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EN BANC

LUIS MARCOS P. LAUREL, G.R. No. 155076


Petitioner,
HON. ZEUS C. ABROGAR,
Presiding Judge of the Regional
Trial Court, Makati City, Branch 150,
PEOPLE OF THE PHILIPPINES Promulgated:
& PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY,
Respondents. January 13, 2009

x ---------------------------------------------------------------------------------------- x

RESOLUTION

YNARES-SANTIAGO, J.:


On February 27, 2006, this Courts First Division rendered judgment in this case as follows:

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the Regional Trial Court and the
Decision of the Court of Appeals are REVERSED and SET ASIDE. The Regional Trial Court is directed to issue an order granting
the motion of the petitioner to quash the Amended Information.

SO ORDERED.
[1]


By way of brief background, petitioner is one of the accused in Criminal Case No. 99-2425, filed with
the Regional Trial Court of Makati City, Branch 150. The Amended Information charged the accused with theft under Article 308 of the Revised
Penal Code, committed as follows:

On or about September 10-19, 1999, or prior thereto in Makati City, and within the jurisdiction of this Honorable Court,
the accused, conspiring and confederating together and all of them mutually helping and aiding one another, with intent to gain
and without the knowledge and consent of the Philippine Long Distance Telephone (PLDT), did then and there willfully,
unlawfully and feloniously take, steal and use the international long distance calls belonging to PLDT by conducting International
Simple Resale (ISR), which is a method of routing and completing international long distance calls using lines, cables, antenae,
and/or air wave frequency which connect directly to the local or domestic exchange facilities of the country where the call is
destined, effectively stealing this business from PLDT while using its facilities in the estimated amount of P20,370,651.92 to the
damage and prejudice of PLDT, in the said amount.

CONTRARY TO LAW.
[2]


Petitioner filed a Motion to Quash (with Motion to Defer Arraignment), on the ground that the factual allegations in the Amended
Information do not constitute the felony of theft. The trial court denied the Motion to Quash the Amended Information, as well petitioners
subsequent Motion for Reconsideration.

Petitioners special civil action for certiorari was dismissed by the Court of Appeals. Thus, petitioner filed the instant petition for review
with this Court.

In the above-quoted Decision, this Court held that the Amended Information does not contain material allegations charging petitioner
with theft of personal property since international long distance calls and the business of providing telecommunication or telephone services are
not personal properties under Article 308 of the Revised Penal Code.

Respondent Philippine Long Distance Telephone Company (PLDT) filed a Motion for Reconsideration with Motion to Refer the Case to
the Supreme Court En Banc. It maintains that the Amended Information charging petitioner with theft is valid and sufficient; that it states the
names of all the accused who were specifically charged with the crime of theft of PLDTs international calls and business of providing
telecommunication or telephone service on or about September 10 to 19, 1999 in Makati City by conducting ISR or International Simple Resale;
that it identifies the international calls and business of providing telecommunication or telephone service of PLDT as the personal properties
which were unlawfully taken by the accused; and that it satisfies the test of sufficiency as it enabled a person of common understanding to know
the charge against him and the court to render judgment properly.

PLDT further insists that the Revised Penal Code should be interpreted in the context of the Civil Codes definition of real and personal
property. The enumeration of real properties in Article 415 of the Civil Code is exclusive such that all those not included therein are personal
properties. Since Article 308 of the Revised Penal Code used the words personal property without qualification, it follows that all personal
properties as understood in the context of the Civil Code, may be the subject of theft under Article 308 of the Revised Penal Code. PLDT alleges
that the international calls and business of providing telecommunication or telephone service are personal properties capable of appropriation
and can be objects of theft.

PLDT also argues that taking in relation to theft under the Revised Penal Code does not require asportation, the sole requisite being
that the object should be capable of appropriation. The element of taking referred to in Article 308 of the Revised Penal Code means the act
of depriving another of the possession and dominion of a movable coupled with the intention, at the time of the taking, of withholding it with
the character of permanency. There must be intent to appropriate, which means to deprive the lawful owner of the thing. Thus, the term
personal properties under Article 308 of the Revised Penal Code is not limited to only personal properties which are susceptible of being
severed from a mass or larger quantity and of being transported from place to place.

PLDT likewise alleges that as early as the 1930s, international telephone calls were in existence; hence, there is no basis for this Courts
finding that the Legislature could not have contemplated the theft of international telephone calls and the unlawful transmission and routing of
electronic voice signals or impulses emanating from such calls by unlawfully tampering with the telephone device as within the coverage of the
Revised Penal Code.

According to respondent, the international phone calls which are electric currents or sets of electric impulses transmitted through a
medium, and carry a pattern representing the human voice to a receiver, are personal properties which may be subject of theft. Article 416(3)
of the Civil Code deems forces of nature (which includes electricity) which are brought under the control by science, are personal property.

In his Comment to PLDTs motion for reconsideration, petitioner Laurel claims that a telephone call is a conversation on the phone or a
communication carried out using the telephone. It is not synonymous to electric current or impulses. Hence, it may not be considered as
personal property susceptible of appropriation. Petitioner claims that the analogy between generated electricity and telephone calls is
misplaced. PLDT does not produce or generate telephone calls. It only provides the facilities or services for the transmission and switching of
the calls. He also insists that business is not personal property. It is not the business that is protected but the right to carry on a
business. This right is what is considered as property. Since the services of PLDT cannot be considered as property, the same may not be
subject of theft.

The Office of the Solicitor General (OSG) agrees with respondent PLDT that international phone calls and the business or service of
providing international phone calls are subsumed in the enumeration and definition of personal property under the Civil Code hence, may be
proper subjects of theft. It noted that the cases of United States v. Genato,
[3]
United States v. Carlos
[4]
and United States v. Tambunting,
[5]
which
recognized intangible properties like gas and electricity as personal properties, are deemed incorporated in our penal laws. Moreover, the theft
provision in the Revised Penal Code was deliberately couched in broad terms precisely to be all-encompassing and embracing even such scenario
that could not have been easily anticipated.

According to the OSG, prosecution under Republic Act (RA) No. 8484 or the Access Device Regulations Act of 1998 and RA 8792 or
the Electronic Commerce Act of 2000 does not preclude prosecution under the Revised Penal Code for the crime of theft. The latter embraces
unauthorized appropriation or use of PLDTs international calls, service and business, for personal profit or gain, to the prejudice of PLDT as
owner thereof. On the other hand, the special laws punish the surreptitious and advanced technical means employed to illegally obtain the
subject service and business. Even assuming that the correct indictment should have been under RA 8484, the quashal of the information would
still not be proper. The charge of theft as alleged in the Information should be taken in relation to RA 8484 because it is the elements, and not
the designation of the crime, that control.

Considering the gravity and complexity of the novel questions of law involved in this case, the Special First Division resolved to refer the
same to the Banc.

We resolve to grant the Motion for Reconsideration but remand the case to the trial court for proper clarification of the Amended
Information.

Article 308 of the Revised Penal Code provides:

Art. 308. Who are liable for theft. Theft is committed by any person who, with intent to gain but without violence
against, or intimidation of persons nor force upon things, shall take personal property of another without the latters consent.


The elements of theft under Article 308 of the Revised Penal Code are as follows: (1) that there be taking of personal property; (2) that
said property belongs to another; (3) that the taking be done with intent to gain; (4) that the taking be done without the consent of the owner;
and (5) that the taking be accomplished without the use of violence against or intimidation of persons or force upon things.

Prior to the passage of the Revised Penal Code on December 8, 1930, the definition of the term personal property in the penal code
provision on theft had been established in Philippine jurisprudence. This Court, in United States v. Genato, United States v. Carlos, and United
States v. Tambunting, consistently ruled that any personal property, tangible or intangible, corporeal or incorporeal, capable of
appropriation can be the object of theft.

Moreover, since the passage of the Revised Penal Code on December 8, 1930, the term personal property has had a generally accepted
definition in civil law. In Article 335 of the Civil Code of Spain, personal property is defined as anything susceptible of appropriation and not
included in the foregoing chapter (not real property). Thus, the term personal property in the Revised Penal Code should be interpreted in
the context of the Civil Code provisions in accordance with the rule on statutory construction that where words have been long used in a
technical sense and have been judicially construed to have a certain meaning, and have been adopted by the legislature as having a certain
meaning prior to a particular statute, in which they are used, the words used in such statute should be construed according to the sense in which
they have been previously used.
[6]
In fact, this Court used the Civil Code definition of personal property in interpreting the theft provision of
the penal code in United States v. Carlos.

Cognizant of the definition given by jurisprudence and the Civil Code of Spain to the term personal property at the time the old Penal
Code was being revised, still the legislature did not limit or qualify the definition of personal property in the Revised Penal Code. Neither did it
provide a restrictive definition or an exclusive enumeration of personal property in the Revised Penal Code, thereby showing its intent to
retain for the term an extensive and unqualified interpretation. Consequently, any property which is not included in the enumeration of real
properties under the Civil Code and capable of appropriation can be the subject of theft under the Revised Penal Code.

The only requirement for a personal property to be the object of theft under the penal code is that it be capable of appropriation. It need
not be capable of asportation, which is defined as carrying away.
[7]
Jurisprudence is settled that to take under the theft provision of the
penal code does not require asportation or carrying away.
[8]


To appropriate means to deprive the lawful owner of the thing.
[9]
The word take in the Revised Penal Code includes any act intended to
transfer possession which, as held in the assailed Decision, may be committed through the use of the offenders own hands, as well as any
mechanical device, such as an access device or card as in the instant case. This includes controlling the destination of the property stolen to
deprive the owner of the property, such as the use of a meter tampering, as held in Natividad v. Court of Appeals,
[10]
use of a device to
fraudulently obtain gas, as held in United States v. Tambunting, and the use of a jumper to divert electricity, as held in the cases of United States
v. Genato, United States v. Carlos, and United States v. Menagas.
[11]



As illustrated in the above cases, appropriation of forces of nature which are brought under control by science such as electrical energy can
be achieved by tampering with any apparatus used for generating or measuring such forces of nature, wrongfully redirecting such forces of
nature from such apparatus, or using any device to fraudulently obtain such forces of nature. In the instant case, petitioner was charged with
engaging in International Simple Resale (ISR) or the unauthorized routing and completing of international long distance calls using lines, cables,
antennae, and/or air wave frequency and connecting these calls directly to the local or domestic exchange facilities of the country where
destined.

As early as 1910, the Court declared in Genato that ownership over electricity (which an international long distance call consists of), as well
as telephone service, is protected by the provisions on theft of the Penal Code. The pertinent provision of the Revised Ordinance of the City
of Manila, which was involved in the said case, reads as follows:

Injury to electric apparatus; Tapping current; Evidence. No person shall destroy, mutilate, deface, or otherwise injure or
tamper with any wire, meter, or other apparatus installed or used for generating, containing, conducting, or measuring
electricity, telegraph or telephone service, nor tap or otherwise wrongfully deflect or take any electric current from such wire,
meter, or other apparatus.

No person shall, for any purpose whatsoever, use or enjoy the benefits of any device by means of which he may
fraudulently obtain any current of electricity or any telegraph or telephone service; and the existence in any building premises of
any such device shall, in the absence of satisfactory explanation, be deemed sufficient evidence of such use by the persons
benefiting thereby.


It was further ruled that even without the above ordinance the acts of subtraction punished therein are covered by the provisions on theft
of the Penal Code then in force, thus:

Even without them (ordinance), the right of the ownership of electric current is secured by articles 517 and 518 of the
Penal Code; the application of these articles in cases of subtraction of gas, a fluid used for lighting, and in some respects
resembling electricity, is confirmed by the rule laid down in the decisions of the supreme court of Spain of January 20, 1887, and
April 1, 1897, construing and enforcing the provisions of articles 530 and 531 of the Penal Code of that country, articles 517 and
518 of the code in force in these islands.

The acts of subtraction include: (a) tampering with any wire, meter, or other apparatus installed or used for generating, containing,
conducting, or measuring electricity, telegraph or telephone service; (b) tapping or otherwise wrongfully deflecting or taking any electric current
from such wire, meter, or other apparatus; and (c) using or enjoying the benefits of any device by means of which one may fraudulently obtain
any current of electricity or any telegraph or telephone service.

In the instant case, the act of conducting ISR operations by illegally connecting various equipment or apparatus to private respondent
PLDTs telephone system, through which petitioner is able to resell or re-route international long distance calls using respondent PLDTs facilities
constitutes all three acts of subtraction mentioned above.

The business of providing telecommunication or telephone service is likewise personal property which can be the object of theft under
Article 308 of the Revised Penal Code. Business may be appropriated under Section 2 of Act No. 3952 (Bulk Sales Law), hence, could be object of
theft:

Section 2. Any sale, transfer, mortgage, or assignment of a stock of goods, wares, merchandise, provisions, or materials
otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor, mortgagor, transferor,
or assignor, or any sale, transfer, mortgage, or assignment of all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor or assignor, or all, or substantially all, of the fixtures and equipment used in and
about the business of the vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in
contemplation of the Act. x x x.


In Strochecker v. Ramirez,
[12]
this Court stated:

With regard to the nature of the property thus mortgaged which is one-half interest in the business above described,
such interest is a personal property capable of appropriation and not included in the enumeration of real properties in article
335 of the Civil Code, and may be the subject of mortgage.


Interest in business was not specifically enumerated as personal property in the Civil Code in force at the time the above decision was
rendered. Yet, interest in business was declared to be personal property since it is capable of appropriation and not included in the enumeration
of real properties. Article 414 of the Civil Code provides that all things which are or may be the object of appropriation are considered either
real property or personal property. Business is likewise not enumerated as personal property under the Civil Code. Just like interest in business,
however, it may be appropriated. Following the ruling in Strochecker v. Ramirez, business should also be classified as personal property. Since it
is not included in the exclusive enumeration of real properties under Article 415, it is therefore personal property.
[13]


As can be clearly gleaned from the above disquisitions, petitioners acts constitute theft of respondent PLDTs business and service,
committed by means of the unlawful use of the latters facilities. In this regard, the Amended Information inaccurately describes the offense by
making it appear that what petitioner took were the international long distance telephone calls, rather than respondent PLDTs business.

A perusal of the records of this case readily reveals that petitioner and respondent PLDT extensively discussed the issue of ownership of
telephone calls. The prosecution has taken the position that said telephone calls belong to respondent PLDT. This is evident from its Comment
where it defined the issue of this case as whether or not the unauthorized use or appropriation of PLDT international telephone calls, service
and facilities, for the purpose of generating personal profit or gain that should have otherwise belonged to PLDT, constitutes theft.
[14]


In discussing the issue of ownership, petitioner and respondent PLDT gave their respective explanations on how a telephone call is
generated.
[15]
For its part, respondent PLDT explains the process of generating a telephone call as follows:

38. The role of telecommunication companies is not limited to merely providing the medium (i.e. the electric current)
through which the human voice/voice signal of the caller is transmitted. Before the human voice/voice signal can be so
transmitted, a telecommunication company, using its facilities, must first break down or decode the human voice/voice signal
into electronic impulses and subject the same to further augmentation and enhancements. Only after such process of
conversion will the resulting electronic impulses be transmitted by a telecommunication company, again, through the use of its
facilities. Upon reaching the destination of the call, the telecommunication company will again break down or decode the
electronic impulses back to human voice/voice signal before the called party receives the same. In other words, a
telecommunication company both converts/reconverts the human voice/voice signal and provides the medium for transmitting
the same.

39. Moreover, in the case of an international telephone call, once the electronic impulses originating from a foreign
telecommunication company country (i.e. Japan) reaches the Philippines through a local telecommunication company (i.e.
private respondent PLDT), it is the latter which decodes, augments and enhances the electronic impulses back to the human
voice/voice signal and provides the medium (i.e. electric current) to enable the called party to receive the call. Thus, it is not
true that the foreign telecommunication company provides (1) the electric current which transmits the human voice/voice signal
of the caller and (2) the electric current for the called party to receive said human voice/voice signal.

40. Thus, contrary to petitioner Laurels assertion, once the electronic impulses or electric current originating from a
foreign telecommunication company (i.e. Japan) reaches private respondent PLDTs network, it is private respondent PLDT
which decodes, augments and enhances the electronic impulses back to the human voice/voice signal and provides the medium
(i.e. electric current) to enable the called party to receive the call. Without private respondent PLDTs network, the human
voice/voice signal of the calling party will never reach the called party.
[16]



In the assailed Decision, it was conceded that in making the international phone calls, the human voice is converted into electrical impulses
or electric current which are transmitted to the party called. A telephone call, therefore, is electrical energy. It was also held in the assailed
Decision that intangible property such as electrical energy is capable of appropriation because it may be taken and carried away. Electricity is
personal property under Article 416 (3) of the Civil Code, which enumerates forces of nature which are brought under control by science.
[17]


Indeed, while it may be conceded that international long distance calls, the matter alleged to be stolen in the instant case, take the form
of electrical energy, it cannot be said that such international long distance calls were personal properties belonging to PLDT since the latter could
not have acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex
communications infrastructure and facilities. PLDT not being the owner of said telephone calls, then it could not validly claim that such
telephone calls were taken without its consent. It is the use of these communications facilities without the consent of PLDT that constitutes the
crime of theft, which is the unlawful taking of the telephone services and business.

Therefore, the business of providing telecommunication and the telephone service are personal property under Article 308 of the
Revised Penal Code, and the act of engaging in ISR is an act of subtraction penalized under said article. However, the Amended Information
describes the thing taken as, international long distance calls, and only later mentions stealing the business from PLDT as the manner by
which the gain was derived by the accused. In order to correct this inaccuracy of description, this case must be remanded to the trial court and
the prosecution directed to amend the Amended Information, to clearly state that the property subject of the theft are the services and business
of respondent PLDT. Parenthetically, this amendment is not necessitated by a mistake in charging the proper offense, which would have called
for the dismissal of the information under Rule 110, Section 14 and Rule 119, Section 19 of the Revised Rules on Criminal Procedure. To be sure,
the crime is properly designated as one of theft. The purpose of the amendment is simply to ensure that the accused is fully and sufficiently
apprised of the nature and cause of the charge against him, and thus guaranteed of his rights under the Constitution.

ACCORDINGLY, the motion for reconsideration is GRANTED. The assailed Decision dated February 27, 2006 is RECONSIDERED and SET
ASIDE. The Decision of the Court of Appeals in CA-G.R. SP No. 68841 affirming the Order issued by Judge Zeus C. Abrogar of the Regional Trial
Court of Makati City, Branch 150, which denied the Motion to Quash (With Motion to Defer Arraignment) in Criminal Case No. 99-2425 for theft,
is AFFIRMED. The case is remanded to the trial court and the Public Prosecutor of Makati City is hereby DIRECTED to amend the Amended
Information to show that the property subject of the theft were services and business of the private offended party.

SO ORDERED.



CONSUELO YNARES-SANTIAGO
Associate Justice














































































Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York, seeking a peremptory mandamusto 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, Avancea, Ostrand, Johns, and Romualdez, JJ., concur.








































Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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 in case defendants fail to pay the
same, that the building and the land covered by OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be
applied to said indebtedness; 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:
x x x x x x x x x
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
properties
1
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 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-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery company from the defendant machinery company,
and executed a chattel mortgage thereon to secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it stood. The indebtedness secured by this
instrument not having been paid when it fell due, the mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was registered in the chattel mortgage registry, and the sale of the
property to the machinery company in satisfaction of the mortgage was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina" executed a deed of sale of the land upon which
the building stood to the machinery company, but this deed of sale, although executed in a public document, was not registered. This deed
makes no reference to the building erected on the land and would appear to have been executed for the purpose of curing any defects which
might be found to exist in the machinery company's title to the building under the sheriff's certificate of sale. The machinery company went into
possession of the building at or about the time when this sale took place, that is to say, the month of December, 1913, and it has continued in
possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company, the mortgagor, the "Compaia Agricola
Filipina" executed another mortgage to the plaintiff upon the building, separate and apart from the land on which it stood, to secure payment of
the balance of its indebtedness to the plaintiff under a contract for the construction of the building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage, the plaintiff secured judgment for that amount, levied execution upon the building,
bought it in at the sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery company, which was in possession, filed with the sheriff
a sworn statement setting up its claim of title and demanding the release of the property from the levy. Thereafter, upon demand of the sheriff,
the plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at
public auction to the plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of the machinery company, on the ground that
the company had its title to the building registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be transfer to the person who may have the first taken
possession thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the person who first took possession of it in good faith, and, in the absence
thereof, to the person who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that the annotation or inscription of a deed of sale
of real property in a chattel mortgage registry cannot be given the legal effect of an inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which the rice-cleaning machinery was installed by the "Compaia
Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as real property. It follows that neither the original registry in the chattel mortgage of the building and
the machinery installed therein, not the annotation in that registry of the sale of the mortgaged property, had any effect whatever so far as the
building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the ground assigned by the trial judge. We are of
opinion, however, that the judgment must be sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of sale in his favor was made in good faith, and
that the machinery company must be held to be the owner of the property under the third paragraph of the above cited article of the code, it
appearing that the company first took possession of the property; and further, that the building and the land were sold to the machinery
company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good faith," in express terms, in relation to "possession"
and "title," but contain no express requirement as to "good faith" in relation to the "inscription" of the property on the registry, it must be
presumed that good faith is not an essential requisite of registration in order that it may have the effect contemplated in this article. We cannot
agree with this contention. It could not have been the intention of the legislator to base the preferential right secured under this article of the
code upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section would open wide the door to fraud
and collusion. The public records cannot be converted into instruments of fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public record presupposes the good faith of him who enters such inscription; and
rights created by statute, which are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription "in bad
faith," to the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first paragraph; therefore, it having been found that
the second purchasers who record their purchase had knowledge of the previous sale, the question is to be decided in accordance with
the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of ownership of the real property that is first
recorded in the registry shall have preference, this provision must always be understood on the basis of the good faith mentioned in the
first paragraph; the legislator could not have wished to strike it out and to sanction bad faith, just to comply with a mere formality
which, in given cases, does not obtain even in real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers
of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriff's sale and inscribed his title in the
land registry, was duly notified that the machinery company had bought the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for
doubt in this regard. Having bought in the building at the sheriff's sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of
course, the subsequent inscription of the sheriff's certificate of title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of sale to the plaintiff was not made in good faith,
we should not be understood as questioning, in any way, the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola
Filipina." The truth is that both the plaintiff and the defendant company appear to have had just and righteous claims against their common
debtor. No criticism can properly be made of the exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common debtor. We are strongly inclined to believe that in procuring the levy of execution upon
the factory building and in buying it at the sheriff's sale, he considered that he was doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable that he thought at that time that he would be able to maintain his position in a
contest with the machinery company. There was no collusion on his part with the common debtor, and no thought of the perpetration of a fraud
upon the rights of another, in the ordinary sense of the word. He may have hoped, and doubtless he did hope, that the title of the machinery
company would not stand the test of an action in a court of law; and if later developments had confirmed his unfounded hopes, no one could
question the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership when he executed the indemnity bond and bought
in the property at the sheriff's sale, and it appearing further that the machinery company's claim of ownership was well founded, he cannot be
said to have been an innocent purchaser for value. He took the risk and must stand by the consequences; and it is in this sense that we find that
he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good
faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A
purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to
the possibility of the existence of a defect in his vendor's title, will not make him an innocent purchaser for value, if afterwards develops that the
title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with that
measure of precaution which may reasonably be acquired of a prudent man in a like situation. Good faith, or lack of it, is in its analysis a
question of intention; but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith implies a "freedom from knowledge and circumstances which ought to put a
person on inquiry," and so it is that proof of such knowledge overcomes the presumption of good faith in which the courts always indulge in the
absence of proof to the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or
condition of mind which can only be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and judgment entered in the court below should be
affirmed with costs of this instance against the appellant. So ordered.
Arellano, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.
Torres, Avancea and Fisher, JJ., 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.
D E C I S I O N
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable property be considered as personal or movable, a party is
estopped from subsequently claiming otherwise. Hence, such property is a proper subject of a writ of replevin obtained by the other
contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision
[1]
of the Court of Appeals (CA)
[2]
in CA-GR SP
No. 47332 and its February 26, 1999 Resolution
[3]
denying reconsideration. The decretal portion of the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-
33500 are hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is hereby LIFTED.
[4]

In its February 18, 1998 Order,
[5]
the Regional Trial Court (RTC) of Quezon City (Branch 218)
[6]
issued a Writ of Seizure.
[7]
The March
18, 1998 Resolution
[8]
denied petitioners Motion for Special Protective Order, praying that the deputy sheriff be enjoined from seizing
immobilized or other real properties in (petitioners) factory in Cainta, Rizal and to return to their original place whatever immobilized
machineries or equipments he may have removed.
[9]

The Facts
The undisputed facts are summarized by the Court of Appeals as follows:
[10]

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with the RTC-QC a complaint for [a] sum of money
(Annex E), with an application for a writ of replevin docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of replevin (Annex B) directing its sheriff to
seize and deliver the machineries and equipment to PCI Leasing after 5 days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory, seized one machinery with [the] word that he
[would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the power of the court to control the conduct of
its officers and amend and control its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the properties *were+ still personal and therefore still subject to seizure
and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as defined in Article 415 of the Civil Code, the
parties agreement to the contrary notwithstanding. They argued that to give effect to the agreement would be prejudicial to innocent third
parties. They further stated that PCI Leasing [was] estopped from treating these machineries as personal because the contracts in which the
alleged agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the remaining properties. He was able to take
two more, but was prevented by the workers from taking the rest.
On April 7, 1998, they went to *the CA+ via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the subject machines were personal property, and that they had
only been leased, not owned, by petitioners. It also ruled that the words of the contract are clear and leave no doubt upon the true
intention of the contracting parties. Observing that Petitioner Goquiolay was an experienced businessman who was not unfamiliar
with the ways of the trade, it ruled that he should have realized the import of the document he signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the case below, since the merits of the whole
matter are laid down before us via a petition whose sole purpose is to inquire upon the existence of a grave abuse of discretion on the part of
the [RTC] in issuing the assailed Order and Resolution. The issues raised herein are proper subjects of a full-blown trial, necessitating
presentation of evidence by both parties. The contract is being enforced by one, and [its] validity is attacked by the other a matter x x x which
respondent court is in the best position to determine.
Hence, this Petition.
[11]

The Issues
In their Memorandum, petitioners submit the following issues for our consideration:
A. Whether or not the machineries purchased and imported by SERGS became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.
[12]

In the main, the Court will resolve whether the said machines are personal, not immovable, property which may be a proper
subject of a writ of replevin. As a preliminary matter, the Court will also address briefly the procedural points raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule 45 or Rule 65 of the Rules
of Court. It further alleges that the Petition erroneously impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This conclusion finds support in the very title of the Petition,
which is Petition for Review on Certiorari.
[13]

While Judge Laqui should not have been impleaded as a respondent,
[14]
substantial justice requires that such lapse by itself should
not warrant the dismissal of the present Petition. In this light, the Court deems it proper to remove, motu proprio, the name of Judge
Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory were not proper subjects of the Writ issued by the RTC,
because they were in fact real property. Serious policy considerations, they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal property only.
[15]
Section 3
thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an order and the corresponding writ of replevin
describing the personal property alleged to be wrongfully detained and requiring the sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates immovable or real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners in the factory built on
their own land. Indisputably, they were essential and principal elements of their chocolate-making industry. Hence, although each of
them was movable or personal property on its own, all of them have become immobilized by destination because they are essential
and principal elements in the industry.
[16]
In that sense, petitioners are correct in arguing that the said machines are real, not
personal, property pursuant to Article 415 (5) of the Civil Code.
[17]

Be that as it may, we disagree with the submission of the petitioners that the said machines are not proper subjects of the Writ of
Seizure.
The Court has held that contracting parties may validly stipulate that a real property be considered as personal.
[18]
After agreeing
to such stipulation, they are consequently estopped from claiming otherwise. Under the principle of estoppel, a party to a contract is
ordinarily precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,
[19]
the Court upheld the intention of the parties to treat a house as a personal property because it
had been made the subject of a chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least, intended to treat
the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills
[20]
also held that the machinery used in
a factory and essential to the industry, as in the present case, was a proper subject of a writ of replevin because it was treated as
personal property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not
be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the machines in question are to be considered as personal
property. Specifically, Section 12.1 of the Agreement reads as follows:
[21]

12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that the PROPERTY or any part thereof may
now be, or hereafter become, in any manner affixed or attached to or embedded in, or permanently resting upon, real property or any building
thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the characterization of the subject machines as personal property. Under
the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines should be deemed personal property pursuant to the Lease
Agreement is good only insofar as the contracting parties are concerned.
[22]
Hence, while the parties are bound by the Agreement,
third persons acting in good faith are not affected by its stipulation characterizing the subject machinery as personal.
[23]
In any event,
there is no showing that any specific third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a loan and not a lease.
[24]
Submitting documents supposedly
showing that they own the subject machines, petitioners also argue in their Petition that the Agreement suffers from intrinsic
ambiguity which places in serious doubt the intention of the parties and the validity of the lease agreement itself.
[25]
In their Reply to
respondents Comment, they further allege that the Agreement is invalid.
[26]

These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the civil action pending before
the RTC. A resolution of these questions, therefore, is effectively a resolution of the merits of the case. Hence, they should be
threshed out in the trial, not in the proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,
[27]
the Court explained that the policy under Rule 60 was that questions involving title to the
subject property questions which petitioners are now raising -- should be determined in the trial. In that case, the Court noted that
the remedy of defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of the plaintiffs bond. They
were not allowed, however, to invoke the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put
at issue the matter of the title or right of possession over the specific chattel being replevied, the policy apparently being that said matter should
be ventilated and determined only at the trial on the merits.
[28]

Besides, these questions require a determination of facts and a presentation of evidence, both of which have no place in a
petition for certiorari in the CA under Rule 65 or in a petition for review in this Court under Rule 45.
[29]

Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on record shows that it has
been nullified or annulled. In fact, petitioners assailed it first only in the RTC proceedings, which had ironically been instituted by
respondent. Accordingly, it must be presumed valid and binding as the law between the parties.
Makati Leasing and Finance Corporation
[30]
is also instructive on this point. In that case, the Deed of Chattel Mortgage, which
characterized the subject machinery as personal property, was also assailed because respondent had allegedly been required to sign a
printed form of chattel mortgage which was in a blank form at the time of signing. The Court rejected the argument and relied on the
Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be seized, then its workers would be out of work and thrown
into the streets.
[31]
They also allege that the seizure would nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned consequences, if they come true, should not be blamed on this Court, but on the petitioners
for failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the filing of a counter-bond. The provision
states:
SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or of the surety or sureties thereon, he
cannot immediately require the return of the property, but if he does not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where the action is pending a bond executed to the applicant, in double the
value of the property as stated in the applicants affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the
payment of such sum to him as may be recovered against the adverse party, and by serving a copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.







Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11139 April 23, 1958
SANTOS EVANGELISTA, petitioner,
vs.
ALTO SURETY & INSURANCE CO., INC., respondent.
Gonzalo D. David for petitioner.
Raul A. Aristorenas and Benjamin Relova for respondent.
CONCEPCION, J.:
This is an appeal by certiorari from a decision of the Court of Appeals.
Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No. 8235 of the Court of First, Instance of
Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which levied
upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the corresponding notice of
attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista,
who, on October 8, 1951, bought the house at public auction held in compliance with the writ of execution issued in said case. The
corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of the period of redemption. When Evangelista
sought to take possession of the house, Rivera refused to surrender it, upon the ground that he had leased the property from the Alto Surety &
Insurance Co., Inc. respondent herein and that the latter is now the true owner of said property. It appears that on May 10, 1952, a definite
deed of sale of the same house had been issued to respondent, as the highest bidder at an auction sale held, on September 29, 1950, in
compliance with a writ of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo
Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in favor respondent herein, as
plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of
establishing his (Evangelista) title over said house, securing possession thereof, apart from recovering damages.
In its answer, respondent alleged, in substance, that it has a better right to the house, because the sale made, and the definite deed of sale
executed, in its favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite
deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter. Rivera, in effect, joined forces
with respondent. After due trial, the Court of First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent to
deliver the house in question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952, until
said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved said respondent from the complaint, upon
the ground that, although the writ of attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to the sale in
favor of respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were
immovable property, although in the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of Appeals held,
"the order of attachment . . . should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of Court,
reading:
The property of the defendant shall be attached by the officer executing the order in the following manner:
(e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or
having in his possession or under his control, such credits or other personal property, or with, his agent, a copy of the order, and a notice
that the debts owing by him to the defendant, and the credits and other personal property in his possession, or under his control,
belonging to the defendant, are attached in pursuance of such order. (Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera should have been attached in accordance with
subsection (c) of said section 7, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared
that "Evangelists could not have . . . validly purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof at the
time he sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this connection, it is not disputed that although the sale
to the respondent preceded that made to Evangelists, the latter would have a better right if the writ of attachment, issued in his favor before the
sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is
real property or not. In the affirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of the Rules of Court,
pursuant to which the attachment should be made "by filing with the registrar of deeds a copy of the order, together with a description of the
property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the
property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal property, the levy upon which must be made in
conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue before us is whether a house, constructed the lessee
of the land on which it is built, should be dealt with, for purpose, of attachment, as immovable property, or as personal property.
It is, our considered opinion that said house is not personal property, much less a debt, credit or other personal property not capable of manual
delivery, but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on
the soil) is immovable or real property, whether it is erected by the owner of the land or by usufructuary or lessee. This is the doctrine of our
Supreme Court in Leung Yee vs. Strong Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court. . . ."
It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract
(Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464).
However, this view is good only insofar as thecontracting parties are concerned. It is based, partly, upon the principle of estoppel. Neither this
principle, nor said view, is applicable to strangers to said contract. Much less is it in point where there has been no contractwhatsoever, with
respect to the status of the house involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we
held:
The question now before us, however, is: Does the fact that the parties entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in advertising the property's sale at public auction as personal
property? It is to be remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is
also to be remembered that in practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy
upon in execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house had conveyed it by
way of chattel mortgage and, therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not allow, and, we should notinterpret them in such a way
as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for example, as personal
property, when they are, not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales on
execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to
the character, which the parties have given to it or desire to give it. When the rules speak of personal property, property which is
ordinarily so considered is meant; and when real property is spoken of, it means property which is generally known as real property. The
regulations were never intended to suit the consideration that parties may have privately given to the property levied upon. Enforcement
of regulations would be difficult were the convenience or agreement of private parties to determine or govern the nature of the
proceedings. We therefore hold that the mere fact that a house was the subject of the chattel mortgage and was considered as personal
property by the parties does not make said house personal property for purposes of the notice to be given for its sale of public auction.
This ruling is demanded by the need for a definite, orderly and well defined regulation for official and public guidance and would prevent
confusion and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on execution, although subject of a contract of chattel mortgage
between the owner and a third person, is real property within the purview of Rule 39, section 16, of the Rules of Court as it has become a
permanent fixture of the land, which, is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery Co., 37 Phil., 644;
Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
The foregoing considerations apply, with equal force, to the conditions for the levy of attachment, for it similarly affects the public and third
persons.
It is argued, however, that, even if the house in question were immovable property, its attachment by Evangelista was void or ineffective,
because, in the language of the Court of Appeals, "after presenting a Copy of the order of attachment in the Office of the Register of Deeds, the
person who might then be in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or other copies thereof." This finding of
the Court of Appeals is neither conclusive upon us, nor accurate.
The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, in paragraph 3 of the complaint, that he acquired
the house in question "as a consequence of the levy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First
Instance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment execution of judgment. He alleged, however, by way a
of special defense, that the title of respondent "is superior to that of plaintiff because it is based on a public instrument," whereas Evangelista
relied upon a "promissory note" which "is only a private instrument"; that said Public instrument in favor of respondent "is superior also to the
judgment in Civil Case No. 8235"; and that plaintiff's claim against Rivera amounted only to P866, "which is much below the real value" of said
house, for which reason it would be "grossly unjust to acquire the property for such an inadequate consideration." Thus, Rivera impliedly
admitted that his house had been attached, that the house had been sold to Evangelista in accordance with the requisite formalities, and that
said attachment was valid, although allegedly inferior to the rights of respondent, and the consideration for the sale to Evangelista was claimed
to be inadequate.
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only " for the reasons stated in its special defenses" namely:
(1) that by virtue of the sale at public auction, and the final deed executed by the sheriff in favor of respondent, the same became the
"legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and for value"; (3) that respondent "took possession
and control of said house"; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as
neither took actual or constructive possession or control of the property at any time"; and (5) "that the alleged registration of plaintiff's
attachment, certificate of sale and final deed in the Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is no
registry of transactions covering houses erected on land belonging to or leased from another." In this manner, respondent claimed a better right,
merely under the theory that, in case of double sale of immovable property, the purchaser who first obtains possession in good faith, acquires
title, if the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the writ of attachment
and the notice of attachment in favor of Evangelista should be considered unregistered, "as there is no registry of transactions covering houses
erected on land belonging to or leased from another." In fact, said article 1544 of the Civil Code of the Philippines, governing double sales, was
quoted on page 15 of the brief for respondent in the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it
"has preference or priority over the sale of the same property" to Evangelista.
In other words, there was no issue on whether copy of the writ and notice of attachment had been served on Rivera. No evidence whatsoever, to
the effect that Rivera had not been served with copies of said writ and notice, was introduced in the Court of First Instance. In its brief in the
Court of Appeals, respondent did not aver, or even, intimate, that no such copies were served by the sheriff upon Rivera. Service thereof on
Rivera had been impliedly admitted by the defendants, in their respective answers, and by their behaviour throughout the proceedings in the
Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein (p. 26) that copies of said
writ and notice were delivered to Rivera, simultaneously with copies of the complaint, upon service of summons, prior to the filing of copies of
said writ and notice with the register deeds, andthe truth of this assertion has not been directly and positively challenged or denied in the brief
filed before us by respondent herein. The latter did not dare therein to go beyond making a statement for the first time in the course of these
proceedings, begun almost five (5) years ago (June 18, 1953) reproducing substantially the aforementioned finding of the Court of Appeals
and then quoting the same.
Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an issue on whether or not copies of the writ of
attachment and notice of attachment had been served upon Rivera; that the defendants had impliedly admitted-in said pleadings and briefs, as
well as by their conduct during the entire proceedings, prior to the rendition of the decision of the Court of Appeals that Rivera had received
copies of said documents; and that, for this reason, evidently, no proof was introduced thereon, we, are of the opinion, and so hold that the
finding of the Court of Appeals to the effect that said copies had not been served upon Rivera is based upon a misapprehension of the specific
issues involved therein and goes beyond the range of such issues, apart from being contrary to the aforementioned admission by the parties,
and that, accordingly, a grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate.
Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered affirming that of the Court of First Instance
of Manila, with the costs of this instance against respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia and Felix, JJ.,concur.







Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 120098 October 2, 2001
RUBY L. TSAI, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, respondents.
x---------------------------------------------------------x
[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.
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 court's 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 xxx xxx
The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land,
together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in . . .
"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:
Serial Numbers Size of Machines
xxx xxx xxx
B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.
xxx xxx xxx
C. Two (2) Circular Knitting Machines made in West Germany.
xxx xxx xxx
D. Four (4) Winding Machines.
xxx xxx xxx
SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx xxx xxx
II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and accretions to above properties.
xxx xxx 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 EVERTEX's 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 Sheriff's 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 Sheriff's 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 attorney's 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

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
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
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, ATTORNEY'S 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 PETITIONER'S ARGUMENTS ON PRESCRIPTION
AND LACHES.
6

In G.R. No. 120098, PBCom raised the following issues:
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
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 petitioner's arguments on prescription and laches
10
and in assessing petitioner actual damages,
attorney's 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 court's 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 attorney's 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 Sheriff's 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
court's 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 tochattels. The inventory list of
the mortgaged properties is an itemization of sixty-three (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 court's 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 PBCom's 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 respondent's
claim thereon. As borne out by the records, she received the letter of respondent's counsel, apprising her of respondent's claim, dated February
27, 1987.
20
She replied thereto on March 9, 1987.
21
Despite her knowledge of respondent's 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 Tsai's 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 PBCom's name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX's
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 EVERTEX's 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 attorney's 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
Chua's 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 xxx 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 Tsai's act of purchasing the controverted properties despite her knowledge of
EVERTEX's 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, PBCom's 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, attorney's fees and other expenses of litigation may be recovered when exemplary damages are awarded.
30
In our view,
RTC's award of P50,000.00 as attorney's 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 attorney's fees and litigation expenses. Costs against petitioners.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

















































































Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the Province of Tarlac on the 14th day of December 1924. The facts are about as
conflicting as it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ
of execution issued by the Court of First Instance of Pampanga, attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by
the plaintiff and his tenants on seven parcels of land described in the complaint in the third paragraph of the first cause of action; that within
one year from the date of the attachment and sale the plaintiff offered to redeem said sugar cane and tendered to the defendant Valdez the
amount sufficient to cover the price paid by the latter, the interest thereon and any assessments or taxes which he may have paid thereon after
the purchase, and the interest corresponding thereto and that Valdez refused to accept the money and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was attempting to harvest the palay planted in four of the
seven parcels mentioned in the first cause of action; that he had harvested and taken possession of the palay in one of said seven parcels and in
another parcel described in the second cause of action, amounting to 300 cavans; and that all of said palay belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano J. Valdez his attorneys and agents, restraining
them (1) from distributing him in the possession of the parcels of land described in the complaint; (2) from taking possession of, or harvesting
the sugar cane in question; and (3) from taking possession, or harvesting the palay in said parcels of land. Plaintiff also prayed that a judgment
be rendered in his favor and against the defendants ordering them to consent to the redemption of the sugar cane in question, and that the
defendant Valdez be condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him in the two parcels above-
mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon approval of the bond for P6,000 filed by the plaintiff, issued the writ of
preliminary injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each and every allegation of the complaint and step
up the following defenses:
(a) That the sugar cane in question had the nature of personal property and was not, therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the preliminary injunction he was unable to gather the sugar
cane, sugar-cane shoots (puntas de cana dulce) palay in said parcels of land, representing a loss to him of P8,375.20 and that, in addition
thereto, he suffered damages amounting to P3,458.56. He prayed, for a judgment (1) absolving him from all liability under the complaint; (2)
declaring him to be the absolute owner of the sugar cane in question and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay
to him the sum of P11,833.76, representing the value of the sugar cane and palay in question, including damages.
Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing the evidence, and on April 28, 1926, the
Honorable Cayetano Lukban, judge, rendered a judgment against the plaintiff and in favor of the defendants
(1) Holding that the sugar cane in question was personal property and, as such, was not subject to redemption;
(2) Absolving the defendants from all liability under the complaint; and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal to jointly and severally pay to the
defendant Emiliano J. Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant was not able to raise by reason of the injunction, at P4 cavan.
9,439.08 From that judgment the plaintiff appealed and in his assignments of error contends that the lower court erred: (1) In
holding that the sugar cane in question was personal property and, therefore, not subject to redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7 and 8, and that the palay therein was planted
by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction failed to realized P6,757.40 from the sugar cane and P1,435.68 from
sugar-cane shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was unable to raise palay on the land, which
would have netted him the sum of P600; and.
(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of execution in civil case No. 20203 of the Court
of First Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied an attachment on eight parcels of land belonging to said Leon
Sibal, situated in the Province of Tarlac, designated in the second of attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at the auction held by the sheriff of the Province of
Tarlac, for the sum to P4,273.93, having paid for the said parcels separately as follows (Exhibit C, and 2-A):

Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 .....................................................................

1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel of land, and on the 24th day of September, 1923, the judgment debtor, Leon Sibal,
paid P2,000 to Macondray & Co., Inc., for the account of the redemption price of said parcels of land, without specifying the particular
parcels to which said amount was to applied. The redemption price said eight parcels was reduced, by virtue of said transaction, to
P2,579.97 including interest (Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of a writ of execution in
civil case No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs. Leon Sibal 1. the same parties in the present case), attached
the personal property of said Leon Sibal located in Tarlac, among which was included the sugar cane now in question in the seven
parcels of land described in the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal properties of Leon Sibal, including the sugar cane
in question to Emilio J. Valdez, who paid therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also attached the real property of said Leon Sibal in
Tarlac, including all of his rights, interest and participation therein, which real property consisted of eleven parcels of land and a house
and camarin situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the house and the camarin, were bought by Emilio J. Valdez at the
auction held by the sheriff for the sum of P12,200. Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7,
10 and 11. The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2, 12, and 13, were released from the
attachment by virtue of claims presented by Agustin Cuyugan and Domiciano Tizon (Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J. Valdez for P2,579.97 all of its rights and
interest in the eight parcels of land acquired by it at public auction held by the deputy sheriff of Tarlac in connection with civil case No.
20203 of the Court of First Instance of Manila, as stated above. Said amount represented the unpaid balance of the redemption price of
said eight parcels, after payment by Leon Sibal of P2,000 on September 24, 1923, fro the account of the redemption price, as stated
above. (Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels of land described in the first cause of action of
the complaint at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land situated in the Province of Tarlac belonging to
Leon Sibal and that on September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption price of said
parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rights and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest which Leon Sibal had or might have had on said
eight parcels by virtue of the P2,000 paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.
The first question raised by the appeal is, whether the sugar cane in question is personal or real property. It is contended that sugar cane comes
under the classification of real property as "ungathered products" in paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article 334
enumerates as real property the following: Trees, plants, and ungathered products, while they are annexed to the land or form an integral part
of any immovable property." That article, however, has received in recent years an interpretation by the Tribunal Supremo de Espaa, which
holds that, under certain conditions, growing crops may be considered as personal property. (Decision of March 18, 1904, vol. 97, Civil
Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the Civil Code, in view of the recent decisions of the
supreme Court of Spain, admits that growing crops are sometimes considered and treated as personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen tocante a la venta de toda cosecha o de parte de ella
cuando aun no esta cogida (cosa frecuente con la uvay y la naranja), y a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un contrato de arrendamiento de un predio rustico, resuelve que su
terminacion por desahucio no extingue los derechos del arrendario, para recolectar o percibir los frutos correspondientes al ao
agricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su vez el importe de la renta integra
correspondiente, aun cuando lo haya sido por precepto legal durante el curso del juicio, fundandose para ello, no solo en que de otra
suerte se daria al desahucio un alcance que no tiene, sino en que, y esto es lo interesante a nuestro proposito, la consideracion de
inmuebles que el articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les priva del caracter de productos pertenecientes,
como tales, a quienes a ellos tenga derecho, Ilegado el momento de su recoleccion.
x x x x x x x x x
Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas
introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza
y forma de la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en que se encuentre. (3 Manresa, 5.
edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered products may be sold and transferred as
personal property; (2) that the Supreme Court of Spain, in a case of ejectment of a lessee of an agricultural land, held that the lessee was
entitled to gather the products corresponding to the agricultural year, because said fruits did not go with the land but belonged separately to
the lessee; and (3) that under the Spanish Mortgage Law of 1909, as amended, the mortgage of a piece of land does not include the fruits and
products existing thereon, unless the contract expressly provides otherwise.
An examination of the decisions of the Supreme Court of Louisiana may give us some light on the question which we are discussing. Article 465
of the Civil Code of Louisiana, which corresponds to paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees
not gathered, and trees before they are cut down, are likewise immovable, and are considered as part of the land to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that provision, held that in some cases "standing crops" may be considered and
dealt with as personal property. In the case of Lumber Co. vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by article
465 of the Civil Code it is provided that 'standing crops and the fruits of trees not gathered and trees before they are cut down . . . are
considered as part of the land to which they are attached, but the immovability provided for is only one in abstracto and without reference to
rights on or to the crop acquired by others than the owners of the property to which the crop is attached. . . . The existence of a right on the
growing crop is a mobilization by anticipation, a gathering as it were in advance, rendering the crop movable quoad the right acquired therein.
Our jurisprudence recognizes the possible mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La.,
Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An., 761) that "article 465 of the Revised Code says that
standing crops are considered as immovable and as part of the land to which they are attached, and article 466 declares that the fruits of an
immovable gathered or produced while it is under seizure are considered as making part thereof, and incurred to the benefit of the person
making the seizure. But the evident meaning of these articles, is where the crops belong to the owner of the plantation they form part of the
immovable, and where it is seized, the fruits gathered or produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of the immovable. It belongs to the lessee, and may be sold by him, whether it
be gathered or not, and it may be sold by his judgment creditors. If it necessarily forms part of the leased premises the result would be
that it could not be sold under execution separate and apart from the land. If a lessee obtain supplies to make his crop, the factor's lien
would not attach to the crop as a separate thing belonging to his debtor, but the land belonging to the lessor would be affected with the
recorded privilege. The law cannot be construed so as to result in such absurd consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be destructive of the very objects of the act, it
would render the pledge of the crop objects of the act, it would render the pledge of the crop impossible, for if the crop was an
inseparable part of the realty possession of the latter would be necessary to that of the former; but such is not the case. True, by article
465 C. C. it is provided that "standing crops and the fruits of trees not gathered and trees before they are cut down are likewise
immovable and are considered as part of the land to which they are attached;" but the immovability provided for is only one in
abstracto and without reference to rights on or to the crop acquired by other than the owners of the property to which the crop was
attached. The immovability of a growing crop is in the order of things temporary, for the crop passes from the state of a growing to that
of a gathered one, from an immovable to a movable. The existence of a right on the growing crop is a mobilization by anticipation, a
gathering as it were in advance, rendering the crop movable quoad the right acquired thereon. The provision of our Code is identical
with the Napoleon Code 520, and we may therefore obtain light by an examination of the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de Espaa but by the Supreme Court of Louisiana, is followed in practically every
state of the Union.
From an examination of the reports and codes of the State of California and other states we find that the settle doctrine followed in said states
in connection with the attachment of property and execution of judgment is, that growing crops raised by yearly labor and cultivation are
considered personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal., 254;
Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526;
Crinevs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on Execution, vol. 1, p. 438; Drake on
Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into
existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and then title will vest
in the buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am.
St. Rep., 63.) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually
possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field may grow in a given time; or the milk
a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next cast of a
fisherman's net; or fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold, however, must
be specific and identified. They must be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of the Code of Civil
Procedure as well as by Act No. 1508, the Chattel Mortgage Law. Said section 450 enumerates the property of a judgment debtor which may be
subjected to execution. The pertinent portion of said section reads as follows: "All goods, chattels, moneys, and other property, both real and
personal, * * * shall be liable to execution. Said section 450 and most of the other sections of the Code of Civil Procedure relating to the
execution of judgment were taken from the Code of Civil Procedure of California. The Supreme Court of California, under section 688 of the
Code of Civil Procedure of that state (Pomeroy, p. 424) has held, without variation, that growing crops were personal property and subject to
execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal property. Section 2 of said Act provides: "All personal
property shall be subject to mortgage, agreeably to the provisions of this Act, and a mortgage executed in pursuance thereof shall be termed a
chattel mortgage." Section 7 in part provides: "If growing crops be mortgaged the mortgage may contain an agreement stipulating that the
mortgagor binds himself properly to tend, care for and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that "growing crops" are personal property. This
consideration tends to support the conclusion hereinbefore stated, that paragraph 2 of article 334 of the Civil Code has been modified by section
450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered products" as mentioned in said article of the Civil Code have the nature of
personal property. In other words, the phrase "personal property" should be understood to include "ungathered products."
At common law, and generally in the United States, all annual crops which are raised by yearly manurance and labor, and essentially owe
their annual existence to cultivation by man, . may be levied on as personal property." (23 C. J., p. 329.) On this question Freeman, in his
treatise on the Law of Executions, says: "Crops, whether growing or standing in the field ready to be harvested, are, when produced by
annual cultivation, no part of the realty. They are, therefore, liable to voluntary transfer as chattels. It is equally well settled that they
may be seized and sold under execution. (Freeman on Executions, vol. p. 438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified by section 450 of the Code of Civil Procedure
and by Act No. 1508, in the sense that, for the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law,
"ungathered products" have the nature of personal property. The lower court, therefore, committed no error in holding that the sugar cane in
question was personal property and, as such, was not subject to redemption.
All the other assignments of error made by the appellant, as above stated, relate to questions of fact only. Before entering upon a discussion of
said assignments of error, we deem it opportune to take special notice of the failure of the plaintiff to appear at the trial during the presentation
of evidence by the defendant. His absence from the trial and his failure to cross-examine the defendant have lent considerable weight to the
evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the complaint, the plaintiff made a futile attempt to
show that said two parcels belonged to Agustin Cuyugan and were the identical parcel 2 which was excluded from the attachment and sale of
real property of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the description of parcel 2 in the certificate of sale by the
sheriff (Exhibit A) and the description of parcels 1 and 2 of the complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caa dulce sembrada por los inquilinos del ejecutado Leon Sibal 1. en una parcela de terreno de la pertenencia del citado
ejecutado, situada en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas poco mas o menos de superficie.
2. La caa dulce sembrada por el inquilino del ejecutado Leon Sibal 1., Ilamado Alejandro Policarpio, en una parcela de terreno de la
pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados de superficie, linda al N. con Canuto Sibal,
Esteban Lazatin and Alejandro Dayrit; al E. con Francisco Dizon, Felipe Mau and others; al S. con Alejandro Dayrit, Isidro Santos and
Melecio Mau; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the complaint were included among the parcels
bought by Valdez from Macondray on June 25, 1924, and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and were also included
among the parcels bought by Valdez at the auction of the real property of Leon Sibal on June 25, 1924, and corresponded to parcel 3 in the
certificate of sale made by the sheriff (Exhibit A). The description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de superficie,
lindante al Norte con Road of the barrio of Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Mao y Canuto
Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A).
But, inasmuch as the plaintiff did not care to appear at the trial when the defendant offered his evidence, we are inclined to give more weight to
the evidence adduced by him that to the evidence adduced by the plaintiff, with respect to the ownership of parcels 1 and 2 of the compliant.
We, therefore, conclude that parcels 1 and 2 of the complaint belong to the defendant, having acquired the same from Macondray & Co. on
June 25, 1924, and from the plaintiff Leon Sibal on the same date.
It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom 190 cavans. There being no evidence of bad
faith on his part, he is therefore entitled to one-half of the crop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95
cavans only, at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds to parcel 1 of the deed of sale of Macondray
& Co, to Valdez (Exhibit B and 2), and to parcel 4 in the certificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as
above stated (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the interest of both Macondray and Sibal in said
parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second cause of action, it appears from the testimony of
the plaintiff himself that said parcel corresponds to parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the
deed of sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the
interest of both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under said execution. Said parcels of land were sold to
Macondray & Co. on the 30th day of July, 1923. Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the
redemption of said parcels of land. (See Exhibits B and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including the sugar cane in question. (Exhibit A) The said
personal property so attached, sold at public auction May 9 and 10, 1924. April 29, 1924, the real property was attached under the execution in
favor of Valdez (Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that the sugar cane in question covered an area of
22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said area would have yielded an average crop of 1039 picos and 60 cates; that one-half of
the quantity, or 519 picos and 80 cates would have corresponded to the defendant, as owner; that during the season the sugar was selling at
P13 a pico (Exhibit 5 and 5-A). Therefore, the defendant, as owner, would have netted P 6,757.40 from the sugar cane in question. The evidence
also shows that the defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas de cana) and not 1,170,000 as
computed by the lower court. During the season the shoots were selling at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would
have netted P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190 cavans, one-half of said quantity should belong
to the plaintiff, as stated above, and the other half to the defendant. The court erred in awarding the whole crop to the defendant. The plaintiff
should therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by the lower court.
The evidence also shows that the defendant was prevented by the acts of the plaintiff from cultivating about 10 hectares of the land involved in
the litigation. He expected to have raised about 600 cavans of palay, 300 cavans of which would have corresponded to him as owner. The lower
court has wisely reduced his share to 150 cavans only. At P4 a cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and
Marcos Sibal are hereby ordered to pay to the defendant jointly and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower
court, as follows:
P6,757.40 for the sugar cane;
1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.

8,900.80
============

In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.
Street, Malcolm, Villamor, Romualdez and Villa-Real., JJ., concur.








































U.S. Supreme Court
Valdes v. Central Altagracia, Inc., 225 U.S. 58 (1912)
Valdes v. Central Altagracia, Incorporated
Nos. 193, 196
Submitted March 6, 1912
Decided May 13, 1912
225 U.S. 58
APPEALS FROM THE DISTRICT COURT OF THE
UNITED STATES FOR PORTO RICO
Syllabus
The record in this case shows that the court below did not err in bringing this case to a speedy conclusion and avoiding the loss occasioned by
the litigation to all concerned.
A litigant cannot, after all parties have acquiesced in the order setting the case for trial and the court has denied his request for continuance,
refuse to proceed with the trial on the ground that the time to plead has not expired, and when such refusal to proceed is inconsistent with his
prior attitude in the case.
The granting of a continuance is within the sound discretion of the trial court, and not subject to be reviewed on appeal except in cases of clear
error and abuse; in this case, the record shows that the refusal to continue on account of absence of witness was not an abuse, but a just
exercise, of discretion.
Under the circumstances of this case, and in view of the existence of an equity of redemption under prior transfers, held that a transfer of all the
property of a corporation to one advancing money to enable it to continue its business was not a conditional sale of the property, but a contract
creating security for the money advanced, and, on liquidation of the assets, the transferee stood merely as a secured creditor
The mere form of an instrument transferring property of a debtor cannot exclude the power of creditors to inquire into the reality and substance
of a contract unrecorded, although required by law to be recorded in order to be effective against third parties.
Under the general law of Porto Rico, machinery placed on property by a tenant does not become immobilized; when, however, a tenant places it
there pursuant to contract that it shall belong to the owner, it becomes immobilized as to that tenant and his assigns with notice, although it
does not become so as to creditors not having legal notice of the lease.
In this case, held that the lien of the attachment of a creditor of the tenant on machinery placed by the tenant on a sugar Central in Porto Rico is
superior to the claim of the transferee of an unrecorded
Page 225 U. S. 59
lease, even though the lease required the tenant to place the machinery on the property.
5 P.R. 155 affirmed.
The facts are stated in the opinion.
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
These cases were consolidated below, tried together, a like statement of facts was made applicable to both, and the court disposed of them in
one opinion. We shall do likewise. Stating only things deemed to be essential as shown by the pleadings and documents annexed to them and
the finding of facts made below, the case is this: Joaquin Sanchez owned in Porto Rico a tract of land of about 22 acres (cuerdas) on which was a
sugar house containing a mill for crushing cane and an evaporating apparatus for manufacturing the juice of the cane into sugar. All of the
machinery was antiquated and of a limited capacity. The establishment was known as the Central Altagracia, and Sanchez, while not a cane
grower, carried on the business of a central -- that is, of acquiring cane grown by others and manufacturing it into sugar at his factory. On the
eighteenth day of January, 1905, Sanchez leased his land and plant to Salvador Castello for a period of ten years. The lease gave to the tenant
(Castello) the right to install in the plant
"such machinery as he may deem convenient, which said machinery at the end
Page 225 U. S. 60
of the years mentioned (the term of the lease) shall become the exclusive property"
of the lessor, Sanchez. The tenant was given one year in which to begin the work of repairing and improving the plant, and it was provided that,
"upon the expiration of this term, if the necessary improvements shall not have been begun by him (Castello), then this contract shall be null and
void, and no cause of action shall accrue to any of the contracting parties by reason thereof."
Further agreeing on the subject of the improved machinery which was to be placed in the plant, the contract provided:
"Upon the expiration of the term agreed on under this contract, any improvement or machinery installed in the said central shall remain for the
benefit of Don Joaquin Sanchez, and Don Salvador Castello shall have no right to claim anything for the improvements made."
The rental was thus provided for:
"After each crop, such profits as may be produced by the Central Altagracia shall be distributed, and twenty-five percent (25%) thereof shall be
immediately paid to Don Joaquin Sanchez as equivalent for the rental of said central and of the twenty-two (22) cuerdas of land surrounding the
same. The remaining seventy-five percent (75%) shall belong to Don Salvador Castello, who may interest therein whomsoever he may wish,
either for the whole or part thereof."
It was stipulated, however, that, in fixing the profits, no charge should be made for repairs of the existing machinery or for new machinery put
in, as the entire cost of these matters was to be borne by the lessee, Castello. The lease provided, moreover, that, in case of the death of
Sanchez, the obligations of the contract should be binding on his heirs, and in the case of the death of Castello, his brother, Gerardo Castello,
should take his place,
"and be a contracting party if he so desired. Otherwise, the plantation, in such a condition at it may be at his death, shall immediately pass into
the possession of its owner, Don Joaquin Sanchez."
In June,
Page 225 U. S. 61
1905, by a supplementary contract, the lease was extended without change of its terms and conditions for an additional period of ten years,
making the total term twenty years. Although executed under private signature, this lease, conformably to the laws of Porto Rico, was produced
before a notary and made authentic, and in such form was duly registered on the public records, as required by the Porte Rican laws.
On the first day of July, 1905, Salvador and Gerardo Castello transferred all their rights acquired under the lease, as above stated, to Frederick L.
Cornwell for "the corporation to be organized under the name of Central Altagracia, of which he is the trustee." This transfer bound the
corporation to all the obligations in favor of the original lessor, Sanchez, provided that the corporation should issue to Castello a certain number
of paid-up shares of its capital stock and a further number of shares as the output of sugar from the plant increased as the result of its enlarged
capacity consequent upon the improvement of the machinery by the corporation. The lease further provided for the employment of Castello as
superintendent at a salary, for a substitution of Gerardo Castello, in the event of the absence or death of his brother Salvador, and, for this
reason, it is to be assumed Gerardo made himself a party to the transfer of the lease. This transfer of the lease to the corporation was never put
upon the public records. The corporation was organized under the laws of the State of Maine, and, under the transfer, took charge of the plant.
The season for grinding cane and the manufacture of sugar in Porto Rico usually commences
"about the month of December of each year, and terminates in the months of May, June, or July of the year following, according to the amount
of cane to be ground."
Central factories in Porto Rico usually
"make contracts with the people (colonos) growing cane, so that growers of cane will deliver the same to be ground, and such contracts
Page 225 U. S. 62
are usually made and entered into in the months of June, July, and August."
In other words, on the termination of one grinding season, in the months of June or July, it is usual in the ensuing August to make new contracts
for the cane to be delivered in the following grinding season, which, as we have said, commences in December. The contract transferring the
lease to the Central Altagracia, Incorporated, was made in July, 1905, at the end, therefore, of the grinding season of that year. To what extent
the corporation contracted for cane to be delivered to it for grinding during the season of 1905-06, which began in December, 1905, does not
appear. It is inferable, however, that the corporation began the work of installing new machinery to give the plant a larger capacity within the
year stipulated in the lease from Sanchez to Castello. We say this because it is certain that, in the fall of 1906 (October), the corporation
borrowed from the commercial firm of Nevers & Callaghan in New York City the sum of twenty-five thousand dollars ($25,000) to enable the
corporation to pay for new and enlarged machinery which it had ordered, and which was placed in the factory in time to be used in the grinding
season of 1906-07, which began in December, 1906. While such grinding season was progressing, on April 11, 1907, the corporation, through its
president, under the authority of its board of directors, sold to one Ramon Valdes all its rights acquired under the lease transferred by Castello.
This transfer expressly included all the machinery previously placed by the corporation in the sugar house, as well as machinery which might be
thereafter installed during the term of redemption hereafter to be referred to, and which, it was declared, conformably to the original lease,
"shall be a part of said factory for the manufacture of sugar." The consideration for the sale was stated in the contract to be
"thirty-five thousand dollars ($35,000) received by the corporation, twenty-five thousand four hundred dollars
Page 225 U. S. 63
($25,400) whereof had been paid prior to this act [of sale], and to its entire satisfaction, and the balance of nine thousand six hundred dollars
($9,600) shall be turned over to the vendor corporation by Senor Valdes immediately upon being required to do so by the former."
This sale was made subject to a right to redeem the property within a year on paying Valdes the entire amount of his debt. There was a
stipulation that Valdes assumed all the obligations of the lease transferred by Castello to the company.
The undoubted purpose was not to interfere with the operation of the plant by the corporation, since there was a provision in the contract
binding Valdes to lease the property to the corporation pending the period of redemption. This sale was passed in Porto Rico before a notary
public, but was never put upon the public records. At the time it was made, there was a very considerable sum unpaid on the debt of Nevers &
Callaghan. This fact, joined with the period when the sale with the right to redeem was made -- that is, the approaching end of the sugar-making
season of 1906 and 1907 -- coupled with other facts to which we shall hereafter make reference, all tend to establish that, at that time, either
because insufficient capital had been put into the venture or because the business had been carried on at a loss, the affairs of the corporation
were embarrassed, if it was not insolvent. A short while before the commencement of the grinding season of 1907-1908 in October, 1907, in the
City of New York, the corporation, through its president, declaring himself to be authorized by the board of directors, sanctioned by a vote of the
stockholders, apparently made an absolute sale of all the rights of the corporation under the lease, and all its title to the machinery which the
corporation had put into the plant. This sale was declared to be for a consideration of sixty-five thousand ($65,000) dollars which the company
acknowledged to have received from Valdes, first, by the payment of the thirty-five
Page 225 U. S. 64
($35,000) dollars cash, as stated in the previous sale made subject to the equity of redemption, and thirty thousand ($30,000) dollars which "the
company has received afterwards in cash from Valdes." There was a provision in the contract to the effect that, as the purpose of the previous
contract of sale, which had been made subject to the equity of redemption, was accomplished by the new sale, the previous sale was declared
to be no longer operative.
A few days afterwards, likewise in the City of New York (on November 2, 1907), Valdes sold to the company all the rights which he had acquired
from it by the previous sale, the price being sixty-five thousand ($65,000) dollars, payable in installments falling due in the years 1908, 1909,
1910, and 1911, respectively. This transfer was put in the form of a conditional sale which reserved the title in Valdes until the payment of the
deferred price, and upon the stipulation that any default by the corporation entitled Valdes ipso facto to take possession of the property.
Neither this act of sale from Valdes to the corporation nor the one made by the corporation to Valdes were ever put upon the public records.
Prior to the making of the sales just stated, or about that time, the corporation defaulted in the payment of a note held by Nevers & Callaghan
for a portion of the money which they had loaned the corporation under the circumstances which we have previously stated, and that firm sued
in the court below the corporation to recover the debt.
The grinding season of 1907-1908 commenced in December, 1907, and was obviously not a successful one, for the debt of Nevers & Callaghan
was not paid, and in May, 1908, a judgment was recovered by them against the corporation for about $17,000, with interest, and in the same
month execution was issued and levied upon the machinery in the sugar house. Previous to, or not long subsequent to, the time Nevers &
Callaghan
Page 225 U. S. 65
commenced their suit, the precise date not being stated in the record, the heirs of Sanchez, the original lessor, brought a suit in the court below
against the corporation. The nature of the suit and the relief sought is not disclosed, but it is inferable from the facts stated that the suit either
sought to recover the property on the ground that there was no power in Castello to transfer the lease or upon the ground of default in the
conditions as to payment of profits as rental which the lease stipulated. It would seem also, at about the same time, either one or both of the
Castellos brought a suit against the company, presumably upon the theory that there had been a default in the obligations assumed in their
favor by the corporation at the time it took the transfer of the lease. In the meanwhile also, probably as the result of the want of success of the
corporation, discord arose between its stockholders, and a suit growing out of that state of things was brought in the lower court.
This litigation was commenced in June, 1908, by the bringing by Valdes of an action at law in the court below to recover the plant on the ground
that, by the default in paying one of the installments of the price stated in the conditional sale, the right to the relief prayed had arisen. On the
same day, Valdes commenced a suit in equity against the corporation in aid of the suit at law. The bill alleged the default of the corporation, the
bringing of the suit at law, the confusion in the affairs of the corporation, the judgment and levy of the execution by Nevers and Callaghan, and
the threat to sell the machinery under such execution, the refusal of the corporation to deliver possession of the property, the waste and
destruction of the value of the property which would result if there was no one representing the corporation having power to contract for cane
to be delivered during the next grinding season, etc., etc. The prayer was for the appointment of a receiver to take charge of the property, with
authority
Page 225 U. S. 66
to carry on the same, make the necessary contracts for cane for the future, it being prayed that the receiver should be empowered to issue
receiver's certificates to the extent necessary to the accomplishment of the purposes which the bill had in view.
On the same day, a bill was filed on behalf of the corporation against Valdes. This bill attacked the sale made to Valdes and by him to the
corporation. It was charged that the price stated to have been paid by Valdes as a consideration of the conditional sale was fictitious, and that
the only sum he had advanced at that time was the $35,000 which it was the purpose to secure by means of the sale with the equity of
redemption. That, at that time, Valdes exacted as a consideration for his loan that he be made a director and vice-president of the company. The
bill then stated that, it having become evident in the following autumn that the corporation would require more money to increase its plant, to
pay off the sum due Nevers & Callaghan, and for the operation of the plant, Valdes agreed to advance the money if he were made president of
the company at a stipulated salary, given a bonus in the stock of the company, and upon the condition that the papers be executed embodying
the so-called sale of the company to Valdes and the practically simultaneous conditional sale by Valdes to the company. The bill then alleged
that Valdes, having thus become the president of the company, failed to carry out his agreement to advance the money, failed to provide for the
debt of Nevers & Callaghan, mismanaged the affairs of the property in many alleged particulars, and did various acts to the prejudice of the
company and to his own wrongful enrichment, which it is unnecessary to recapitulate. The necessity of contracting for cane during the contract
season in order that the plant might continue during the next operating season to be a going concern, and the waste and loss which would
otherwise
Page 225 U. S. 67
be occasioned, were fully alleged. Valdes and the firm of Nevers & Callaghan and the individual members of that firm were made defendants.
The prayer was for the appointment of a receiver and with power to carry on the business of the central, with power, for that purpose, to
contract for cane for the coming season, with authority to issue receiver's certificates for the purpose of borrowing the money which might be
required.
The judge, being about to leave Porto Rico for a brief period, declined to appoint a permanent receiver, but named a temporary one to keep the
property together until a further hearing could be had, interference in the meanwhile with the custodian being enjoined. Shortly thereafter,
creditors of the corporation intervened and joined in the prayer made by both of the complainants for the appointment of a receiver. In July, the
two suits were by order consolidated, and, after a hearing, a receiver was appointed and authority given him to continue the property as a going
concern and to borrow a limited amount of money on receiver's certificates, if necessary, to secure contracts for cane for the coming crop
season. The execution of the Nevers & Callaghan judgment was stayed pending an appeal which had been taken to this Court. The only
difference which seems to have arisen concerning the appointment of the receiver grew out of the fact that a prayer of the Central Altagracia,
asking the court to appoint as receiver Mr. Pettingill, a member of the bar and one of the counsel of the corporation, and who was also its
treasurer, was denied. Despite this, the fair inference is that the ultimate action of the court was not objected to by anyone, because of the hope
that the result of a successful operation of the plant during the coming crop season might ameliorate the affairs of the corporation, and thus
prevent further controversies. We say this not only because of the conduct of the parties prior to the order appointing the receiver, but because,
Page 225 U. S. 68
after that order, the solicitors of the Altagracia Company and Valdes put a stipulation of record that, until the following October, no steps
whatever should be taken in the proceedings, and not even then unless the attorneys for both parties should be in Porto Rico.
The hope of a beneficial result from the operation of the plant by the receiver proved delusive. As a result of such operation, there was a
considerable loss represented by outstanding receiver's certificates, with no means of paying except out of the property. Obviously for this
reason, the record contains a statement that, on July 12, 1909, a conference was had between the court and all parties concerned to determine
what steps should be taken to meet the situation. It appears that, at that conference, the counsel representing the heirs of Sanchez and of
Nevers & Callaghan stated their opposition to a continuance of the receivership.
On July 17, 1909, the court placed a memorandum on the files, indicating its purpose to bring the litigation, receivership, etc., to an end, and to
cause "immediate issue to be raised on the pleadings for that purpose." This memorandum was entitled in all the pending causes concerning the
property. It directed that demurrers which had been filed in the consolidated cause of Valdes against the corporation and of the corporation
against Valdes be overruled, and the defendants were required to answer on or before Monday, July 26, in order that, upon the following day,
the 27th of July, the issues raised might be tried before the court without the intervention of a master. It was provided in the order, however,
that nothing in this direction should prevent the parties from filing such additional pleadings as it is deemed necessary for the protection of their
rights by way of cross bill or amendment, etc. To make the order efficacious, it was declared that nothing would be done in the suit of the heirs
of Sanchez against Castello and the Altagracia,
Page 225 U. S. 69
which was pending on appeal, and that a demurrer filed to the suit of Castello against the Central would be overruled; that the demurrer in the
suit at law of Valdes would remain in abeyance to await the final action of the court on the trial of all the issues in the equity causes, and that a
stay of the Nevers & Callaghan execution would be also disposed of when the equity cases came to be decided. This order was followed by a
memorandum opinion filed on July the 21st stating very fully the position of the respective suits, the necessity for action in order to preserve the
property from waste, and reiterating the view that, whatever might be the rights of the Central Altagracia or of Valdes under the lease, those
rights would be subordinate to the ultimate determination of the suit brought by the heirs of Sanchez. To the action of the court as above stated
no objection appears to have been made. On the contrary, between the time of that order and the period fixed for the commencement of a
hearing, the Central Altagracia, Valdes, and Nevers & Callaghan modified their pleadings to the extent deemed by them necessary to present for
trial the issues upon which they relied. In the case of the Central Altagracia, this was done by filing, on July 22, an amended bill of complaint in its
suit against Valdes, and on July 26 its answer in the suit of Valdes. The acceptance by Valdes of the terms of the order was shown by an answer
filed to the bill in the suit of the company and the cross-bill in the same cause, and Nevers & Callaghan manifested their acquiescence by
obtaining leave to make themselves parties and asserting their rights by cross-bill and answers which it is unnecessary to detail.
When the consolidated cause was called for trial on the morning of July 27, the counsel for the Central Altagracia moved a continuance in order
to take the testimony of certain witnesses in Philadelphia and New York for the purpose of proving some of the allegations of the complaint
Page 225 U. S. 70
as to the wrongdoing of Valdes in administering the affairs of the corporation. This application was supported by the affidavit of Mr. Pettingill,
the counsel of the corporation. The record states that the request for continuance was opposed by all the other counsel, and the application was
denied. In doing so, the court stated:
"That the matter has been pending for more than a year, and that counsel had full notice of the court's intention to press the matters to issue
and trial, and that it is not disposed to delay matters at this time, when the admissions of the pleadings are so broad that the proofs available
here in Porto Rico are probably sufficient, and the amended complaint already on file in suit No. 565, -- Valdes v. Central Altagracia -- and the
answer thereto and the answer recently filed in suit No. 564 -- Altagracia v. Valdes-- as well as the cross-bill also recently filed in suit No. 465,
make so many allegations and admissions as that the real issue between the parties can be plainly seen, and that, in the opinion of the court,
enough proof is available here in Porto Rico."
The court thereupon declared that the Altagracia Company might by the next day, if it so desired, file exceptions to the answer in suit 565 and an
answer to the cross-complaint -- indeed, that the corporation might, if it wished, treat them as filed, and proceed with the cause and file them at
any convenient time thereafter. Thereupon, the record states:
"Said counsel for the Central Altagracia stated that he desired time to file exceptions to the answer and an answer to the cross-bill in suit No.
565, and the court granted until the morning of July 28 for such purpose. Later in the day of July 27, one of the counsel for Valdes having
requested the court to postpone the hearing of the cause until the morning of the 29th because of an unexpected professional engagement
elsewhere, the request was communicated by the court to the other counsel in the cause."
Thereupon the record again recites:
"Messrs. Pettingill &
Page 225 U. S. 71
Cornwell, attorneys for the Central Altagracia, stated that they withdrew any statement they have hitherto made in the cause in that regard, and
desired to be understood that they would not except to the answer in suit No. 565, or plead or answer to the cross-bill therein save and except
within the time which they contended the rules governing this Court of equity gave them, and would stand upon what they considered their
rights in that regard."
When the court assembled the next day, on the morning of the 28th, a statement concerning the occurrence of the previous day as to the
continuance, etc., just reviewed, was read by the court in the presence of all the counsel, whereupon the record recites:
"N. B. Pettingill, counsel for the Central Altagracia, in response to the same, stated that he objected to proceeding to take any evidence in any of
the causes at that time, or the testimony of any witnesses, because the same was not at issue or in condition for the taking of evidence, and
objected to the taking of such evidence until the issues of said causes are made up in accordance with the rules of practice applicable to equity
causes."
The record further recites:
"Which objection was overruled by the court on the ground that the action called for thereby is not necessary. That the bill was amended within
three days; an answer was immediately filed to it and a cross-bill also filed, the said cross-bill making only the same claims as were made in suit
No. 563 at law, and that, anyway, the issue could be tried on the bill and answer in both suits. . . ."
This ruling of the court having been excepted to, the trial proceeded from day to day, the counsel for the Central Altagracia taking no part in the
same and virtually treating the proceedings as though they did not concern that corporation.
In substance, the court decided: first, that as the result of the contracts between Valdes and the Central Altagracia, he was not the owner of the
rights of that corporation under the lease, or of the machinery which
Page 225 U. S. 72
had been placed in the sugar house by the Altagracia Company, or of the other assets of the corporation, but that he was merely a secured
creditor. The sum of the secured debt was fixed after making allowances for some not very material credits which the corporation was held to
be entitled to. Second, that the judgment in favor of Nevers & Callaghan was valid, and that that firm, by virtue of its execution and levy upon
the machinery, had a prior right to Valdes. Third, the sums due to various creditors of the corporation were fixed and the equities or priorities
were classified as follows: (a) taxes due by the corporation and the sum of the receiver's certificates and certain costs; (b) the judgment of
Nevers & Callaghan, and (c) the debt of Valdes; (d) debts due the other creditors. Without going into details, it suffices to say that, for the
purpose of enforcing these conclusions, the decree directed a sale of all the rights of the Central Altagracia in and to the lease, machinery,
contract, etc., and imposed the duty upon Valdes, if he became the purchaser, to pay enough cash to discharge the costs, taxes, receiver's
certificates, and the claim of Nevers & Callaghan.
These appeals were then prosecuted, the one by the Central Altagracia and the other by Valdes. We shall endeavor as briefly as may be to
dispose of the contentions relied upon to secure a reversal.
I. The Central Altagracia appeal. -- The alleged errors insisted on in behalf of that company relate to the asserted arbitrary action of the court in
forcing the cause to trial without affording the time which it is insisted the corporation was entitled to under the equity rules applicable to the
subject, and second, the refusal of the court to grant a continuance upon the affidavit as to the absence of material witnesses.
We think all the contentions on this subject are demonstrated to be devoid of merit by the statement of the case which we have made. In the
first place, it is manifest
Page 225 U. S. 73
from that statement that the proceeding leading up to the appointment of a receiver and the power given to administer the property was largely
the result of the assent of the corporation. In the second place, when the unsuccessful financial issue of the receivership had become manifest,
we think the statement makes it perfectly clear that the steps taken by the court for the purpose of bringing the case to a speedy conclusion,
and thus avoiding the further loss which would result to all interests concerned, were also acquiesced in by all the parties in interest who
complied with the terms of that order and took advantage of the rights which it conferred. We think also the statement makes it apparent that
the refusal on the part of the corporation to proceed with the trial, upon the theory that the time to plead allowed by the equity rules had not
elapsed, was the result of a change of view because of the action of the court in refusing the continuance on account of the absent witnesses -- a
change of front which was inconsistent with the rights which the corporation had exercised in accord with the order setting the cause for trial,
and with the rights of all the other parties to the cause which had arisen from that order and from the virtual approval of it, or at least
acquiescence in it, by all concerned.
Considering the assignments of error insofar as they relate alone to overruling of the application for continuance, based upon the absence of
witnesses, it suffices to say that the elementary rule is that the granting of a continuance of the cause was peculiarly within the sound discretion
of the court below -- a discretion not subject to be reviewed on appeal except in case of such clear error as to amount to a plain abuse springing
from an arbitrary exercise of power. Instead of coming within this latter category, we think the facts as to the refusal to continue and the
conduct of the parties make it clear that there was not only no abuse, but a just exercise, of discretion.
Page 225 U. S. 74
II. As to the Appeal of Valdes. -- Two propositions are relied upon: first, that error was committed in treating Valdes merely as a secured creditor,
and in not holding him to be the absolute owner of the rights and property alleged to have been transferred by the so-called conditional sale.
Second, that, in any event, error was committed in awarding to Nevers & Callaghan priority over Valdes.
The first proposition is supported by a reference to the Porto Rican Code and decisions of the Supreme Court of Spain and the opinions of
Spanish law writers. But the contention is not relevant, and the authorities cited to sustain it are inapposite to the case to be here decided,
because the argument rests upon an imaginary premise -- that is, that the ruling of the court below denied that right under the Spanish law to
make a conditional sale, or held that such a sale, if made, would not have the effect which the argument insists it was entitled to. This is true
because the action of the court was solely based upon a premise of fact, viz., that, under the circumstances of the case and in view of the prior
sale with the equity of redemption, the cancellation of that sale, and the transfer made by the corporation to Valdes, and the immediate transfer
of the same rights by him to the corporation in the form of a conditional sale, the failure to register any of the contracts, and the relation of
Valdes to the corporation at the time the contracts were made, it resulted that whatever might be the mere form, in substance and effect, no
conditional sale was made, but a mere contract was entered into which the parties intended to be a mere security to Valdes for money
advanced and to be advanced by him. This being the case, it is manifest that it is wholly irrelevant to argue that error was committed in not
applying the assumed principles of the Porto Rican and Spanish law governing in the case of a conditional sale, when the ruling which the court
made proceeded upon the conclusion that there was no conditional sale.
Page 225 U. S. 75
The contention that, under the Porto Rican law, the form was controlling because proof of the substance was not admissible seems not to have
been raised below, but, if it had been, is obviously without merit, as the case as presented involved not a controversy alone between the parties
to the contract, but the effect and operation of the contract upon third parties, the creditors of the corporation. The contention is additionally
without merit since it assumes that the mere form of the contract excluded the power of creditors to inquire into its reality and substance, even
although the contract was never inscribed upon the public records so as to bind third parties. That its character was such as to require
inscription we shall in a few moments demonstrate in coming to consider the second proposition -- that is, upon the hypothesis that Valdes was
but a secured creditor, was error committed in subordinating his claim to the prior claim of Nevers & Callaghan under their judgment and
execution?
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 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
Page 225 U. S. 76
implements intended by the owner of the tenements for the industry or works that they may carry on in any building or upon any land, and
which tend directly to meet the needs of the said industry or works."
See also Code Nap., articles 516, 518, et seq., to and inclusive of article 534, recapitulating the things which, though in themselves movable, may
be immobilized. So far as the subject matter with which we are dealing -- machinery placed in the plant -- it is plain, both under the provisions of
the Porto Rican law and of the Code Napoleon, that machinery which is movable in its nature only becomes immobilized when placed in a plant
by the owner of the property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, 164; Laurent, Tit. 5, No. 447,
and decisions quoted in Fuzier-Herman ed., Code Napoleon, under article 522 et seq. The distinction rests, as pointed out by Demolombe, upon
the fact that one only having a temporary right to the possession or enjoyment of property is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by causing it, by an act of immobilization, to become the property of another. It follows that,
abstractly speaking, the machinery put by the Altagracia Company in the plant belonging to Sanchez did not lose its character of movable
property and become immovable by destination. But, in the concrete, immobilization took place because of the express provisions of the lease
under which the Altagracia held, since the lease in substance required the putting in of improved machinery, deprived the tenant of any right to
charge against the lessor the cost of such machinery, and it was expressly stipulated that the machinery so put in should become a part of the
plant belonging to the owner without compensation to the lessee.
Page 225 U. S. 77
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. It is true, says Aubry and Rau, vol. 2, 164, par. 2, p. 12, that
"the immobilization with which the article is concerned can only arise from an act of the owner himself or his representative. Hence, the objects
which are dedicated to the use of a piece of land or a building by a lessee cannot be considered as having become immovable by destination
except in the case where they have been applied for account of the proprietor, or in execution of an obligation imposed by the lease."
It follows that the machinery placed by the corporation in the plant, by the fact of its being so placed, lost its character as a movable, and
became united with and a part of the plant as an immovable by destination. It also follows that, as to Valdes, who claimed under the lease, and
who had expressly assumed the obligations of the lease, the machinery, for all the purposes of the exercise of his rights, was but a part of the
real estate -- a conclusion which cannot be avoided without saying that Valdes could at one and the same time assert the existence in himself of
rights and yet repudiate the obligations resulting from the rights thus asserted.
Nevers & Callaghan were creditors of the corporation. They were not parties to nor had they legal notice of the lease and its conditions from
which alone it arose that machinery put in the premises by the Altagracia became immovable property. The want of notice arose from the failure
to record the transfer from Castello to the Altagracia, or from the Altagracia to Valdes, and from Valdes apparently conditionally back to the
corporation -- a clear result of 613 of the Civil Code of Porto Rico, providing,
"The titles of ownership or of other real rights relating
Page 225 U. S. 78
to immovables which are not properly inscribed or annotated in the registry of property shall not be prejudicial to third parties."
It is not disputable that the duty to inscribe the lease by necessary implication resulted from the general provisions of article 2 of the mortgage
law of Porto Rico, as stated in paragraphs 1, 2, and 3 thereof, and explicitly also arose from the express requirement of paragraph 6, relating to
the registry of "contracts for the lease of real property for a period exceeding six years. . . ." It is true that, in a strict sense, the contracts
between Castello and the Altagracia Company and with Valdes were not contracts of lease, but for the transfer of a contract of that character.
But such a transfer was clearly a contract concerning real rights to immovable property within the purview of article 613 of the Civil Code, just
previously quoted. Especially is this the case in view of the stipulations of the lease as to the immobilization of movable property placed in the
plant, and the other obligations imposed upon the lessee.
"The sale which a lessee makes to a third person to whom he transfers his right of lease is the sale of an immovable right, and not simply a sale
of a movable one."
See numerous decisions of the courts of France, beginning with the decision on February 2, 1842, of the Court of Cassation (Journal du Palais
[1842] vol. 1, 171). See also numerous authorities collected under the heading above stated in paragraph 21, under articles 516, 517, and 518 of
the Code Napoleon. Fuzier-Herman ed. of that Code, p. 643.
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
Page 225 U. S. 79
of his obligations under the lease, he could not, for the purpose of collecting his debt, proceed separately against.
As a matter of precaution, we say that nothing we have said affects the rights, whatever they may be, of the heirs of Sanchez, the original lessor.
Affirmed.
































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 upon, all the improvements and buildings introduced and erected by the party of the second
part shall pass to the exclusive ownership of the party of the first part without any obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of the second part should leave or abandon the land leased before the time
herein stipulated, the improvements and buildings shall likewise pass to the ownership of the party of the first part as though the time
agreed upon had expired: Provided, however, That the machineries and accessories are not included in the improvements which will
pass to the party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment
was rendered in favor of the plaintiff in that action against the defendant in that action; a writ of execution issued thereon, and the properties
now in question were levied upon as personalty by the sheriff. No third party claim was filed for such properties at the time of the sales thereof
as is borne out by the record made by the plaintiff herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein
having consummated the sale, proceeded to take possession of the machinery and other properties described in the corresponding certificates
of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the
machinery as personal property by executing chattel mortgages in favor of third persons. One of such persons is the appellee by assignment
from the original 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;
x x x x x x x x x
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 Yorkvs. 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.
x x x x x x x x x
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.






Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60015 December 19, 1984
PATRICK CHUA PENG HIAN, doing business as Nueva Ecija Lumber, petitioner,
vs.
COURT OF APPEALS, EMILIANA R. VENERACION and the HEIRS of the late MIGUEL VENERACION,respondents.

AQUINO, J:
This case is about the recovery of possession of a leased lot where the lessee bound himself to transfer to the lessor the building which he
erected thereon.
Miguel C. Veneracion, owner of a 2,194-square-meter lot located at 787 Melencio Street, Cabanatuan City, leased it in 1948 to Patrick Chua Peng
Hian for ten years. The lease was renewed for another ten years.
Chua constructed on that lot a two-storey building where he conducted his sawmill and lumber business on the ground floor. He and his family
occupied the second floor as residence.
On May 25, 1968, after the second lease agreement had expired, Veneracion leased to Chua 1,850 square meters of the lot 4: or three years or
from May 1, 1968 to May 1, 1971 at the monthly rental of P1, 500.
It was stipulated in paragraph 5 of the lease contract that it ."shall terminate automatically without extension and the lessee shall vacate and
surrender the premises without any obstruction thereon". paragraph 7 thereof provides:
7. That in the event that the Lessee fails to surrender and vacate the 'leased premises at the expiration of this lease on May 1,
1971, and/or to remove his buildings and improvements, same shall automatically remain as property of the Lessor without the
necessity of executing a Deed of Transfer or conveyance of the aforementioned properties; that this document will serve as
Deed of Transfer and Conveyance of the above-mentioned buildings and improvements in favor of the lessor as stipulated
herein; provided, however, and it being understood that, upon the expiration or earlier termination of this lease, in order to
comply with his obligation of peacefully and quietly surrendering and restoring to the Lessor the possession of the leased
premises, the Lessor hereby gives and grants to the Lessee a period of three (3) months within which to make such removal but
with the obligation to pay the rental corresponding to such item;
Chua also agreed to pay Veneracion "compensatory damages" of P20,000 plus attorney's fee of P2,000 should Veneracion seek judicial relief by
reason of Chua's non-fulfillment or violation of the terms of the lease.
On February 6, 1969 Veneracion died. After the third lease contract expired or on May 21, 1971, Veneracion's heirs demanded that Chua vacate
the premises and pay the accrued rentals. Chua did not comply with their demand.
On April 11, 1972, the Veneracions filed in the Court of First Instance of Nueva Ecija an action for specific performance against Chua. The trial
court rendered a decision from which both parties appealed. On October 30, 1980, the Appellate Court rendered judgment ordering Chua and
his family to vacate the land in question; to convey the buildings and improvements existing on the land to the Veneracion heirs and to pay the
monthly rental of Pl,500 from June, 1971 until he delivers possession thereof and the amount of P20,000 as compensatory damages plus P2,000
as attorney's fee (CA-G.R. No. 64925-R). Chua appealed to this Court. He contends that the trial court had no jurisdiction over the case. We hold
that the Court of First Instance had jurisdiction over the case. Where the issues raised before the inferior court do not only involve possession of
the lot but also the rights of the parties to the building constructed thereon, the Court of First Instance and not the municipal or city court has
jurisdiction over the case (Ortigas and Co., Ltd. Partnership vs. Court of Appeals, G.R. No. 52488, July 25,1981, 106 SCRA 121).
Moreover, the action was for specific performance of the stipulations of a lease contract, It was not capable of pecuniary estimation. It was
within the exclusive original jurisdiction of the Court of First Instance (De Jesus vs. Garcia, 125 Phil. 955; Lapitan vs. Scandia, Inc., L-24668, July
31, 1968,24 SCRA 479).
The contention that Chua's alienation in the contract of lease of his improvements was tantamount to a disposition of conjugal realty without
the wife's consent has no merit. The said building and improvements on the leased land may be treated as personal properties (Standard Oil Co.
of New York vs. Jaramillo, 44 Phil. 630; Luna vs. Encarnacion, 91 Phil. 531; Manarang vs. Ofilada, 99 Phil. 108; Tumalad vs. Vicencio, L-30173,
September 30, 1971, 41 SCRA 143, 152-3).
The validity of a stipulation that the lessor would become the owner of the improvements constructed by the lessee on the leased land has been
sustained (Lao Chit vs. Security Bank & Trust Co. and Consolidated Investment, Inc., 105 Phil. 490; Co Bun Kin vs. Liongson, 100 Phil. 1091).
The other points raised in the petition (petitioner did not file any memorandum) such as the four-year extension of the lease made by the trial
court and the amount of damages do not merit any serious consideration. The case is governed by the lease contract which is the law between
the parties.
WHEREFORE, the judgment of the Court of Appeals is affirmed. Costs against the petitioner.
SO ORDERED.
Makasiar (Chairman), Abad Santos, Escolin and Cuevas, JJ., concur.
Concepcion, Jr., took no take part.




































































Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55729 March 28, 1983
ANTONIO PUNSALAN, JR., petitioner,
vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A. ORTIZ, respondents.
Benjamin S. Benito & Associates for petitioner.
Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:
The sole issue presented by petitioner for resolution is whether or not respondent Court erred in denying the Motion to Set Case for Pre-trial
with respect to respondent Remedios Vda. de Lacsamana as the case had been dismissed on the ground of improper venue upon motion of co-
respondent Philippine National Bank (PNB).
It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land consisting of 340 square meters situated in
Bamban, Tarlac. In 1963, petitioner mortgaged said land to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay
said amount, the property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the highest bidder in said foreclosure
proceedings. However, the bank secured title thereto only on December 14, 1977.
In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with the alleged acquiescence of respondent
PNB (Tarlac Branch), and upon securing a permit from the Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner
declared said warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then leased the warehouse to one
Hermogenes Sibal for a period of 10 years starting January 1975.
On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and respondent Lacsamana over the property. This
contract was amended on July 31, 1978, particularly to include in the sale, the building and improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the property in her name (TCT No. 173744) as well as separate tax declarations for the land and
building.
1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages" against herein respondents PNB and
Lacsamana before respondent Court of First Instance of Rizal, Branch XXXI, Quezon City, essentially impugning the validity of the sale of the
building as embodied in the Amended Deed of Sale. In this connection, petitioner alleged:
xxx xxx xxx
22. That defendant, Philippine National Bank, through its Branch Manager ... by virtue of the request of defendant ... executed a
document dated July 31, 1978, entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank as Vendor sold to
defendant Lacsamana the building owned by the plaintiff under Tax Declaration No. 5619, notwithstanding the fact that said
building is not owned by the bank either by virtue of the public auction sale conducted by the Sheriff and sold to the Philippine
National Bank or by virtue of the Deed of Sale executed by the bank itself in its favor on September 21, 1977 ...;
23. That said defendant bank fraudulently mentioned ... that the sale in its favor should likewise have included the building,
notwithstanding no legal basis for the same and despite full knowledge that the Certificate of Sale executed by the sheriff in its
favor ... only limited the sale to the land, hence, by selling the building which never became the property of defendant, they
have violated the principle against 'pactum commisorium'.
Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be declared null and void and that damages in the total
sum of P230,000.00, more or less, be awarded to him.
2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of lack of cause of action in that she was a
purchaser for value and invoked the principle in Civil Law that the "accessory follows the principal".
3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was improperly laid considering that the building was
real property under article 415 (1) of the New Civil Code and therefore section 2(a) of Rule 4 should apply.
4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale with damages is in the nature of a personal
action, which seeks to recover not the title nor possession of the property but to compel payment of damages, which is not an action affecting
title to real property.
On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows:
Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated March 13, 1980, considered against the
plaintiff's opposition thereto dated April 1, 1980, including the reply therewith of said defendant, this Court resolves to DISMISS
the plaintiff's complaint for improper venue considering that the plaintiff's complaint which seeks for the declaration as null and
void, the amendment to Deed of Absolute Sale executed by the defendant Philippine National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly owned and constructed by the plaintiff on the
land of the defendant Philippine National Bank situated in the Municipality of Bamban, Province of Tarlac, which warehouse is
an immovable property pursuant to Article 415, No. 1 of the New Civil Code; and, as such the action of the plaintiff is a real
action affecting title to real property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in the province
where the property or any part thereof lies.
5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the action to annul does not involve
ownership or title to property but is limited to the validity of the deed of sale and emphasized that the case should proceed with or without
respondent PNB as respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had been raised by the latter.
On September 1, 1980,.respondent Court denied reconsideration for lack of merit.
Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was concerned, as the issues had already been joined
with the filing of respondent Lacsamana's Answer.
In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as the case was already dismissed in the
previous Orders of April 25, 1980 and September 1, 1980.
Hence, this Petition for Certiorari, to which we gave due course.
We affirm respondent Court's Order denying the setting for pre-trial.
The warehouse claimed to be owned by petitioner is an immovable or real property as provided in article 415(l) of the Civil Code.
6
Buildings are
always immovable under the Code.
7
A building treated separately from the land on which it stood is immovable property and the mere fact that
the parties to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise changed its character as
immovable property.
8

While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of
sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable
property, the recovery of which is petitioner's primary objective. The prevalent doctrine is that an action for the annulment or rescission of a
sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real
property. It is a real action.
9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue (Section 2, Rule 4)
10
, which was timely raised
(Section 1, Rule 16)
11
.
Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is concerned as she had already filed an Answer,
which did not allege improper venue and, therefore, issues had already been joined, is likewise untenable. Respondent PNB is an indispensable
party as the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in issue. It would, indeed, be futile to
proceed with the case against respondent Lacsamana alone.WHEREFORE, the petition is hereby denied without prejudice to the refiling of the
case by petitioner Antonio Punsalan, Jr. in the proper forum.Costs against petitioner.SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-30173 September 30, 1971
GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,
vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.
Castillo & Suck for plaintiffs-appellees.
Jose Q. Calingo for defendants-appellants.

REYES, J.B.L., J.:
Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that only questions of law are involved.
This case was originally commenced by defendants-appellants in the municipal court of Manila in Civil Case No. 43073, for ejectment. Having lost
therein, defendants-appellants appealed to the court a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive
portion of which follows:
WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and against the defendants, ordering the latter to pay
jointly and severally the former a monthly rent of P200.00 on the house, subject-matter of this action, from March 27, 1956, to
January 14, 1967, with interest at the legal rate from April 18, 1956, the filing of the complaint, until fully paid, plus attorney's
fees in the sum of P300.00 and to pay the costs.
It appears on the records that on 1 September 1955 defendants-appellants executed a chattel mortgage in favor of plaintiffs-appellees over their
house of strong materials located at No. 550 Int. 3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were
being rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of Manila on 2 September 1955. The herein
mortgage was executed to guarantee a loan of P4,800.00 received from plaintiffs-appellees, payable within one year at 12% per annum. The
mode of payment was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150 was payable on or before
August, 1956. It was also agreed that default in the payment of any of the amortizations, would cause the remaining unpaid balance to
becomeimmediately due and Payable and
the Chattel Mortgage will be enforceable in accordance with the provisions of Special Act No. 3135, and for this purpose, the
Sheriff of the City of Manila or any of his deputies is hereby empowered and authorized to sell all the Mortgagor's property after
the necessary publication in order to settle the financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees...
2

When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and on 27 March 1956, the house was sold at
public auction pursuant to the said contract. As highest bidder, plaintiffs-appellees were issued the corresponding certificate of
sale.
3
Thereafter, on 18 April 1956, plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila, praying, among other
things, that the house be vacated and its possession surrendered to them, and for defendants-appellants to pay rent of P200.00 monthly from
27 March 1956 up to the time the possession is surrendered.
4
On 21 September 1956, the municipal court rendered its decision
... ordering the defendants to vacate the premises described in the complaint; ordering further to pay monthly the amount of
P200.00 from March 27, 1956, until such (time that) the premises is (sic) completely vacated; plus attorney's fees of 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 Ayala
10
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 Mortgage
23
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.



























Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.

DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27, 1981 in
CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First
instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said appellate court,
denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase Agreement.
To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials inventory as
well as a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy
Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect the seizure of
the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance of Rizal, Branch VI,
docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however subsequently
restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open the premises of private
respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main drive motor of
the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the Orders of the
lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit
cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code, the
same being attached to the ground by means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The appellate
court rejected petitioner's argument that private respondent is estopped from claiming that the machine is real property by constituting a
chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the case to this Court for review
by writ of certiorari. It is contended by private respondent, however, that the instant petition was rendered moot and academic by petitioner's
act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself unequivocably clear that
said action was without prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative.
1
Considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision, the
contention of private respondent that this petition has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from the point
of view of the parties, with petitioner arguing that it is a personality, while the respondent claiming the contrary, and was sustained by the
appellate court, which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or transferring
a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming
otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the status of the property, it does so when combined with other
factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore
applies to the herein defendants-appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate court did, the present case
from the application of the abovequoted pronouncement. If a house of strong materials, like what was involved in the above Tumalad case, may
be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from
denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and
impresses upon the property the character determined by the parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as
no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be
considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which
was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not denied by the
respondent, the status of the subject machinery as movable or immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover, even granting that the charge
is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the mortgage has been
annulled. Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted
by respondent, the latter has indubitably benefited from said contract. Equity dictates that one should not benefit at the expense of another.
Private respondent could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal property, becomes
very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not
applicable to the case at bar, the nature of the machinery and equipment involved therein as real properties never having been disputed nor in
issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant
case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the Orders of the lower
court are hereby reinstated, with costs against the private respondent.
SO ORDERED.
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.1awphl.nt
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:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works. (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:
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (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-41643 July 31, 1935
B.H. BERKENKOTTER, plaintiff-appellant,
vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY, MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF
OF PAMPANGA, defendants-appellees.
Briones and Martinez for appellant.
Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of First Instance of Manila, dismissing said plaintiff's
complaint against Cu Unjiengs e Hijos et al., with costs.
In support of his appeal, the appellant assigns six alleged errors as committed by the trial court in its decision in question which will be discussed
in the course of this decision.
The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the lower court erred in
declaring that the additional machinery and equipment, as improvement incorporated with the central are subject to the mortgage deed
executed in favor of the defendants Cu Unjieng e Hijos.
It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga,
obtained from the defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its buildings,
improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part or is necessary complement of said
sugar-cane mill, steel railway, telephone line, now existing or that may in the future exist is said lots."
On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of its
sugar central by buying additional machinery and equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated cost
of said additional machinery and equipment was approximately P100,000. In order to carry out this plan, B.A. Green, president of said
corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount for the purchase of said machinery and equipment,
promising to reimburse him as soon as he could obtain an additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos.
Having agreed to said proposition made in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same year,
delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the total amount supplied by him to said B.A. Green
having been P25,750. Furthermore, B.H. Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of
P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional machinery and equipment now in litigation.
On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of P75,000 offering
as security the additional machinery and equipment acquired by said B.A. Green and installed in the sugar central after the execution of the
original mortgage deed, on April 27, 1927, together with whatever additional equipment acquired with said loan. B.A. Green failed to obtain said
loan.
Article 1877 of the Civil Code provides as follows.
ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits, and rents not collected when the obligation falls
due, and the amount of any indemnities paid or due the owner by the insurers of the mortgaged property or by virtue of the exercise of
the power of eminent domain, with the declarations, amplifications, and limitations established by law, whether the estate continues in
the possession of the person who mortgaged it or whether it passes into the hands of a third person.
In the case of Bischoff vs. Pomar and Compaia General de Tabacos (12 Phil., 690), cited with approval in the case of Cea vs. Villanueva (18 Phil.,
538), this court laid shown the following doctrine:
1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND FIXTURES. It is a rule, established by the Civil Code and also
by the Mortgage Law, with which the decisions of the courts of the United States are in accord, that in a mortgage of real estate, the
improvements on the same are included; therefore, all objects permanently attached to a mortgaged building or land, although they
may have been placed there after the mortgage was constituted, are also included. (Arts. 110 and 111 of the Mortgage Law, and 1877 of
the Civil Code; decision of U.S. Supreme Court in the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct.
Rep., 46; 199 U.S., 353].)
2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. In order that it may be understood that the machinery and other objects
placed upon and used in connection with a mortgaged estate are excluded from the mortgage, when it was stated in the mortgage that
the improvements, buildings, and machinery that existed thereon were also comprehended, it is indispensable that the exclusion
thereof be stipulated between the contracting parties.
The appellant contends that the installation of the machinery and equipment claimed by him in the sugar central of the Mabalacat Sugar
Company, Inc., was not permanent in character inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof,
made it appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional loan from the defendants Cu Unjieng e Hijos,
said machinery and equipment would become security therefor, said B.A. Green binding himself not to mortgage nor encumber them to
anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him.
Upon acquiring the machinery and equipment in question with money obtained as loan from the plaintiff-appellant by B.A. Green, as president
of the Mabalacat Sugar Co., Inc., the latter became owner of said machinery and equipment, otherwise B.A. Green, as such president, could not
have offered them to the plaintiff as security for the payment of his credit.
Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc., in lieu of the other of less capacity
existing therein, for its sugar industry, converted them into real property by reason of their purpose, it cannot be said that their incorporation
therewith was not permanent in character because, as essential and principal elements of a sugar central, without them the sugar central would
be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the central is permanent in character, the
necessary machinery and equipment installed for carrying on the sugar industry for which it has been established must necessarily be
permanent.
Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold said machinery and equipment as security for the
payment of the latter's credit and to refrain from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed
therefor, is not incompatible with the permanent character of the incorporation of said machinery and equipment with the sugar central of the
Mabalacat Sugar Co., Inc., as nothing could prevent B.A. Green from giving them as security at least under a second mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been permanently incorporated with sugar
central of the Mabalacat Sugar Co., Inc., and while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force, only
the right of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with which said machinery and equipment had been
incorporated, was transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and equipment in a mortgaged sugar
central, in lieu of another of less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production,
constitutes a permanent improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon
(article 1877, Civil Code); (2) that the fact that the purchaser of the new machinery and equipment has bound himself to the person supplying
him the purchase money to hold them as security for the payment of the latter's credit, and to refrain from mortgaging or otherwise
encumbering them does not alter the permanent character of the incorporation of said machinery and equipment with the central; and (3) that
the sale of the machinery and equipment in question by the purchaser who was supplied the purchase money, as a loan, to the person who
supplied the money, after the incorporation thereof with the mortgaged sugar central, does not vest the creditor with ownership of said
machinery and equipment but simply with the right of redemption.
Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to the appellant. So ordered.
Malcolm, Imperial, Butte, and Goddard, JJ., concur.





Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the Municipal Board of Manila to grant a franchise to
construct, maintain and operate an electric street railway and electric light, heat and power system in the City of Manila and its suburbs to the
person or persons making the most favorable bid. Charles M. Swift was awarded the said franchise on March 1903, the terms and conditions of
which were embodied in Ordinance No. 44 approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna and is transmitted to the City of Manila by
means of electric transmission wires, running from the province of Laguna to the said City. These electric transmission wires which carry high
voltage current, are fastened to insulators attached on steel towers constructed by respondent at intervals, from its hydro-electric plant in the
province of Laguna to the City of Manila. The respondent Meralco has constructed 40 of these steel towers within Quezon City, on land
belonging to it. A photograph of one of these steel towers is attached to the petition for review, marked Annex A. Three steel towers were
inspected by the lower court and parties and the following were the descriptions given there of by said court:
The first steel tower is located in South Tatalon, Espaa Extension, Quezon City. The findings were as follows: the ground around one of
the four posts was excavated to a depth of about eight (8) feet, with an opening of about one (1) meter in diameter, decreased to about
a quarter of a meter as it we deeper until it reached the bottom of the post; at the bottom of the post were two parallel steel bars
attached to the leg means of bolts; the tower proper was attached to the leg three bolts; with two cross metals to prevent mobility;
there was no concrete foundation but there was adobe stone underneath; as the bottom of the excavation was covered with water
about three inches high, it could not be determined with certainty to whether said adobe stone was placed purposely or not, as the
place abounds with this kind of stone; and the tower carried five high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land owned by the petitioner approximate more than
one kilometer from the first tower. As in the first tower, the ground around one of the four legs was excavate from seven to eight (8)
feet deep and one and a half (1-) meters wide. There being very little water at the bottom, it was seen that there was no concrete
foundation, but there soft adobe beneath. The leg was likewise provided with two parallel steel bars bolted to a square metal frame also
bolted to each corner. Like the first one, the second tower is made up of metal rods joined together by means of bolts, so that by
unscrewing the bolts, the tower could be dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two towers given above, the ground around the two
legs of the third tower was excavated to a depth about two or three inches beyond the outside level of the steel bar foundation. It was
found that there was no concrete foundation. Like the two previous ones, the bottom arrangement of the legs thereof were found to be
resting on soft adobe, which, probably due to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers for real property tax under Tax declaration
Nos. 31992 and 15549. After denying respondent's petition to cancel these declarations, an appeal was taken by respondent to the Board of
Assessment Appeals of Quezon City, which required respondent to pay the amount of P11,651.86 as real property tax on the said steel towers
for the years 1952 to 1956. Respondent paid the amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for short)
which rendered a decision on December 29, 1958, ordering the cancellation of the said tax declarations and the petitioner City Treasurer of
Quezon City to refund to the respondent the sum of P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the
instant petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term "poles" which are declared exempt from
taxes under part II paragraph 9 of respondent's franchise; (2) the steel towers are personal properties and are not subject to real property tax;
and (3) the City Treasurer of Quezon City is held responsible for the refund of the amount paid. These are assigned as errors by the petitioner in
the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires, transformers,
and insulators), machinery and personal property as other persons are or may be hereafter required by law to pay ... Said percentage
shall be due and payable at the time stated in paragraph nineteen of Part One hereof, ... and shall be in lieu of all taxes and assessments
of whatsoever nature and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted. (Par. 9, Part Two, Act No. 484
Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as typically the stem of a small tree stripped
of its branches; also by extension, a similar typically cylindrical piece or object of metal or the like". The term also refers to "an upright standard
to the top of which something is affixed or by which something is supported; as a dovecote set on a pole; telegraph poles; a tent pole;
sometimes, specifically a vessel's master (Webster's New International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may
be seen cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars joined together by an
interlacing metal rod. They are called "poles" notwithstanding the fact that they are no made of wood. It must be noted from paragraph 9,
above quoted, that the concept of the "poles" for which exemption is granted, is not determined by their place or location, nor by the character
of the electric current it carries, nor the material or form of which it is made, but the use to which they are dedicated. In accordance with the
definitions, pole is not restricted to a long cylindrical piece of wood or metal, but includes "upright standards to the top of which something is
affixed or by which something is supported. As heretofore described, respondent's steel supports consists of a framework of four steel bars or
strips which are bound by steel cross-arms atop of which are cross-arms supporting five high voltage transmission wires (See Annex A) and their
sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not a novelty. Several courts of last resort in
the United States have called these steel supports "steel towers", and they denominated these supports or towers, as electric poles. In their
decisions the words "towers" and "poles" were used interchangeably, and it is well understood in that jurisdiction that a transmission tower or
pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law provided that wires shall be constructed upon
suitable poles, this term was construed to mean either wood or metal poles and in view of the land being subject to overflow, and the necessary
carrying of numerous wires and the distance between poles, the statute was interpreted to include towers or poles. (Stemmons and Dallas Light
Co. (Tex) 212 S.W. 222, 224; 32-A Words and Phrases, p. 365.)
The term "poles" was also used to denominate the steel supports or towers used by an association used to convey its electric power furnished to
subscribers and members, constructed for the purpose of fastening high voltage and dangerous electric wires alongside public highways. The
steel supports or towers were made of iron or other metals consisting of two pieces running from the ground up some thirty feet high, being
wider at the bottom than at the top, the said two metal pieces being connected with criss-cross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage electricity. In form and structure, they are like the steel towers in question. (Salt River
Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged in the generation of hydro-electric power generated from
its plant to the Tower of Oxford and City of Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of which extends above the surface of the soil
in the tower of Oxford, and to the towers are attached insulators, arms, and other equipment capable of carrying wires for the transmission of
electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his death was built for the purpose of supporting a
transmission wire used for carrying high-tension electric power, but claimed that the steel towers on which it is carried were so large that their
wire took their structure out of the definition of a pole line. It was held that in defining the word pole, one should not be governed by the wire
or material of the support used, but was considering the danger from any elevated wire carrying electric current, and that regardless of the size
or material wire of its individual members, any continuous series of structures intended and used solely or primarily for the purpose of
supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the petitioner's franchise, should not be given a
restrictive and narrow interpretation, as to defeat the very object for which the franchise was granted. The poles as contemplated thereon,
should be understood and taken as a part of the electric power system of the respondent Meralco, for the conveyance of electric current from
the source thereof to its consumers. If the respondent would be required to employ "wooden poles", or "rounded poles" as it used to do fifty
years back, then one should admit that the Philippines is one century behind the age of space. It should also be conceded by now that steel
towers, like the ones in question, for obvious reasons, can better effectuate the purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are not embraced within the term poles, the logical question
posited is whether they constitute real properties, so that they can be subject to a real property tax. The tax law does not provide for a definition
of real property; but Article 415 of the Civil Code does, by stating the following are immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
x x x x x x x x x
(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;
x x x x x x x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be
carried in a building or on a piece of land, and which tends directly to meet the needs of the said industry or works;
x x x x x x x x x
The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because they do not constitute buildings or
constructions adhered to the soil. They are not construction analogous to buildings nor adhering to the soil. As per description, given by the
lower court, they are removable and merely attached to a square metal frame by means of bolts, which when unscrewed could easily be
dismantled and moved from place to place. They can not be included under paragraph 3, as they are not attached to an immovable in a fixed
manner, and they can be separated without breaking the material or causing deterioration upon the object to which they are attached. Each of
these steel towers or supports consists of steel bars or metal strips, joined together by means of bolts, which can be disassembled by unscrewing
the bolts and reassembled by screwing the same. These steel towers or supports do not also fall under paragraph 5, for they are not
machineries, receptacles, instruments or implements, and even if they were, they are not intended for industry or works on the land. Petitioner
is not engaged in an industry or works in the land in which the steel supports or towers are constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the sum of P11,651.86, despite the fact that
Quezon City is not a party to the case. It is argued that as the City Treasurer is not the real party in interest, but Quezon City, which was not a
party to the suit, notwithstanding its capacity to sue and be sued, he should not be ordered to effect the refund. This question has not been
raised in the court below, and, therefore, it cannot be properly raised for the first time on appeal. The herein petitioner is indulging in legal
technicalities and niceties which do not help him any; for factually, it was he (City Treasurer) whom had insisted that respondent herein pay the
real estate taxes, which respondent paid under protest. Having acted in his official capacity as City Treasurer of Quezon City, he would surely
know what to do, under the circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Regala, JJ., concur.
Makalintal, J., concurs in the result.
Dizon, J., took no part.










Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.

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














































Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19527 March 30, 1963
RICARDO PRESBITERO, in his capacity as Executor of the Testate Estate of EPERIDION PRESBITERO,petitioner,
vs.
THE HON. JOSE F. FERNANDEZ, HELEN CARAM NAVA, and the PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, respondents.
San Juan, Africa and Benedicto and Hilado and Hilado for petitioner.
Paredes, Poblador, Cruz and Nazareno and Manuel Soriano for respondents.
REYES, J.B.L., J.:
Petition for a writ of certiorari against the Court of First Instance of Negros Occidental.
It appears that during the lifetime of Esperidion Presbitero, judgment was rendered against him by the Court of Appeals on October 14, 1959, in
CA-G.R. No. 20879,
... to execute in favor of the plaintiff, within 30 days from the time this judgment becomes final, a deed of reconveyance of Lot No. 788
of the cadastral survey of Valladolid, free from all liens and encumbrances, and another deed of reconveyance of a 7-hectare portion of
Lot No. 608 of the same cadastral survey, also free from all liens and encumbrances, or, upon failure to do so, to pay to the plaintiff the
value of each of the said properties, as may be determined by the Court a quo upon evidence to be presented by the parties before it.
The defendant is further adjudged to pay to the plaintiff the value of the products received by him from the 5-hectare portion equivalent
to 20 cavans of palay per hectare every year, or 125 cavans yearly, at the rate of P10.00 per cavan, from 1951 until possession of the said
5-hectare portion is finally delivered to the plaintiff with legal interest thereon from the time the complaint was filed; and to pay to the
plaintiff the sum of P1,000.00 by way of attorney's fees, plus costs.
This judgment, which became final, was a modification of a decision of the Court of First Instance of Negros Occidental, in its Civil Case No. 3492,
entitled "Helen Caram Nava, plaintiff, versus Esperidion Presbitero, defendant."
Thereafter, plaintiff's counsel, in a letter dated December 8, 1959, sought in vain to amicably settle the case through petitioner's son, Ricardo
Presbitero. When no response was forthcoming, said counsel asked for, and the court a quo ordered on June 9, 1960, the issuance of a partial
writ of execution for the sum of P12,250.00. On the following day, June 10, 1960, said counsel, in another friendly letter, reiterated his previous
suggestion for an amicable settlement, but the same produced no fruitful result. Thereupon, on June 21, 1960, the sheriff levied upon and
garnished the sugar quotas allotted to plantation audit Nos. 26-237, 26-238, 26-239, 26-240 and 26-241 adhered to the Ma-ao Mill District and
"registered in the name of Esperidion Presbitero as the original plantation-owner", furnishing copies of the writ of execution and the notice of
garnishment to the manager of the Ma-ao Sugar Central Company, Bago, Negros Occidental, and the Sugar Quota Administration at Bacolod
City, but without presenting for registration copies thereof to the Register of Deeds.
Plaintiff Helen Caram Nava (herein respondent) then moved the court, on June 22, 1960, to hear evidence on the market value of the lots; and
after some hearings, occasionally protracted by postponements, the trial court, on manifestation of defendant's willingness to cede the
properties in litigation, suspended the proceedings and ordered him to segregate the portion of Lot 608 pertaining to the plaintiff from the mass
of properties belonging to the defendant within a period to expire on August 24, 1960, and to effect the final conveyance of the said portion of
Lot 608 and the whole of Lot 788 free from any lien and encumbrance whatsoever. Because of Presbitero's failure to comply with this order
within the time set forth by the court, the plaintiff again moved on August 25, 1960 to declare the market value of the lots in question to be
P2,500.00 per hectare, based on uncontradicted evidence previously adduced. But the court, acting on a prayer of defendant Presbitero, in an
order dated August 27, 1960, granted him twenty (20) days to finalize the survey of Lot 608, and ordered him to execute a reconveyance of Lot
788 not later than August 31, 1960. Defendant again defaulted; and so plaintiff, on September 21, 1960, moved the court for payment by the
defendant of the sum of P35,000.00 for the 14 hectares of land at P2,500.00 to the hectare, and the court, in its order dated September 24,
1960, gave the defendant until October 15, 1960 either to pay the value of the 14 hectares at the rate given or to deliver the clean titles of the
lots. On October 15, 1960, the defendant finally delivered Certificate of Title No. T-28046 covering Lot 788, but not the title covering Lot 608
because of an existing encumbrance in favor of the Philippine National Bank. In view thereof, Helen Caram Nava moved for, and secured on
October 19, 1960, a writ of execution for P17,500.00, and on the day following wrote the sheriff to proceed with the auction sale of the sugar
quotas previously scheduled for November 5, 1960. The sheriff issued the notice of auction sale on October 20, 1960.
On October 22, 1960, death overtook the defendant Esperidion Presbitero.
Proceedings for the settlement of his estate were commenced in Special Proceedings No. 2936 of the Court of First Instance of Negros
Occidental; and on November 4, 1960, the special administrator, Ricardo Presbitero, filed an urgent motion, in Case No. 3492, to set aside the
writs of execution, and to order the sheriff to desist from holding the auction sale on the grounds that the levy on the sugar quotas was invalid
because the notice thereof was not registered with the Register of Deeds, as for real property, and that the writs, being for sums of money, are
unenforceable since Esperidion Presbitero died on October 22, 1960, and, therefore, could only be enforced as a money claim against his estate.
This urgent motion was heard on November 5, 1960, but the auction sale proceeded on the same date, ending in the plaintiff's putting up the
highest bid for P34,970.11; thus, the sheriff sold 21,640 piculs of sugar quota to her.
On November 10, 1960, plaintiff Nava filed her opposition to Presbitero's urgent motion of November 4, 1960; the latter filed on May 4, 1961 a
supplement to his urgent motion; and on May 8 and 23, 1961, the court continued hearings on the motion, and ultimately denied it on
November 18, 1961.
On January 11, 1962, plaintiff Nava also filed an urgent motion to order the Ma-ao Sugar Central to register the sugar quotas in her name and to
deliver the rentals of these quotas corresponding to the crop year 1960-61 and succeeding years to her. The court granted this motion in its
order dated February 3, 1962. A motion for reconsideration by Presbitero was denied in a subsequent order under date of March 5, 1962.
Wherefore, Presbitero instituted the present proceedings for certiorari.
A preliminary restraining writ was thereafter issued by the court against the respondents from implementing the aforesaid orders of the
respondent Judge, dated February 3, 1960 and March 5, 1962, respectively. The petition further seeks the setting aside of the sheriff's certificate
of sale of the sugar quotas made out in favor of Helen Caram Nava, and that she be directed to file the judgment credit in her favor in Civil Case
No. 3492 as a money claim in the proceedings to settle the Estate of Esperidion Presbitero.
The petitioner denies having been personally served with notice of the garnishment of the sugar quotas, but this disclaimer cannot be seriously
considered since it appears that he was sent a copy of the notice through the chief of police of Valladolid on June 21, 1960, as certified to by the
sheriff, and that he had actual knowledge of the garnishment, as shown by his motion of November 4, 1960 to set aside the writs of execution
and to order the sheriff to desist from holding the auction sale.
Squarely at issue in this case is whether sugar quotas are real (immovable) or personal properties. If they be realty, then the levy upon them by
the sheriff is null and void for lack of compliance with the procedure prescribed in Section 14, Rule 39, in relation with Section 7, Rule 59, of the
Rules of Court requiring "the filing with the register of deeds a copy of the orders together with a description of the property . . . ."
In contending that sugar quotas are personal property, the respondent, Helen Caram Nava, invoked the test formulated by Manresa (3 Manresa,
6th Ed. 43), and opined that sugar quotas can be carried from place to place without injury to the land to which they are attached, and are not
one of those included in Article 415 of the Civil Code; and not being thus included, they fall under the category of personal properties:
ART. 416. The following are deemed to be personal property:
x x x x x x x x x
4. In general, all things which can be transported from place to place without impairment of the real property to which they are fixed.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court,
without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t
Respondent likewise points to evidence she submitted that sugar quotas are, in fact, transferred apart from the plantations to which they are
attached, without impairing, destroying, or diminishing the potentiality of either quota or plantation. She was sustained by the lower court when
it stated that "it is a matter of public knowledge and it is universal practice in this province, whose principal industry is sugar, to transfer by sale,
lease, or otherwise, sugar quota allocations from one plantation to any other" and that it is "specious to insist that quotas are improvements
attaching to one plantation when in truth and in fact they are no longer attached thereto for having been sold or leased away to be used in
another plantation". Respondent would add weight to her argument by invoking the role that sugar quotas play in our modern social and
economic life, and cites that the Sugar Office does not require any registration with the Register of Deeds for the validity of the sale of these
quotas; and, in fact, those here in question were not noted down in the certificate of title of the land to which they pertain; and that Ricardo
Presbitero had leased sugar quotas independently of the land. The respondent cites further that the U.S.-Philippine Trade Relations Act,
approved by the United States Congress in 1946, limiting the production of unrefined sugar in the Philippines did not allocate the quotas for said
unrefined sugar among lands planted to sugarcane but among "the sugar producing mills and plantation OWNERS", and for this reason Section 3
of Executive Order No. 873, issued by Governor General Murphy, authorizes the lifting of sugar allotments from one land to another by means
only of notarized deeds.
While respondent's arguments are thought-provoking, they cannot stand against the positive mandate of the pertinent statute. The Sugar
Limitation Law (Act 4166, as amended) provides
SEC. 9. The allotment corresponding to each piece of land under the provisions of this Act shall be deemed to be an improvement
attaching to the land entitled thereto ....
and Republic Act No. 1825 similarly provides
SEC. 4. The production allowance or quotas corresponding to each piece of land under the provisions of this Act shall be deemed to be an
improvement attaching to the land entitled thereto ....
And Executive Order No. 873 defines "plantation" as follows:
(a) The term 'plantation' means any specific area of land under sole or undivided ownership to which is attached an allotment of
centrifugal sugar.
Thus, under express provisions of law, the sugar quota allocations are accessories to land, and can not have independent existence away from a
plantation, although the latter may vary. Indeed, this Court held in the case ofAbelarde vs. Lopez, 74 Phil. 344, that even if a contract of sale
of haciendas omitted "the right, title, interest, participation, action (and) rent" which the grantors had or might have in relation to the parcels of
land sold, the sale would include the quotas, it being provided in Section 9, Act 4166, that the allotment is deemed an improvement attached to
the land, and that at the time the contract of sale was signed the land devoted to sugar were practically of no use without the sugar allotment.
As an improvement attached to land, by express provision of law, though not physically so united, the sugar quotas are inseparable therefrom,
just like servitudes and other real rights over an immovable. Article 415 of the Civil Code, in enumerating what are immovable properties, names

10. Contracts for public works, and servitudes and other real rights over immovable property. (Emphasis supplied)
It is by law, therefore, that these properties are immovable or real, Article 416 of the Civil Code being made to apply only when the thing (res)
sought to be classified is not included in Article 415.
The fact that the Philippine Trade Act of 1946 (U.S. Public Law 371-79th Congress) allows transfers of sugar quotas does not militate against their
immovability. Neither does the fact that the Sugar Quota Office does not require registration of sales of quotas with the Register of Deeds for
their validity, nor the fact that allocation of unrefined sugar quotas is not made among lands planted to sugarcane but among "the sugar
producing mills and plantation OWNERS", since the lease or sale of quotas are voluntary transactions, the regime of which, is not necessarily
identical to involuntary transfers or levies; and there cannot be a sugar plantation owner without land to which the quota is attached; and there
can exist no quota without there being first a corresponding plantation.
Since the levy is invalid for non-compliance with law, it is impertinent to discuss the survival or non-survival of claims after the death of the
judgment debtor, gauged from the moment of actual levy. Suffice it to state that, as the case presently stands, the writs of execution are not in
question, but the levy on the quotas, and, because of its invalidity, the levy amount to no levy at all. Neither is it necessary, or desirable, to pass
upon the conscionableness or unconscionableness of the amount produced in the auction sale as compared with the actual value of the quotas
inasmuch as the sale must necessarily be also illegal.
As to the remedial issue that the respondents have presented: that certiorari does not lie in this case because the petitioner had a remedy in the
lower court to "suspend" the auction sale, but did not avail thereof, it may be stated that the latter's urgent motion of November 4, 1960, a day
before the scheduled sale (though unresolved by the court on time), did ask for desistance from holding the sale.
WHEREFORE, the preliminary injunction heretofore granted is hereby made permanent, and the sheriff's certificate of sale of the sugar quotas in
question declared null and void. Costs against respondent Nava.
Bengzon, C.J., Padilla, Labrador, Barrera, Paredes, Dizon and Regala, JJ., concur.
Makalintal, J., took no part.