down before us via a petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper subjects of a full-blown trial, necessitating presentation of evidence by both parties. The contract is being enforced by one, and [its] validity is attacked by the other a matter x x x which respondent court is in the best position to determine. chanrobles virtual law library Hence, this Petition.11 The Issues chanrobles virtual law library In their Memorandum, petitioners submit the following issues for our consideration: chanrobles virtual law library A. Whether or not the machineries purchased and imported by SERGS became real property by virtue of immobilization. chanrobles virtual law library B. Whether or not the contract between the parties is a loan or a lease.12 chanrobles virtual law library In the main, the Court will resolve whether the said machines are personal, not immovable, property which may be a proper subject of a writ of replevin. As a preliminary matter, the Court will also address briefly the procedural points raised by respondent. The Courts Ruling chanrobles virtual law library

The Petition is not meritorious. Preliminary Matter:Procedural Questionschanrobles virtual law library Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded Judge Hilario Laqui as respondent. chanrobles virtual law library There is no question that the present recourse is under Rule 45. This conclusion finds support in the very title of the Petition, which is Petition for Review on Certiorari.13 chanrobles virtual law library While Judge Laqui should not have been impleaded as a respondent,14 substantial justice requires that such lapse by itself should not warrant the dismissal of the present Petition. In this light, the Court deems it proper to remove, motu proprio, the name of Judge Laqui from the caption of the present case. Main Issue: Nature of the Subject Machinerychanrobles virtual law library Petitioners contend that the subject machines used in their factory were not proper subjects of the Writ issued by the RTC, because they were in fact real property. Serious policy considerations, they argue, militate against a contrary characterization. chanrobles virtual law library Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property only.15 Section 3 thereof reads: chanrobles virtual law library SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an order and the corresponding writ of replevin describing the personal property alleged to be wrongfully detained and requiring the sheriff forthwith to take such property into his custody. chanrobles virtual law library On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows: chanrobles virtual law library ART. 415. The following are immovable property: x x x....................................x x x....................................x x x chanrobles virtual law library

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; x x x....................................x x x....................................x x x chanrobles virtual law library In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in the factory built on their own land. Indisputably, they were essential and principal elements of their chocolate-making industry. Hence, although each of them was movable or personal property on its own, all of them have become immobilized by destination because they are essential and principal elements in the industry.16 In that sense, petitioners are correct in arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of the Civil Code.[17 chanrobles virtual law library Be that as it may, we disagree with the submission of the petitioners that the said machines are not proper subjects of the Writ of Seizure. chanrobles virtual law library The Court has held that contracting parties may validly stipulate that a real property be considered as personal.18 After agreeing to such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is ordinarily precluded from denying the truth of any material fact found therein. chanrobles virtual law library Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as a personal property because it had been made the subject of a chattel mortgage. The Court ruled: chanrobles virtual law library x x x. Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. chanrobles virtual law library Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills[20] also held that the machinery used in a factory and essential to the industry, as in the present case, was a proper subject of a writ of replevin because it was treated as personal property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder: chanrobles virtual law library

x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage. chanrobles virtual law library In the present case, the Lease Agreement clearly provides that the machines in question are to be considered as personal property. Specifically, Section 12.1 of the Agreement reads as follows:21 chanrobles virtual law library 12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or attached to or embedded in, or permanently resting upon, real property or any building thereon, or attached in any manner to what is permanent. chanrobles virtual law library Clearly then, petitioners are estopped from denying the characterization of the subject machines as personal property. Under the circumstances, they are proper subjects of the Writ of Seizure. chanrobles virtual law library It should be stressed, however, that our holding -- that the machines should be deemed personal property pursuant to the Lease Agreement is good only insofar as the contracting parties are concerned.22 Hence, while the parties are bound by the Agreement, third persons acting in good faith are not affected by its stipulation characterizing the subject machinery as personal.[23 In any event, there is no showing that any specific third party would be adversely affected. Validity of the Lease Agreement chanrobles virtual law library In their Memorandum, petitioners contend that the Agreement is a loan and not a lease.24 Submitting documents supposedly showing that they own the subject machines, petitioners also argue in their Petition that the Agreement suffers from intrinsic ambiguity which places in serious doubt the intention of the parties and the validity of the lease agreement itself.[25 In their Reply to respondents Comment, they further allege that the Agreement is invalid.[26 chanrobles virtual law library These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the civil action pending before the RTC. A resolution of these questions, therefore, is effectively a resolution of the merits of the case. Hence, they should be

threshed out in the trial, not in the proceedings involving the issuance of the Writ of Seizure. chanrobles virtual law library Indeed, in La Tondea Distillers v. CA,27 the Court explained that the policy under Rule 60 was that questions involving title to the subject property questions which petitioners are now raising -should be determined in the trial. In that case, the Court noted that the remedy of defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of the plaintiffs bond. They were not allowed, however, to invoke the title to the subject property. The Court ruled: chanrobles virtual law library In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put at issue the matter of the title or right of possession over the specific chattel being replevied, the policy apparently being that said matter should be ventilated and determined only at the trial on the merits.28 chanrobles virtual law library Besides, these questions require a determination of facts and a presentation of evidence, both of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court under Rule 45.29 Reliance on the Lease Agreement chanrobles virtual law library It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC proceedings, which had ironically been instituted by respondent. Accordingly, it must be presumed valid and binding as the law between the parties. chanrobles virtual law library Makati Leasing and Finance Corporation30 is also instructive on this point. In that case, the Deed of Chattel Mortgage, which characterized the subject machinery as personal property, was also assailed because respondent had allegedly been required to sign a printed form of chattel mortgage which was in a blank form at the time of signing. The Court rejected the argument and relied on the Deed, ruling as follows: chanrobles virtual law library x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x

Alleged Injustice Committed on the Part of Petitioners chanrobles virtual law library Petitioners contend that if the Court allows these machineries to be seized, then its workers would be out of work and thrown into the streets.31 They also allege that the seizure would nullify all efforts to rehabilitate the corporation. chanrobles virtual law library Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed, law and jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true, should not be blamed on this Court, but on the petitioners for failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the filing of a counter-bond. The provision states: chanrobles virtual law library SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or of the surety or sureties thereon, he cannot immediately require the return of the property, but if he does not so object, he may, at any time before the delivery of the property to the applicant, require the return thereof, by filing with the court where the action is pending a bond executed to the applicant, in double the value of the property as stated in the applicants affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the payment of such sum to him as may be recovered against the adverse party, and by serving a copy bond on the applicant. chanrobles virtual law library WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioners. chanrobles virtual law library SO ORDERED. chanrobles virtual law library Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur. SECOND DIVISION Serial Numbers Size of Machines [G.R. No. 120098. October 2, 2001] xxx RUBY L. TSAI,, Petitioner, v. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R. VILLALUZ, Respondents. [G.R. No. 120109. October 2, 2001] PHILIPPINE BANK OF COMMUNICATIONS,, Petitioner, vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R. VILLALUZ, Respondents.

DECISION QUISUMBING, J.: These consolidated cases assail the decision [1 of the Court of Appeals in CA-G.R. CV No. 32986, affirming the decision [2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent courts resolution denying petitioners motion for reconsideration. On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel Mortgage are quoted below: MORTGAGE (REAL AND CHATTEL) xxx The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, xxx certain parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in xxx. Annex A (Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications continued) LIST OF MACHINERIES & EQUIPMENT A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan. xxx C. Two (2) Circular Knitting Machines made in West Germany. xxx

D. Four (4) Winding Machines. xxx SCHEDULE A I. TCT # 372097 - RIZAL xxx II. Any and all buildings and improvements now existing or hereafter to exist on the abovementioned lot. III. MACHINERIES & EQUIPMENT situated, located and/or installed on the abovementioned lot located at xxx (a) Forty eight sets (48) Vayrow Knitting Machines xxx (b) Sixteen sets (16) Vayrow Knitting Machines xxx (c) Two (2) Circular Knitting Machines xxx (d) Two (2) Winding Machines xxx (e) Two (2) Winding Machines xxx IV Any and all replacements, substitutions, additions, increases and accretions to above properties. xxx [3 On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in Annex A of the first mortgage deed. After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments. On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEXs failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages and Act 1506 or The Chattel Mortgage Law. A Notice of Sheriffs Sale was issued on December 1, 1982. On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day. On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries. On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets. Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriffs Sale dated December 1, 1982 and Certificate of Sale dated December 15, 1982. The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment. The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached to the mortgage contracts. The trial court decreed: WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants: 1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this decision; 2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation for the use and possession of the properties in question from

November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at the legal rate per annum until full payment; 3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorneys fees and expenses of litigation; 4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of exemplary damages; 5. Ordering the dismissal of the counterclaim of the defendants; and 6. Ordering the defendants to proportionately pay the costs of suit. SO ORDERED.[4

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH. IV THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEYS FEES AND EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND LEGAL BASIS. V THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONERS ARGUMENTS ON PRESCRIPTION AND LACHES.[6 In G.R. No. 120109,PBCom raised the following issues:

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the dispositive portion of which reads: WHEREFORE, except for the deletion therefrom of the award for exemplary damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.[5 Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court. In G.R. No. 120098, petitioner Tsai ascribed the following errors to the respondent court: I

I. DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES? II.

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE. II THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT. III

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?[7 The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai is valid. For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage. [8

Additionally, Tsai argues that respondent court erred in holding that the disputed 1981 machineries are not real properties. [9 Finally, she contends that the Court of Appeals erred in holding against petitioners arguments on prescription and laches [10 and in assessing petitioner actual damages, attorneys fees and expenses of litigation, for want of valid factual and legal basis. [11 Essentially, PBCom contends that respondent court erred in affirming the lower courts judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals pronouncement that the pieces of machinery in question were personal properties have no factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorneys fees against PBCom. In opposition, private respondents argue that the controverted units of machinery are not real properties but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity. [12 Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be denied. Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts. [13 This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals. [14 The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues: (1) the controverted machineries are not covered by, or included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriffs Notice of Sale of the foreclosed properties. [15 Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties intent. While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate courts ruling is quoted below: As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage,

militates against appellants posture. It should be noted that the printed form used by appellant bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of the phrase real and chattel. So also, the machineries and equipment in the printed form of the bank had to be inserted in the blank space of the printed contract and connected with the word building by typewritten slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved. As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely to chattels. The inventory list of the mortgaged properties is an itemization of sixtythree (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.[16 In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record, we find no compelling reason to depart therefrom. Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. In the instant case, the parties herein: (1) executed a contract styled as Real Estate Mortgage and Chattel Mortgage, instead of just Real Estate Mortgage if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate LIST OF MACHINERIES & EQUIPMENT. These facts, taken together, evince the conclusion that the parties intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title LIST OF MACHINERIES & EQUIPMENT, must also be treated as chattels. Accordingly, we find no reversible error in the respondent appellate courts ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding. And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages. As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have. [17

Petitioner Tsai also argued that assuming that PBComs title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX. To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion. [18 Petitioner Tsai failed to discharge this burden persuasively. Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice of the claims or interest of some other person in the property. [19 Records reveal, however, that when Tsai purchased the controverted properties, she knew of respondents claim thereon. As borne out by the records, she received the letter of respondents counsel, apprising her of respondents claim, dated February 27, 1987. [20 She replied thereto on March 9, 1987. [21 Despite her knowledge of respondents claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith. Petitioner Tsais defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBComs name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEXs letter to Tsai enunciating its claim. Finally, petitioners defense of prescription and laches is less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners adamant refusal to heed EVERTEXs claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner. [22 As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested units of machinery, the exemplary damages, and attorneys fees. As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on the accepted practice in banking and finance, business and investments that the rental price must take into account the cost of money used to buy them. The Court of Appeals did not give full credence to Chuas projection and reduced the award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. [23 However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. [24 However, we are not prepared to disregard the following dispositions of the respondent appellate court: In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of P100,000.00 per month thereafter. As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of unrealized rental income of subject machineries and equipments. The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in question, somebody was willing and ready to rent the same for P100,000.00 a month. xxx Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom should be deducted or removed, expenses for maintenance and repairs. Therefore, in the determination of the actual damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November 1986, is more realistic and fair.[25 As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The evidence, however, shows otherwise. It is a requisite to award exemplary damages that the wrongful act must be accompanied by bad faith, [26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner. [27 As previously stressed, petitioner Tsais act of purchasing the controverted properties despite her knowledge of EVERTEXs claim was oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on March 24, 1987. [28 Thus, PBComs act of taking all the properties found in the factory of the financially handicapped respondent, including those properties not covered by or included in the mortgages, is equally oppressive

and tainted with bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is proper. The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the discretion of the court in accordance with the circumstances of each case. [29 While the imposition of exemplary damages is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule that judicial discretion granted to the courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary damages by way of example for the public good should be reduced to P100,000.00. By the same token, attorneys fees and other expenses of litigation may be recovered when exemplary damages are awarded. [30 In our view, RTCs award of P50,000.00 as attorneys fees and expenses of litigation is reasonable, given the circumstances in these cases. WHEREFORE , the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use and possession of the properties in question from November 1986 [31 until subject personal properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorneys fees and litigation expenses. Costs against petitioners. SO ORDERED. Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.